L Brands’ Q2 FY 2017 Earnings Preview

by Trefis Team
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L Brands, the parent company of the Victoria’s Secret (VS) and Bath & Body Works (BBW) brands, is set to release  its Q2 fiscal 2017 (fiscal year ends in January) earnings on August 16th. The company has not been at its best performance since it started off with its restructuring activities, including an exit from swimwear and apparel categories. In its Q1 FY 2017 earnings call, the management revealed that a lot of testing and learning were done in Q1 and there might be some significant changes and new launches under both VS and BBW brands in the coming months. L Brands’ personal care business, BBW, is going strong with the customers shopping for full body care products starting from shower gels to perfumes. However, it is the intimate wear brand, VS, that is troubling the company as of now.

L Brands’ performance over the last few months has been far from impressive. The comparative sales for the company declined by 7% for July 2017. Prior to that, the monthly declines have been  9%, 7%, 5%, 10%, 13%, and 4% respectively for June, May, April, March, February, and January of this year, respectively. For the second quarter that ended in July, the comparative sales declined by 8% while the company’s total sales saw a 4.7% y-o-y fall to around $2.76 billion.

The Lingerie Segment Might Bear Positive Results Of The Company’s Growth Efforts In The Future

The brand appointed a new lingerie CEO, Jane Singer, in September 2016. Ms. Singer has been aggressive with the pursuit of growth in the sports bras and unconstructed bras categories in Q1 which not only led to the growth in sales but also attracted younger customers to the brand.  A strong product lineup is set to be released in the coming fall months that stresses on rebalancing the offerings with a focus on the constructed bras. The company is trying to grow PINK’s lingerie business as it is one of the highest selling brands among its retail products and is currently approaching $3 billion in annual sales figures.

The company believes that PINK, the brand for teenagers and young adults, has the potential to almost double its sales in North America. Currently, the distribution of the full assortment of PINK merchandise is limited in stores because there is less than adequate square footage available for it, but even then the brand offers over $1,000 of revenue per square foot of display. There is a huge scope for growth with the expansion of PINK’s presence in stores and also online.

 

The International Segment Is Making Good Progress With The New China Business

In order to deal with the headwinds due to currency fluctuations and the waning demands in its travel retail sales, VS built a business in China and it is making significant progress with this new business. The patterns of demand and consumer behavior in China is similar to North America. However, the differences in business in the two geographies are that China’s lingerie demand is for smaller sized customers and China has a longer lead time for getting products to the market because of a stricter regulatory environment.

 

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