L Brands Inc LB

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).