Despite sales drop, L Brands raises outlook and beats expectations

Dive Brief:

  • Even as its sales fell relative to last year, L Brands beat analyst expectations and raised its own guidance, prompting a roughly 6% bump in pre-market trading of its stock. The owner of Victoria’s Secret and Bath & Body Works said its first quarter net sales fell 7% to $2.44 billion compared to the last-year period, according to a company release. Comparable sales fell by 9% company-wide.
  • Earnings per share fell to 33 cents, compared to 52 cents in the last-year period. Although earnings dropped, L Brands beat the Zack’s Consensus Estimate of 29 cents per share, according to MarketWatch. Operating income also fell by more than 30% to $209.2 million from $357.9 million last year. Even with those declines, L Brands raised its guidance for the full year, with management now expecting earnings per share of $3.40, up from $3.05 to $3.35 previously.
  • The retailer’s sales have suffered after shedding its swimwear and apparel categories. In the first quarter, the exits from those categories together negatively impacted the company’s total comparable sales by 6% and Victoria’s Secret comparable sales by 9%. Overall, comparable sales at Victoria’s Secret stores fell by 12% and Bath & Body Works comparable store sales fell by 1%.

Dive Insight:

Sales for the fashion retail conglomerate are still hurting from exiting the swimwear and apparel categories — an attempt to streamline the company and focus on its strengths. While any mall-based retailer remains vulnerable in a year defined by declining traffic, stores closures and retailers going bankrupt, L Brands’ increased guidance suggests the company may be in a position to bounce back from recent struggles.

L Brands’ not-as-bad-as-expected showing in the first quarter comes in the wake of fourth quarter earnings that sent the stock tumbling in the retailer's second-worst day in 35 years as a publicly traded company. While the company reported modest growth in sales, declines in operating and net income — as well as a grim outlook for the months ahead — put pressure on the company to revive growth. 

The company has been hobbled in part by its exit from swimwear and apparel, which lowered the company's overall Q4 comparable sales by two percentage points and Victoria’s Secret Q4 comparable sales by four percentage points from what they would have been had L Brands stayed in those categories.

The exits — which followed the appointment of former Spanx CEO and Nike executive Jan Singer to the lead role at Victoria's Secret — were an effort to refocus L Brands on three areas that would most appeal to millennial shoppers: Beauty, bras and its Pink youth brand. Altogether, the moves resulted in 200 jobs being cut at the company.

Executives said in February that L Brands would focus on its investment in China, in real estate for Victoria’s Secret and Bath & Body Works, and on growth in the sports bra and bralette business. The challenge with the latter strategy is that bralettes sell at lower prices than Victoria's Secret's iconic push up bras — and therefore generate fewer profits for a company that’s looking to push up its earnings.

Time will tell if L Brands will sink or swim over the long run. For now, the retailer's raised outlook appears to have raised optimism from the market.  

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Filed Under: Corporate News
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