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Falling sales at Victoria’s Secret drag down L Brands

Continued weakness at Victoria’s Secret took a toll on L Brands’ second-quarter performance as both profit and sales declined. But the company still managed to beat the Street’s earnings estimates.

Net income totaled $37.6 million, with earnings per share of $0.14, for the quarter ended Aug.3, compared to $99.0 million and earnings per share of $0.36 for the year-ago period. Adjusted earnings came in at $0.24 cents a share, beating estimates of $0.20 a share.

L Brands reported net sales of $2.902 billion, down from $2.984 billion last year. Analysts had projected sales of $2.95 billion.

Total comp sales (for stores and direct) fell 1%. Once again, Bath & Body works turned in a strong performance, with an 8% increase in same-store sales. By contrast, comp sales fell 6% decrease at Victoria’s Secret.

“Looking to the second half of the year, our number one priority continues to be improving performance at Victoria’s Secret,” management said in prepared remarks.

L Brands has been working to turnaround its lingerie banner, which has struggled to find its footing as consumers increasingly opt for lingerie brands that emphasize comfort, inclusion and diversity over overt sex appeal. In line with changing attitudes, L Brands marketing chief Edward Razek, an architect of Victoria’s Secret sexy image, is stepping down. And Victoria’s Secret will not air its annual fashion extravaganza on national television this year, although it is unclear as to whether the show will go ahead.

Company executives sounded a positive note about Victoria's Secret on a call with analysts and said that new marketing will be introduced ahead of the holidays. The company is also trying out new merchandise. While the reaction to the new goods has been "very good," CFO Stuart Burgdoerfer said, it hasn’t been, to date, "sufficient to overcome weakness in the balance of the lingerie assortment."

Victoria's Secret remains the market leader in women's intimate apparel. But its sales have been on a downward track for the last two years.

In comments, Neil Saunders, managing director of GlobalData Retail, said that Victoria’s Secret is still not connecting with large swathes of its target market.

“In our view, Victoria’s Secret continues to be tarred with the negative connotations that surround its overt sexuality and its focus on airbrushed glamor,” he said.

Saunders noted that the lack of clarity about whether not Victoria Secret’s fashion will go ahead “underlines the fact that it still doesn’t have a clear view as to what it actually wants to stand for, let alone how it will go about executing such a change.”

“Until such clarity emerges, we believe performance will continue to suffer,” he said.

L Brands projected third-quarter results of a loss between $0.5 and a profit of $0.5 cents a share. Analysts had estimated earnings per share of $0.7. L Brands kept its full-year 2019 earnings per share guidance of $2.30 to $2.60.
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