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Why L Brands' Stock Is Up Sharply Today

By John Rosevear - May 21, 2020 at 12:32PM

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Earnings missed estimates, but investors had other reasons for cheer.

What happened

Shares of retail-chain operator L Brands (BBWI -4.32%) were sharply higher on Thursday, after the company reported a wider-than-expected first-quarter loss and said that it will follow through on separating its troubled Victoria's Secret chain into a stand-alone company.

As of 12:15 p.m. EDT, L Brands' shares were trading up about 16.2% from Wednesday's closing price.

So what

Consumer-discretionary investors were bidding up L Brands' shares on Thursday after the company said during its quarterly earnings call that it will go forward with its plan to separate its Bath & Body Works and Victoria's Secret chains into separate companies. A planned sale of Victoria's Secret to a private-equity company fell through earlier this month; the sale had been well-received by investors concerned about ongoing losses at the lingerie chain.  

The entrance to a Victoria's Secret store in a mall

Victoria's Secret will reopen its stores by the end of July. Image source: L Brands.

That news was a relief to investors, especially after taking a closer look at the company's numbers for the quarter that ended on May 2. While Victoria's Secret had a brutal quarter, sales at Bath & Body Works -- the chain L Brands plans to keep -- held up quite well amid the coronavirus pandemic, as its online sales increased by 85% from a year ago. 

Investors also seemed pleased to hear that as part of a restructuring ahead of that separation, L Brands will close 251 Victoria's Secret stores (about 23% of its total U.S. locations) as well as 51 of its Bath & Body Works stores. The company expects to reopen its Victoria's Secret stores by the end of July, it said. 

Now what

The stock's jump might have been surprising to some investors, because at first glance, L Brands' earnings report wasn't so hot. The company lost $296.9 million in the quarter, or $0.99 per share on an adjusted basis, on revenue of $1.654 billion. That was a double miss, as Wall Street analysts had expected a loss of $0.66 per share on revenue of $1.82 billion. 

Both numbers were down sharply from the year-ago period, when L Brands reported net income of $40.3 million, or $0.14 per share on an adjusted basis, on revenue of $2.629 billion. 

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

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