L Brands Might Not Show A Marked Improvement In Its Q3 Fiscal 2017 Earnings

L Brands, (NYSE: LB) the parent company for Victoria’s Secret (VS) and Bath & Body Works (BBW), is slated to release its third quarter results on November 15th. The company has so far been having a disappointing fiscal 2017 with the Victoria’s Secret Lingerie and the Beauty segments weighing down upon its overall business. VS Stores is the most important segment for the company as it derives close to 50% of its revenues from this segment. The company’s decision to exit from the swimwear and apparels category last year has not yet worked in favor of the company. The situation is being further aggravated by the constant decline in footfalls in Victoria’s Secret’s brick-and-mortar stores. The VS Stores and VS Direct together make up for almost 80% of our valuation of L Brands. Hence, it is important for the brand to perform well in order to ensure L Brands’ healthy growth. However, the company’s poor performance is likely to continue in the near future with competitors such as American Eagle owned Aerie (in lingerie and bras segment) and Nike and Under Armour (in the sports bra category)  significantly outperforming Victoria’s Secret’s performance. The company’s stock price has fallen by more than 30% over the last one year. We have a $41 price estimate for L Brands which is around 16% lower than the current market price.

Will Victoria’s Secret See A Turnaround In Performance With Its New Strategies?

As we already mentioned, Victoria’s Secret is the main driver behind L Brands’ poor performance over the last few quarters. In order to revive the performance of its lingerie segment, the company had appointed Jan Singer as the Lingerie CEO in September 2016. In the second quarter earnings call, Ms. Singer mentioned some of the strategies that the company would be undertaking to address the weak demand in the lingerie segment. The strategies include: better understanding of the customers’ demands in order to make the products more relevant and relatable to them, providing greater freedom for the users to shop by focusing on more efficient teams, strengthening of its core bra business, and focusing on the holiday season during the end of the year.

It should also be mentioned that Victoria’s Secret has come under fire several times in the past for not catering to a diverse range of body types. Lingerie makers such as New York based AdoreMe are not only poaching Victoria’s top designers to offer the same products at a more reasonable rate but they are creating lingerie catering to women of diverse body sizes. In the past, Victoria’s Secret’s ‘perfect body’ advertisement, depicting toned, slim models as the ideal body type, was not well received, and the company later on, had to apologize. Plus-sized retailer Lane Bryant, with an aim to redefine what constitutes a woman’s sex appeal, aired advertisements with the hashtag #ImNoAngel to counter the long time running Victoria’s Secret’s advertisements featuring Victoria’s “Angels.” Women loved the body positive image of the brand and started posting their own photos on Twitter and Instagram with the hashtag #ImNoAngel.

Hence, the fading appeal of VS lingerie might also lie in the fact that it is not listening to the demands of the women of today. Maybe it’s high time for VS to change the definition of its “Angels” and cater to a wider range of women?

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