L Brands (LB) Tops Q4 Earnings, Provides FY16 EPS View

L Brands, Inc. LB came up with the second straight quarter of positive earnings surprise, as it reported fourth-quarter fiscal 2015 results. The company posted quarterly earnings of $2.15 per share that beat the Zacks Consensus Estimate of $2.05 and increased 14% from $1.89 earned in the year-ago quarter. Results were backed by higher sales and improved margins. However, the Columbus, OH-based company provided its fiscal 2016 earnings per share guidance below the consensus estimate.

This specialty retailer of women’s intimate and other apparel reported net sales of $4,395 million, up 8% from $4,068.7 million in the prior-year quarter. The figure also came in ahead of the Zacks Consensus Estimate of $4,394 million. L Brands recorded comparable-store sales (comps) growth of 6% during the reported quarter. We believe that the company’s operational efficiencies, together with its new and innovative collections, boosted sales.

Sales at Victoria’s Secret Stores increased 7% to $2,047.2 million, while Victoria's Secret Direct sales grew 15% to $567.1 million. Total Victoria’s Secret sales climbed 9% to $2,614.3 million, while comps increased 5%. Bath & Body Works’ total sales jumped 8% to $1,519.6 million, with a 6% rise in comps. Victoria’s Secret and Bath & Body Works International’s sales advanced 6% to $112.3 million. Other revenues decreased 3% to $148.8 million.

Gross profit climbed 9% to $2,002.4 million, whereas gross margin expanded 50 basis points to 45.6%. Operating income increased 13% to $1,078 million, while the operating margin improved 100 basis points to 24.5%.

Store Update

During fiscal 2015, L Brands opened 34 Victoria’s Secret stores in total and closed 9 outlets, thereby taking the count to 1,164 stores. During the period, 33 Bath & Body Works stores were opened, while 7 were closed, taking the count to 1,672 stores. Also, 20 La Senza Canadian stores were closed and 1 outlet was opened during the period, resulting in a total of 126 stores. There were 12 Victoria’s Secret U.K. stores, 29 Henri Bendel outlets and 2 Pink U.K. stores at the end of the fiscal year. As of Jan 30, 2016, L Brands operated 3,005 stores.

Total franchised stores as of Jan 30, 2016, were 738, comprising 373 Victoria's Secret Beauty & Accessories, 16 Victoria’s Secret, 3 Pink, 125 Bath & Body Works, and 221 La Senza stores.

Guidance

Management now envisions earnings in the band of 50–55 cents a share for the first quarter and between $3.90 and $4.10 for fiscal 2016. The earnings guidance for the fiscal year includes an adverse foreign exchange impact and incremental interest expense on account of the $1 billion Oct 2015 note issuance.

Analysts polled by Zacks anticipate earnings per share of 64 cents and $4.17 for the first quarter and fiscal 2016, respectively. The Zacks Consensus Estimate could witness a downward revision in the coming days, as analysts might adjust their estimates in line with management’s projection.

L Brands now envisions mid-single digit growth in February comps, up from its earlier projection of a low-single digit increase and reflecting a mid-single digit rise at both Victoria’s Secret and Bath & Body Works.

Zacks Rank

Currently, L Brands carries a Zacks Rank #3 (Hold). Better-ranked stocks in the retail sector include DSW Inc. DSW, Foot Locker, Inc. FL and Express Inc. EXPR, all carrying a Zacks Rank #2 (Buy).

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