Organic Sales Growth and Margin Expansion in Fiscal 3Q15



Top line

L Brands (LB)(XRT) saw strong growth in its top line sales. They grew by 7.0% on a YoY (year-over-year) basis to reach $2.5 billion. The comparable store sales growth formed 7.0% of the total sales growth. This is a very positive figure for the company’s future. The two most important brands—Victoria’s Secret and Bath & Body Works—saw an organic rise in the sales. This was mainly due to innovative and new products introduced over the quarter.

As you can see in the above chart, L Brands’ sales were fueled by organic growth. TJX Companies (TJX) and Urban Outfitters (URBN) generated 5.0% and 1.0% organic growth, respectively, in their last quarter. In contrast, Gap (GPS) failed to report positive comparable sales growth.

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Margin expansion

In fiscal 3Q15, L Brands saw a significant margin expansion both in its gross profit margin and operating margin. The gross profit margin expanded by 80 basis points due to the leverage received by higher sales and selling higher margin products. The inventory and expense management were also key for the company’s merchandise margin expansion. The operating margin also expanded by 140 basis points to reach 13.7%—compared to 12.3% in fiscal 3Q14. The SG&A (selling, general, and administrative expenses) fell by 70 basis points. This contributed to the higher operating margin.

In the next part, we’ll analyze the company’s outlook for 4Q15. We’ll also see what Wall Street analysts think about the stock.


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