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Factors Likely to Decide L Brands' (LB) Fate in Q3 Earnings

L Brands, Inc. LB, a specialty retailer of women’s intimate and other apparel, beauty and personal care products, is slated to report third-quarter fiscal 2017 results on Nov 15.

In the trailing four quarters, the company outperformed the Zacks Consensus Estimate by an average of 8.7%.

Let’s see how things are shaping up prior to this announcement.

Factors at Play

Endeavors Undertaken

L Brands continues to revamp business by improving store experience, localizing assortments and enhancing direct business. These measures will facilitate it to generate incremental sales and increase store transactions through higher conversion rate. Further, the company’s foray into international markets is likely to provide long-term growth opportunities and generate increased sales volumes.

We believe that L Brands’ sustained focus on cost containment, inventory management, merchandise, and speed-to-market initiatives has kept it afloat in a competitive environment. This is evident from its positive earnings surprise history. In the trailing eight quarters, it has surpassed the Zacks Consensus Estimate by an average of 8.4%.

Comps Seem Back on Track

L Brands finally broke its streak of declining comparable sales (comps) in October, reporting 2% gain. As a result, management now expects third-quarter earnings to be at the high end of its previously estimated guidance range of 25-30 cents. However, this is still down from the prior-year quarter earnings of 42 cents. The Zacks Consensus Estimate for the third quarter has increased by a penny in the past 30 days, and is presently pegged at 30 cents.

Additionally, comps have declined 2%, 4%, 7%, 9%, 7%, 5%, 10%, 13% and 4% in September, August, July, June, May, April, March, February and January, respectively. Meanwhile, the company continues to face short-term challenges due to its decision to exit the swimwear category that failed to generate desired results.

Will Earnings & Revenues Continue to Decline?

L Brands dwindling earnings and revenues remain the primary concern for investors. A look at the company’s performance in fiscal 2017 unveils that net sales declined 7% and 5%, while earnings per share fell 44% and 31% in the first and second quarter, respectively. Moreover, the second quarter marked the fourth-straight quarter when the company’s top line missed the Zacks Consensus Estimate.

Per analysts surveyed by Zacks, third-quarter earnings are likely to decline more than 28% year over year. However, revenues are anticipated to come in at $2,607 million, reflecting an increase of roughly 1% from the year-ago quarter.

L Brands, Inc. Price, Consensus and EPS Surprise

 

L Brands, Inc. Price, Consensus and EPS Surprise | L Brands, Inc. Quote

What Does the Zacks Model Suggest?

Our proven model does not conclusively show that L Brands is likely to beat earnings this quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

L Brands carries a Zacks Rank #3 but an Earnings ESP of -0.47%. Thus making surprise prediction difficult.

Stocks with Favorable Combination

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

Burlington Stores, Inc. BURL has an Earnings ESP of +1.27% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Home Depot, Inc. HD has an Earnings ESP of +0.57% and a Zacks Rank #2.

Wal-Mart Stores, Inc. WMT has an Earnings ESP of +0.96% and a Zacks Rank #3.

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Home Depot, Inc. (The) (HD): Free Stock Analysis Report
 
L Brands, Inc. (LB): Free Stock Analysis Report
 
Wal-Mart Stores, Inc. (WMT): Free Stock Analysis Report
 
Burlington Stores, Inc. (BURL): Free Stock Analysis Report
 
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