L Brands Moves to Hit Top, Bottom Lines

Elimination of non-core apparel online and makeup to reduce annual revenues by more than $300 million.

For L Brands Inc., focus will come at a price.

The Columbus, Ohio-based specialty retailer expects to sacrifice more than $300 million in annual sales as a result of its decision to exit non-core apparel categories in its Victoria’s Secret direct business as well as the makeup component of its beauty business.

On a conference call Thursday to discuss the company’s first-quarter results, Sharen Jester Turney, chief executive officer of Victoria’s Secret, said the moves are being made to “increase our focus on our fastest-growing, most-profitable businesses.” Beauty sales are dominated by the fragrance category.

Stuart Burgdoerfer, executive vice president and chief financial officer of L Brands, said the resulting decline in apparel sales during the current year will be about $130 million, “a portion of which will be offset by growth in other categories,” with makeup sales adding about $25 million to the lost revenue total.

Additionally, the moves will reduce earnings for the full year by between 10 and 12 cents, to an expected range of $3 to $3.15.

Turney later said that apparel sales in the direct channel likely would fall to between $200 million and $220 million in 2015 from $485 million in 2013, with the annual impact from the exit from makeup translating to about $45 million.

Last year, Victoria’s Secret Direct generated $1.52 billion in sales with the brand’s stores contributing $5.17 billion.

Turney believes that initiatives in VS’s core innerwear and Pink businesses will allow the company to compensate for the lost sales by fall 2015, with the sales contribution of the makeup business covered by the end of this fall.

The ceo also expressed confidence in the outlook for Pink where, she acknowledged, “we stubbed our toe” during last year’s back-to-school period. “The Pink apparel business has bounced back coming in from holiday,” she said, noting that items planned for the upcoming b-t-s season, in intimates as well as sportswear, tested well.

She said the narrowing assortment better aligns online and offline merchandise, which “not only allows us to better focus on our core, but also provide the seamless customer experience.”

L Brands, formerly Limited Brands, reported first-quarter results late Wednesday and held the conference call on Thursday following its annual meeting. In the first quarter, net income rose 10.1 percent, to $156.9 million, while net sales were up 5.4 percent to $2.39 billion.