MKM Partners Remains Neutral on L Brands (LB) Following June Sales Release
MKM Partners reiterated a Neutral rating and $60.00 price target on L Brands (NYSE: LB) following the company's June sales release. LB reported a comp beat at 6%, ahead of the street's expectations of 1.9%. However, despite the comp beat, inventory remains slightly elevated, which could mean that July will be slightly more promotional.
Analyst Roxanne Meyer commented, "LB handily beat June comp expectations at 6% (MKM 3.4%/Street 1.9%), including a 6% comp at VS (MKM 3.2%/ Street 1.3%) and a 7% comp at BBW (MKM 4%/Street 3.7%). DTC had a +2% impact to comps at each brand, and the calendar shift also had a 2 pt favorable impact (expected). The stronger than expected sales at VS led to merchandise margins below expectations and down significantly, while they were up at BBW. We aren’t surprised by the strength at VS: the lack of direct mail alone (a MSD headwind in April and May) should have provided a boost, in addition to the impact of the longer sale in stores (roughly 10 days) and calendar shift. BBW’s gain was impressive, particularly as it was achieved with a higher merchandise margin, despite FX headwinds. It is unclear whether the better than expected comp and leverage of fixed costs will be more than offset by lower merchandise margins; we will look for color when we speak with management."
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Shares of L Brands closed at $68.47 yesterday.