The Week That Was: Ann And L Brands

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LB
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The past week wasn’t too eventful for women’s specialty apparel retailers Ann (NYSE:ANN) and L Brands (NYSE:LB). Consensus estimate for Ann’s ongoing quarter was highlighted early last week, with analysts predicting flat year-over-year change in earnings per share. For L Brands, the week was mostly about share repurchases and one of the director himself buying a significant number shares, indicating that there is still some value to be unlocked in the company. Here’s a quick roundup for news that mattered for these companies.

ANN

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Early last week, the consensus estimate for Ann’s second quarter of fiscal 2015 was highlighted in a report, which was the mean of the estimates of several sell-side analysts covering Ann. [1] According to them, the company is likely to report its earnings per share for Q2 somewhere around $0.70, which is at the last year’s level and 8% below 2013 EPS. [2] The second quarter for Ann is seasonally strong, which is evident from the fact that its Q1 EPS was at just $0.37. It is interesting to note that the company did register some year-over-year improvement in its Q1 EPS (12%), but it is unlikely to do so in the second quarter. It appears that the company is struggling to attract customers in the ongoing quarter, probably on account of continued weakness in LOFT and the factory segment. We will gain more clarity on the matter once the company comes out with its results August.

We would like to remind our investors that Ann has been acquired by Ascena Retail Group, in a cash and stock deal that valued the former at $2 billion. The deal is expected to close by the end of the second quarter and there is a possibility that the company may not report its Q2 results as a separate entity.

We estimate Ann’s EPS for 2015 at $2.02, which is is within the consensus estimate range of $2.20-$1.79. Our price estimate for the company at $42.5 is around 15% below the current market price.

L Brands

The parent company of Victoria’s Secret and Bath & Body Works, authorized a new share repurchase program worth $250 million. [3] The repurchase program, which also includes $0.6 million remaining from the previous $250 million scheme, is intended to boost shareholders’ confidence in the company, drawing their attention to its strong cash flow and balance sheet. The company’s value has appreciated by more than 50% over the last 12 months and the recent share repurchase authorization can prompt investors to buy or hold their shares, which can further bolster its stock price.

One of the company’s director buying shares worth $112, 784 is another indicator that the management is hoping for an increase in L Brands’ market value. [4] This is another good news for investors, whom the company hasn’t disappointed so far. Shareholders have not only received a significant return through increase in market value of stocks, they have also received regular dividends. In fact, earlier this year, the retailer increased its quarterly dividend to 50 cents a share and even declared a special dividend of $2 per share. Apart from enhancing shareholders’ returns, dividend hikes tend to push the market value up.   

We estimate revenues of about $12.3 billion for L Brands in 2014, with earnings per share of $3.73, which is within the range of the market consensus of $3.98-$3.69, compiled by Thomson Reuters. Our price estimate for the company at $87 is inline with the current market price.

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Notes:

  1. Analysts predict $0.7 EPS for ANN Inc. in Q1, Markets Daily, Jun 22 2015 []
  2. Ann Reports Second Quarter 2014 Results, Ann Inc, Aug 22 2014 []
  3. L Brands Sanctions Share Repurchase Program Worth $250 million, Zacks, Jun 22 2015 []
  4. L Brands director buys 1,285 shares, Nasdaq, Jun 26 2015 []