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L Brands Q4 earnings rise to 2.18 dollars but outlook subdued

By Prachi Singh

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Business

L Brands earnings per share for the fourth quarter ended January 28, 2017, were 2.18 dollars compared to 2.15 dollars for the prior year quarter. Earnings per share for the year ended January 28, 2017, were 3.98 dollars compared to 4.22 dollars for the year ended Jan. 30, 2016.

Fourth quarter result summary

Fourth quarter operating income decreased 8 percent to 987.6 million dollars compared to 1.078 billion dollars last year, and net income was 631.7 million dollars compared to 636 million dollars last year.

The company said, reported results above include a favorable tax settlement of 41.7 million dollars, or 0.14 dollar per share. Excluding this, adjusted net income decreased 7 percent to 590 million dollars compared to 636 million dollars last year, and adjusted earnings per share decreased 6 percent to 2.03 dollars compared to 2.15 dollars last year.

Net sales for the quarter were 4.489 billion dollars, an increase of 2 percent compared to 4.395 billion dollars for the quarter ended January 30, 2016. Comparable sales for the period were flat. L Brands said, for the fourth quarter, the exit of the swim and apparel categories had a negative impact of 2 percentage points and 4 percentage points to total company and Victoria’s Secret comparable sales, respectively.

Full-year result highlights

Full-year operating income was 2.003 billion dollars compared to 2.192 billion dollars last year, and net income was 1.158 billion dollars compared to 1.253 billion dollars last year.

The company said, reported results above include certain significant items such as a pre-tax gain of 108.3 million dollars (0.24 dollar per share) related to a cash distribution from Easton Town Center; a pre-tax charge of 35.8 million dollars (0.08 dollar per share) related to the early extinguishment of the company’s July 2017 notes; pre-tax charges of 34.5 million dollars (0.07 dollar per share) related to previously announced actions at Victoria’s Secret, including severance charges, fabric cancellations and the write-off of catalogue paper; and a favorable tax settlement of 41.7 million dollars (0.14 dollar per share) in 2016.

The benefit of actions taken in 2015 include a pre-tax gain of 78.1 million dollars (0.23 dollar per share) on the sale of the company’s remaining interest in the third-party apparel sourcing business. Excluding the significant items above, adjusted full-year earnings per share decreased 6 percent to 3.74 dollars compared to 3.99 dollars last year, adjusted operating income decreased 7 percent to 2.037 billion dollars compared to 2.192 billion dollars last year and adjusted net income decreased 8 percent to 1.090 billion dollars compared to 1.184 billion dollars last year.

Net sales for the year were 12.574 billion dollars, an increase of 3 percent compared to 12.154 billion dollars for the year ended January 30, 2016. Comparable sales for the year increased 2 percent. For the year, the exit of the swim and apparel categories had a negative impact of 2 percentage points and 3 percentage points to total company and Victoria’s Secret comparable sales, respectively.

Expects exit from swim and apparel to impact FY17 results

The company currently expects 2017 full-year earnings per share to be between 3.05 dollars and 3.35 dollars, including earnings per share between 0.20 dollars and 0.25 dollars in the first quarter. The company said, 2017 earnings per share forecast includes negative impacts related to the exit of the swim and apparel categories at Victoria’s Secret, continued investment in China and investment in real estate at Victoria’s Secret and Bath & Body Works.

The company expects to report a mid-to-high-teens decrease in February comparable sales, below expectations for a mid-single digit decrease, reflecting a decline of about 20 percent at Victoria’s Secret and a mid-single digit decline at Bath & Body Works. The exit of swim and apparel at Victoria’s Secret is negatively impacting total company comparable sales by about 6 percentage points.

Summary
Q4 earnings up 2.18 dollars
FY16 earnings down 3.98 dollars
  • L Brands forecasts negative impacts on FY17 results due to the exit of the swim and apparel categories at Victoria’s Secret, continued investment in China and investment in real estate at Victoria’s Secret and Bath & Body Works.
  • The company expects to report a mid-to-high-teens decrease in February comparable sales, below expectations for a mid-single digit decrease, reflecting a decline of about 20 percent at Victoria’s Secret and a mid-single digit decline at Bath & Body Works.

Picture:Victoria's Secret

L BRANDS