L Brands’ January Sales Remained Dampened Due To Its Ongoing Transition

L Brands demonstrated a lukewarm performance for the month of January 2017 as well as for the fourth quarter of fiscal 2016 (fiscal year ends in January).  The restructuring activities for the Victoria’s Secret business and the Beauty division are the main reasons for the company’s current performance. Victoria’s Secret’s core business is being streamlined to exclude shoes, swimwear, accessories, and apparel in the future.This category offered annualized sales of ~$525 million in 2015, hence the company is foregoing the gains from these sales currently. The VS business will be segregated into Victoria’s Secret Lingerie, PINK, and Victoria’s Secret Beauty. Additionally, the company’s Beauty business that had been lagging in performance over the last three years is currently being repositioned. The company is trying to shift its focus from the fantasy beauty products to fine fragrance and high-end body care products. In its Q3 FY 2016 earnings call, its management expressed that the restructuring plans for Victoria’s Secret has been progressing according to plans. For the entire fourth quarter of fiscal 2016 (fiscal year ends in January) L Brands sales grew by 2% y-o-y to close to $4.5 billion, although the comparable sales remained flat. The earnings per share for the fourth quarter is expected to be around $1.90.

For the month of January, the merchandise margin rate for the company grew in comparison to the same period last year. The inventories per square foot were 1% lower year-on-year. Victoria’s Secret’s comparable store sales fell by 10% y-o-y in January. The sales decline due to the exited categories of swim, apparel, and the lingerie business offset the growth of its PINK and Beauty businesses. The merchandise margin rate for Victoria’s Secret declined due to the year end adjustment of inventories and the exit from the non-core categories. The fourth quarter sales for Victoria’s Secret declined by 1% y-o-y to around $2.60 billion and the comparable sales decreased by 1% y-o-y. 

However, the performance of the Bath & Body Works segment was comparatively better. The comparable sales for January rose by 12% y-o-y mainly due to the success of its semi-annual sales and an additional 6 days of sales in January. The merchandise margin rate also grew significantly compared to the last year due to a successful mix of products. The fourth quarter sales for Bath & Body Works amounted to $1.62 billion and the comparable sales grew by 5% y-o-y. The sales for Bath & Body Works Direct grew by 25% y-o-y to ~$198 million.  

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

• What Is L Brands’ Revenue And EBITDA Breakdown?
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• L Brands Q4 2015 Pre-Earnings Report
• L Brands 2015 Year In Review
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• 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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