On Monday, January 29, TN Doan pitched L Brands Inc. (NYSE: LB) as an addition to our Consumer Discretionary holdings. L Brands is a specialty retailer of women’s intimate and other apparel, beauty and personal care products, and accessories. TN’s investment thesis is based on the fact that L Brands’ operates two very attractive, category-leading concepts: Victoria’s Secret and Bath and Body Works. L Brands possesses economies of scale and inventory discipline that lead to cost advantages. Additionally, L Brands has a lot of room to grow internationally, including the wealthy Chinese market.
TN motioned to purchase 100 shares of LB at market price and sell 50 shares of XLY at market price, the Consumer Discretionary SPDR ETF. TN expressed optimism in the stock’s cheapness compared to peers and historical valuations. Moreover, LB’s decision to focus on its core businesses and to exit the unprofitable bikini business, along with the rebound of the retail industry could be catalysts for positive price adjustment.
The motion did not pass, as the class responded cautiously and was weary of entering a new consumer discretionary sub-sector in the midst of an all-time high stock market and of the decline of mall traffic.