L Brands: 4 Reasons For Concern

L Brands Inc LB shares hit a new 52-week low, dropping more than 10 percent Thursday after cutting its FY17 EPS outlook, despite delivering a second-quarter earnings beat.

The specialty retailer also expects to third quarter earnings to come in below consensus estimates, 25–30 cents against a 36-cent estimate.

Wells Fargo analyst Ike Boruchow laid out four reasons for concern surrounding L Brands:

1. Q3 guidance fell below Street due to a weaker comp outlook.
2. Fiscal-year guidance was cut.
3. International businesses remain challenged; sales down ex-China with profit down 78 percent.
4. Victoria’s Secret strategies have simply not worked to this point, while its revised plan continues to assume nice improvement in fundamentals within the concept.

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Victoria's Secret continues to have significant challenges after posting a negative-14-percent comp in the second quarter. The weakness is “a result of persistently challenged store traffic and weakness in the core lingerie business,” said Boruchow.

Bath and Body Works remains a bright spot for the company, which saw a 6-percent comp increase.

“Though BBW appears to be solidly on track, we would wait for VS to prove that they can navigate their several internal and external headwinds,” he said.

Wells Fargo lowered its FY 2017 and 2018 estimates and price target from $50 to $45. The firm maintains a Market Perform rating.

At last check, shares of L Brands were down 10.27 percent at $35.49. _________ Image Credit: Used with permission.