Executive Summary

• L Brands reported 1Q16 adjusted EPS of $0.59 versus guidance that it provided earlier in the month for the high end of $0.50–$0.55.
• Management was not satisfied with the quarter’s results, particularly at Victoria’s Secret. PINK saw a double-digit increase in sales, and Bath & Body Works posted strong results. Victoria’s Secret’s core lingerie sales were up only slightly (and decelerated sequentially) and beauty category sales were weaker. Trends decelerated as the quarter progressed.
• Management lowered its full-year EPS guidance to $3.60–$3.80 from $3.90–$4.10 previously. Full-year comps are expected to be roughly flat. The more modest outlook is based on two factors: (1) Victoria’s Secret is expected to see an impact of $0.20, which takes into account both an estimate related to previously announced strategic changes and a deceleration in sales trends, and (2) a plan to develop a company-owned China business is expected to result in an impact of $0.10 related to incremental expenses.