L Brands has a plan… And the market knows it

New York – On Wednesday, Victoria’s Secret’s parent company, L Brands, was soaring on the trading floor. The multi-brand group presented their ‘Go Forward Strategy’ to shareholders and the market has been cherishing those plans ever since.

L Brands Inc (NYSE: LB) announced it sees 400 million dollars annualised cost reductions through a profit improvement plan for Victoria's Secret. That implies an extra 1 dollars in Earnings Per Share (EPS) and is accretive to the research firm's existing fiscal 2021 EPS base of 1.07 dollars, highlight various analysts.

The company also announced it has reopened most Bath & Body Works and Victoria's Secret stores in North America. The announcement motivated analysts at JPMorgan to double upgrade L Brands’ stock.

Analysts cherish L Brands’ cost-cutting plans with raised ratings and higher target price on the stock

L Brands said Tuesday that second-quarter sales are expected to show a 20 percent drop from a year earlier, including a 40 percent decline at Victoria’s Secret. It said most retail stores in North America are now open. The second-quarter numbers were “significantly better than expected” at both Victoria’s Secret and Bath & Body Works chains, said MKM analyst Roxanne Meyer, according to Bloomberg. She has raised her share price target to 22 dollars from 11 dollars and maintained her neutral rating.

According to the group, reopened Victoria's Secret stores are operating at a low-90 percent store productivity rate (implies negative high-single-digit comps, as reported by Yahoo! Finance) and the online channel maintained a 30 percent growth rate in the second quarter.

This business update sent LB up by more than 30 percent during Wednesday trading session. Noteworthy, after years of a plunging stock price, sagging sales at its Victoria’s Secret brand, and a recently aborted deal to sell a majority stake of the lingerie brand.

Based on the positive prospects of the strategic review and business update, JPMorgan’s Matthew Boss upgraded L Brands from Neutral to Overweight with a price target lifted from 14 dollars to 32 dollars.

In the report, L Brands also reiterated its plans to close 250 VS stores, what, to Boss’ mind means that L Brands is taking the necessary steps to establish BBW as a pure-play public company while focusing on improving profit at the standalone VS.

Image credits: Victoria’s Secret

 

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