How Has L Brands Performed So Far This Year?

L Brands has been a robust performer in the specialty retail and personal care sectors with its star brands Victoria’s Secret and Bath & Body Works for several years. In an environment where apparel demand witnessed a slowdown, Victoria’s Secret continued drawing customers with the aspirational value and strong appeal attached to its brand name. However, lately L Brands has been undergoing several changes within the company which had resulted in a moderate performance by the company over the last few quarters. The company seems to be on track with its restructuring activities and expects to reap the benefits for its investments, soon.

The initiatives undertaken by the company so far that resulted in its lukewarm performance are as follows:

• Exclusion of shoes, swimwear, accessories, and apparel from Victoria’s Secret’s core business. The company expects to shed off the excess inventory by the end of this year. These items offered annualized sales of ~$525 million in 2015, hence the company is foregoing the gains from these sales currently. The VS business will be further categorized into Victoria’s Secret Lingerie, PINK, and Victoria’s Secret Beauty. These divisions will be managed by separate executives who will report to the CEO.

• Macroeconomic headwinds such as recession in certain regions across the world, slowdown in travel retail due to natural disasters, and terrorism related activities, coupled with the weak international exchange rates against the U.S. dollar – all these factors led to a setback in international sales. In order to combat some of these issues, the company has decided to build a local business for Victoria’s Secret in China. In Q1 FY16, it invested $4 million in the China business and is currently establishing an L Brands management team in Shanghai.
• L Brands had opened around 40 new stores internationally over the first two quarters of 2016.
• VS has reduced its total headcount by 290 recently.
• 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.

We believe that these initiatives will lead to the long term growth in sales and profitability for the company and the setbacks it is facing currently are temporary roadblocks. Victoria’s Secret Stores is the biggest contributor to the company’s sales. Currently, it contributes to around 50% of L Brands’ revenues and~ 55% of our stock price valuation for the company. We expect the segment to grow well with a CAGR of around 5% between 2016 to 2023.

We expect this division’s EBITDA margin to reach almost 28% by the end of our review period.

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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