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L Brands Inc LB

Morningstar’s Analysis

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Victoria’s Secret Finally Makes Sustained Headway for L Brands; Placing Shares Under Review

Jaime M. Katz, CFA Senior Equity Analyst

Analyst Note

| Jaime M. Katz, CFA |

We plan to place our $38 fair value estimate under review as we digest L Brands fourth-quarter results and reassess our long-term thesis on the business, given the marked improvement stemming from the Victoria’s Secret, or VS, brand. Fourth-quarter results were largely in line with both our expectations and the Feb. 4 guidance, which called for EPS of $2.95-$3.00 and (near the $3.03 in EPS achieved), but the robust expansion of profitability at VS struck us as impressive. While Bath & Body Works again dialed up 320 basis points of operating margin expansion (to 34%), VS delivered 1,280 basis points of the same (to 19%), displaying the second consecutive quarter of double-digit EBIT margin expansion. For the full year, VS is back in the green, posting 3% operating margins, while BBW delivered a 28.5% margin, bringing the enterprise rate back to 15% (a level unseen since 2016).  

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Company Profile

Business Description

L Brands is a women's intimate, personal-care, and beauty retailer operating under the Victoria's Secret, Pink, and Bath & Body Works brands. The company generates the majority of its business in North America, with about 5% of sales coming from international markets in fiscal 2019. Distribution channels include more than 2,600 stores and online, which represented about 20% of total sales in 2019. The company still plans to break Bath & Body Works into a stand-alone business, which we expect to be executed in 2021.

Three Limited Parkway
Columbus, OH, 43230
T +1 614 415-7000
Sector Consumer Cyclical
Industry Apparel Retail
Most Recent Earnings Oct 31, 2020
Fiscal Year End Feb 1, 2021
Stock Type Distressed
Employees 94,400