L Brands (LB 25.00, +3.50, +16.3%) is jumping by more than 15.0% as the company's better than expected Q1 earnings and revenue overshadow below-consensus guidance for Q2.
Shares of the apparel company are enjoying a sizable gain today, but it should be noted that the advance comes after the stock ended yesterday's session at its lowest level in nearly nine years. The stock has faced aggressive selling pressure since marking a record high (101.11) in late 2015 amid overall concerns about the health of apparel retailers with a large physical presence.
Today's advance can be characterized as a relief rally, fueled by better than feared results. Comparable store sales were unchanged yr/yr against expectations for a 1.3% decrease. The company's comparable sales grew 3% one year ago.
A 5% decrease in Q1 comparable store sales at Victoria's Secret was offset by a 13% increase in comparable sales at Bath & Body Works.
Excluding direct-to-consumer sales, comparable sales at Victoria's Secret fell 7% after decreasing 5% one year ago while comparable sales at Bath & Body Works increased 7% after growing 5% one year ago. As a result, comparable store sales at physical locations decreased 3% in Q1 after falling 2% one year ago.
The company has been working on reducing its footprint by closing underperforming stores, but this effort has not reduced costs just yet. The company closed 35 Victoria's Secret stores in the U.S., three Bath & Body Works stores in the U.S., and two of its international Victoria's Secret Beauty and Accessories stores. L Brands meanwhile opened 14 Bath & Body Works locations in the U.S., two Victoria's Secret Beauty and Accessories stores, and one PINK U.S. store. The overall company-owned store count was reduced to 2,920 during the quarter from 2,943 at the end of Q4.
L Brands issued weaker than expected guidance for Q2, expecting EPS between $0.15 and $0.20. However, the company increased the low end of its guidance for the fiscal year, priming the market for EPS between $2.30 and $2.60, up from its previous outlook for EPS between $2.20 and $2.60.
Today's advance comes in response to better than expected earnings and revenue, but investors should be aware that the stock has faced heavy pressure for nearly four years, so the rally could be short-lived, especially since the market has maintained caution when it comes to apparel retailers.