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Why L Brands Stock Dropped Today

By Evan Niu, CFA - Aug 22, 2019 at 1:13PM

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Comparable sales at Victoria's Secret continue to fall.

What happened

Shares of L Brands (BBWI -0.19%) have dropped today, down by 5% as of 1:08 p.m. EDT, after the retailer reported fiscal second-quarter earnings. Lackluster results at the company's Victoria's Secret brand continue to weigh on results.

So what

Net revenue in the quarter came in at $2.9 billion, shy of the consensus estimate of $2.95 billion in sales. Victoria's Secret stores saw comparable sales decline 9%, while Bath & Body Works' comps increased 4%. That translated into overall comps of negative 4%. When including direct sales, Victoria's Secret posted a 6% drop in comps, while Bath & Body Works saw comps jump 8%.

Exterior of a Bath & Body Works store

Bath & Body Works is carrying the business. Image source: L Brands.

Operating income fell to $174.6 million and L Brands finished the quarter with 2,927 total stores.

Now what

The quarter also included a $39.6 million pre-tax charge ($0.11 per share) associated with the early extinguishment of debt. The company redeemed $764 million worth of notes over the summer and issued $500 million in fresh notes, reducing overall debt by $264 million.

Excluding these charges, adjusted net income was $67.6 million, or $0.24 per share, ahead of L Brands' guidance issued in May that called for $0.15 to $0.20 per share in adjusted profit. As reported under generally accepted accounting principles (GAAP), earnings per share came in at $0.14.

In terms of guidance, L Brands forecast fiscal third-quarter earnings per share of negative $0.05 to positive $0.05, and the company reaffirmed its full-year forecast of $2.30 to $2.60 per share in adjusted profits.

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