L Brands shares surged 6% on Thursday as the company reported robust holiday comparable sales amid a challenging retail environment and provided a better-than-expected profit outlook for the fourth quarter.
Comparable sales in the holiday period (nine weeks ended Jan. 2, 2021) rose 5% year-over-year driven by the strength in L Brands’ (LB) Bath & Body Works business even as weakness in Victoria’s Secret banner continued to persist. Overall, net sales in the holiday period declined 1.8% to $3.84 billion year-on-year.
Comparable sales of Bath & Body Works, which includes soaps, sanitizers and other body care products, spiked 17% in the holiday period driven by a 5% rise in store comparable sales and a 64% jump in its direct channel sales. Meanwhile, comparable sales of Victoria’s Secret lingerie brand fell 9% as a 24% rise in direct channel comparable sales was not enough to offset the 23% slump in sales from physical stores.
The company stated that the merchandise margin of both Bath & Body Works and Victoria’s Secret expanded significantly in the quarter-to-date period. (See LB stock analysis on TipRanks)
Commenting on the holiday season performance, CEO Andrew Meslow stated “Bath & Body Works continues to deliver record results, demonstrating the strength of the brand. The turnaround at Victoria’s Secret also continues to gain momentum, driven by an improved merchandise assortment and focused execution of retail fundamentals and our profit improvement plan.”
Looking ahead, L Brands expects fiscal fourth-quarter EPS to be in the range of $2.70-$2.80, which is above analysts’ estimates of $1.96. The company is scheduled to announce its fourth quarter results on February 24.
Following the financial results, Guggenheim analyst Robert Drbul raised his revenue, gross margin and earnings estimates for the fiscal fourth quarter and full-year. However, the analyst reiterated a Hold rating on L Brands as he believes that the “challenges facing the company today are appropriately reflected in the shares, with store closures and challenging mall traffic creating an uncertain earnings trajectory, in our view; this is balanced by strong performance at BBW [Bath & Body Works] and some improvement at VS [Victoria’s Secret].”
The rest of the Street has a cautiously optimistic outlook on the stock. The Moderate Buy analyst consensus breaks down into 9 Buys, 6 Holds and 2 Sells. With shares rising a whopping 156% over the past year, the average price target of $43.71 indicates a downside potential of 5.3% in the 12 months ahead.
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