Easter Shift Hurts L Brands’ April Results, But It Raises Q1 Guidance
The parent company of Victoria’s Secret and Bath & Body Works, L Brands (NYSE:LB), recently reported its April sales results and as expected, its growth was severely hurt by shift in the timing of Easter. The company said that its net sales increased 1% to $725 million from $718 million in the year ago period, which included the Easter holiday. The retailer’s comparable sales were down 1% due to a 5 percentage point negative impact of Easter shift. Easter Saturday this year fell on April 4th, which was the last day for the month of March in L Brands’ retail calender. In contrast, Easter fell on April 20th last year, and additional sales around the holiday were accounted in the company’s April 2014 results, while they were accounted in March results this year.
L Brands March comparable sales had increased by 9% supported by 3-4 percentage points positive impact of early Easter. Ignoring the impact of Easter shift on comparable sales results, they increased 5% in March and 4% in April, which is in-line with L Brands’ growth standards. Although the shift in Easter timing moved a bulk of L Brands’ growth from April to March, overall Q1 fiscal 2015 growth remained unaffected. In fact, the company has raised its Q1 guidance after reporting its April sales results. For the three month period ended April, the company’s net sales increased 5% to $2.5 billion, driven by 5% growth in comparable sales. L Brands now expects to report first quarter earnings per share of $0.58-$0.60, up from its previous guidance of $0.50-$0.55. [1]
Our price estimate for L Brands is at $77, implying a discount of about 15% to the market price.
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Victoria’s Secret’s comparable sales were flat as compared to the same period last year. In line with its merchandise strategy, the brand started the month with focus on one particular theme (Fabulous collection) and shifted to another (Dreams Angels collection) mid-way through the month. In May, Victoria’s Secret is planning to focus on “Bombshell collection” and “PINK Racerback Bralette” and after half-way, it will begin focusing on “Multi-Way collection”. For the brand’s direct channel, discontinuation of apparel continued to weigh on growth as sales fell 10% during the month. However, growth in core categories was very strong and the channel should be back on track once the impact of exit from apparel nullifies. For Bath & Body Works, comparable sales were down 2% as timing of Easter shift more than offset strong sales growth of key categories – Signature Collection, Soap & Sanitizer and Home Fragrance. The brand wants to transition to its “Meet Me In Tahiti” theme in May and introduce seasonal fragrances in its aforementioned core categories.
On the profitability side, April was a quite month as merchandise margins remained flat as compared to the year ago period. However, margins for Victoria’s Secret direct were up significantly, which implies that it is ushering a high proportion of full priced sales of “go forward category” and operating with fewer markdowns. L Brands is managing its inventory well as inventory per square foot at the end of the month was down 7% as compared to last year and the company did not report any issues of inventory shortage.
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Notes:- L Brands Reports April 2015 Sales And Increases First Quarter Earnings Guidance, L Brands, May 7 2015 [↩]