Opinions
Michael Simpson, CFA
L Brands Inc.
LB-N
WATCH
Jul 25, 2018
$31.020
Stock price when the opinion was issued
specialty stores
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COMMENT
This follows the same seasonal pattern as the retail sector. Retail has 2 periods of seasonal strength, October to November with a run up to the Christmas season, and January all the way through to April. This one looks like it is rolling over early and is underperforming the retail industry. There is not much reason to be here.
specialty stores
SELL
His interest in owning any company like this, starts at zero and goes down from there. This company has a few retail brands, but they are basically in the middle of the market. If you want to be in retail, and he doesn’t, you want to be either at the high end or the low end. If you are in the middle, you just get squeezed.
specialty stores
BUY
Part of the "lag trade" of brick-and-mortar mall retailers that sold off this summer, but are coming back with room to run.
It was in the dog house long before Covid, left for dead. They tried to sell the ailing Victoria's Secrets, but in May the buyers pulled out. In late-July, it started cost cuts with nearly half the savings done this year. Overall numbers are still not great, but the Bath and Bodyworks business projects 10% sales growth for the quarter because people are stuck at home. This has led to recent analyst upgrades and higher price targets, hailed as the best brick-and-mortar story with comparable-store sales growth. Digital sales shot up 90%. Body and Bodyworks in Q2 reported 87% same-store sales growth. It spun-off Victoria's Secret in the UK/Ireland. He likes this upside.
specialty stores
BUY
He's not recommending this because of the ailing Victoria's Secret. Rather, the red-hot soap chain, Bath and Bodyworks, accounts for half the company's revenues. A huge driver will be the hygiene bull market that will endure after Covid, as consumers have improved their hygiene habits for good.
specialty stores
They hold such brands as Victoria’s Secret, which is facing greater online competition. He would be concerned about some of their markets. It remains a high-quality brand. He needs to do more analysis before jumping in.