L Brands Beats on Earnings - Analyst Blog

L Brands, Inc. LB formerly known as Limited Brands, posted first-quarter fiscal 2014 earnings of 53 cents a share that came a couple of cents ahead of the Zacks Consensus Estimate, and rose 10% from the prior-year quarter earnings of 48 cents.

This specialty retailer of women's intimate and other apparel, beauty and personal care products posted net sales of $2,391.2 million, up 5% from $2,268 million reported in the prior-year quarter, and also beat the Zacks Consensus Estimate of $2,384 million. L Brands posted comparable-store sales growth of 2% during the quarter compared with 3% in the prior-year quarter.

Sales at Victoria's Secret Stores increased 5.1% to $1,245.3 million, whereas Victoria's Secret Direct sales fell 0.2% to $358.3 million. Total Victoria's Secret sales grew 3.9% to $1,603.6 million, while comps increased 2%. Bath & Body Works' total sales jumped 3.7% to $581.6 million, with a 2% rise in comps. Victoria's Secret and Bath & Body Works International surged 75.7% to $71 million. Other revenue increased 9.7% to $135 million.

Gross profit for the quarter climbed 4% to $982.1 million, whereas gross margin contracted 40 basis points to 41.1%. Operating income increased 8% to $336.1 million, whereas operating margin expanded 40 basis points to 14.1%.

Store Update

During the quarter, the company opened 8 Victoria's Secret Stores and closed 2 outlets, thereby taking the count to 1,100 stores at the end of the quarter. Four Bath & Body Works stores were opened, while 8 stores were closed bringing the count to 1,634 stores. Two Victoria's Secret U.K. stores were opened, while 4 La Senza Canadian stores were closed, resulting in 7 and 153 stores, respectively, at the end of the quarter. There were 29 Henri Bendel outlets at quarter end. As of May 3, 2014, L Brands operated 2,923 stores.

Strolling through Guidance

Management now forecasts earnings in the range of 57 cents to 62 cents a share for the second quarter and between $3.00 and $3.15 per share for fiscal 2014, narrowing the range from $3.00 to $3.20 forecasted earlier.

The current projection includes the unfavorable impact of about 10 cents to 12 cents a share due to exit from non-core categories in the Victoria's Secret direct and beauty operations. Management now intends to concentrate more on profitable zones.

The current Zacks Consensus Estimate for the second quarter and fiscal 2014 are 61 cents and $3.21 per share, respectively, which could witness a revision in the coming days.

L Brands now anticipates low-single-digit comp increase for the month of May.

Zacks Rank

Currently, L Brands holds a Zacks Rank #3 (Hold). Some better-ranked stocks in the retail sector are American Apparel, Inc. APP, Foot Locker, Inc. FL and Pacific Sunwear of California Inc. PSUN, all sporting a Zacks Rank #2 (Buy).