UBS Cuts Price Target on L Brands (LB) to $100 Following 2Q In-Line EPS
UBS maintained a Buy rating on L Brands (NYSE: LB), and cut the price target to $100.00 (from $106.00), following the company's 2Q15 earnings results. LB reported EPS of $0.68 comming in at the high-end of recently raised guidance of $0.66-0.68, and in-line with Street's $0.68. Analyst Michael Binetti continues to view LB as a consistent, long-term EPS delivery story with multiple topline and margin expansion opportunities.
Binetti commented, "There have been some recent concerns about weakness in the core intimates category, but we believe LB continues to be a positive standout. During 2Q, core intimates (bras & panties) saw strength with +DD comps (+MSD ex. PINK vs. +3% for VS) and margins gains. Promotional levels were down YOY, and VS brand merchandise margins would have been up excluding swim clearance (actual VS merch margins: flat). The company is "pleased" with early 3Q trends, although the Labor Day shift could have a 1-2 pt negative impact to the month (August guidance: +LSD)."
Binetti also added, "2Q EPS of $0.68 came in at the high-end of recently raised guidance of $0.66-0.68 (UBS $0.69/Street $0.68). Gross margins improved by 130 bps vs LY (vs our +120bp est), while SG&A deleveraged slightly more than expected (+70bp vs our +30bp est). BBW saw a nice margin gains (+210 bps; similar to 1Q), as did Int'l (+160 bps), while VS was -30 bps (merch margins were flat, but would have been up ex. swim clearance). Inventory per sq ft was flat (better than +LSD plan). We see 3Q comp and margin upside opportunity and view $0.40-0.45 guidance as conservative (vs UBS $0.48/Street $0.47); inventories are planned +L-MSD (down more than 1H on a 2-yr basis). FY15 guidance was raised to $3.58-3.73, reflecting 2Q results with 2H unchanged."
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Shares of L Brands closed at $81.18 yesterday.