L Brands Q3 Earnings Preview

L Brands Inc LB reports Q3 earnings after the market close Wednesday.

Analyst estimates anticipated EPS of $0.39 on revenue of $2.31 billion.

Mizuho analyst Betty Chen anticipated EPS of $0.40 vs. $0.31 LY: “Despite the highly promotional retail environment, the company drove impressive comp acceleration in a difficult environment as controlled promotional cadence at core VSS and BBW allowed for merchandise margin gains. As such, we anticipate gross margin improvement of +90 bp to 40.4 percent and SG&A leverage of (90) to 28.7 percent for EBIT margin of 11.6 percent vs. 9.7 percent LY. Inventory was very clean at (12) percent per square foot exiting October.”

Wunderlich’s Danielle McCoy anticipated $0.39 and assumed “1) revenue growth of 6.2 percent yr./yr., up from our prior 3.2 percent forecast; 2) gross margin expansion of 110 basis points yr./yr., up 90 bps from prior expectations; and 3) reduced SG&A leverage by 20 bps yr./yr.”

Oppenheimer’s Anna Andreeva anticipated EPS of $0.40 noted that “LB is one of rare companies in retail with 3Q14 EPS growth accelerating--high end of the range implies 30 percent growth y/y. We are modeling $1.72/$3.28 for 4Q14/'14--expect 4Q14 guidance to be conservative ahead of important holiday quarter (we are $0.04 below the Street).

“At 20x our '15 EPS estimate, LB's valuation is at record highs in recent history (five-year average 15-16x); given solid and accelerating fundamentals while most of the mall struggles, we think "flight to safety" could continue; constructive on pullbacks.”

Analyst Ike Boruchow at Sterne Agee recently raised “Q3/FY14/FY15 EPS estimates to $0.38/$3.28/$3.78 (from $0.33/$3.22/$3.65).  With "all arrows pointing in the right direction" (sales, margins, and inventories all improving), we believe LB is well positioned for continued outperformance in a tough retail environment. With strong growth prospects both domestically and abroad, we would remain buyers of these high-quality shares.”

Heading into the earnings announcement L Brands traded higher at $77.75, up 1 percent.