L Brands Trades Up 30% On Victoria's Secret Update

L Brands Inc LB reported a strategic review and business update that prompted JPMorgan to double upgrade the stock.

The company announced it sees $400 million annualized cost reductions through a profit improvement plan for Victoria's Secret. The company also announced it has reopened most Bath & Body Works and Victoria's Secret stores in North America.

The L Brands Analyst: Matthew Boss upgraded L Brands from Neutral to Overweight with a price target lifted from $14 to $32.

The L Brands Thesis: L Brands said second-quarter total consolidated sales were down 20% while Victoria's Secret sales were down 40%, Boss wrote in the note. However, Bath & Body Works sales were up 10%, an impressive performance as around half of all stores was closed in the quarter.

Management said in late May that BBW same-store sales at re-opened brick and mortar stores were up 20% but that may have improved to 80% despite approximately 90% growth in the digital channel, the analyst wrote. A double-digit comp could be sustained moving forward versus the pre-COVID five-year average comp growth of 7.2%.

Meanwhile, reopened Victoria's Secret stores are operating at a low-90% store productivity rate (implies negative high-single-digit comps) and the online channel maintained a 30% growth rate in the second quarter.

L Brands also reiterated its plans to close 250 VS stores in 2020 and announced $400 million in annualized cost reductions. The math behind these figures implies an extra $1 in EPS and is accretive to the research firm's existing fiscal 2021 EPS base of $1.07.

Bottom line, L Brands is taking the necessary steps to establish BBW as a pure-play public company while focusing on improving profit at the standalone VS, the analyst wrote.

LB Price Action: Shares of L Brands hit a new 52-week high of $26.66 and were up more than 33% on the day.

Related Links:

Retail Pro Breaks Down Early Back-To-School Winners, Losers

Amazon Looks To Acquire A Near 10% Stake In Reliance Retail, After Facebook, Google Back Sister Company Jio

Image credit: Dwight Burdette, via Wikimedia Commons

Market News and Data brought to you by Benzinga APIs
Comments
Loading...
date
ticker
name
Price Target
Upside/Downside
Recommendation
Firm
Posted In: Analyst ColorUpgradesPrice TargetAnalyst RatingsBBWCoronavirusretailretailersVictorias Secret
Benzinga simplifies the market for smarter investing

Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.

Join Now: Free!