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L Brands Down Nearly 35% YTD, Victoria's Secret Remains Dull

Zacks Equity Research

Shares of L Brands, Inc. LB have fallen 34.9% year to date underperforming the industry’s decline of 28.5% as it is struggling to find its feet amid a tumultuous backdrop wherein Victoria’s Secret is grappling with its sales numbers. Notably, Victoria’s Secret sales dropped 7% to $1,605.6 million in the second-quarter fiscal 2019.

Comparable sales fell 6%, while comparable store sales tumbled 9% due to lower traffic and average unit retails. Some experts believe that the problem lies in product assortment, while some feel stiff competition and brand related issues is taking a toll on the brand.


Further, going by the media reports the company’s chief marketing officer - Edward Razek is stepping down. He was credited for establishing an uber glamorous image for Victoria’s Secret which once proved to be a prime-time television hit.

The same image now seems primitive as consumers are changing preference increasingly. To this end, L Brands’ have been highly criticized for its inability to keep up with women and modern beauty ideals in the era of body positivity, per media reports.

Moving on, comps declined to the tune of low-double digit at PINK (targeted towards the youth) along with slowing store traffic are acting as deterrents. Per Euromonitor, Victoria’s Secret’s share of the United States women’s underwear market fell to 25% in fiscal 2018.

However, the company is leaving no stone unturned to revive its Victoria’s Secret brand. In this regard, it is considering new merchandises and also intends to roll out new marketing strategy ahead of the holidays as per sources. Further, the company is on track with its heavy promotions that will continue through the fall season.

Moreover, the brand has recently signed its first openly transgender model. It has also put an end to its annual fashion show owing to declining viewership. Also, it will close 53 underperforming stores in North America as part of its turnaround plans.

Other Side of the Story

Solid performance at Bath & Body Works brand is providing some cushion to the stock. During the quarter, Bath & Body Works delivered a solid show and surpassed management’s expectations. Total sales grew 10% to $1,060.9 million, with 8% rise in comparable sales and 4% improvement in comparable store sales.

Sales were fueled by robust performance in three key categories, including body care, home fragrance and soaps & sanitizers. Per sources, the brand has also impressed customers by bringing in new products to the shelves such as bath bombs and face masks, among others.

Management expects Bath & Body Works brand to experience another solid year and remains committed to improve Victoria’s Secret performance. Overall comps are likely to show improvement from the fourth quarter. Management expects overall comps to improve in the range of 1-4% during the final quarter. For fiscal 2019, the company anticipates comps to rise in low-single digits.

Stocks to Consider

Boot Barn Holdings BOOT has a long-term earnings growth rate of 17% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Zumiez ZUMZ has a long-term earnings growth rate of 13.5% and a Zacks Rank #1.

Canada Goose Holdings GOOS has a long-term earnings growth rate of 28.5% and a Zacks Rank #2 (Buy).

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