Bath & Body Works and Victoria's Secret officially split Aug. 3, but on Wednesday the company formerly known as "L Brands" released a quarterly report with some combined results from before the separation. "Bath & Body Works" is the name of the company now; it's Victoria's Secret that spun off. The company including both brands in the quarter swung to a $374.2 million profit from its $49.6 million loss in the period last year.
The Bath & Body Works business, known for its personal care, fragrances and candles, continued to demonstrate its merchandising strengths in the second quarter. Total sales (stores and online) rose 36% year over year (53.9% versus 2019) to $1.7 billion.
At the company now known as Victoria's Secret & Co., total sales rose 51.3% to $1.6 billion, a 9.6% drop from 2019, as store comps rose 5% over 2019. The brand swung to net income of $151.1 million, from a net loss of $199.5 million last year, according to a separate press release.
Both Bath & Body Works and Victoria's Secret showed strengths in the second quarter. But it's clear from their reports, and so many others previously, why these two businesses don't really belong together.
One easy-to-see difference is the effect that the pandemic had on each. With everyone dutifully washing hands and surfaces, Bath & Body Works benefited greatly from high demand for soaps and sanitizers. In fact, it may regain momentum as pandemic worries begin to escalate again, especially in some parts of the country.
"Although there is no denying [Bath & Body Works'] strength and consistency, questions surrounded the level of revenue decline the company would face as it laps its incredible pandemic strength," BMO Capital Markets Managing Director Simeon Siegel said in emailed comments. However, its upbeat guidance for the third quarter is likely conservative, he also said.
By contrast, the pandemic roiled Victoria's Secret. A deal to sell a majority stake to private equity firm Sycamore Partners, for example, was scuttled in light of lockdowns and other pandemic-related consequences. Consumers spent very little money on clothes, opting for cozy items and outdoor gear when they did.
However, unlike its former sibling, Victoria's Secret's challenges go way beyond how to correct from the rough pandemic year. After years of stubbornly ignoring changes in taste and cultural norms related to sexualized marketing, the brand at long last is changing its tune, exchanging its "angels" for a collective of strong brand ambassadors and revamping stores.
While still at L Brands, Victoria's Secret made major structural changes, like closing hundreds of stores, that continue to pay off. In separate comments on the brand, Siegel maintained that a smaller Victoria's Secret is a healthier company. Margin expansions will continue to be key, he also said, noting that gross margin "topped 40% in each of the last three quarters," though many apparel retailers are beating that.
"[Victoria's Secret] is finally selling less and charging more, and we see material and ongoing upside from here," he wrote.