What To Expect From L Brands’ Q4 FY 2016 Earnings

LB: La Barge logo
LB
La Barge

L Brands, the parent company for Victoria’s Secret (VS) and Bath & Body Works, is slated to release its Q4 fiscal 2016 (fiscal year ends in January) results on February 22nd. In line with its previous quarters of fiscal 2016, we expect the company to continue with its slow performance in Q4, as well. The company had been undergoing major changes in its business structure and that was the primary reasons for its slowdown in fiscal 2016. However, as L brands completes all the restructuring activities, we expect its performance to revive once more establishing both the brands as leaders in their respective segments. In its recently held January Sales Performance Call, L Brands announced that for the fourth quarter of FY 2016, L Brands sales grew by 2% y-o-y to close to $4.5 billion, although the comparable sales remained flat. The earnings per share for the fourth quarter is expected to be around $1.90.

Changes In The Victoria’s Secret Business Led To A Weak 2016

The company excluded shoes, swimwear, accessories, and apparel from Victoria’s Secret’s core business and since these items offered annualized sales of ~$525 million in 2015, hence it had to sacrifice those gains last year. Also in its Beauty segment, the company is trying to shift its focus from the fantasy beauty products to fine fragrance and high-end body care products. The VS business has been recently segregated into 3 segments: Victoria’s Secret Lingerie, PINK, and Victoria’s Secret Beauty, with each segment led by a different executive reporting to the CEO. The business has also reduced its total headcount by 290. The Victoria’s Secret segment is the  most important segment for L Brands. Currently, Victoria’s Secret Stores contributes to around 50% of L Brands’ revenues, while the Victoria’s Secret Direct contributes to 13% of the same.

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VS stores CAGR

The International Business Is Also Going Through Some Restructurings

Along with these changes, the economic climate was also not conducive to L Brands’ business in 2016. Recessions in certain international markets, slowdown in travel retail due to natural disasters and terrorism related activities, and weak foreign exchange rates against the U.S. dollars acted as dampeners to its international sales. VS built a local business in China in order to combat some of these challenges. It invested $4 million in the China business in the first quarter of FY 2016 and is establishing an L Brands management team in Shanghai. Around 40 stores were opened by L Brands in its international markets over the first two quarters of 2016.

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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