Why Has L Brands’ Stock Price Declined By Around 30% Year-To-Date?

LB: La Barge logo
LB
La Barge

L Brands had once been a very profitable stock for a long time. In fact, despite the downturn and lackluster demand in the apparel industry, this company had always maintained stellar performance. The owner of Victoria’s Secret and Bath & Body Works witnessed around 40% growth in its stock price over 2014, whereas most of its contemporaries lost value. Over 2015, the company’s share prices rose by ~12%.  However, year-to-date in 2016, L Brands had experienced ~30% decline in its share price.

This year, the company’s financial performance has so far been weak. Let’s take a look at its FY2015 versus its Q1 FY2016 performance to get a perspective.

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Possible reasons behind the deterioration in performance and hence, the steep share price fall.

  • Victoria’s Secret (VS) recently announced some major restructurings of its business.
    • The VS business will be further categorized into Victoria’s Secret Lingerie, PINK, and Victoria’s Secret Beauty. These divisions will be managed by separate executives who will report to the CEO.
  • The company is also repositioning its Beauty business since last year, given the weak performance of this segment for over three years. The brand is trying to shift its focus from the fantasy beauty products to fine fragrance and high-end body care products.
  • VS is currently shedding off inventories from its non-core businesses such as swimwears, shoes, and accessories which were so far being sold through the digital channel. Though these businesses generated around $525 million in sales in 2015, the company feels that focusing on its core categories might lead to better growth opportunities in the future.
  • VS had reduced its total headcount by 290 recently suggesting some troubles brewing in its operations and performance.
  • On the international front, macroeconomic setbacks in some geographies, weak international exchange rates, and reduced tourism in high profile cities have dampened sales.

Have more questions on L Brands? See the links below.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for L Brands