What drove L Brands down after its 4Q17 results?
As we discussed previously, L Brands (LB) reported better-than-expected top and bottom-line numbers in its 4Q17 results on February 28. However, the results didn’t impress investors. Investors seemed to be worried about the company’s performance. Victoria’s Secret posted negative comps and falling margins, which drove down L Brands’ overall performance.
Management’s guidance for the next quarter topped investors’ concerns. L Brands announced that it expects to earn $0.15–$0.20 per share in 1Q18—below the expectations of $0.31 per share. The earnings will likely take a hit due to L Brands’ plan to invest $100 million in wages and benefits.
Following the results, L Brands was downgraded by Telsey Advisory Group to “market perform” from “outperform.”
As a result, L Brands’ share price fell 14% on March 1. The company has YTD losses of 28% as of March 2, 2018.
L Brands is among the worst-performing apparel and accessory stocks. In comparison, PVH (PVH), Tapestry (TPR), and Ralph Lauren (RL) rose 4.7%, 15%, and 2.6%, respectively. Hanesbrands (HBI) fell 4.4%.
As a result of the lower price, L Brands is trading at 13.7x the next 12-month earnings forecast—well below its three-year average of 18.7x and towards the lower end of its 52-week price-to-earnings range of 11.4x–19.5x.
L Brands is also cheaper than other apparel players. In comparison, PVH, Tapestry, and Ralph Lauren trade at 16.7x, 18.4x, and 17.3x the next 12-month earnings forecast.
However, when we look at the near-term earnings potential, L Brands doesn’t sound that appealing. L Brands’ next 12-month earnings are expected to fall 1.4%. PVH, Tapestry, and Ralph Lauren’s earnings are projected to increase 13%, 13%, and 2.3%, respectively.