L Brands (LB) shares were in the tank Tuesday morning after the specialty retailer pre-announced its third-quarter results ahead of its annual investor day today. L Brands lowered its current-quarter profit projections while also providing soft same-store sales estimates.
LB is expecting to earn $0.40 a share in the third quarter, down from its prior range of between $0.40 and $0.45. Analysts surveyed by FactSet had been expecting the company to report earnings of $0.46 a share. Last year, the company earnings came in at $0.55 share for the same period. Comparable-store sales in October are expected to be up, but short of consensus estimates of 1.7% growth.
The weak results have been met with differing opinions from the bears and bulls that cover L Brands.
Mizuho analyst Betty Chen downgraded LB to Neutral from Buy, saying that the company's third-quarter earnings miss is a result of the current retail environment and "demonstrates the severity of the challenges" the company is facing.
Analysts at BMO Capital Markets blame the projected miss on the turbulent transition in the company's promotional strategy, which consists of "weaning the consumer from straight markdowns and towards (hopefully) traffic-driving promos such as gift-with-purchase offers," BMO analyst John Morris wrote.
"The slow consumer acceptance of the new promo strategy likely led to some inventory overhang, pressuring margins in the back half of the quarter," Morris concluded.
But the bears weren't the only ones commenting on L Brands on Tuesday.
Analysts at Stifel Nicolaus remained bullish on the company, with analyst Richard Jaffe saying that while the company's Victoria's Secret segment is struggling -- declining versus the same period last year due to those increased promotions -- the Bath and Body Works segment continues to outperform, with a 6% comparable-store sales increase.
BMO cautioned investors that there could be further volatility in the spring, as the restructuring process continues and the company starts to scale back its promotional activity. The firm believes that these activities will continue to put pressure on the company's comps and margins.
Looking forward, analysts at Cowen had some questions for the company in a note following L Brands' third-quarter announcement. analysts queried the timing and strategies for when L Brands' beauty category will be sufficiently repositioned to drive comps and margin growth, once again. The firm would also like to hear updates on the company's international objectives, product highlights at Victoria's Secret and an update on how the company's promotional strategy will affect it over the next four quarters.
Investors are punishing L Brands today for its honesty on how the third quarter is going. While the bears in the analyst community are pointing to the updated outlook as an indication that LB's Victoria's Secret promotional push has failed, the bulls, like Jaffe, point to the profitability of the company's other brands.
