L Brands Outperforms, Street Isn't Impressed

L Brands Inc

CEO put it quite bluntly in her Q4 earnings recap, "We achieved our best year ever in 2015." This follows their earnings report that beat reported a top-line beat of $4.395 billion against the estimated $4.37 billion. The specialty retailer also guided Q4 EPS at around $2.05, up from the $1.85-$1.95 estimate that was previously guided by the company. That wasn't the only positive news given by L Brands, which included:

Despite these positive announcements, the market reacted unfavorably to the release and traded down from a high of $97.37 to a low of $89.84. Benzinga reached out to multiple sell-side analysts to ask about the subsequent move in the stock. FBR Retail Analyst Susan Anderson told Benzinga that both same store sales as well as merchandise margin were disappointing, despite the strong quarter. Brean Capital Senior Analyst Liz Pierce echoed the same store sales disappointment as Anderson, noting that L Brands had guided same store sales up single digits in January, and that the dividend and buybacks were to "cushion the blow." However, Pierce followed this by noting that the market may be "profit taking", as the specialty retailer continues to perform better than other retailers. "L Brands has been executing great over the past year, it's hard to find anything [wrong] from a fundamental perspective. At this point, it's more of a struggle with valuation." When asked about other catalysts, Pierce said that the PINK and White Barn Collection brands still have domestic potential, while international growth still possible considering L Brands differentiated products. Anderson notes that her catalyst going forward would be increasing market size, while improving supply chain efficiency and reducing promotional pricing. "The question going forward is, 'Can they continue to expand margin?'"