L Brands Is On A Roll: September Sales Growth Topped Analysts’ Estimates By More Than Double
L Brands (NYSE:LB), the parent company of Victoria’s Secret and Bath & Body Works, reported its September 2015 sales on October 8th. The company’s performance can be described by quoting The Bard, ‘All’s Well, That Ends Well.‘ Though the company is nowhere close to ‘ending’ and we believe has a long, long way to go, its September performance report which has topped Wall Street analysts’ estimates by more than double, does suggest that the sacrifice of the apparel category has indeed worked well for the company. L Brands net sales in September increased by 8% to $920 million. The growth was fueled by a 9% growth in comparable store sales, which surpassed analyst estimates of 4.1%. Both Victoria’s Secret and Bath & Body Works comparable sales growth were way above the analyst estimates. [1] The company was aided in this growth by the shifting of Labor Day to September 7th this year, and the growth in the merchandise margin rates. The inventories per square foot witnessed a 7% year-on-year growth. [2]
The surging performance of the company can be attributed to its two brands which are the top performers in their respective categories. Currently, Victoria’s Secret enjoys over 40% share of America’s $13.2 billion lingerie market with the competition currently holding only a low single digit market share. [3] Bath & Body Works is the largest specialty retail beauty brand in the world with over 120 million transactions in 2014. Currently, it is the number one brand in America in the category of body lotion, shower gel, fine fragrance mist, liquid hand soap, hand sanitizer, spa, and aromatherapy. [4]
Our price estimate for L Brands is at $80, around 15% lower than the current market price.
See our complete analysis for L Brands
Victoria’s Secret Sales Surged And The Core Category Focus Is Reaping Benefits
Victoria’s Secret’s comparable store sales in September grew by 9% (over the 4% growth last year) beating analysts’ expectation of a 5.3% rise. [1] The primary growth drivers were the increase in sales of its PINK line of clothing for teens and its core lingerie sales increase. The sales in turn were bolstered by the Labor Day related sales activity and the re-issuance of its loyalty cards called Angel Cards. The merchandise margin rate was in line with expectation and slightly lower than that of last year. The reason for the same was the promotional activities towards increasing Labor Day sales and for new launches. The merchandise margin dollars experienced growth compared to that of last year. [5]
Victoria’s Secret’s wide collection of merchandise makes it easier for the brand to make fresh theme launches every month. This continuous freshness in appearance and product positioning is one of the secrets behind the brand’s enormous success. For the month of October, the company will relaunch its Beauty Fantasies collection.
Victoria’s Secret direct is reflecting higher growth every consecutive month. In the recent past, Victoria’s Secret had exited its apparel category. The underperformance of its apparel division contributed to the lackluster performance of Victoria’s Secret’s direct-to-consumer business in 2013 and 2014. Hence, the company decided to sacrifice its $350 million apparel business in order to redeem its previous growth levels after shedding off a segment that was lagging behind. It categorized its products into “go forward” and “non go forward” categories and started clearance sales for the latter category. The core category was restructured to sacrifice the peripheral businesses such as makeup and apparel. Consequently, the company experienced a significant dampening of its gross margins but believed that chances for its long-term growth had increased due to this decision. The growth of its core division in the last few months does imply that the company took the right path. The division displayed significant growth in the second quarter of 2015. Its August sales had witnessed a 2% year-on-year increase and its September sales grew further by 3% on a year-on-year basis. The September growth in core categories reached mid-twenties, and thereby offset the dampening effect of the brand’s exit from the apparel division. The September merchandise rate also witnessed a significant growth over last year bolstered by the focus of the product mix into the core merchandise category.
Bath & Body Works’ Sales Were Boosted By Labor Day Sales
The Bath & Body Works brand also reaped the benefit of the Labor Day shift. The comparative store sales for Bath & Body Works increased by 8% on a year-over-year basis (over the 10% growth of last year) and easily beat analysts’ expectation of a 1.6% growth. [1] The merchandise margin rate was flat compared to last year and was a bit dampened due to the Labor Day related promotional activities. The brand will continue featuring its ongoing Jump into Fall theme in October along with introducing some new and seasonal collections. [6]
For the moment, both brands are delivering, and with the holiday season approaching, more good news may be on the horizon, too.
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Notes:- L Brands beats expectations for September, The Columbus Dispatch, October 8, 2015 [↩] [↩] [↩]
- L Brands Reports September 2015 Sales, L Brands, October 8, 2015 [↩]
- Victoria’s Other Secret: The Low-Key Billionaire Behind The Lingerie Giant, Forbes, September 30, 2014 [↩]
- L Brands Investor Handouts, L Brands, 2015 [↩]
- September Sales Report Transcript [↩]
- ref:1 [↩]