A Look at L Brands’ Q3 Bottom-Line Numbers

EPS beat estimates

For the third quarter, L Brands’ (LB) adjusted EPS came in at $0.16, beating the consensus estimate of $0.15. On a YoY basis, EPS decreased by 46.7%. The bottom-line performance was dented by increases in costs and lower operating income. Nevertheless, reduced provisions for taxes and higher sales provided some support to the bottom line.

On a reported basis (inclusive of pre-tax charges related to the Henri Bendel brand and Victoria’s Secret store assets), L Brands’ EPS came in at -$0.16 compared with EPS of $0.30 reported in the same quarter last year.

A Look at L Brands’ Q3 Bottom-Line Numbers

L Brands’ third-quarter gross margin contracted 430 basis points to 33.5%. Moreover, the general, administrative, and store operating expenses surged 15.5% to $873.9 million. Also, the corresponding expense (as a percentage of total revenue) rate deleveraged 260 basis points at 31.5%. The operating income was $54.4 million versus operating income of $231.7 million reported in the same quarter last year. On an adjusted basis, operating income was $155.6 million versus $231.7 million reported in the same quarter of fiscal 2017.

Outlook

For the fourth quarter, EPS are projected to be in the range of $1.90 to $2.10. However, for fiscal 2018, adjusted EPS are expected to be in the range of $2.60 to $2.80 versus the $2.45 to $2.70 guided earlier. Analysts’ expectations for the fourth quarter and fiscal 2018 stand at $2.00 and $2.67, respectively.

Expectations for peers

For the third quarter of 2018, Wall Street analysts estimate American Eagle Outfitters (AEO) to report adjusted EPS of $0.48 as against $0.42 in the third quarter of 2017.

For the third quarter of fiscal 2019, Urban Outfitters (URBN) reported adjusted EPS of $0.70, way ahead of the consensus estimate of $0.62 and $0.41 reported in the third quarter of fiscal 2018. The bottom-line performance was driven by higher sales and a lower tax burden.