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L Brands tops Q2 estimates but lowers guidance as Victoria’s Secret continues to struggle


L Brands is still being dragged down by its decision to eliminate swimwear and apparel from Victoria's Secret.

The company reported a better-than-expected profit of $138.9 million, or earnings per share of 48 cents per share for the quarter, compared with analysts' expectations of 44 cents per share.

Revenue totaled $2.76 billion, better than the $2.75 billion analysts had forecast.

Total same-store sales fell 8%, with a 14% drop at Victoria's Secret and an 8% increase at Bath & Body Works. L Brands said its exit from the swimwear and apparel categories negatively impacted its comparable sales by six percentage points and Victoria's Secret's comparable sales by nine percentage points. Håkon Helgesen, analyst at GlobalData Retail, commented that even allowing for the impact, comparable sales would still have ended up down by around 5%.

L Brands lowered its earnings guidance for the year to $3.00 to $3.20 per share, from $3.10 and $3.40 per share. The company issued third quarter estimates between 25 cents and 30 cents per share, which were below expectations of 36 cents a share.

Håkon Helgesen, analyst at GlobalData Retail, noted that while the quarter brought little respite for L Brands, there are signs the business is advancing.

"Looking beyond core ranges at Victoria's Secret, there is good momentum in the beauty side of the business," Helgesen said. "We believe that the work to rationalize range and decrease lead times is creating a more exciting and relevant assortment. Given that this remains a very high growth area in retail, VS should see some solid gains from this category over the years ahead."

The analyst said the company's push into China is another area of future potential.

"L Brands has made a good start with its first full assortment stores and should end the year with six shops," Helgesen said. "These will be joined by 10 to 12 more stores next year. These, along with the direct business and the beauty business that has operated for some time, mean China is set to make a much more significant contribution to growth.”

Another bright spot is Bath & Body Works, whose ability to grown comparables in both direct and store operations is evidence of the robustness of the business, according to the analyst.

"This is especially true given mall traffic continued to wane over the quarter," Helgesen said. "A particular area of strength for BBW lies in its ability to entice its customer base with new products in categories like home fragrance and body care. We believe that this will continue to aid growth over the quarters ahead."

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