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L Brands (LB) Q3 earnings preview: Low sales point to another weak quarter

Women’s apparel retailer L Brands (NYSE: LB) will be publishing third-quarter results on Wednesday at 4:30 pm ET. Analysts predict earnings of $0.02 per share on revenues of $2.69 billion, compared to $0.16 per share earnings reported in the year-ago period. The outlook is still better than the management’s forecast for flat earnings.

L Brands Q2 profit beats estimates but guides Q3 below consensus

The overall performance will likely be uninspiring, compared to the year-ago period, as sales remain under pressure from falling mall traffic and competition, especially from new brands hitting the market with relatively low prices. Citing these reasons, Deutsche Bank recently downgraded L Brand’s stock from Buy to Hold and lowered the price target to $20. On average, Wall Street analysts have maintained hold rating.

Victoria’s Secret Slumps

The Victoria’s Secret lingerie brand, the firm’s core business segment, has been struggling to regain momentum and get back on track. Despite aggressive promotional initiatives, recovery has remained slow and the trend is expected to continue during the remainder of the year and beyond. The resultant pressure on margins would impact profitability.

Also see: Walmart (WMT) stock rises on Q3 earnings beat

Moreover, the company has not been able to ramp up its merchandising activities in response to the challenging market conditions. L Brands needs to revise strategies to keep pace with its e-commerce rivals, considering the rapid shift to online shopping in the women’s clothing sector.

Weak Outlook

These factors, combined with the general weakness in the retail market, indicate that the sector is headed for a weak holiday season. The condition of others like Nordstrom (JWN) is no different. When Nordstrom reports results for its most recent quarter later this week, analysts will be looking for a 5% drop in earnings.

In the long-term, however, things might change for the better as L Brand’s cost-cutting initiatives and expansion into the international markets start yielding results.

Looking Back

The company disappointed the market in August when it reported sharply lower earnings and revenues for the second quarter, reflecting a dismal performance by Victoria’s Secret. Adjusted earnings fell 33% to $0.24 per share as revenues dropped 3% to $2.9 billion.

Related: L Brands Q2 2019 Earnings Conference Call Transcript

Last month, shares of L Brands slipped to a ten-year low, after falling progressively over the years. They declined 40% since last year and 19% in the past six months.

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