When L Brands (NYSE: LB) fell from around $37 to below $30, shareholders could hardly be surprised at the dividend cut and weak quarterly results.
Although the selloff erased the rebound that started in September, the stock now more reasonably reflects the prospects going forward.
L Brands earned $0.16 a share. Revenue rose 5.7% Y/Y to $2.77 billion.
Management cut the dividend by 50% out of necessity. This will push out income investors but bring back investors interested in a cheap apparel store firm. Fundamentals look better than before. The company hired Tory Burch president John Mehas as the new CEO of Victor’s Secret.
Sales for the 13 weeks ended Nov. 3 are solid. Net sales rose 7% to $8.38 billion while gross profit rose 4%. Costs rose 14%, hurting net income. For the full year 2018, management forecast gross margin falling from the 39.3% as expenses (SG&A) rise from 25.6%.
Previously, promotions at Victoria’s Secret were mixed but gave valuable insights for the company. By testing the most significant promotions throughout the quarter.
As long as it successfully drives sales, margin dollars, and customer acquisition, L Brands will continue to invest in advertising. Now that it has cash flow diverted from dividends to the business, it has the flexibility to run promotions that reignite growth.
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