What To Expect From L Brands’ Q4
L Brands (NYSE: LB), specialty retailer of women’s intimate apparel, personal care, and beauty products is scheduled to announce its fourth quarter earnings on March 1. Its performance has been slightly disappointing in the first nine months for the fiscal 2017 with a slight fall in sales to $7.8 billion. Victoria’s Secret’s exit from swimwear and apparel to focus solely on their core undergarments, was one of the reasons for this slow down. Even though the BBW segment continues to perform well, VS Stores is the most important segment for the company as it derives close to 50% of its revenues from this segment. Though VS is currently undertaking many growth initiatives to revive its performance, the brand messaging of the company might also need to be in sync with the sensibilities of its buyers in order to lure customers. Recent growth initiatives taken by L Brands viz: revamping business by improving the store experience, localizing assortments, and enhancing direct business will facilitate it to generate incremental sales and increase store transactions through higher conversion rates in Q4 and beyond. Additionally, the company’s foray into international markets is likely to provide long-term growth opportunities and generate increased sales volumes.
Management envisions its fourth-quarter earnings to be approximately $2.05 per share as the company has invested in several growth initiatives which are likely to pay good returns going forward. The guidance includes the impact of tax reform legislation.
Please refer to our dashboard analysis on L Brands.
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Below are key factors that will likely drive L Brands fourth quarter earning results.
Revival in Victoria’s Secret Performance – The decline in traffic in brick-and-mortar stores has been a major cause of concern for VS, causing its sales in Q3 to decline by 3.3% to $1,243 million. To revive the performance of its lingerie segment, the company had appointed Jan Singer as the Lingerie CEO in September 2016. The company has since made attempts to improve understanding of customers’ demands in order to make the products more relevant and relatable to them. The company has also focused on more efficient teams, strengthening its core bra business and focusing on the holiday season during the end of the year. VS is also focusing on providing the most innovative and fashionable bras, in all its segments.
Bath & Body Works’ segment continues to perform well – Strong performances by the company’s home fragrance assortment drove this segment sales and hence Bath and Body Works sales rose 6% to $815.8 million with a 4% climb in comparable sales in Q3. This segment is likely to boost growth in the upcoming earnings as well.
Well-positioned customer strategy and a steady focus on delivering a differentiated customer experience will fuel strong returns – L Brands continues to revamp business by improving the store experience, localizing assortments, and enhancing direct business. These measures will facilitate it to generate incremental sales and increase store transactions through higher conversion rates. A sustained focus on cost containment, inventory management, merchandise, and speed-to-market initiatives has kept L Brands afloat in a competitive environment. This is evident from the company’s positive earnings surprise history.
L Brands increasing footprint in the International Markets – With their sights set on the global marketplace, the international business will boost the company’s U.S. business and could become a source for long-term growth and increased sales volumes. L Brands store operations around the world are a mix of company-owned and franchised locations both upholding the highest brand standards with no visible difference to the customer.
Driven by these key trends, we anticipate L Brands to post better results in Q4, compared to its performance in the first nine months of the fiscal year.
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