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Why L Brands Stock Surged 63% Last Month

By Jeremy Bowman – Aug 10, 2020 at 12:21PM

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A recommitment to spinning off Victoria's Secret helped drive a surge in this retail stock.

What happened

Shares of L Brands (BBWI -3.06%), the parent of Victoria's Secret and Bath & Body Works, skyrocketed last month as investors cheered the business update and cost-cutting plan it announced at the end of the month as well as its decision to continue pursuing a separation of Victoria's Secret and Bath & Body Works. Earlier in July, the stock steadily gained as it bounced back from the depths of the market crash. According to data from S&P Global Market Intelligence, the stock finished the month up 63%.

The chart below tells the tale.

^SPX Chart

^SPX data by YCharts.

So what

The big news of the month came on July 29 when the company announced that it was cutting $400 million in annual expenses by reducing its corporate headcount by 15% (or 850 people), better managing inventory, closing 250 Victoria Secret stores, and cutting operating losses in foreign markets like the U.K. and China.  

Bras hanging in a clothing store

Image source: Getty Images.

Additionally, the company reported strong sales at Bath & Body Works, where it expected a sales increase of 10% from a year ago, though companywide, it still projected a 20% decline in sales due to an estimated 40% drop at Victoria's Secret. Still, that and the company's commitment to separating Victoria's Secret encouraged investors who see Bath & Body Works as a strong stand-alone business.

CEO Andrew Meslow said, "The Board and management remain committed to separating the Bath & Body Works and Victoria's Secret businesses, as well as improving the profitability of the Victoria's Secret business."

Now what

Several analysts lifted their price targets on L Brands after the update, and J.P. Morgan upgraded it to overweight. But Citigroup downgraded it to sell.

While the Victoria's Secret brand is still troubled, L Brands trades at a significant discount to where it was a few years ago, giving investors hope that the retail stock has further upside. 

The company's second-quarter earnings report is expected next week. Analysts are forecasting revenue to drop 23.7% to $2.21 billion, and a loss of $0.43 per share on the bottom line, versus a profit of $0.24 in the year-ago quarter.

Jeremy Bowman 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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