Victoria's Secret trends miss continues to bedevil L Brands

Dive Brief:

L Brands on Wednesday reported fourth quarter net sales of $4.82 billion down from $4.489 billion in the year-ago period. Same-store sales in the quarter rose 2%, with the extra week last year adding some $160 million in sales, according to a press release.
Same-store sales at Victoria’s Secret fell 1%, after a 3% decline in the year-ago period, while its Bath & Body Works personal care unit saw same-store sales rise 6%, giving the company an overall 2% boost in that measure, which includes stores in the U.S., Canada, the U.K., Greater China, and online. With e-commerce taken out, Victoria’s Secret same-store sales plummeted 6% after a 2% decline a year ago, and Bath & Body Works added 4%, for an overall 2% same-store sales decline at L Brands stores.
L Brands reported fourth quarter adjusted earnings of EPS of $2.11 per share, above the Cowen & Co, analyst estimate of $2.05, which was in line with the company’s guidance. Actual quarterly adjusted earnings reflect a lower-than-modeled tax rate, higher-than-modeled gross margin, and slightly lower-than-modeled other expenses, according to a Cowen note emailed to Retail Dive.

Dive Insight:

Victoria's Secret's commitment to sexier lingerie fashion is hurting its parent company, as consumers gravitate to more streamlined, comfortable styles amid changing attitudes about body image. Growth in operating income at Bath & Body Works versus last year and the company's forecast was more than offset by a decline at Victoria's Secret, executives told analysts on Wednesday, according to a transcript from Seeking Alpha.

"Turning to 2018, we're very focused on improving performance in the Victoria's Secret business, staying close to our customer, improving the customer experience in stores and online, and improving our assortments in compelling new product launches," L Brands CFO Stuart Burgdoerfer said on the call. "We will continue to be disciplined in the management of inventory, expenses and capital."

Improvements to assortment will be key, as shoppers are finding such apparel at plenty of other brands, including American Eagle's Aerie, Gap's new Love brand and online upstarts like True & Co, Lively and Thirdlove. Stitch Fix this week also unveiled an add-on category for its women's boxes called Stitch Fix Extras, a curated collection of camisoles, shapewear, underwear, tights, bralettes, bras and socks featuring brands like Wacoal, Free People and Hanky Panky as well as the company's private label, Everyday by Stitch Fix.

"'Sexy' is no longer a well-received message," Jane Hali & Associates told Retail Dive in an email this week. "Consumers are looking for intimates that are comfortable and fit properly. Women are seeking comfort and to feel comfortable in their own bodies."

Those players are in focus at Cowen & Co., and analysts there said 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," according to a note emailed to Retail Dive.