Please ensure Javascript is enabled for purposes of website accessibility

Why L Brands, Inc. Shares Are Plummeting Today

By Jeremy Bowman – Feb 23, 2017 at 1:01PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Victoria's Secret parent is falling on disappointing guidance in its earnings report.

What happened

Shares of Victoria's Secret parent L Brands, Inc. (BBWI 7.87%) are coming apart at the seams after the company gave 2017 guidance in its fourth-quarter earnings report last night that was much worse than analysts had expected. As of 12:43 p.m. EST, the stock is down 15%.

So what

The fourth-quarter results from L Brands, which also owns Bath & Body Works and two other chains, did not take investors by surprise, as the company had already reported quarterly sales in its monthly report. Adjusted earnings per share fell from $2.15 to $2.03, but beat estimates of $1.90. Comparable sales in the quarter were flat, and overall revenue ticked up 2% to $4.49 billion, just shy of the analyst consensus of $4.5 billion.

A Victoria's Secret gift box and purse

Image source: The Motley Fool.

The real issue was that management said comparable sales would be down companywide in the mid-to-high teens for February and by about 20% at Victoria's Secret. Part of that decline (6%) was due to the company's decision to exit the swim and apparel lines, but the rest was unexplained, leaving lingering questions about the brand's future.

Now what 

L Brands' full-year forecast was also disappointing: Management called for EPS of $3.05-$3.35, down from $3.74 in 2016 and much worse than expectations of $3.69. Its first-quarter forecast was similarly underwhelming.

The plunge in February in same-store sales at Victoria's Secret is particularly concerning as that month, which contains Valentine's Day, is one of the biggest selling periods for the company. 

The market is also fearful about the underlying trends in retail as department-store and mall-based retailers have widely struggled amid the rise of e-commerce and shifting shopping habits. Still, with a strong online business, L Brands would seem to be the type of company that could counteract that. Management noted investments in China and real estate in its earnings forecast, but that doesn't explain the comparable-sales dive.

The stock trades at a price-to-earnings ratio of 15 based on this year's projected earnings and offers a dividend yield of more than 4%, but with comps falling close to 20%, there's a strong possibility that the stock could move lower.

Jeremy Bowman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Bath & Body Works, Inc. Stock Quote
Bath & Body Works, Inc.
$35.08 (7.87%) $2.56

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/04/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.