Goldman Downgrades L Brands, Removes From 'Conviction Buy' List

L Brands Inc LB has announced last week that its restructuring initiatives might impact Victoria’s Secret comp sales growth in the near term.

Goldman Sachs’ Lindsay Drucker Mann downgraded the rating on the company from Buy to Neutral, while lowering the price target from $115 to $91 and removing L Brands from Goldman Sachs’ Conviction Buy list.

Impact Of Restructuring

“There is no change to our constructive long-term view of the company, including the opportunity to compound NA profits at a high-single digit rate as well as drive significant value through its international expansion,” Mann explained.

However, the analyst also mentioned that if the restructuring efforts were to adversely impact comp sales growth for Victoria’s Secret (VS), the stock might “tread water until visibility to comp reacceleration improves.”

According to the Goldman Sachs report, “CEO Les Wexner’s track record of successful innovation and investment leaves us comfortable that these actions will create value long term.”

On the other hand, there could be a higher probability of comp deceleration, which could in turn drive multiple compression during the early stages of implementation.

Key Initiatives

Mann believes that L Brands might undertake key initiatives, such as streamlining its product offering, which could lead to a 200 bps comp headwind.

Other initiatives might include decreasing promotions in core categories. “LB announced it would combine its stores and direct business, and also eliminate the catalogue,” Mann added.