Key Takeaways and Trends From L Brands’ Q4 Earnings

LB: La Barge logo
LB
La Barge

L Brands (NYSE: LB) delivered a mixed performance in its fourth quarter earnings.  Net sales of the company rose to 4.85 billion dollars compared to 4.82 billion dollars for the Q4 previous year and comparable sales increased 3%, with adjusted earnings per share at $2.14. This was driven by growth across its Bath and Body Works segment, a well-positioned customer strategy, international diversification, and increased online sales.
Even though the BBW segment continues to perform well, the results have been slightly disappointing for Victoria’s Secret. Victoria’s Secret is selling items at a deep discount, but consumers are not responding. Although, VS Stores continue to be the most important segment for the company as it derives close to 50% of its revenues from this segment and it is striving to get it back on track.
Based on the factors that affected the company’s investment spending in business and with the pressure on the Victoria’s Secret segment, the company revised its guidance for 2019 sales to grow by single-digits and full-year earnings per share to be between $2.20 and $2.60, including an approximately break even earnings per share result in the first quarter. Please refer to our dashboard Key Takeaways from L Brands’ Q4 Results. You can modify the charts in the dashboard to gauge the impact that changes in key drivers for L Brands would have on the company’s earnings, and see more of our Consumer Discretionary company data here.

Key trends from L Brands’ fourth quarter earnings are outlined below:

Segment-Wise Performance with Outperformance by Bath and Body Works segment – The decline in traffic in brick-and-mortar stores has been a major cause of concern for VS.  The company is making attempts to improve its understanding of customers’ demands in order to make the products more relevant and relatable to them. Also the company has arranged to sell Victoria’s Secret items at a deep discount, but consumers have not been very responsive.The company has also focused on more efficient teams, strengthening its core brassiere business with new innovations in line with fashion trends, and focusing on the holiday seasons.

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Strong performances by the company’s home fragrance assortment drove that segment’s sales and hence Bath and Body Works’ sales have increased by double digits.  This segment has seen steady growth over the last few years and is likely to increase in FY2019 as well.

Growth in Online Sales  – Driven by the growing trend of online shopping, online sales of the company rose in every geography underlining this to be a global trend. The online channel comprises of the company and retailer websites. L Brands is seeing very strong momentum in online sales growth with online revenue for VS and Bath & Body Works increasing. With rising disposable incomes and people continuing to spend more online, this channel constitutes an increasing share of the company’s top line.

Focus on delivering a differentiated customer experience aids growth – 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.

Growth in International Sales  – With their sights set on the global marketplace, the international business has become a source for long-term growth and increased sales volumes. The company continues to spend a lot of money to grow the business in the Asia region (esp. China).

Looking ahead,  we believe that driven by the above trends the company is focused on improving performance in the Victoria’s Secret business, staying close to its customer, improving the customer experience in stores and online, and improving assortments in compelling new product launches with steadier footing in the remainder of FY2019.

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