Victoria's Secret has L Brands looking good

Despite a June slump in same-store sales, the lingerie shop has boosted profit margins, signaling stronger results ahead.

By Jonathan Berr Jul 12, 2013 9:41AM
Shares of L Brands (LTD), formerly known as Limited Brands, are on a roll as investors bet that better times are ahead for the parent company of Victoria’s Secret, despite flat June same-store sales that were below analysts' expectations.
 
The Columbus, Ohio, company attracted consumers to Victoria's Secret even though it discounted merchandize less than it did last year. And that helped push up profit margins.
Not surprisingly, same-store sales at the lingerie shops open for more than a year fell 1% in June, compared with an 11% gain last year. But making more profit on each sale is a healthy sign.

Despite the same-store sales slowdown, investors have plenty to like about L Brands.

For one, its overseas expansion is going to pay off in coming quarters. It's planning to add eight stores in Canada, where it already has 26 locations. Three new stores in the U.K., where it already has two, are slated to open this summer. Two more stores in the Middle East are also scheduled to open this year, with several more expected in 2014.
 
File photo of a Victoria's Secret shopping bag (© Rogelio V. Solis/AP)Plus, the company is investing in its stores. Capital spending is expected to increase in 2013 to $650 million as L Brands seeks to improve the performance of its flagship chain.

Victoria’s Secret posted a 7% decline in operating income in the past quarter, which lagged the company's internal forecasts. But its performance should improve as it gets a better handle on its inventory.

Also, L Brands' Bath & Body Works chain is doing well. Operating income surged 21% to $72 million, while sales jumped 5% to $530 million. Comparable-store sales rose 3%.

Sales in the current quarter are expected to rise by 4.6% and by 5.7% in the October period. If the economic rebound continues at its same pace, L Brands will easily meet these expectations, if not surpass them.  

L Brands shares, though, are on the pricey side, so there's no rush to buy. It trades at a price-to-earnings ratio of 19.44, a five-year high, according to Reuters. Analysts' average 52-week price target on the stock is $53.27, about 3% higher than where it currently trades.

The shares will never be as pretty as the models the company employs for its fashion shows. But they have the potential to be solid performers at the right price.

Follow Jonathan Berr on Twitter @jdberr.

Tags: LTD
1Comment
Jul 12, 2013 12:37PM
avatar

It's a shame, $100 for a bra/panty set, still fat. You buy the idea of looking like the model, who actually needs rhinestones on their undergarments to get through the day? Better yet, scratches your spouse and hits the floor.

Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

108
108 rated 1
257
257 rated 2
439
439 rated 3
626
626 rated 4
499
499 rated 5
530
530 rated 6
713
713 rated 7
522
522 rated 8
339
339 rated 9
136
136 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
UPLULTRA PETROLEUM Corp10
EOGEOG RESOURCES Inc10
SWNSOUTHWESTERN ENERGY COMPANY10
TAT&T Inc9
COPCONOCOPHILLIPS9
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.