This stock refuses to go lower and analysts are pounding the table on this buying opportunity. We have seen the evidence of no declines because we had a put position on LB until this morning. The stock is refusing to move lower despite a very weak market last week.
NEW DIRECTIONAL CALL PLAYS
LB - L Brands - Company Profile
L Brands, Inc. operates as a specialty retailer of women's intimate and other apparel, beauty and personal care products, and accessories. The company operates in three segments: Victoria's Secret, Bath & Body Works, and Victoria's Secret and Bath & Body Works International. Its products include loungewear, bras, panties, swimwear, athletic attire, fragrances, shower gels and lotions, aromatherapy, soaps and sanitizers, home fragrances, handbags, jewelry, and personal care accessories. The company offers its products under the Victoria's Secret, PINK, Bath & Body Works, La Senza, Henri Bendel, C.O. Bigelow, White Barn, and other brand names. L Brands, Inc. sells its merchandise through company-owned specialty retail stores in the United States, Canada, the United Kingdom, and Greater China, which are primarily mall-based; through its Websites comprising VictoriasSecret.com, BathandBodyWorks.com, HenriBendel.com, and LaSenza.com; and through franchises, licenses, and wholesale partners. As of January 28, 2017, the company operated 2,755 retail stores in the United States; 270 retail stores in Canada; 18 retail stores in the United Kingdom; and 31 retail stores in the Greater China area. It also operated 203 La Senza stores in 24 countries; 159 Bath & Body Works stores in 30 countries; 23 Victoria's Secret stores in 12 countries; 391 Victoria's Secret Beauty and Accessories stores in 70 countries; and 5 PINK stores in 3 countries. Company description from FinViz.com.
Two weeks ago, Citigroup downgraded LB from buy to neutral saying the retailer is operating in too many failing and underperforming malls. The analyst said their entire year would come down to how they perform in the second half of 2017 after an ugly shopping season in 2016.
The company beat on Q4 with earnings of $2.18 compared to estimates for $1.90. Revenue of $4.5 billion matched estimates. Same store sales fell -3% at Victoria Secret. However, they guided for 2017 earnings of $2.05-$3.35 and analysts were expecting $3.61. They reported mid to high teens percentage same store sales declines in February. They also said the exit from swimwear will cost them another 6% in sales in April.
On April 6th, LB said same store sales in March fell -10%. However, they had an excuse. They blamed 2% to 3% of that drop on the later than normal Easter that would have normally produced some late March sales. They also said sales were lowered by the exit from the swimwear and apparel business had a negative 7% impact. Victoria Secret sales declined -13%, compared to analyst estimates for a 10.8% decline. Bath and Body Works sales were flat and analysts expected a 2% decline. Investors bought the excuses and the stock did not decline.
Earnings May 24th.
Oppenheimer came out swinging on the LB buying opportunity with a $62 price target. The analyst said patient investors will be well rewarded because the low March numbers were predicted in advance and the recent sell off was overdone. Changes in inventory levels and content after a slow January, made an immediate difference in traffic and revenue.
In April, the stores are transitioning into a Mother's Day theme featuring new and seasonal products in body care, home fragrance, soaps and sanitizers.
Shares rebounded to $47.50 on the better than expected same store sales when accounting for discontinued swimwear. They have held at that level for seven days and are showing no signs of a decline. The next move appears to be higher. If we make an entry now before that move begins, we can get a lower option premium.
There are no June options.
Buy August $50 call, currently $2.80, initial stop loss $44.50
NEW DIRECTIONAL PUT PLAYS
No New Bearish Plays