L Brands on Wednesday reported first quarter net sales rose 8% year over year to $2.63 billion as same-store sales rose 3% companywide and net income fell to $47.5 million, barely over half of its $94.1 million profit last year.
By brand, including e-commerce, Victoria's Secret same-store sales rose 1% after a 14% drop in the same period a year ago, and Bath & Body Works same-store sales rose 8% after last year's 2% rise, according to a company press release. At its physical stores, Victoria's Secret comps dropped 5% and Bath & Body Works' rose 5%.
The company's stock price fell as executives lowered their full-year 2018 outlook for earnings by 25 cents per share, to $2.70-$3.00 per share.
At the company's annual investor meeting earlier this month, shareholders reportedly gave CEO Les Wexner and his team a hard time about Victoria's Secret's troubles — the company's largest banner, with the most conspicuous declines in recent years. Executives defended the lingerie retailer's moves to end swimwear sales and boost inventory, and they insisted that those were corrections, along with some merchandising changes, that are boosting sales and traffic, according to the Columbus Dispatch.
That turns out to be true, considering the brand's comparable sales shift in the quarter, although the company had a lot of room to work with coming back from a sizable year-ago decline, noted Neil Saunders, managing director at GlobalData Retail.
After reigning supreme for years, Victoria's Secret's push-up style is facing major push-back, as more comfortable, more casual, better fitting styles, including sportier performance choices, are winning shoppers over. The brand has responded with a broader range of its own to add to its more traditional offering, but its marketing hasn't really evolved accordingly.
"We still have issues with the tone and image of the brand, and we do not feel that Victoria's Secret has made anywhere near enough effort to remedy the problems," Saunders said in emailed comments. "The dark store environment, the conspicuous sexuality of the offer, and the brash marketing are increasingly out of step with what modern consumers want."
That refusal is costing the brand as what Saunders calls "more subtle brands like Aerie" step in, grabbing share and delivering growth. "A further threat comes from the rise of specialists like Adore Me and Third Love," he said. "These niche players may only have a small share compared to Victoria's Secret, but their innovative approaches mean they are nibbling away at its market share."
He's not alone. Those players are in focus at Cowen & Co., too, and analysts there said earlier this year that the competitive landscape is a worry for L Brands. "While these companies are small in comparison to Victoria's Secret, we do acknowledge their presence could disrupt the lingerie category somewhat, over time," analysts said in a note emailed to Retail Dive. Cowen analysts led by Oliver Chen, in a note earlier this month, lowered their price target for L Brands stock, citing customer traffic woes and the likely need for discounting at Victoria's Secret.
The brand could learn a thing or two from its sibling, Bath & Body Works, whose strength isn't just derived from the secure beauty segment (although that's helping), Saunders suggested Wednesday. "Its proposition is welcoming, vibrant and fun," he said of the fragrance and personal care brand, adding that frequently changing assortments drive traffic, and effective marketing and promotions drive volumes. "Both of these things stem from the fact that the [Bath & Body Works] team is much more attuned to the market and consumers than is the case at Victoria's Secret."