L Brands Edges Out Market Expectations

L Brands Edges Out Market Expectations

Teen retailers have been on the ropes this year, with many parents opting to cut back on back-to-school shopping due to other financial concerns -- cars, houses, college, you know, little stuff. Luckily, overall soft sales haven't stopped Limited Brands -- trading as L Brands -- from staging a strong rebuilding year. The company announced third-quarter sales yesterday, and while there was nothing shocking, the company solidly managed the market's expectations.

L Brands returns to sales growth
There wasn't a lot of shock in Limited's release yesterday, as the company announced its updated guidance at the beginning of this month based on monthly sales. The company reported an overall increase in comparable sales of 3% across all its brands for the third quarter. That helped push overall revenue up 6%, to $2.2 billion.

The sales growth came on the back of comparable sales growth from all three of the company's brands -- Victoria's Secret, Bath & Body Works, and La Senza. The biggest sales challenge for L Brands has been at La Senza, which has grown comparable-store sales by 4% year to date. This time last year, the brand had a year-to-date drop of 2% in comparable sales.

Strength in a weak market
The real success at L Brands is that the company has continued to grow even as the market has weakened around it. Gap continues to be a leader in the teen market, and it only managed a 1% increase in comparable sale for the quarter. Even with the growth, no one is looking forward to a strong fourth quarter.

All signs point to a heavily promotional holiday season, and L Brands' management has said that it has an aggressive plan in place, if the market calls for it. Last year, the company left money on the table by not being promotional enough, and it has learned from that experience. Estimates for the fourth quarter are for an increase in earnings per share of between 20% and 30%.

Looking to the future
The one ongoing problem at L Brands is that it has yet to manage its online Victoria's Secret sales. All the company's brands are ticking over nicely, but comparable online sales at Victoria's Secret fell 1% this quarter, and are down 4% year to date. That lack of meaningful growth is holding the company back from really taking off. Sales in the channel make up close to 30% of the company's total revenue.

The holidays are always a telling time for retailers and, with a good push and some aggressive pricing, Victoria's Secret could easily get back in the game. Investors should look for some margin compression in the fourth quarter, but hopefully see an increase in sales, as well. It would be a small price to pay for getting the brand back to sales growth, which is what it needs right now.

The future in online
The success of Victoria's Secret is already heavily dependent on its online sales, and that dependency is only going to grow. The same change is happening across the retail landscape, and some companies have really figured it out. To learn about two retailers with especially good prospects, take a look at The Motley Fool's special free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." In it, you'll see how these two cash kings are able to consistently outperform, and how they're planning to ride the waves of retail's changing tide. You can access it by clicking here.

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