L Brands Inc. shook up the executive offices during its earnings announcement and lowered the guidance for the year.
The lowered guidance was attributed to strategic changes at Victoria’s Secret and a decline related to a deceleration in sales. The Victoria’s Secret arm will be broken up into three business units: Victoria’s Secret Lingerie, Pink and Victoria’s Secret Beauty. Digital will be integrated within each unit.
Lingerie will be headed by Jan Singer, who is joining L Brands in September and was most recently the chief executive officer at Spanx. Prior to Spanx, Singer was an executive at Nike Inc. for 10 years. Beauty will be run by Greg Unis, who joined this month from Coach, where he was the global head of men’s. Pink will continue to be led by Denise Landman. They will all report directly L Brands chairman and ceo Leslie Wexner.
The company is eliminating swim, shoes and accessories that had been offered in the digital channel. These categories contributed roughly $525 million in sales in 2015. The exit of these categories will hurt margins as they clear out the remaining inventory.
The company is substantially reducing the use of traditional catalogues and coupons. Tests had proven to the company that the catalogues didn’t generate an acceptable return on sales. L Brands had alluded to the reduction in catalogues when it disclosed layoffs last month.
L Brands reported adjusted earnings per share of 59 cents, while the FactSet estimate was for 55 cents. Net income for the quarter ending April 30 was $152 million or 52 cents per diluted share. This was down from last year’s net income of $250 million or 84 cents per diluted share. Previously announced actions at Victoria’s Secret, fabric cancellations and the write-off of catalogue paper were given as reasons for the adjustments.
Net sales were $2.61 billion, an increase of 4 percent from last year’s $2.51 billion. Comparable-sales increased by 3 percent. Victoria’s Secret sales fell 7 percent, while Bath & Body Works rose 15 percent. Pink continues to be strong, with double-digit growth in the quarter. Core bras and panties were up, but sleepwear and swim declined.
Sales at Victoria’s Secret and Bath & Body Works International fell 39 percent. The international business was hurt by economic conditions in the Middle East and Turkey. A reduction in global travel affected airport stores in high-profile cities in Russia, China and the Middle East. L Brands took over its Chinese franchises and expects a slowdown in that business as it takes over the management of the stores.
The gross margin rate decreased by 170 basis points to 40.3 percent due to declines at Victoria’s Secret and foreign exchange pressures.
Looking ahead, L Brands lowered its guidance for 2016 earnings per share to a range of $3.60 to $3.80 from the previous range of $3.90 to $4.10. Second-quarter guidance is now in the range of 50 to 60 cents a share. The FactSet estimate for the second quarter was 68 cents.
Shares in the company traded down more than 5 percent after hours on the news. L Brands is hosting its earnings conference call on Thursday morning.