opening 3.3% lower this morning shares of Victoria’s Secret owner, L
Brands (LB 34.86, +0.81), have posted a red-to-green reversal and now
move 2.4% higher following this morning's conference call. Shares reversed
course despite the company providing both worse than expected second quarter
and full year 2018 earnings guidance.
The first quarter was a beat on the top and bottom lines as L Brands reported earnings of $0.17/share on revenue growth of 7.8%, which management noted was up against an easier compare in the prior year, to $2.63 bln. Management provided the caveat that EPS benefited from a favorable tax rate. Absent the impact of the lower than forecasted tax rate L Brands delivered an earning/share result at the low end of its range of $0.15-0.20.
Comparable sales for the first quarter ended May 5, 2018, increased 3% compared to the thirteen weeks that ended May 6, 2017. Comps at Victoria’s Secret were up 1% and grew 8% at Bath & Body Works.
In Q1, PINK's comps were down low single digits driven by the early portion of the quarter with performance improving late in the quarter due to strong customer acceptance of the go forward assortment. Decline in swims, which is a non-go forward category, had a distorted impact on L Brands’ soft performance in the quarter. Bras and panties were about flat to last year. Bra performance was dominated by Wear Everywhere sports and the company’s date bra relaunch. The company noted panties were strong across all silhouettes and collections driven by fashion and newness. Apparel had areas of success and disappointment, while the sport apparel assortment was strong throughout the quarter.
Management highlighted that in 2016 strategic changes were made to the Victoria's Secret brand, and the company is still dealing with the impact of these changes, particularly in negative store traffic trends and resulting increase in promotional activity as L Brands works to build the customer file. Given the current trends, business management believe it is appropriate to take a more conservative view of the timing of the turn-around and have decreased full year 2018 earnings guidance by $0.25.
To that end, L Brands now sees worse than expected 2018 full-year earnings per share between $2.70-3.00 from $2.95-$3.25 previously. Also, management expects further margin rate erosion in Q2 and then a relatively flattish margin rate for both the Q3 and Q4. The company also guided for worse than expected Q2 EPS between $0.30-0.35.
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