L Brands seems resigned to what’s likely to turn out as a bad year for Victoria’s Secret and investors are responding in kind.
New Victoria’s Secret president and chief executive officer Jan Singer addressed the lingerie brand’s tough quarter during her first official talk with Wall Street, saying the “offense” she’s running to turn the brand around is ongoing and made up of many parts.
Investors weren’t comforted, and shares of the company fell 5.2 percent to $37.55 in morning trading, a five-year low. The decline is equal to a loss in market capitalization of about $590 million.
The first and most important part of Singer’s strategy is “putting the consumer at the center, deeply knowing her today, what she expects from products and experiences that spark sexy to her — not just to him,” Singer said.
After that, Singer said adding strength to Victoria’s Secret’s core business of constructed bras is a focus, and her “number-one” job this coming quarter is getting an assortment that’s balanced.
“We have a cornerstone in the business of the push-up bra, and we went to the bralette business and now we’re finding a lot of sexy in the middle, balancing that assortment and bringing a sexy solution as well as fantasy and fashion in constructed bras is the way to go for us going forward,” Singer said.
“I think anybody can make a bralette — that was a moment that will come and go and it will come again,” Singer added. “But for us, we make constructed bras best and when we do, even in our bralette business, when we have more construction in them, we get paid for that work.”
There’s no denying that Victoria’s Secret is having a rough year. Comparable-store sales for the brand fell 14 percent during the quarter and have been negative every month this year.
L Brands consolidated comp sales fell by 8 percent and the operator posted a 45 percent drop in net income to $138.9 million for the quarter and sales fell 4.7 percent to $2.75 billion.
Marketing is another area the company is looking closely at in terms of Victoria’s Secret, which has become known for its annual runway event and its cadre of model representatives.
Singer said she’s spent her first months at the brand “up in the value chain,” from working in stores and getting certified as a “bra specialist” to learning how the products are created, but said “we know the marketing space in [our] universe is changing.”
“It’s about performance marketing and we’re embracing that notion,” Singer said, adding that the brand will have a new chief marketing officer come September.
Given the obvious weakness in sales and comps that came in “below expectations,” L Brands’ chief financial officer Stuart Burgdoerfer said the company was going with a “more conservative” third-quarter forecast and said sales are now expected to be negative in the low single-digits. Previously, the quarter was thought to show sales up by low single-digits.
“While store traffic, particularly at Victoria’s Secret, has been challenging, we believe a large part of the decline is related to the exit of swim and a pullback in promotional activity versus last year,” Burgdoerfer said during the call.
But he said things could still improve in the second half of the year, noting “at the end of the day, traffic is within our control.”
“We believe, based on brand and product and experiences in stores and online that we have the opportunity to impact traffic, and we do when we’re performing our best,” he added.
Christian Buss of Credit Suisse wasn’t soothed by this prospect, and said in a note that the company’s guide down was “uncharacteristic.”
“We are increasingly concerned given a lack of visibility by a typically assured management team, flat growth expectations for core VS product, slow rollout of international expansion and North American square footage continuing to increase amid a deteriorating bricks-and-mortar retail environment,” Buss added.
So far, L Brands has two more stores than it did this time last year and on the international front, about 20 store openings are planned by early 2018.
Ike Boruchow of Wells Fargo said L Brands is still presenting “several areas of fundamental concern” and turnaround strategies at Victoria’s Secret “simply have not worked at this point.”
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