Why L Brands, Inc. Stock Plunged 21.9% in August

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What happened

Shares of Victoria's Secret and Bath & Body Works parent L Brands (NYSE: LB) declined 21.9% in the month of August, according to data provided by S&P Global Market Intelligence, after the company announced disappointing second-quarter 2017 sales results and light guidance.

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More specifically for its quarter ended July 29, 2017, L Brands' revenue declined 4.7% year over year to $2.755 billion. On the bottom line, that translated to a 31% decline in adjusted net income to $138.9 million, or $0.48 per share. Interestingly, these results compared favorably to Wall Street's expectations, as consensus estimates called for earnings of only $0.44 per share on roughly the same revenue.

So what

But L Brands management noted that the top line was hurt by a weaker-than-expected 8% comparable sales decline, which meant revising its forward guidance to assume a more conservative sales forecast for the full year. As such, L Brands reduced its full fiscal-year 2017 guidance for earnings per share to be in the range of $3.00 to $3.20, below the $3.23 analysts were expecting and down from $3.10 to $3.40 previously.

In addition, L Brands called for current fiscal third quarter earnings per share to be in the range of $0.25 to $0.30, also below consensus models for fiscal Q3 earnings of $0.36 per share.

Now what

That said, L Brands subsequently offered investors more positive news at the end of the month, when it revealed that August sales had fallen just 1% year over year on a 4% comparable-store sales decline. And comps would have been down only 2% were it not for L Brands' decision to exit the swim and apparel segment at Victoria's Secret.

L Brands stock jumped a modest 3.4% following the report, leaving investors with quite a ways to go before they fully recoup last month's losses. But it's hard to blame the market for its optimism; if L Brands' flagship stores can sustain this momentum through the duration of the current quarter, there's a chance its decision to reduce guidance last month could prove unmerited.

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Steve Symington has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.