Victoria's Secret Issues Are 'Self-Inflicted,' But L Brands Can Bounce Back

Analysts at Bernstein began covering U.S. softline and specialty retail group Monday, holding an overall bullish outlook on apparel. Among the multiple companies the firm's Jamie Merriman began covering is L Brands Inc (NYSE: LB), the parent company of Victoria's Secret and Bath & Body Works.

Merriman initiated coverage of L Brands' stock with an Outperform rating with a $57 price target, which implies an upside potential of more than 50 percent. The main thesis behind the bullish stance is that Victoria's Secret's poor performance as of late is very much "self-inflicted" and not due to a slowdown in the overall category or even a mall issue.

In fact, Victoria's Secret's problems is a "problem of [its] own making," as management made several mistakes as of late, the analyst suggested. For example, the company exited the swim and apparel category, which accounted for 9 percent of Victoria's Secret's sales in 2015 and has proven to be the biggest driver of declining sales.

Finally, the retailer brought in new management at both VS Beauty after experiencing market share losses, Merriman continued. There are signs of improvements as evidenced by a positive sales growth in the second quarter in the beauty segment. The company also brought in new management at Bath & Body Works to implement new techniques and rebuild market share.

At time of publication, shares of L Brands were up 4.43 percent at $39.58.

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Image Credit: By Lucas Secret - Own work, CC BY-SA 3.0, via Wikimedia Commons