Dive Brief:

• Shares of L Brands, parent company of Victoria's Secret, Bath & Body Works and other retailers, fell 16% on Thursday — the organization's second-worst day in 35 years of public trading — after it announced fourth quarter declines and a grim outlook for the months ahead.
• L Brands reported that Q4 operating income decreased 8% to $987.6 million over the year-ago period, and net income was $631.7 million, down from $636 million last year. Q4 net sales rose 2% over the year-ago period, up to $4.49 billion.
• L Brands now expects to report a mid-to-high-teens decrease in February comp sales, below expectations for a mid-single digit decrease, reflecting a 20% decline at Victoria’s Secret and a mid-single digit decline at Bath & Body Works. The retailer’s exit from swim and apparel categories had a negative impact of 2 percentage points and 4 percentage points to total company and Victoria’s Secret comparable sales, respectively.

Dive Insight:

Last year, as L Brands began to lose its sparkle — particularly at its Victoria’s Secret lingerie brand — the company announced it would streamline its categories to focus on three areas that would most appeal to millennial shoppers: Beauty, bras and its Pink youth brand. But the recent exit from swimwear and apparel is certainly taking an initial toll on the brand.

Despite a fragile outlook, L Brands said it is focused on its investment in China, as well as in real estate for Victoria’s Secret and Bath & Body Works. Stuart Burgdoerfer, L Brands' chief financial officer, said on an earnings call with analysts that the company over the last year has moved aggressively into the sports bra and bralette business, noting “We drove a lot of growth in those categories."

The problem with bralettes is that they fall at a lower price point than Victoria's Secret's iconic push up bras, and the company still needs to find a way to drive profits. Promotional pricing has also hit the retailer hard in recent months. Burgdorfer acknowledged that management is still experimenting with the right balance between driving in-store foot traffic and volume.

“We've got pressure in the first half of the year, as we've outlined, as you appreciate from the sales and margin impact on the non-go-forward business that we had a year ago, but we're optimistic that we've laid a good foundation for accelerated growth in the back half of 2017 and for the next several years,” Burgdoerfer said.

Not everyone is looking at L Brands’ future through such rosy lenses. UBS analysts cut their price for L Brands.

“In our view, even L Brands’ significantly reduced guidance isn’t fully de-risked as it relies on mall traffic improving (which has been persistently negative, but could improve if February trends are simply due to tax shifts), but also that second half will reaccelerate to positive low-single-digit same-store sales (partly due to swim/apparel headwinds abating), which we think is a stretch until we see better consumer buy-in from new innovation,” UBS said in a note cited by MarketWatch.