Future Store Growth At Victoria’s Secret

Victoria’s Secret (VS) is the biggest driver for the huge success of its parent company, L Brands. Besides enjoying a lion’s share of the lingerie industry with no close competitors in sight, Victoria’s Secret seems to be poised for steady future growth. VS Stores currently contributes to around 50% of L Brands’ revenues and~ 55% of our stock price valuation for the company. The segment is expected to grow well with a CAGR of around 5% between 2016 to 2023. Below, we outline some of the reasons for this.

Reasons Behind The Expected Growth 

• Victoria’s Secret’s lingerie and underwear products seem to fall under the affordable luxury category and hence its sales remain almost unaffected by economic problems. Even while the apparel sector withered under currency fluctuations, economic slowdowns, and the like, these relatively expensive products sold like hot cakes.
• The brand appeal and aspirational value, coupled with the brilliant marketing strategies, inventory management, and the power to adapt to technology and to the changing needs of its clientèle, had made Victoria’s Secret a favorite brand for American women and currently, abroad, as well.
• The company has a refined marketing strategy to make women relate to its models, for example, Victoria’s Angel, Alessandra Ambrosio’s image of a wife and mother gives her a realistic image as a model.
• Its PINK line of clothing is solely targeted to teenage girls which is another example of the lifestyle appeal of the brand.
• The company’s constant adaptability to changing market scenarios is one of the keys to its success. For example, Victoria’s Secret (VS) recently announced some major restructurings of its business.
  • The VS business has been further categorized into Victoria’s Secret Lingerie, PINK, and Victoria’s Secret Beauty. These divisions are managed by separate executives who report to the CEO.
  • The company is also repositioning its Beauty business since last year, given the weak performance of this segment for over three years.
  • VS is currently shedding off inventories from its non-core businesses such as swimwears, shoes, and accessories which were so far being sold through the digital channel. Though these businesses generated around $525 million in sales in 2015, the company feels that focusing on its core categories might lead to better growth opportunities in the future.
  • VS had reduced its total headcount by 290 recently suggesting some troubles brewing in its operations and performance.
  • The company has decided to reduce its promotional activities such as direct mail couponing, secret rewards, etc and will henceforth focus on brand marketing for the core categories.

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?
• L Brands Q2 FY16 Earnings Preview
• L Brands Delivered A Moderate Q2, Restructuring Activities Progressing On Track

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