Showing posts with label L Brands. Show all posts
Showing posts with label L Brands. Show all posts

Thursday, July 2, 2020

Surprise! Bank of America's US 1 List Includes L Brands

The Bank of America's US 1 list is a collection of best investment ideas from the list of buy-rated, US-listed stocks. It came as a surprise to me that L Brands is included in the US 1 list for Q3, 2020.
Victoria's Secret, which is a division of L Brands, has been in trouble for a very long time. Sales at this division have been declining for years. For example, in the fiscal year 2019, Victoria's Secret reported sales of $5.1 billion. This was down from $5.6 billion in the fiscal year 2018. That's a change of about -9% from 2018.

Exhibit: L Brands Net Sales in Fiscal Years 2018 and 2019
A similar decline in sales was seen between 2017 and 2018. In 2018, sales declined by 4% compared to 2017.
Exhibit: L Brands Net Sales in Fiscal Years 2017 and 2018
As a result of this decline in sales over multiple years, L Brands had struck a deal with a private equity firm - Sycamore Partners - to take Victoria's Secret private. But, due to the COVID-19 pandemic, Sycamore Partners backed-off from the deal. So, given all those problems with the Victoria's Secret brand, why is Bank of America including L Brands in its influential US 1 list? 
L Brands' inclusion may have more to do with the other division called Bath & Body Works.  
Overall sales did take a huge hit to the downside during the pandemic-driven closure of its stores. But, Bath & Body Works saw an increase of 85% in its direct-to-consumer business. This business recorded $288.9 million in sales in Q1 2020 compared to $156.4 million in Q1 2019. 
Bank of America sees the stock as undervalued given that it may be expecting this outperformance to continue for the Bath & Body Works division and that is why this was a surprise addition to the US 1 list.     
Disclosure: At the time of this publication, I do not own L Brands.     



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