Victoria's Secret Misses Out on Retail Surge -- Update

By Khadeeja Safdar 

Count Victoria's Secret as a retailer that hasn't sparkled in the booming economy.

The lingerie brand reported lower comparable sales for the latest quarter, dragging down results at its parent company, L Brands Inc. The company also said comparable sales declined at teen brand Pink, which is part of Victoria's Secret, and that Pink's leader would be leaving at the end of the year.

Analysts on a conference call Thursday peppered executives with questions about the Victoria's Secret marketing message, softness in the Pink business and the company's heavy use of discounts.

Jan Singer, who is head of the Victoria's Secret lingerie business, defended the company's strategy, saying that the most-recent additions to the product lines are performing well. "What's new in the assortment is what's working, and we are very focused on leveraging these learnings to accelerate our progress going forward," she said.

Shares in L Brands were off 11% at $28.54 on Thursday afternoon.

Since she joined Victoria's Secret, Ms. Singer has launched bra styles emphasizing comfort and fit, in an attempt to appeal to shoppers looking for more natural looks. But the company has continued to struggle. The latest results come as a robust U.S. economy is spurring more people to open their wallets, boosting retailers as diverse as Home Depot Inc. and Nordstrom Inc. Walmart Inc. and Target Corp. both had their best quarterly performances in years.

Victoria's Secret was once a top performer in the retail industry, powering years of growth with images of busty models at its more than 1,000 largely mall-based stores. Two years ago, L Brands CEO Leslie Wexner took charge of the brand and announced changes that were intended to ensure it didn't suffer the same fate as other specialty brands.

He shifted away from catalog mailings, exited the lingerie brand's well-known swimsuit business and doubled down on sports bras to address the rise of the so-called athleisure trend. Mr. Wexner later hired Ms. Singer to help execute the strategy.

The brand is still struggling as young consumers now prefer more authentic marketing and garments that resemble crop tops, with simple sizing and lower prices. It is also facing new competition from niche competitors and entrants such as American Eagle Outfitters Inc.'s Aerie brand, which uses more natural-looking models.

Despite resorting to heavy promotions, Victoria's Secret has struggled to draw customers to its stores. Recently, those troubles have spilled over into Pink, once a bright spot that drew in younger customers before they transitioned to Victoria's Secret.

Analysts say the company has had plenty of time to execute on its strategy and it has become more apparent that its plans haven't played out. "The biggest surprise is Pink, which was once a quiet but powerful driver," said Simeon Siegel, an analyst at Nomura Instinet. "We're now seeing it hitting a ceiling."

L Brands said longtime Pink CEO Denise Landman will leave the company later this year and be succeeded by Amy Hauk, a merchandising executive at Bath & Body Works. On Thursday, Ms. Landman said the brand is still popular among college-age women. "I do not think, nor do I think anyone in this room believes, that PINK has lost its ability to connect with customers," she said.

Comparable sales at Victoria's Secret declined 1% in the second quarter from a year earlier, and the brand's merchandise margin rate also fell significantly across all major categories as the company used promotions to drive traffic and clear inventory.

Nearly half of the stores run by L Brands, which also owns Bath & Body Works, are also in second- and third-tier malls. In an interview earlier this year, Mr. Wexner defended the large fleet of mall-based stores, saying that the demise of brick-and-mortar locations has been overstated.

For the year, L Brands lowered its earnings-per-share guidance from between $2.70 and $3 to between $2.45 and $2.70. It predicted third-quarter earnings per share between zero and five cents.

Write to Khadeeja Safdar at [e-mail]

(END) Dow Jones Newswires

August 23, 2018 14:38 ET (18:38 GMT)

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