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L Brands (NYSE:LB) Stock Is A Major Reversal Story, In-Play

Friday, August 21, 2020 | Thomas Hughes
L Brands (NYSE:LB) Stock Is A Major Reversal Story, In-PlayL Brands: The Retail Rebound Expands

L Brands (NYSE:LB) delivered a second-quarter report that was more than surprising. Not only did the company beat on both the top and bottom lines, but it also delivered some news and outlook that paint a bright future for this stock. Among the news are a meteoric rise in eCommerce sales, an intention to split the two brands (Victoria’s Secret and Bath & Body Works), and an outlook that tells us this company is going to smash the full-year consensus.

This Is Why L Brands Is Up 5% Today

As a primarily discretionary retailer, the company was not expected to perform well in the quarter and the top line results back that up. Total revenue is down 20% on a YOY basis but that's not the important part. What the report also shows is that one brand within the company's umbrella, and one channel, are outperforming all others and the outlook for the entire network is positive.

So, top-line revenue of $2.32 billion fell from last year but topped expectations by $150 million of 700 basis points. On the bottom line, GAAP EPS shows a loss of -$0.18 but that is due to one-time charges related to the company’s strategic plans and repositioning. The adjusted EPS came in at $0.25 and is up 4% from the previous year. More notably, adjusted EPS beat the consensus by $0.67 and put the company soundly on track to exceed the 2020 consensus target by a wide margin.

The top-performing brand is Bath&Body Works with an increase of 13% YOY. That increase was boosted by a near 200% increase in eCommerce sales that rival most other retailers in the market today. Victoria’s secret, now the smaller of the two segments, saw its revenue fall nearly 40% despite the fact eCommerce channels never closed. Both brands, though, showed eCommerce results comparable to the more pandemic-friendly retailers. eCommerce sales at Victoria Secret jumped 65%, something the company is planning to capitalize on now and after the split.

As for guidance? L Brands did not issue any guidance with the report but they let slip some telling information during the conference call. Although they expect to see revenue growth decelerate, they have seen no signs of that in recent weeks. That means the first three weeks of the quarter, at least, are as strong as the second. If that’s the case then even my own aggressive outlook is far to low.

L Brands Is On Track To Bring Back The Dividend

The upcoming quarter is one of the weakest of the year for L Brands and that is not going to change this year. Even so, the analysts are already expecting EPS to grow on a YOY basis and the strongest quarter of the year is yet to come. If earnings in the holiday quarter are only equal to last year, and it looks like they will be, L Brands will have earned more than enough to seriously consider reinstating the dividend. If not before the split then after.

The news that L Brands is going to split the two brands is the icing on the cake. The split will unlock shareholder value in both companies and be a catalyst for higher stock prices later this year.

The Technical Outlook: A Massive Reversal Is In-Play For L Brands

The daily chart of L Brands’ price action is pretty impressive. The stock made a stronger rebound than some others that should have done better, it’s trading above the pre-pandemic high, and today’s pop has it trading at a multi-year high. It’s the weekly charts that get me excited though. The weekly charts show this is a stock in the early stages of a major reversal. There may be some volatility in the near-term, there is a chance price could pull-back before moving higher, but if they do I’d be a buyer. If not, then the next bullish signal is an excellent place to start buying.

L Brands (NYSE:LB) Stock Is A Major Reversal Story, In-Play

Companies Mentioned in This Article

CompanyBeat the Market™ RankCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
L Brands (LB)1.6$38.90+0.2%N/A-49.87Hold$34.71
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