L Brands Delivered A Moderate Q2 FY16 Due To Its Restructuring Activities

L Brands released its July 2016 and preliminary Q2 FY2016 results on August 4th. The company has been currently restructuring the Victoria’s Secret (VS) business, repositioning its Beauty segment, making changes in its international operations, and undertaking cost saving measures (such as the recent retrenchment of 290 VS employees). As a result of those initiatives, the company’s merchandise margin rates had been dampened over the last few months. However, L Brands still grew its top line by 5% and its comparable sales (including direct) increased by 3% Y-o-Y in Q2 FY16, over the 3% increase in Q2 FY15.  Total company owned L Brands stores stood at 3,052 by the end of July 2016 as compared to 3,005 at the end of January 2016. We expect L Brands current initiatives to significantly boost its growth in the future.

Some Recent Initiatives By L Brands

• In an effort to focus on its core business L Brands has decided that Victoria’s Secret core business will henceforth exclude shoes, swimwear, accessories, and apparels. These items were so far offered through the digital channels (and not in stores) and had annualized sales of ~$525 million in 2015. The company is expecting to complete the sale of the remaining inventory in the aforementioned categories by the end of 2016.

• L Brands international business has been dampened due to macroeconomic setbacks in some geographies, weak international exchange rates, and reduced tourism in high profile cities that dampened sales through travel retail. Hence, it has decided to build a local business for Victoria’s Secret in China, which will help deal with issues related to international transactions.
• In Q1 FY16, the company has invested $4 million in the China business and is currently establishing an L Brands management team in Shanghai.
• In the first quarter of FY2016, 18 new stores were opened internationally.

• In an effort to reposition its Beauty business (that has been lagging behind for the last 3 years), the company is trying to shift its focus from the fantasy beauty products to fine fragrance and high-end body care products.

Have more questions on L Brands? See the links below.

• What Is L Brands’ Revenue And EBITDA Breakdown?
• How Has L Brands’ Revenue And EBITDA Composition Changed Over 2012-2016E?
• L Brands Q4 2015 Pre-Earnings Report
• L Brands 2015 Year In Review
• How Was L Brand’s Monthly Performance In February 2016?
• How Was L Brand’s Monthly Performance In March 2016?
• What Is L Brands’ Fundamental Value Based On 2016 Estimated Numbers?
• How Did L Brands’ Different Segments Perform Over The Last 5 Years?
• What Are The Key Takeaways From L Brands Q1 FY2016 Earnings Results?
• Why Is Victoria’s Secret Undergoing Restructuring Changes?
• Key Takeaways From L Brands May 16 Performance Report
• Why Has L Brands’ Stock Price Declined By Around 30% Year-To-Date?
• Which Is The Most Important Segment For L Brands’ Future Growth?
• How Was L Brands’ Monthly Performance In June 2016?

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