Limited Brands (NYSE:LTD), the parent company of Victoria’s Secret and Bath & Body Works, is expected to release its Q1 fiscal 2013 earnings on May 22. According to a recent press release, the company will report overall comparable store sales growth of 3% with similar growth across its main brands.  The retailer will also report lower margins due to increased promotional discounts and the introduction of free shipping.
Victoria’s Secret started the quarter with strong product offerings, disciplined inventory control, a spring collection featuring latest trends and an appealing spring campaign. However, its growth slowed towards the latter half of the quarter due to a weak response to new products and a prolonged cold weather, which resulted in lower demand for apparel. On the other hand, Bath & Body Works performed steadily throughout the quarter due to strength in its existing categories and new products.
What’s Going On With Victoria’s Secret?
Good Start To The Quarter
Victoria’s Secret started Q1 fiscal 2013 with a focus on Valentine’s Day and strong product offerings such as Dream Angels collection and PINK’s spring break essentials.  For the spring season, the brand launched a new swim collection including Bandeau Bikinis, Demi Bikinis and Fabulous Push-up Bikini.  It also relaunched Beach Sexy Bikini Mixer, which allows customers to mix and match top and bottom from different colors, styles and prints.
With tight inventory control, Victoria’s Secret added popular trends such as seductive prints, neon, embellishments and novelty fabrics to its products.   The brand also boosted its marketing with a swim catalog featuring popular model Candice Swanepoel and well known music artist Rihanna featuring the swim collection music videos. These efforts helped Victoria’s Secret register 5% comparable store sales growth in February, which was higher than Limited Brands’ overall comparable store sales growth of 3%.  What’s even interesting to see is that the brand reported this growth on top of a 10% increase in comparable store sales registered in February last year. 
Business Slowed Down In March & April
However, towards the latter half of the quarter, the strength in Victoria’s Secret’s product offerings was offset by lower demand for apparel products due to the prolonged cold weather, aggressive promotions and a weak response to new product launches. The brand’s comparable store sales growth in March and April remained low at 2%.  
The winter season in the U.S. this year was unusually long, which impacted the demand for apparel products that suit warmer climate. For instance, in the last week of March, the demand for shorts fell by 12% compared to March of 2012.  While Victoria’s Secret’s core product categories such as bras and panties continued to perform well, it saw a decline in demand for apparel.  Also, the brand offered compelling discounts on several products to attract more customers and witnessed an increase in the points redemption at Secret Rewards Program.  According to the company, Victoria’s Secret’s recent products have not delivered the expected performance. 
Due to these factors, the brand registered moderate comparable store sales growth in Q1 fiscal 2013. In addition, its direct-to-consumer revenues declined by 6% primarily due to reduced revenues from shipping and handling (due to the introduction of free shipping), increased discounts and lower demand for apparel. 
Bath & Body Works’ Performance – Slow & Steady
Bath & Body Works has maintained its strength in core product categories such as signature collection, soap & sanitizer and home fragrance in the past, which has helped its results. Along with this, the launch of forever red (the company’s most luxurious fragrance ever) enabled the brand to perform steadily throughout the first quarter.   However, the growth remained slow due to lower store traffic, which we believe resulted from cautious consumer spending on account of the payroll tax increase. 
Our price estimate for Limited Brands Stands at $50, implying a discount of 5% to the market price.Notes:
- April Sales Transcript, Limited Brands, May 2013 [↩] [↩] [↩] [↩] [↩] [↩] [↩]
- Limited Brands Hosts February Sales Conference, Seekingalpha, March 7 2013 [↩] [↩] [↩] [↩]
- Victoria’s Secret Celebrates The Swim 2013 Collection With Angles Alessandra Ambrosio, Candice Swanepoel And Karlie Kloss, PR Newswire, March 13 2013 [↩]
- Victoria’s Secret Launches First Spring 2013 Swim Collection And Angels And Artists Swim Video Series, Fashion + Lifestyle, Jan 6 2013 [↩]
- Limited Brands’ Q4 fiscal 2012 earnings transcript, Feb 28 2013 [↩] [↩]
- L Brands’ Management Hosts Pre Recorded March 2013 Sales Conference, Apr 11 2013 [↩]
- Prolonged Winter Puts Retail Sales In Deep Freeze, CNBC, March 31 2013 [↩]