Dividend slashed by 50%
L Brands (LB) reported third-quarter results on November 19. Though the company managed to beat the consensus estimates, it was the dividend cut that likely sent investors into a tizzy. L Brands’ annual dividend now stands at $1.20, a 50% reduction from its earlier annual dividend.
Also, the weakness in its lingerie business (Victoria’s Secret and PINK) continues to be a cause of concern. As a result, L Brands stock nosedived 17.7% to $28.43 on November 20.
On a YTD basis, the stock’s losses now stand at 52.8%. Meanwhile, American Eagle Outfitters (AEO) and Urban Outfitters (URBN) have increased 2.9% and 4.3%, respectively. However, Gap (GPS) is down 27.6% on a YTD basis. The company’s namesake brand’s performance remains muted. Abercrombie & Fitch (ANF) stock has declined 9.1% YTD.
L Brands stated that it would utilize the $325 million savings generated from the reduction in dividend towards lowering of debt. The company has also decided to make a foray again in the swimwear category by the spring of 2019. It had exited the category in 2016, citing it as a non-core business. It plans to make a re-entry in several other categories including eyewear and footwear. Also, John Mehas will take over CEO responsibilities of Victoria’s Secret from Jan Singer, who resigned from the job earlier this month.
Analyst actions after Q3 results
After the third-quarter announcement, L Brands has seen three price revisions. On November 20, Cowen and Company upped the price target to $30.00 from $25.00. UBS raised the price target to $34.00 from $31.00. However, J.P. Morgan cut the price target to $35.00 from $40.00.
Currently, analysts’ 12-month average target price for L Brands stock is $35.71, which reflects a 25.6% upside to the stock price as of November 20.
The majority of analysts have maintained a “hold” rating for L Brands. As of November 20, of the 28 analysts covering the stock, 29.0% recommended a “buy.” Another 61.0% recommended a “hold,” and the remaining 11.0% recommended a “sell.”