MKM Talks L Brands After Swim Collection Launch

Fashion retailer L Brands Inc LB re-launched its swimear collection in March after a two-year pause. While only a few weeks have passed since launch, investors may be overestimating the segment's true potential.

The Analyst

MKM Partners' Roxanne Meyer maintains a Neutral rating on L Brands with a $26 price target.

The Thesis

L Brands' new swimwear collection consists of 468 different skus, of which 17 different third-party brands account for 83 percent of the total 334 styles offered, Meyer said in a research report. Overall pricing is "significantly higher" than initially expected as bikini separates start at $32, one-pieces at $62, cover-ups at $37 and sunglasses at $65.

Meyer says the problem for L Brands is some of the brands it sells are also sold at other major department stores or specialty stores in the same or similar styles. As such, price is a major factor and some of the brands were on sale by 20 percent to 30 percent over the past two weeks.

L Brands is also abandoning its competitive advantage in fit as sizing ranges from XS to XL, according to Meyer. The category is only offered online, which may alienate customers who need to try on first given a new sizing format.

While still in the early days, the swim category could prove to be a less meaningful driver of sales than what bulls expect. Management needs to "work harder" to generate revenue, especially when considering the non-owned or licensed nature of the majority of its new products.

Price Action

L Brands traded lower by 1.3 percent to $27.20 per share.

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