2017 is not shaping up to be a good year for L Brands Inc. (NYSE:LB).
The owner of Victoria’s Secret, Bath & Body Works, and two other chains reported its quarterly earnings on Thursday, surpassing expectations for the all-important holiday quarter. Adjusted earnings per share were $2.03, a little below last year’s results of $2.15. It still easily beat expectations, which were $1.90 per share.
The problem was with 2017’s outlook. Management said earnings per share for the year would be between $3.05 and $3.35, versus 2016’s results of $3.69. The company also disclosed weak February sales from Victoria’s Secret, which is usually one of its better months. Some of the decline can be attributed to the chain’s decision to exit swimwear, however.
Shares plunged 15% on the news, settling just above $49 each. The stock hasn’t been this cheap since 2014.
Many investors are nervous about retail, which only helped today’s decline. But shares are cheap from a price-to-earnings perspective, trading at just 13 times trailing earnings and 15 times the midpoint of 2017’s guidance range.
Shares yield 4.9%, a payout easily covered by earnings. Management is also giving back to shareholders in another way, repurchasing 5.7 million shares in 2016.
One thing that should give value investors pause is L Brands’s large debt load. The company has total assets of $7.6 billion with long-term debt of $5.7 billion. Many prefer turnaround stories with clean balance sheets.
