Victoria's Secret Fashion Show 2018

Things aren’t getting any better for the Angels — at least not for the moment.

L Brands, parent company to Victoria’s Secret, released fourth-quarter earnings Wednesday after the bell, with mixed results.

The parent company beat analysts’ top-line expectations, mostly because of its Bath & Body Works business, but fell short on bottom-line profits as the decline at Victoria’s Secret worsens.

Revenues for the quarter ending Feb. 2, 2019 were $4.85 billion, slightly above last year’s $4.82 billion. Earnings per share also inched up to $2.14, compared with $2.11 during 2017’s fourth quarter.

But adjusted net income was $595.2 million, down from more than $600 million for the same period last year. L Brands also said it expects its full-year 2019 EPS to be between $2.20 and $2.60, after breaking even per share for the first quarter. The estimates are well-below analysts’ expectations. 

Meanwhile, same-store sales at Victoria’s Secret fell 7 percent in the three-month period. Internet sales at the lingerie brand didn’t do much better either, falling 3 percent.

In fact, most of the company’s gains came from the Bath & Body Works business. In-store sales at Bath & Body Works rose 8 percent, while internet sales jumped 12 percent, a rebound from Bath & Body Works’ flat January numbers.

Still, shares of L Brands, which closed down 0.33 percent Wednesday to $27.39, plunged nearly 9 percent during after-hours trading. The stock has declined more than 40 percent in the last year.  

Sales at Victoria’s Secret in particular have consistently been dwindling — even during the recent holiday shopping season — as the lingerie retailer continues to attract negative publicity for its super skinny models in an era of body positivity.

Even the annual fashion show — once regarded as one of the most exclusive fashion events of the year — had lost some of its luster when it returned to New York last fall. Television viewership for the New York event declined compared with previous years.  

But L Brands has a plan.

It includes a string of counter-strategies set in motion at Victoria’s Secret in the last few months. Such as the appointment of John Mehas, formerly of Tory Burch, as the new chief executive officer of the lingerie business and promising to bring swimwear back to Victoria’s Secret in 2019. L Brands has also shed Henri Bendel and La Senza from the larger portfolio in the last year.

The latest changes, however, likely won’t make an impact on the company’s bottom line until the second half of 2019 at the earliest, Ike Boruchow, senior analyst at Wells Fargo, wrote in a recent note.

“More likely holiday,” Boruchow wrote. “A [Victoria’s Secret] inflection is dependent on more meaningful changes taking hold at the hands of new senior leadership.”

And Mehas, after all, only took over as ceo of Victoria’s Secret earlier this month, while Amy Hauk, ceo of Pink, took the helm in October, after former ceo Denise Landman retired.

Meanwhile, smaller lingerie companies, brands that promote inclusivity among a variety of body types, continue to grow. And the fight for market share is getting personal.

Lingerie start-up ThirdLove has openly criticized Victoria’s Secret for its overtly sexualized marketing and claims that the brand caters to “a male fantasy,” according to ceo Heidi Zak, who took out a full-page ad last fall after the annual Victoria’s Secret fashion show, slamming the brand.

ThirdLove also recently received additional funding — $55 million — and said it would use the money to expand its assortment to an even wider demographic of women.

Aerie, the lingerie brand owned by American Eagle Outfitters and known for its un-airbrushed models, also continues to gain positive reviews — and profits. The teen retailer reported more than $1 billion in sales during a single quarter in December. At Aerie alone, the bra and underwear sister company, same-store sales rose 32 percent last quarter.

But despite the negative attention, Victoria’s Secret is still the leader in the intimates category, taking about two-thirds of market share. That means some people are still shopping there. In fact, Victoria’s Secret sold more than $3 billion worth of lingerie in 2018.  

“All the negative media is creating a story that the numbers simply aren’t saying,” said Simeon Siegel, senior equity analyst at Nomura Securities. “All of that marketing that people hate so much is still driving one of the largest amounts of revenues for a brand in the world.”

Siegel said Victoria’s Secret’s best bet for survival would be to shrink to grow and pointed out that Victoria’s Secret’s increased revenues during promotions means consumers want to buy the products — just not at full price. A smaller business could equal fewer shoppers, but all of them would be paying full price, he said.

“So the question, do you want to be a larger business that’s less healthy? Or, smaller business that makes more money?” Siegel said.  “Somewhere in that $3 billion of lingerie sales is a healthy business.”

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