Stockchase Opinions

Michael Simpson, CFA L Brands Inc. LB-N WATCH Jul 25, 2018

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.

$31.020

Stock price when the opinion was issued

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WEAK BUY

They are in great areas and saw great growth in execution. Better economic numbers and wage growth in the US is positive. LB-N has been one of the better performers over the last year or so. There is a concern about how long they can keep up the growth.

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.

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.

DON'T BUY

It is still in a downtrend and has been for several years. There is no let up in the lower lows and lower highs. So is still in a down trend and would avoid it.

SELL
A sell. It has been in a longer term down channel since 2017. Compared to the relative market it has become a value trap and the stock is unloved.
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.
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.