Victoria's Secret Changes Are 'Right Moves' For L Brands Investors

Shares of L Brands Inc LB have seen a significant pullback in recent weeks, driven by concerns related to the strategic changes being made at Victoria’s Secret.

Stifel’s Richard E. Jaffe has upgraded the rating on the company from Hold to Buy, with a price target of $90.

Right Moves

“While we acknowledge near-term sales pressure, we believe these changes put in place by CEO Les Wexner, following the departure of VS CEO Sharen Turney in February, are the right moves,” Jaffe mentioned.

The analyst believes that these changes would help accelerate growth at Victoria’s Secret, while strengthening the brand for the long term, driven by focus and maximizing of merchandising efforts, as well as the modernizing and simplification of the operating model.

Near Term Sales Impact

In the near term, however, Jaffe expects sales to be constrained by the company exiting some categories, including apparel online and swimwear, reduction of promotions at Victoria’s Secret and the elimination of the brand’s catalogs.

“These factors could negatively impact VS sales by approximately 500 bps in 2017. However, we believe expense savings will largely offset the sales impact, resulting in a net neutral impact to 2017 EPS,” Jaffe explained.

Solid Business

On the other hand, the analyst believes that the business is robust, as is L Brands’ long term outlook, with the recent sell-off in the stock being overdone.

Jaffe expressed optimism regarding the stock performance over the next 12 months, “as visibility for margin improvement and a return to sales growth, following the impact of the aforementioned changes, becomes more evident.”