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L Brands Upgraded By Goldman Sachs On Victoria's Secret Results

L Brands Upgraded By Goldman Sachs On Victoria's Secret Results - LB

Goldman Sachs’ Lindsay Drucker Mann mentioned that the 2Q results reported by L Brands Inc (NYSE: LB) have “eased...concerns about how disruptive the new promotional strategy at Victoria's Secret (VS) would be on the business." The analyst continued by stating, "[W]e believe a bottom is visible for productivity and margins.”

Drucker Mann upgraded the rating on the company from Neutral to Buy, while raising the price target from $73 to $94.

Victoria’s Secret

The analyst believes Victoria's Secret would be able to achieve sequential improvement in margins as it laps the transient headwinds, while being able to contain comp declines in the near term.

“Longer term, LB remains a compelling secular growth story, with outstanding brand equity, best in class operating capabilities and high visibility growth drivers supporting mid-to-high-teens total return potential annually with no multiple expansion,” Drucker Mann stated.

Related Link: Oppenheimer On L Brands: "Transition Presents Opportunity," Upgraded To Outperform

L Brands has meaningfully lowered promotions at Victoria's Secret in April/May, a move that had created material uncertainty for comps.

However, a few months after that, visibility into the negative impact has improved, and Drucker Mann believes the company will be able to contain comp declines to the low single digits during 2H.

Margin Improvement

Drucker Mann expects margins to improve sequentially, given that “(1) LB will anniversary sharp declines in the high margin Beauty business mid-3Q, (2) the drag from preopening costs for the NYC flagship subsides once the store opens in 4Q, and (3) clearance volume is substantially lower in 3Q and beyond.”

In addition, L Brands’ new growth initiatives appear promising, and the analyst expects Sport, White Barn and International to together contribute incremental EPS growth of 600 bps.

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DateFirmActionFromTo
Aug 2016Goldman SachsUpgradesNeutralBuy
Aug 2016FBR CapitalMaintainsMarket Perform
Aug 2016OppenheimerUpgradesPerformOutperform

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