victoria's secret swimwear

Victoria’s Secret owner L Brands Inc. is riding the wave of stimulus checks and relaxed COVID-19 restrictions.  

That’s what the retailer said Friday morning when it updated its first-quarter guidance again the second time in one month. The company now expects earnings per share to be between 85 cents and $1, up from the previous range of 55 cents to 65 cents, excluding any charges related to the early extinguishment of debt. 

Just two weeks earlier, the company, which includes the Bath & Body Works brand, increased its first-quarter EPS estimates from 35 cents to 45 cents a share to the higher range of 55 cents to 65 cents apiece, citing strong sales and margin results quarter-to-date. 

On Friday, the company said the innerwear brand and the soap and hand sanitizer brand have benefited from the recent increases in consumer spending. (The U.S. government began rolling out $1,400 stimulus checks earlier this month. In addition, some states are easing mask mandates and allowing nonessential businesses to increase their capacities.) But L Brands added, “The environment remains uncertain and there is no assurance that these improved trends will continue.”

Either way, investors seem pleased. Shares of L Brands popped more than 7 percent at the start of Friday’s session, closing up 4.04 percent to $61.83 apiece for the day. 

“We’ve never felt so comfortable being so far ahead of consensus, with still meaningful profit opportunity ahead,” Simeon Siegel, managing director and senior retail analyst at BMO Capital Markets wrote in a note, rating the stock a “buy.” 

“We expect powerful [gross margin] expansion, improved [selling, general and administrative expense] leverage,” he continued. “With one-third of [the first quarter] remaining and easier COVID-19 compares ahead, surprising as it may be, it’s reasonable to assume still more upside to [the first quarter], and more importantly meaningful [fiscal year] upside, making valuation look even cheaper. LB remains our top pick.” 

Ike Boruchow, senior retail analyst at Wells Fargo, added that warmer weather, vaccinations and tax refunds are further tailwinds, not just at L Brands, but “could be a dynamic that plays out across retail.” 

Still, his firm rated L Brands “overweight” — valuable and worthy of picking up — thanks to “operational improvements at VS and consistent execution at [Bath & Body Works],” positioning “the brands well to benefit from retail’s favorable reopening dynamics as we move through [fiscal-year 2021]. [Bath & Body Works] continues to show us that they deserve a real multiple as a stand-alone company, while VS is proving that they are on a path to sustainable profitability.”

Shares of L Brands are up more than 391 percent, year-over-year. 

Also this month, L Brands updated its board, saying goodbye to the company’s founder, chairman emeritus and former chief executive officer Leslie H. Wexner, who will not stand for reelection to the L Brands board at this year’s shareholder meeting in May. Neither will Wexner’s wife Abigail. Francis Hondal and Danielle Lee were added to the board as independent members in their place. 

Wexner and his wife, who own 19.5 percent of the company, sold approximately three million L Brands shares at $58.31 apiece for nearly $175 million earlier this week, according to a document filed with the U.S. Securities and Exchange Commission.

In addition, L Brands reiterated its plans to separate Victoria’s Secret  which includes the Lingerie, Beauty and Pink divisions and Bath & Body Works this summer. 

L Brands has previously said it is on a “dual-path approach to the separation of Victoria’s Secret” pursuing options to either sell the Victoria’s Secret brand, or separate it from Bath & Body Works. Both tracks would allow the more profitable Bath & Body Works brand to stand alone on the public market, helping unlock shareholder value. 

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