Strong Footing And Easter Shift Propel L Brands’ March Sales

The parent company of Victoria’s Secret and Bath & Body Works, L Brands (NYSE:LB), recently reported strong year over year growth in its March sales, marking another month of exceptional performance. The company said that its net sales increased 6% to $981.2 million driven by 9% growth in comparable store sales partially offset by decline in Victoria’s Secret direct-to-consumer sales. Merchandise margin rates were up, which indicates that L Brands did not have to rely on discounts and offers to entice customers. In fact, Victoria’s Secret’s and Bath & Body Works’ expansive and appealing product variety was enough to drive store traffic.

In addition, earlier Easter this year had a positive impact of 3-4 percentage points on L Brands’ comparable sales growth. Easter Saturday this year fell on April 4th, which was the last day for the month of March in L Brands’ retail calender. In contrast, Easter fell on April 20th last year, and additional sales around the holiday were accounted in the company’s April 2014 results. Hence, L Brands had a lucrative comparable period for its March 2015 sales growth. ^[1]

Our price estimate for L Brands is at $77, implying a discount of less than 20% to the market price.

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Victoria’s Secret’s North America comparable sales were up by 9% year over year in March 2015, partially driven by a early Easter. Excluding higher sales around the Easter holiday, the brand’s comparable sales would have been up in 5%-6% range, which is inline with its growth profile. Victoria’s Secret is the most popular premium lingerie brand in the world, thanks to its product design, quality and appealing marketing through fashion shows and photoshoots. The brand alters its focus from one category to another between months to maintain buyers’ interest in its portfolio. For instance, Victoria’s Secret began March with a focus on “push-up floorset” and PINK’s collection was mostly about the spring break. Mid-way through the month, the brand shifted its focus to the “fabulous” collection and persisted with it throughout the remaining month. In Mid-April, Victoria’s Secret intends to lay a greater emphasis on its “dream angels” collection.

Victoria’s Secret’s direct channel has been struggling for some time now, initially due to under-performance of apparel and lately due to heavy discounts of discontinued products. In March, sales of the segment fell 2% as a high-teens increase in sales of core categories was more than offset by the brand’s exit from apparel. Apparel has been a drag on Victoria’s Secret for long and it makes sense for the brand to do away with the category. Going forward, we believe that the brand’s direct channel’s organic growth will be strong, that will complement its robust comparable store sales growth.

Bath & Body Works’ comparable sales (including e-commerce) were up 9%, similar to Victoria’s Secret’s and had the same positive impact of early Easter. The brand’s margins were up year over year as new themes in core categories (signature collection, home fragrance and soap & sanitizer) were well received.

While L Brands’ March sales experienced the positive impact of early Easter, its April sales will struggle due to a shift in the holiday’s timings. The company said that its April comparable store sales will experience a negative impact of as much as 5 percentage points, resulting in flat growth or decline in low-single digits.

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1. L Brands Reports March 2015 Sales, L Brands, Apr 9 2015 [↩]