L Brands Trumps Market Growth In November
Earlier this month, the parent company of Victoria’s Secret and Bath & Body Works, L Brands (NYSE:LB), reported its November sales results, that were much better than the overall market performance. The company’s sales improved 9% to $1.08 billion and its overall comparable sales grew 8%. L Brands’ merchandise margins remained flat as compared to last year and its inventories per square foot were down 14% from the year ago period. Such a decline in inventories indicates that the retailer would have entered December with a clean inventory position, which will allow the timely launch of a fresh collection and reduce the level of promotional activities. [1]
Our price estimate for L Brands is at $70, implying a discount of about 15% to the market price.
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At Victoria’s Secret’s North American stores, comparable sales improved 6%. We believe, that the brand’s overall sales growth would have been better than 6%, given that L Brands’ revenue growth was slightly ahead of its comparable sales growth. It is interesting to note that Victoria’s Secret’s growth during the month was some ways ahead of the apparel market growth. The U.S. apparel industry grew just 3.6% year over year in November, indicating that several retailers around the industry didn’t do too well, amid fierce competition and cautious consumer spending. [2] However, lingerie giant Victoria’s Secret continued to leverage its strong footing in the market. The brand’s strategy of shifting focus from one category to another month after month has worked very well so far, and this trend continued in November.Victoria’s Secret started the month with the launch of its “very sexy scandalous” collection aligned with its “scandalous” fragrance. Half way through the month, the brand shifted its focus to “dream angels” collection. [3]
With the focus on holiday gifting in December, we see no reason why Victoria’s Secret would not be able to sustain its growth momentum during the month. In fact, the recently aired Victoria’s Secret fashion show featuring Taylor Swift, Ed Sheeran, Ariana Grande and Hozier, no doubt created further excitement among the brand’s target customer group, which should help its sales.
During the month, Bath & Body Works‘ comparable sales increased by a robust 11%, and its overall revenue growth might have been even better. The overall health and personal care market grew by 6.8% in November, which places Bath & Body Works’ growth more than 4 percentage points ahead of the industry growth rate. [4] Interestingly, the brand’s merchandise margin rate improved as compared to last year. L Brands expects Bath & Body Works’ comparable sales to increase in mid-single digits in December, driven by the launch of holiday collections, great gifts and new fragrances.
To calculate L Brands’ market share gain over the last one year, we consider “clothing and clothing accessories” and “health and personal care” as one market. The overall market grew by 5.3% year over year in November, while the company’s sales improved by 9%. In November last year, L Brands’ share in the market defined above stood at 2.2%, which increased to 2.3% this year. While the improvement doesn’t seem too significant, it must be noted that Victoria’s Secret has a limited apparel variety, as opposed to numerous specialty retailers, multi-brand chains and department stores in the country. We believe that within the niche intimates market, the brand would have gained a lot more than what the above figures show.
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Notes:- L Brands Reports November 2014 Sales, L Brands, Dec 4 2014 [↩]
- Clothing and Clothing Accessories Stores, U.S. Census Bureau [↩]
- L Brands November Sales Transcript [↩]
- Health and Personal Care Stores, U.S. Census Bureau [↩]