Victoria’s Secret’s Weak Quarter Drags on L Brands Earnings Release

The fashion retailer L Brands Inc. (Ticker Symbol: LB) released mixed earnings for the quarter. The Columbus, Ohio-based company reported an earnings per share beat of .24 cents per share vs. Wall Street analysts’ estimates of .20 cents per share.  However, the company reported a slight miss on revenue reporting $2.9 billion vs. Wall Street analysts’ expectations of $2.95 billion. Additionally, same-store sales reported were also a miss reporting sales down 1% vs. sales growth of .03% that analysts were expecting.      

L Brands, the owner of Victoria’s Secret brand among many others, reported same-store sales dropped over 5% during the quarter. To help offset Victoria’s Secrets’ poor performance in the quarter was Bath and Body Works, who reported same-store sales that rose 8%.  L brands is attempting to turn things around at Victoria’s Secret and trying a new branding campaign. They recently released they will no longer be broadcasting its annual fashion show as well as signing the company’s first transgender model.

Above is the long-term weekly chart for L brands stock. The stock was stuck in a horizontal price channel for over a decade.  Horizontal Channels are usually viewed as areas of indecisiveness between buyers and sellers, where supply and demand were relatively balanced and the price trades within a certain range, and in L brands case, between roughly the $10.00 and $30.00 dollar price levels. L Brands’ stock finally broke out of that range in the first quarter of 2011.  The stock proceeded to go on a tear rallying over 500% over the next 5 years. The stock traded to an all-time high of $101.11 on November 4th, 2015.  

In that same quarter, the stock topped forming a bearish divergence pattern (as indicated on the chart with the purple circles) where the stock makes a higher high in price but the Relative Strength Index makes a lower high.  Traders and investors sometimes look at divergences for a possible pause within the current trend which can, at times, lead to a reversal as occurred in L Brands case. Unfortunately, L Brands’ stock took a turn for the worst and proceeded to grind lower for 12 months.  After a brief rally in the 3rd and 4th quarter of 2017, the stock found some resistance at its 100-week Moving Average and in late 2017 it continued to head lower. Currently, the stock is trading below all of its major moving averages and is down 4% since the start of the year.

(Chart above courtesy of www.tipranks.com) 

Based on a survey of 16 analysts offering 12-month price targets, the average price target for L Brands’ stock is $23.81. According to that number, the stock is priced at a discount relative to Wall Street’s analysts and could be considered undervalued around current levels near $16.29.

L Brands also lowered its guidance for the remainder of the year.  The company is now expecting between a loss of .05 cents per share to a gain of .05 cents per share vs. .08 cents per share analysts were expecting. Long-term shareholders have not been rewarded for holding the stock and are in need of a turnaround catalyst.  Investors in the company should look to their next earnings release on November 20th for fresh news within the company.  

 


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