L Brands Edges Out Market Expectations

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

Teen retailers have been on the ropes this year, with many parents opting to cut back on back-to-school shopping due to other financial concerns -- cars, houses, college, you know, little stuff. Luckily, overall soft sales haven't stopped Limited Brands -- trading as L Brands (NYSE: LB  ) -- from staging a strong rebuilding year. The company announced third-quarter sales yesterday, and while there was nothing shocking, the company solidly managed the market's expectations.

L Brands returns to sales growth
There wasn't a lot of shock in Limited's release yesterday, as the company announced its updated guidance at the beginning of this month based on monthly sales. The company reported an overall increase in comparable sales of 3% across all its brands for the third quarter. That helped push overall revenue up 6%, to $2.2 billion.

The sales growth came on the back of comparable sales growth from all three of the company's brands -- Victoria's Secret, Bath & Body Works, and La Senza. The biggest sales challenge for L Brands has been at La Senza, which has grown comparable-store sales by 4% year to date. This time last year, the brand had a year-to-date drop of 2% in comparable sales.

Strength in a weak market
The real success at L Brands is that the company has continued to grow even as the market has weakened around it. Gap continues to be a leader in the teen market, and it only managed a 1% increase in comparable sale for the quarter. Even with the growth, no one is looking forward to a strong fourth quarter.

All signs point to a heavily promotional holiday season, and L Brands' management has said that it has an aggressive plan in place, if the market calls for it. Last year, the company left money on the table by not being promotional enough, and it has learned from that experience. Estimates for the fourth quarter are for an increase in earnings per share of between 20% and 30%.

Looking to the future
The one ongoing problem at L Brands is that it has yet to manage its online Victoria's Secret sales. All the company's brands are ticking over nicely, but comparable online sales at Victoria's Secret fell 1% this quarter, and are down 4% year to date. That lack of meaningful growth is holding the company back from really taking off. Sales in the channel make up close to 30% of the company's total revenue.

The holidays are always a telling time for retailers and, with a good push and some aggressive pricing, Victoria's Secret could easily get back in the game. Investors should look for some margin compression in the fourth quarter, but hopefully see an increase in sales, as well. It would be a small price to pay for getting the brand back to sales growth, which is what it needs right now.

The future in online
The success of Victoria's Secret is already heavily dependent on its online sales, and that dependency is only going to grow. The same change is happening across the retail landscape, and some companies have really figured it out. To learn about two retailers with especially good prospects, take a look at The Motley Fool's special free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." In it, you'll see how these two cash kings are able to consistently outperform, and how they're planning to ride the waves of retail's changing tide. You can access it by clicking here.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2738421, ~/Articles/ArticleHandler.aspx, 9/28/2016 11:30:17 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 hour ago Sponsored by:
DOW 18,339.24 110.94 0.61%
S&P 500 2,171.37 11.44 0.53%
NASD 5,318.55 12.84 0.24%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/28/2016 4:02 PM
LB $70.95 Down -2.09 -2.86%
L Brands CAPS Rating: ****
GPS $22.06 Down -0.23 -1.03%
Gap CAPS Rating: **