Anyone who's walked through the typical mall in the United States is well aware of two stores that can be found in almost every mall - Victoria's Secret and Bath & Body Works. Of those who have never entered a Victoria's Secret store, many have viewed and ordered from its online catalog. Many others have seen the televised Victoria's Secret Fashion Show (see below). Between Victoria's Secret and Bath & Body Works, the company is the premiere provider of bras, panties, loungewear, sleepwear, swimwear, athletic attire, fragrances, shower gels and lotions, aromatherapy, soaps and sanitizers, home fragrances, and personal care accessories for women. |
The Company
L Brands, Inc. (LB) operates as a specialty retailer of women’s intimate and other apparel, beauty and personal care products, and accessories. The company operates in two segments, Victoria’s Secret and Bath & Body Works. Its products include loungewear, bras, panties, sleepwear, swimwear, athletic attire, fragrances, shower gels and lotions, aromatherapy, soaps and sanitizers, home fragrances, 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 Candle Company, and other brand names. L Brands, Inc. sells its merchandise through company-owned specialty retail stores in the United States, Canada, and the United Kingdom, which are primarily mall-based; through its Websites and catalogues; and through franchises, licenses, and wholesale partners. As of February 1, 2014, the company operated 2,648 retail stores in the United States; 270 retail stores in Canada; and 5 retail stores in the United Kingdom. It also operated 331 La Senza stores in 30 countries; 55 Bath & Body Works stores in 14 countries; 4 Victoria's Secret stores in 2 Middle Eastern countries; and 198 Victoria’s Secret Beauty and Accessories stores, and various small-format locations in approximately 60 countries. The company was formerly known as Limited Brands, Inc. and changed its name to L Brands, Inc. in March 2013. L Brands, Inc. was founded in 1963 and is headquartered in Columbus, Ohio. (Daily Chart) (Weekly Chart) | 13 August 2014 Price $62.26 1yr Target $62.38 Analysts 25 1yr Cap Gain 0.19% Dividend $1.36 Yield 2.18% 1yr Tot Return 2.37% 3yr DGR 34.94% Payout Ratio 43.87% Beta 1.07 EPS (ttm) $3.10 EPS next yr $3.58 P/E 20.08 PEG 1.80 ROA 13.80% ROE -137.90% |
The Fundamentals
I expect the dividend to increase another $0.20 in each of the next two years to $1.44 in 2015 and $1.64 in 2016. I also expect additional special dividends in the future but I have no idea what the amounts of those dividends will be. They could easily be up to $1.50 in each of those two years.
Year 2016 Est 2015 Est 2014 2013 2012 2011 2010 | Revenues $11.91 Bil $11.28 Bil $10.77 Bil $10.45 Bil $10.36 Bil $9.61 Bil $8.62 Bil | Earnings $3.60 $3.17 $3.12 $2.60 $2.80 $2.49 $1.39 | Dividends UNK UNK $1.24 ($1.00) $1.05 ($4.00) $0.85 ($3.00) $0.50 ($1.00) $0.60 | Payout Ratio UNK UNK 39.74% 40.38% 30.35% 20.08% 43.16% |
While the revenue growth rates below have been relatively consistent, the earnings and dividend growth rates have not. I suspect that a slowing of the earnings in 2015 will reduce the special dividend and then the expansion of the growth rate in 2016 will once again expand the special dividend as well as the price of the stock. And while the dividend growth rate may slow from the torrid rate of approximately 20%, it should still remain in the very high teens.
Revenues Growth Rates 1yr = 3.06% 2yr = 1.95% 3yr = 3.83% 4yr = 5.72% | Earnings Growth Rates 1yr = 20.00% 2yr = 5.55% 3yr = 7.72% 4yr = 22.40% | Dividend Growth Rates 1yr = 18.09% 2yr = 20.78% 3yr = 34.94% 4yr = 19.89% |
The Technicals
The Competition
- The Gap, Inc. (GPS)
- L Brands, Inc.
- Ross Stores, Inc. (ROST)
- Nordstrom, Inc. (JWN)
- Abercrombie & Fitch Company (ANF)
- DSW Inc. (DSW)
- The Men's Warehouse, Inc (MW)
- Chico's FAS, Inc. (CHS)
- The Buckle, Inc. (BKE)
- Guess Inc. (GES)
- American Eagle Outfitters, Inc. (AEO)
- The Children's Place (PLCE)
Conclusion
While this company would not be a core holding for me because of the inconsistency of the company's fundamentals and the finickiness of the fashion industry, I would like to be a holder of the stock. I believe this company has cornered the market in this segment of the industry and has maintained it's first place position for decades. I think this could continue for decades more.
I intend to slowly start to accumulate a position in this stock as excess funds become available. It will never make up a large portion of my portfolio but I think it could provide a nice niche holding that produces a nice supplemental income.
The Live Interactive Chart