Henri Brendel Closure Wins L Brands An Upgrade From Bank Of America Merrill Lynch

Fashion and beauty retailer L Brands Inc (NYSE: LB) said last week it will close all 23 of its Henri Bendel stores and the brand's e-commerce platform — a move that makes the stock less risky, according to Bank of America Merrill Lynch. 

The Analyst

Bank of America's Lorraine Hutchinson upgraded L Brands from Underperform to Neutral with a price target lifted from $26 to $33.

The Thesis

Henri Bendel, a 123-year-old upscale brand best known for its purses and iconic Fifth Avenue location, has been a money-losing business for its parent company, Hutchinson said in the upgrade note.

The closure of all stores and the e-commerce site marks the first time in years L Brands is taking steps to improve or at the very least stabilize shareholder value, the analyst said. 

Yet the announcement doesn't eliminate all of L Brands' risks, as the biggest concern for the stock is the Pink business, which accounts for 23 percent of total revenue, Hutchinson said. The business started showing concerning signs in the fourth quarter of 2017, and by the second quarter of 2018 comps were down by a mid-single digit and merchandise margins were notably lower, she said. 

The closure of Henri Bendel, coupled with a valuation support at 12.5 times P/E and 6.8 times EV/EBITDA, along with an 8-percent dividend yield, implies that L Brands shares are less risky at current levels, according to BofA. 

Price Action

L Brands shares were trading up 3.2 percent to $29.35 at the time of publication Tuesday.

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