L Brands Shines In Tough Retail Space

Analysts are optimistic on L Brands' LB future following solid first quarter results in a tough retail space. Long-term opportunities reign in the bulls.

Summary of First Quarter Results

EPS came in at $0.53, a 10 percent increase from 1Q13 results of $0.48.

• The company reported $336.1 million in operating income compares with $311.2 million from last year.
• Net income was $157 million for the first quarter.
• Management reported net sales of $2.391 billion, an increase of five percent from the same period last year.
• Comparable store sales increased two percent.

Outlook

Management expects Q2 EPS to be within $0.57 and $0.62, compared with 2Q13 EPS of $0.61.

• For the Full Year 2014, L Brands expects EPS of $3.00 to $3.15. Management narrowed guidance from $3.00 to $3.20, to better reflect the exit of non-core categories in the Victoria's Secret direct and beauty business.

Analysts Comment on Results

UBS analyst Roxanne Meyer called L Brand's solid quarter and optimistic guidance “a bright spot in a tough retail environment.” In exiting non-core businesses in Victoria's Secret Direct and Beauty, the analyst expects the markdowns to exit to drive second quarter margin decline. Meyer sees the impact from sales and EPS sales to come in 2H, mainly the fourth quarter.

The analyst wrote, “We view LB as a strong long-term growth story driven by: 1) product innovation, 2) benefits from sourcing and speed-to-market initiatives, 3) 25% domestic sq ft growth, 4) continued expense control, 5) renewed focus on inventory management, and 6) international expansion.”

Ike Boruchow from Sterne Agee commented, “LB's solid Q1 print demonstrated sequential improvement in sales, margin, and inventory trends, which bodes well for the balance of the year.”

Boruchow sees the exit of non-core business impacting earnings per share by $0.10 to $0.12 this year. The analyst remarked that this exit frees up “attractive” opportunities in pursuing international e-commerce.

Sterne added that L Brands is in a dominant market position in core categories and improving fundamentals.

Stock Action

Share of L Brands closed at $56.69 on Thursday. The stock jumped 1.59 percent to $57.59 following Friday's opening bell before seeing investors sell-off, dropping shares to $56.64.

Shares have gained momentum following the drop and are currently trading at $57.23.