L Brand’s Growth Story Is Expected To Continue In The Third Quarter

November 17th, 2015 by Trefis Team
LB: LandBridge Co logo
LB
LandBridge Co

L Brands (NYSE:LB), the parent company of Victoria’s Secret and Bath & Body Works, is slated to release its Q3 2015 earnings results on November 18th. The earnings call would be held on November 19th. In line with the historical trend, the company has been displaying strong growth in both its divisions for the last few months.  L Brands strong presence in the intimate and personal care markets make it a formidable player in the industry. For the third quarter, the company’s sales witnessed a 7% year-on-year growth to $2.48 billion and its comparable store sales rose by 7% year-on -year. L Brands has raised its expected earnings per share estimate from a previous guidance of $0.40 to $0.45, to $0.51 to $0.53. The company’s EPS for Q3 2014 stood at $0.44. [1] The major growth drivers for L Brands has been the freshness of its intimates and personal care collections, along with the  aspirational value attached to the Victoria’s Secret products. The company has been topping analyst expectations for several quarters and its stock price has been steadily growing while most of its peers have lost value. Not only is the retailer a favorite brand in the U.S., its international appeal has also been unscathed despite macroeconomic problems and weak currencies.

We will update our $80 price estimate for L Brands after the third quarter earnings release.

 Victoria’s Secret Direct Is Steadily Growing

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In Q3 2015, Victoria’s Secret North America registered sales of $1.28 billion and the comparative store sales reflected 7% year-on-year growth on top of 3% growth in Q3 2014. [2] Victoria’s Secret‘s lingerie and underwear seem to be the new affordable luxury products and hence even during economic slowdowns, the products’ sales witnessed steady growth while most of the players in the apparel sector suffered losses. The brand creates an image through its witty marketing strategies that make women want to associate themselves with the products. Along with this, the inventory management and the digitalization capabilities have made Victoria’s Secret the number one brand in the U.S. and an extremely popular brand, abroad.

Victoria’s Secret direct is witnessing steady growth every consecutive month. Last year, the company exited its poor performing apparel division which was leading to the lackluster performance of Victoria’s Secret’s direct-to-consumer business in 2013 and 2014. Post the sacrifice of a $350 million division and the clearance sale, the core category was restructured to sacrifice the peripheral businesses such as makeup and apparel. The company witnessed dampened gross margins as a result, but believed that its long-term growth prospects have improved.

After witnessing significant growth in Q2 2015 (quarter ended on August 1, 2015), the August sales of Victoria’s Secret direct had witnessed a 2% year-on-year increase and its September sales grew further by 3%, on a year-on-year basis. The October sales experienced a significant jump of 7% year-on-year growth. The double-digit growth in the core categories is helping in undermining the dampening effect due to the brand’s exit from the apparel division. Victoria’s Secret direct grew by 4% in Q3 2015 to reach $285.4 million. [2]

 Bath & Body Work’s Consistent Growth Driven By Seasonal Collections

The seasonal collections at Bath & Body Works are driving sales for the business. The company is currently showcasing Christmas inspired fragrances in the signature collection, home fragrance, and personal care departments. For Q3 2015, Bath & Body Works North America generated sales of $705.5 million and its comparative store sales increased by 6% on a year-on-year basis. Bath & Body Works direct sales grew by 20% to $68.3 million. [2]

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Notes:
  1. L Brands Reports October 2015 Sales and Reiterates Previously Raised Third Quarter Earnings Guidance, L Brands Press Release, Nov 5, 2015 [↩]
  2. October Sales Transcript, L Brands, Nov 5, 2015 [↩] [↩] [↩]