L Brands, the owner of Victoria’s Secret and Bath & Body Works, is expected to report a fall in revenues and a net loss when the fashion retailer reports next Wednesday as lockdowns continue to weigh on its outlets.
But despite falling revenues, L Brand shares are up sharply for the year as investors give the thumbs up to its plans to separate the group.
Victoria’s Secret owner: Second-quarter earnings estimate
Analysts surveyed by Refinitiv expect L Brands to post revenues of $2.2bn in the second quarter, down 23% from the same quarter in 2019. It is expected to post a net loss of $131m in the quarter, as compared to a net profit of $67m in the second quarter of 2019.
However, L Brands is expected to report better results than the first three months of the year as the lockdown restrictions eased in the second quarter. Its second-quarter revenues are expected to rise 34% as compared to the first quarter while the net loss is expected to narrow from $275m to $131m.
In May, L Brands announced a ‘go-forward strategy’. “As part of this strategy, the company remains committed to establishing Bath & Body Works as a pure-play public company and is taking the necessary steps to prepare the Victoria’s Secret Lingerie, Victoria’s Secret Beauty and PINK businesses to operate as a separate, standalone company,” said the company in a release.
In July, L Brands provided an update on the new strategy and said that it expects to deliver annualized cost savings of $400m “through its profit improvement plan for Victoria’s Secret and actions to decentralize and streamline shared corporate and other functions.”
L Brand shares have been volatile this year. Shares hit a bottom of $8 per share in the March sell-off. However, they have bounced back sharply and are currently up almost 50% for the year. L Brand shares rose 63% in July alone and are currently up 10.6% in August.
While the coronavirus pandemic has taken a toll on L Bands’ earnings, investors have liked its business plans aim of unlocking value.
L Brands: Valuation and technicals
Meanwhile, after the recent surge, Wall Street analysts expect the stock to fall. L Brands has a mean consensus price target of $22.68, a discount of almost 16% over current prices.
Eight analysts surveyed by Refinitiv have a buy or higher rating on L Brands while 16 have given it a hold rating. The remaining three analysts have rated it as a sell or lower. The stock is valued at a 2021 price to earnings multiple of 17 times.
L Brands has a 14-day RSI (relative strength index) of 77.2 that signals that it is overbought. RSI values above 70 signal overbought levels while levels below 30 signal oversold positions.