L Brands (LB) 1Q17 Results: Beats on EPS Despite Victoria’s Secret’s Sales Slump

Lbrands-2nd_image_1280x500_New

KEY POINTS

  • L Brands reported 1Q17 adjusted EPS of $0.33, down 44.1% from the year-ago quarter, but above the $0.29 consensus estimate. Total revenues were $2.44 billion versus expectations of $2.46 billion, and were down 6.8% year over year.
  • Total comps declined by 9% for the quarter. Victoria’s Secret comps declined by 14% versus a 2% increase in the year-ago period. Bath & Body Works comps increased by 2% versus a 6% increase in the year-ago quarter.
  • The company raised its FY17 EPS guidance to $3.10–$3.40 from $3.05–$3.35, citing a lower tax rate; consensus calls for full-year EPS of $3.22. L Brands expects 2Q17 EPS of $0.40–$0.45, slightly below the $0.46 consensus estimate. The company expects May comps to decrease by mid- to high-single digits.

Lbrands-earnings-May-18-2017-fig1

1Q17 Results

L Brands reported 1Q17 adjusted EPS of $0.33, down 44.1% from the year-ago quarter, but above the $0.29 consensus estimate. Total revenues were $2.44 billion versus expectations of $2.46 billion, and were down 6.8% year over year. By business segment, total revenue at Victoria’s Secret declined by 11.9%, to $1.53 billion, while revenue at Bath & Body Works grew by 2.7%, to $678 million.

Total comps declined by 9% from the year-ago quarter. Management noted that the exit from the swim and apparel categories had a negative impact of six percentage points on total company sales and a negative impact of nine percentage points on Victoria’s Secret comparable sales. Accounting for only in-store sales, comps at Victoria’s Secret declined by 12% and comps at Bath & Body Works declined by 1%.

Victoria’s Secret comps declined by 14% versus a 2% increase in the year-ago period. Strength in the PINK business was offset by a decline in the lingerie business and the exiting of swim and apparel. The company decided to exit those categories largely so it could focus on more profitable segments and push harder into lower-priced sports bras and unstructured bralettes. Bath & Body Works comps increased by 2%, driven by growth in the e-commerce channel, compared with a 6% increase in the year-ago quarter.

 

FY17 Outlook

The company raised its FY17 EPS guidance to $3.10–$3.40 from $3.05–$3.35, citing a lower tax rate; consensus calls for full-year EPS of $3.22. The company expects comps to decrease by low-single digits. L Brands expects 2Q17 EPS of $0.40–$0.45, slightly below the $0.46 consensus estimate. The company expects May comps to decrease by mid- to high-single digits.

L Brands plans to continue to revamp its business by improving the store experience, localizing assortments and enhancing its e-commerce business.