Money Victoria’s Secret has a bra problem
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Yet again, L Brands Inc., parent of the Victoria’s Secret lingerie chain, said the latest reported sales decline reflects the company’s exit from swim and apparel.
Experts beg to differ.
Quotes in the article
They say L Brands’ (LB) numbers reflect a dip in Victoria’s Secret’s key lingerie category, an area that company executives said they would be free to focus on without these other distractions.
L Brandsfor the four weeks ending July 29, with the aforementioned exits having a four-percentage-point impact on the company. The Victoria’s Secret brand was hurt by about five percentage points, according to the earnings statement. The company announced the decision to scrap swimwear and clothing in May of 2016.
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For the 12 weeks ending July 29, sales totaled $2.76 billion, down from $2.89 billion for the year-before period. L Brands shares tumbled 6% in Thursday trading after the announcement.
“There is no doubt that dropping apparel and swim is impacting their performance, but there is more to the story,” said Jared Wiesel, partner at consulting firm Revenue Analytics. “The core business is also softening as they’ve missed some key shifts in consumer preferences and their shift in promotion strategy has not appeared to pay off.”
L Brands declined to comment beyond its sales release and latest earnings report.
Victoria’s Secret is faced with increased competition and a push by consumers for lower-priced product. Bralettes, an unlined undergarment that is popular with millennials and fashionistas, are more affordable than the padded push-up bras that Victoria’s Secret is known for. And bralettes, available at retailers including American Eagle Outfitters Inc. (AEO) where its Aerie brand has gained traction, and Urban Outfitters Inc.’s (URBN) chains, including the namesake chain.
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Amazon.com Inc. (AMZN) has also gotten in on the action with its own low-cost bras.
“Those are difficult headwinds to combat, and eventually the removal of the swim and apparel lines will no longer cut it as the reason for slumping performance,” Wiesel said.
L Brands, in the commentary for its July sales announcement, said it will focus on new fashion for its Body by Victoria collection and back-to-school in the Pink business in August.
During the first-quarter 2016 earnings call last May, L Brands Chief Executive Stuart Burgdoerfer explained why the company was making these changes.
“The rationale, first of all, for the category exits is to focus our energy at all levels of the business, our resources at all levels of the business on our most significant core categories; bras, panties, beauty in the Victoria’s Secret business,” he said, according to a FactSet transcript of the call. “And we… came to a conclusion that the swim business was not one of those core categories that it had been a flattish business for the last several years.”
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Tiffany Hogan, senior analyst at Kantar Retail, thinks the company may have underestimated the significance of the category.
“L Brands will continue to see more declines in comp sales throughout the year until they anniversary the complete exit of their swim business,” she said. “That said, it seems that the negative comps are beginning to outstrip the declines by this category alone.”
Hogan calls terminating the swim business “a very risky move” even though it only accounted for a small portion of the company’s sales.
“I would’ve expected management to come in with a plan to replace that volume, rather than just eliminating the category all together,” she said.
While he thinks it’s still too early to make a final determination, Ed Yruma, managing director at KeyBanc Capital Markets, says it’s those core lingerie sales that he’s watching closely, because “heretofore the result remains very weak.”
“Lingerie isn’t doing better,” he said. “While the brand is still one of the strongest in our coverage some of the attributes may not be resonating with millennials.”
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Harper Wilde launched earlier this summer offering three styles of bra, none of them a bralette, in three colors: black, beige and brown. The goal is to keep it simple while offering a quality product at a reasonable price to its predominantly 25-to-34-year-old customers, according to co-founder Jenna Kerner. Harper Wilde bras are priced at $35.
“We want to be with the everyday essentials,” said Kerner, who highlighted the lack of embellishment in the company’s product, which helps keep costs down.
“We don’t have angels that we’re paying for,” she said, referring to the supermodel spokeswomen who appear in the advertising and on the runway for Victoria’s Secret.
L Brands expects its “constructed” bra business to pick up in the, according to comments made during its quarterly earnings announcement in May.
“After two years of research and talking to hundreds of women, it became glaringly apparent how disconnected the existing lingerie market is from the modern woman and her needs,” said Jane Fisher, Harper Wilde’s other co-founder.
L Brands shares are down nearly 35% for the year so far while the S&P 500 index (SPX) is up 10.6% for the period.
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Victoria's Secret Problems
Thumbs up for my Beyonce voice! ♡ hahaa not really. To watch my last video, click HERE http://goo.gl/KwN9xG ∙•❁OPEN FOR MORE INFO❁•∙ ...
Hey Loves❤, I made this video with you in mind. It is so hard to find a bra that fits. One that makes us feel sexy, confident and comfortable and it comes down to a ...