L Brands Lowers Earnings Outlook -- Update

By Imani Moise and Khadeeja Safdar 

L Brands Inc. lowered its profit outlook for the holiday quarter as sales continued to slump at the company's core Victoria's Secret lingerie business.

Same-store sales at Victoria's Secret fell 4% in December from a year earlier. Strength at the company's Bath & Body Works chain and PINK, a division aimed at younger consumers, was offset by declines in lingerie and apparel categories.

Victoria's Secret, which accounts for two-thirds of L Brands' business, has been using heavy promotions to drive traffic to its stores and website, but the markdowns have also been impacting margins. The company said the merchandise margin rate in December fell significantly from a year ago and was below expectations.

Shares of the company, which are down more than 35% over a year, fell 8% to about $62 in midday trading. The retailer joined department-store chains Macy's Inc. and Kohl's Corp. in reporting weak sales for the critical year-end season.

Analysts at Jefferies expect the weakness at Victoria's Secret to continue into fiscal 2018 as competition rises and reliance on promotions continues. They attribute the declining sales to a consumer shift toward more attainable beauty standards and emerging competition from brands such as American Eagle Outfitters Inc.'s Aerie.

Last year, L Brands Chief Executive Les Wexner took charge of Victoria's Secret and announced big changes, including shifting away from catalog mailings and getting out of the swimwear business. Instead of coupons, the company has been using aggressive markdowns to attract customers to items like sports bras and bralettes.

Mr. Wexner also changed leadership at Victoria's Secret. He hired former Coach Inc. executive Greg Unis to invigorate the brand's stalling beauty business and former Spanx Inc. CEO Jan Singer to oversee the core lingerie category.

For the five weeks ended Dec. 31, net sales rose 1% to $2.44 billion but same-store sales decreased by 1%, compared with an 8% increase a year earlier. Analysts had expected same-store sales to increase 0.6% overall.

The Ohio-based company now expects earnings per share to be on the low end of its previous guidance of $1.85 to $2 for the fourth quarter. Wall Street was expecting $1.92 per share, according to Thomson Reuters.

Write to Imani Moise at [e-mail] and Khadeeja Safdar at [e-mail]

(END) Dow Jones Newswires

January 05, 2017 12:46 ET (17:46 GMT)

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