By  on May 23, 2013

L Brands Inc., formerly known as Limited Brands Inc., said its first quarter ended May 4 was good in some respects, but fell short in others. First-quarter net income jumped 14.4 percent and profit for the period was $142.5 million, or 48 cents a diluted share, compared with the year-ago profit of $124.6 million, or 41 cents a share. But operating income declined at Victoria’s Secret and total operating income increased 6 percent, “a result we’re not satisfied with,” said Stuart Burgdoerfer, executive vice president.

Comp-store sales increased 3 percent, versus 7 percent in last year’s first quarter, a 57.1 percent decline.

Net sales for the quarter rose 5.3 percent to $2.27 billion from $2.15 billion a year earlier. Wall Street projected earnings per share of 46 cents on sales of $2.26 billion.

The retailer said it expects second-quarter earnings to be in the 50-to-55-cent range and, for the full year, comps are expected to be in the positive low-single-digits.

Adjusted earnings for the full year are forecast to be $2.95 to $3.15 a share. Analysts expect second-quarter EPS of 53 cents and yearly earnings of $3.14.

By segment, Victoria’s Secret Stores had sales of $1.14 billion, a 4.9 percent increase over $1.08 billion in the 2012 first quarter. Victoria’s Secret Direct’s first quarter sales were $359 million, a 6 percent decrease from $382 million last year. Bath & Body Works reported sales of $530 million in the quarter, a 5 percent increase over last year’s $505 million.

L Brands’ third quarter is its lowest volume quarter and Burgdoerfer said it will be harder to leverage expenses and grow earnings. Due to difficult traffic trends, L Brands said it responded with incremental promotions to drive sales, which resulted in a merchandise margin rate that was down in the quarter and below plan.

Capital spending for the year is expected to be $650 million, which will be partly allocated to expanding existing Victoria’s Secret stores and opening about 50 new Pink units. Total company square footage will grow by just under 3 percent. The remodeled stores are generating returns in excess of 30 percent.

First-quarter sales at Victoria’s Secret stores rose 5 percent and comps were up 3 percent on top of a 9 percent increase last year. Sales growth came from Pink and beauty, but bras fell short.

Direct sales in the quarter fell 6 percent. Victoria’s Secret Direct is transitioning its apparel business. Sales fell below expectations by roughly 20 percent.

Victoria’s Secret beauty and accessories stores are forging ahead on the international front. With 126 units open, the brand is on track to reach 200 stores by yearend. Other international highlights include unveiling units in Manchester, Leeds and Sheffield in the U.K., where Victoria’s Secret already operates stores in London on Bond Street and in the Westfield Stratford City mall. The company is also adding units in the Middle East and Canada. “We still have a way to go to get to an acceptable performance,” Martin Waters, president of international, said. “We’re not dependent on international for growth. Our overarching priority is the strength of our brand in North America.”

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