Victoria’s Secret’s parent company, L Brands Inc., has long been buoyed by a commanding share of the market, the retail instincts of chief executive officer Leslie Wexner and savvy marketing with a heavy dose of scantily clad models.
All that has not been able to save the company from the turmoil sweeping through the retail market. (Although it is in the midst of strategic changes, such as the exit of swim and apparel, in hopes it provides a good base for future growth.)
Shares of L Brands trended down 15 percent to $49.40 in midday trading after the company said its profits last year slipped 7.5 percent to $1.16 billion, or $3.98 a share, and that earnings per share would fall to a range of $3.05 and $3.35 this year.
Stuart Burgdoerfer, chief financial officer and executive vice president, took the forthright approach with Wall Street, leading his comments on a conference call with analysts by noting, “we’re not satisfied with our overall results.”
And highlighting the challenges the brand faces as it tweaks its promotional approach and builds up its lower-margin bralette and sports bra businesses, Victoria’s Secret is trending toward a 20 percent comparable sales decline this month.
Asked about the company’s store base given the general weakness in the malls, Burgdoerfer said: “We believe that our brands best come to life in a store environment. We have strong, terrific, compelling, highly profitable online businesses as you know. About $2 billion sales related to online business and a big global opportunity.”
But he said the company continues to believe in stores, particularly in China, a country the brand just broke into — from a brick-and-mortar perspective — with its first full-assortment Victoria’s Secret store in Shanghai Thursday.
Burgdoerfer said the company’s stores still have sales per square foot of more than $800 and that “a lot of the investment in square footage expansion that we’re making relates to sales productivity. We’ll continue to monitor the results and adjust accordingly. We are participating well in both [the online and physical retail] channels.”
Credit Suisse analyst Christian Buss noted: “L Brands continues to struggle with underlying demand challenges in its core Victoria’s Secret business, with merchandise margin pressure remaining significant. In addition, our longer-term concern regarding emphasis on North America square footage growth suggests meaningful margin recapture will likely prove challenging.”
In short, Buss is worried the company won’t be able to be as profitable as it grows its store base at home.
“This concern is now coming to the forefront as both Victoria’s Secret and Bath & Body Works have deteriorated, suggesting that traffic challenges in the mall environment are getting worse,” the analyst said. “As a result, we believe underlying earnings power will remain challenged well.”