Tuesday, 1 Dec 2020

Victoria’s Secret Parent Company Makes a Comeback

Victoria’s Secret parent company L Brands Inc. is showing signs of recovery. 

The retailer, which includes Bath & Body Works in the greater portfolio, reported quarterly earnings Wednesday after the market closed, improving on top and bottom lines, and causing company shares to rise more than 14 percent in after-hours trading as a result.  

“L Brands reported a record third quarter, driven by exceptional results and continued strength at Bath & Body Works and a significant improvement in performance at Victoria’s Secret,” Andrew Meslow, chief executive officer of L Brands, said in a statement. “As we head into the holidays, our inventories are well-positioned and we are encouraged by customers’ early response to our merchandise assortments. 

“We are confident in the strength of our brands and remain focused on execution and delivering the best possible outcome for the fourth quarter,” Meslow continued. 

For the three-month period ending Oct. 31, total revenues were $3.05 billion, up from $2.67 billion the same time last year.

By brand, the Victoria’s Secret business, which includes the lingerie, beauty and Pink divisions, decreased 14 percent to $1.3 billion, down from $1.57 billion the same time last year. Bath & Body Works sales surged to $1.7 billion during the same period, up from $1.09 billion a year ago. The company logged a profit of $330 million, compared with a loss of nearly $252 million in 2019’s third quarter, as a result.

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While most gains were in the Bath & Body Works business, the lingerie giant showed some signs of improvement. Total comparable sales were up 4 percent in the Victoria’s Secret business, while Bath & Body Works total comparable sales leaped 56 percent year-over-year as consumers continued to stock up on soaps and hand sanitizers. 

In the direct-to-consumer channel, which includes e-commerce, Victoria’s Secret’s sales rose 42 percent, while Bath & Body Works’ sales were up 132 percent. 

Meanwhile, comparable-store sales were up 38 percent during the quarter year-over-year at Bath & Body Works, but down 10 percent at Victoria’s Secret stores. 

The company said there were a few bright spots in the Victoria’s Secret business, including sleepwear, loungewear and beauty. 

But Victoria’s Secret has been struggling with declining revenues for several years, even pre-pandemic. While still the market share leader in the U.S. women’s intimate apparel business, Victoria’s Secret controlled 32 percent of the market in 2015, according to Euromonitor International. But as consumer preferences shift to more comfortable styles and new digital brands continue to pop up, eager to take share, Victoria’s Secret’s share of the market has fallen to just 16 percent as of September 2020, according to market research firm The NPD Group. 

L Brands has previously announced plans to spin off the Victoria’s Secret business — including Victoria’s Secret lingerie, Victoria’s Secret Beauty and Pink — into a private company, leaving Bath & Body Works to be a standalone public firm, but has yet to release a solid date. 

The company also helped free up funds by closing on a joint venture with Next plc for the Victoria’s Secret U.K. business during the quarter. The deal gives L Brands a 49 percent stake in the venture, while Next retains 51 percent. 

“We expect this arrangement, along with the restructure of lease terms that occurred through the administration process, to meaningfully improve our results in the U.K. and provide us with additional growth opportunities through Next’s stores and online platform,” L Brands said in a statement. 

Last summer, Victoria’s Secret closed its Hong Kong flagship. In the most recent quarter, the company restructured lease terms on two of its Mainland China flagships, a move that the company expects will lead to reduced overhead expenses. 

In addition, L Brands closed 239 Victoria’s Secret stores in North America year-to-date, ending the quarter with 2,920 company-operated stores, or 1,739 Bath & Body Works locations and 1,181 Victoria’s Secret units, along with its e-commerce businesses. The retailer said it will likely close more Victoria’s Secret stores in 2021 and beyond.  

The company ended the quarter with $2.6 billion in cash on hand. L Brands is not providing forward-looking guidance, but said it expects headwinds in shipping and fulfillment during the fourth-quarter holiday shopping season. 

“We are cautious about our ability to exceed last year’s fourth-quarter sales and earnings results, given anticipated constraints on store traffic, online fulfillment and shipping capacity, as well as other uncertainties related to the COVID-19 pandemic,” Meslow said. 

Shares of L Brands, which closed down 5.19 percent to $33.61 a piece, are up more than 95 percent year-over-year. 

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