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L Brands (LB) Gears Up for Q1 Earnings: What's in Store?

L Brands, Inc. LB, a specialty retailer of women’s intimate and other apparel, beauty and personal care products, is slated to report first-quarter fiscal 2016 results on May 18. The big question facing investors is, whether the company will be able to deliver a positive earnings surprise in the quarter to be reported. In the trailing four quarters, the company outperformed the Zacks Consensus Estimate by an average of 2.6%. Let’s see how things are shaping up for this announcement.

Zacks Model Shows Unlikely Earnings Beat

Our proven model does not conclusively show that L Brands is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. L Brands has an Earnings ESP of 0.00% as the Most Accurate estimate and the Zacks Consensus Estimate both stand at 55 cents. The company carries a Zacks Rank #3 (Hold), which increases the predictive power of ESP. However, the company’s ESP of 0.00% makes surprise prediction difficult.

Factors Influencing this Quarter

L Brands commands a market-leading position in the lingerie, personal care and beauty segments. We believe that the company’s innovations in merchandise and exclusive assortments remain popular among consumers, thereby setting it apart from peers. L Brands now envisions first-quarter adjusted earnings to be at the high end of its previous projection of 50–55 cents a share.

However, given the competitive retail landscape, the aggressive promotional strategies undertaken to gain market share may weigh upon the company’s margins in the quarter to be reported. Moreover, foreign currency headwinds may play spoilsport.

Stocks Poised to Beat Earnings Estimates

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

The Home Depot, Inc. HD has an Earnings ESP of +1.50% and a Zacks Rank #2 (Buy).

Lowe's Companies, Inc. LOW has an Earnings ESP of +2.38% and a Zacks Rank #2.

Best Buy Co., Inc. BBY has an Earnings ESP of +2.94% and a Zacks Rank #2.

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