What Are The Key Takeaways From L Brands Q1 FY2016 Earnings Results?

On May 18th, L Brands released its Q1 FY2016 (ending April 30, 2016) earnings results. L Brands had already announced the sales from its different segments for the first quarter, on May 5th during the release of its April 2016 monthly earnings results (given here). In this article we look deeper into the Q1 FY16 earnings performance and the reasons behind the same.

• The adjusted operating income was dragged down by the poor performance of Victoria’s Secret’s lingerie and beauty divisions as well as dampened international sales.
• In line with the previous quarters, Bath & Body Works and PINK brands demonstrated strong performances.
• The gross margin rate declined by 170 basis points to ~40% due to the decrease of merchandise margin rate caused by VS’s poor performance and currency headwinds.
• Adjusted EPS declined by 3% to 59 cents.
• The full year earnings guidance has been reduced to $3.60 to $3.80 as against the earlier guidance of $3.90 to $4.10. The revised guidance was mainly due to the strategic changes the company is undertaking for Victoria’s Secret.
• The Victoria’s Secret business will henceforth be segregated into 3 separate categories, Victoria’s Secret Lingerie, PINK, and Victoria’s Secret Beauty. Each of these divisions will be managed by separate executives who will report to the CEO.
• In an effort to focus on its core business, L Brands has once again decided to streamline some of its businesses, just like it did in 2014.  Victoria’s Secret core business will henceforth exclude shoes, swimwear, accessories and apparels. These items were so far offered through the digital channels (and not in stores) and had annualized sales of ~$525 million in 2015.
• The company will sell off the remaining inventory in the aforementioned categories by the end of 2016. Consequently, the merchandise margin rates are expected to remain dampened during the period of the sell-offs.

Have more questions on L Brands? See the links below.

• What Is L Brands’ Revenue And EBITDA Breakdown?
• How Has L Brands’ Revenue And EBITDA Composition Changed Over 2012-2016E?
• L Brands Q4 2015 Pre-Earnings Report
• L Brands 2015 Year In Review
• How Was L Brand’s Monthly Performance In February 2016?
• How Was L Brand’s Monthly Performance In March 2016?
• What Is L Brands’ Fundamental Value Based On 2016 Estimated Numbers?
• How Did L Brands’ Different Segments Perform Over The Last 5 Years?

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