What to Expect When L Brands Reports Q3 Results

L Brands (LB) is scheduled to report 2016 third-quarter results after today's market close, with analysts looking for year-over-year growth in revenue but a decline in earnings. 

Analysts surveyed by FactSet are modeling earnings of 40 cents a share on $2.58 billion in revenue for the quarter. For the year-ago period, L Brands reported earnings of 55 cents a share on revenue of $2.48 billion.

The parent company of Victoria's Secret and Bath & Body Works has outperformed the FactSet consensus by an average of roughly 8% during the past four quarters, making it somewhat of an outlier in an industry plagued by declining traffic and growing competition. 

L Brands focuses primarily on lingerie and body care, insulating it from the promotional environment and declining mall traffic weighing on many of its peers, RBC Capital Markets wrote in a note this morning.

Shares are nonetheless down about 30% so far this year amid slowing sales at Victoria's Secret and a preference by certain customers for less expensive bralettes over traditional bras. 

RBC expects L Brands to cut or narrow its full-year earnings guidance in tonight's third-quarter report.

The firm highlighted near-term negative catalysts including a "bumpy" fourth quarter given high inventory, category exits, a pullback in promotions and a mix shift at Victoria's Secret, as well as tough comparisons for the first half of 2017 due to its decision to exit the swim business.

"Although we believe LB operates two of the best positioned specialty retail brands in the U.S. with significant international growth potential, we see a lack of visibility to earnings in the medium-term given a decelerating Victoria's Secret business and recent restructuring announcements," RBC analysts Brian Tunick and Kate Fitzsimons said in a note. "Further, we expect that the valuation already reflects the longterm growth potential of the business."

The firm reiterated a "sector perform" rating on the stock.

Shares of L Brands are lower in early afternoon trading.

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