L Brands, Inc. (LB) has come a long way from an apparel-based specialty retailer to a segment leader now, focused on women’s intimate and other apparel, personal care, home fragrance and beauty categories. The company operates through three segments — Victoria’s Secret, Bath & Body Works, and Victoria’s Secret and Bath & Body Works International. LB sells its merchandise through company-owned specialty retail stores, through its websites, and through franchises, licenses, and wholesale partners.
The past year was challenging for LB but analysts are feeling good about the stock now because the company reported strong holiday sales at the end of 2020. LB’s comparable sales increased 5% year-over-year for the nine weeks ended January 2. Comparable sales in the bath and body works segment increased 17% year-over-year, driven by 64% sales growth in the direct channel. While comparable sales in the Victoria’s secret segment decreased, the merchandise margin rate for the quarter-to-date period increased significantly.
The stock has gained 355.7% since hitting its 52-week low in mid-March and closed yesterday’s trading session at $46.16.
Amid challenging times, during which it had fewer in-store promotions, the company has been able to improve its profitability. This impressive performance and potential upside based on several factors have helped the stock earn a “Strong Buy” rating in our proprietary rating system.
Here is how our proprietary POWR Ratings system evaluates LB:
Trade Grade: A
LB is currently trading significantly above its 50-day and 200-day moving averages of $40.15 and $31.07, respectively, indicating an uptrend. Moreover, LB has gained 44.5% over the past three months, reflecting solid short-term bullishness.
For the third quarter ended October 31, 2020, LB’s net sales increased more than 14% year-over-year to $3.06 billion. Comparable sales increased 28% year-over-year. The total Bath and Body Works segments accounted for 55.7% of sales and increased 54.9% year-over-year to $1.7 billion. The company reported net income of $330.58 million, yielding EPS of $1.13. This compares to net losses reported in the third quarter of 2019.
On December 21, 2020, LB announced several key leadership appointments at Bath & Body Works, including the appointment of Julie Rosen as President. LB had also announced several key leadership appointments at Victoria’s Secret too on in November. The company named Martin Waters as the CEO of Victoria’s Secret Lingerie. LB announced a partnership of its company-owned Victoria’s Secret business in the United Kingdom and Ireland with Next PLC with its in September.
Buy & Hold Grade: A
In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade considers, LB is well positioned. The stock is currently trading 4.4% below its 52-week high of $48.30, which it hit on January 12.
Peer Grade: A
LB is currently ranked #6 of 70 stocks in the Fashion & Luxury industry. Other popular stocks in the fashion & luxury group are Estee Lauder Companies, Inc. (EL), Gap, Inc. (GPS), and Tiffany & Co. (TIF).
With a 128.6% gain, LB has comfortably beaten the returns of these popular industry participants over the past year. While EL and GPS have gained 20.2% and 23.6%, respectively, over the same period, TIF has lost 1.8%.
Industry Rank: B
The Fashion & Luxury industry is ranked #55 of 123 StockNews.com industries. The COVID-19 pandemic led to the closure of several physical stores as people avoided going out for fear of catching the virus.
However, some industry participants have been able to stay afloat with cost containment measures and a focus on online platforms. Those companies in this industry are expected to witness greater demand with an economic recovery this year.
Overall POWR Rating: A (Strong Buy)
LB is rated “Strong Buy” due to its short- and long-term bullishness, solid growth prospects, and underlying industry strength, as determined by the four components of our overall POWR Rating.
LB has carved out a market niche for itself and has the potential to advance in the coming months based on its continued business growth, favorable earnings and revenue outlook, and strong financials.
The consensus revenue estimate of $2.13 billion for the quarter ending April 30, 2021 represents 22.3% growth from the same period last year. LB’s earnings surprise history looks impressive, with the company missing the consensus estimate in just one of the trailing four quarters. Its EPS is expected to grow 30.6% this year.
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LB shares were trading at $46.84 per share on Thursday afternoon, up $0.68 (+1.47%). Year-to-date, LB has gained 25.95%, versus a 1.73% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...
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