Though L Brands’ Performance Remained Dampened, Victoria’s Secret’s Revival Efforts Might Lead To Better Days
In line with the rest of its fiscal year, the third quarter fiscal 2017 results were disappointing for L Brands, (NYSE: LB), the parent company for Victoria’s Secret (VS) and Bath & Body Works (BBW). Even though the company’s net sales grew by 1% to $2.6 billion, its net income declined by 29% to $86 million while its EPS stood at $0.30 reflecting a 29% decline. L Brands’ comparable store sales fell by around 1%. The main driver for this poor performance was the weakness in sales in the VS segment whose comparable sales declined by 4%. The brand’s exit from swimwear and apparel last year to focus solely on bras is still hurting its sales. Bath & Body Works on the other hand witnessed a 4% increase of comparable sales. However, VS Stores is the most important segment for the company as it derives close to 50% of its revenues from this segment. The VS Stores and VS Direct together make up for almost 80% of our valuation of L Brands. We have a $41 price estimate for L Brands which is around 16% lower than the current market price.
Victoria’s Secret Continued With Its Revival Efforts Which Showed Some Positive Signs
For Victoria’s Secret, the decline in traffic in the North American brick-and-mortar stores has been a major cause for its weakness. However, the management discussed ways in which it is strengthening the division with the hope of bringing about a revival. Victoria’s Secret is trying to build a better connect with its customers through its store associates and also through the digital medium. The brand is focusing on providing the most innovative and fashionable bras, in all the segments, namely, unlined, lightly-lined, or push-up bras. In the third quarter, the brand launched Illusion, a constructed bra that comes in three choices. The demand for this bra has been higher than previously launched constructed bras, and that is a hopeful sign for the future.
Its Dream Angel and Sleep brands also saw double digit growth in sales of constructed bras and sleepwear, respectively. The Sports bra category, which is a major growth driver for VS, also grew by double digits. Along with an aggressive online presence, the company also reactivated its loyalty program through the Angel Cards. Overall, it does seem like Victoria’s Secret is gearing up for better performances in the upcoming holiday season and also in the next fiscal year.
L Brands’ International Sales Seemed Hopeful
L Brands’ international segment witnessed an 11% growth in revenues in the third quarter driven by both VS and BBW, with the latter having an especially strong quarter with growth in all regions. VS continued with its weak performance in the U.K. where it is still struggling to revive performance. However, the company is currently focusing on China for its international growth and its investment on people, infrastructure, and real estate in the region continued. VS is looking forward to a major boost through the upcoming fashion show in Shanghai.
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