L Brands Inc.
raised its first-quarter earnings guidance for the second time in two weeks, and BMO Capital Markets thinks the Victoria’s Secret parent still has room to go even higher.
L Brands first raised its guidance on March 12, going from a range of 35 cents a share to 45 cents to a range of 55 cents to 65 cents.
Then on March 26, the company raised guidance again, this time to a range of 85 cents to $1.
“L Brands … is increasing its first-quarter earnings guidance due to improved sales trends which the company believes are primarily driven by unusual shifts in consumer spending patterns, resulting from government stimulus payments, a relaxation of COVID-19 restrictions and other factors,” the company said in a statement.
“The previously mentioned factors have led to a stronger first-quarter forecast at both Bath & Body Works and Victoria’s Secret. The environment remains uncertain, and there is no assurance that these improved trends will continue.”
The FactSet consensus is for EPS of 84 cents.
BMO Capital Markets analysts led by Simeon Siegel said they think there will be “powerful” gross margin expansion as well.
“With one-third of 1Q remaining and easier COVID compares ahead, surprising as it may be, it’s reasonable to assume still more upside to 1Q, and more importantly meaningful full-year upside, making valuation look even cheaper,” BMO wrote in a note.
“We’ve never felt so comfortable being so far ahead of consensus, with still meaningful profit opportunity ahead.”
BMO rates L Brands shares outperform with an $81 price target.
In addition to raising its earnings guidance, L Brands announced a $500 million share buyback plan and reinstatement of its quarterly dividend on the March 12.
Wells Fargo analysts said the Victoria’s Secret brand is making improvements and the Bath & Body Works brand remains consistent, which should help the company throughout the year.
“Bath & Body Works continues to show us that they deserve a real multiple as a stand-alone company, while Victoria’s Secret is proving that they are on a path to sustainable profitability,” Wells Fargo said.
L Brands has said that it will spin off Bath & Body Works into its own company, even after that plan was previously stalled.
Victoria’s Secret has been working on a turnaround after consumer tastes shifted to brands that emphasized inclusivity.
“We would think that spring weather, meaningful vaccination progress, and tax refunds trickling in all have something to do with this acceleration in trends, which we believe could be a dynamic that plays out across retail,” Wells Fargo said.
Wells Fargo rates L Brands stock overweight with a $78 price target.
L Brands stock has rallied 60% over the past three months and nearly 378% over the past year.
The benchmark S&P 500 index
is up 56.5% for the past 12 months.