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L Brands Stock Fell on Poor Q4 Sales, Weak Outlook

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Lower-than-expected sales

L Brands (LB) stock was down 4.6% today as the company missed analysts’ sales expectations for the fourth quarter of fiscal 2018, which ended on February 2, 2019. L Brands reported its fourth-quarter results after the markets closed on February 27.

The fashion retailer’s fourth-quarter sales grew 0.6% to $4.85 billion, lagging behind analysts’ estimate of $4.88 billion. Its same-store sales grew 3.0%, driven by a 12% rise in same-store sales of Bath & Body Works, partially offset by a 3% decline in the same-store sales of Victoria’s Secret.

The company’s adjusted EPS increased 1.4% to $2.14, exceeding analysts’ expectations of $2.07. Its adjusted EPS excluded the impact of a $0.20 charge related to the sale of its lingerie brand, La Senza.

L Brands’ fiscal 2018 sales rose 4.8% to $13.2 billion. The company’s fiscal 2018 adjusted EPS fell 11.9% to $2.82. Same-store sales grew 3% in fiscal 2018.

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Persistent weakness in Victoria’s Secret sales

In fiscal 2018, same-store sales for Victoria’s Secret declined 2%—in contrast to Bath & Body Works, which generated same-store sales growth of 11%.

Victoria’s Secret stores have failed to transform their products for changing customer needs. Customers are looking for comfortable lingerie and prefer brands like American Eagle Outfitters’ (AEO) Aerie, which is attracting customers with its body positivity approach.

L Brands is reviewing every aspect of its Victoria’s Secret business and intends to close more Victoria’s Secret stores in fiscal 2019 than it has over the past few years. The company closed 30 Victoria’s Secret stores in fiscal 2018.

Guidance

For fiscal 2019, L Brands expects its fiscal 2019 EPS in the $2.20–$2.60 range and breakeven EPS. The company continues to see growth opportunities in the international market and plans to open 100 to 120 stores in fiscal 2019.

As at the end of fiscal 2018, L Brands operated 2,943 stores, including 1,143 Victoria Secret’s stores, 1,721 Bath & Body Works stores, and 79 international stores.

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