Oppenheimer On L Brands: 'Transition Presents Opportunity,' Upgraded To Outperform

L Brands Inc LB is generating better-than-expected top-line results, with “earnings having cushions,” Oppenheimer’s Anna Andreeva said in a report. She upgraded the rating on the company from Perform to Outperform, while raising the price target from $75 to $90.

Transition In Progress

L Brands is going through a year of transition, with the exit of swim & lounge as well as promotional changes at VS. Top line is “coming in better than plan,” while SG&A and buyback are providing cushions for earnings, analyst Andreeva mentioned.

PINK generated ~$3 billion in sales, representing 40 percent of the VS category. With this, PINK achieved double-digit momentum, while core lingerie is stabilizing at positive low-single-digits and beauty is improving sequentially, following years of contraction.

Related Link: L Brands Beats Estimates: Victoria's Secret Management Changes Paying Off

BBW has comped mid-single-digits over the past eight quarters. “With 250 remodels into White Barn by year-end and 25-30% lift in productivity still seen post-remodel, BBW comps should benefit by 2-3% from remodel activity alone,” Andreeva wrote.

The elimination of couponing and category exit represent stronger headwinds in the back half of 2016 and in the first half of 2017, the analyst pointed out. She added, however, that so far L Brands had had offset the negative impact with earnings “finding higher base in '16 and growth set to resume next year.”

The company’s shares are down 20 percent year-to-date, as compared to a 9 percent gain by the group. This presents an opportunity to “own a staple name in retail,” Andreeva commented.

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