- Victoria’s Secret and Pink owner L Brands has been struggling to drive demand.
- The two sister-brands have used deep discounts to get rid of high inventory without too much success, and Jefferies sees negative trends continuing into the next quarter.
- L Brands blames sales struggles on the recent shut-down of its catalogue business, the company exiting swimwear and restructuring but Jefferies says the problems are much deeper.
- Watch L Brands trade in real-time here.
L Brands, owner of Victoria’s Secret and Pink, reported another disappointing quarter Wednesday. First-quarter results revealed ‘massive promos’ across the sister-stores in attempt to drive demand which had been declining for the last few quarters. Unfortunately for these two big players in the intimates business, the promotions haven’t been enough to turn the company around.
“The MATHS doesn’t add up,” Jefferies analyst Randal Konik wrote in a note to clients. “VS/PINK appear desperate by giving away products (promos) to keep sales afloat.”
Despite the number of deep promotions, customers don’t seem to be responding. He noted that store inventories were high and predicts they will likely stay high for some time. Konik saw Victoria’s Secret advertising seven panties for $US28 and Pink promoting eight panties for $US28. This is the first time he can remember Pink promoting at a deeper discount than Victoria’s Secret on the same day. He believes negative trends are already bleeding into the next quarter.
Though L Brands blames its struggles on the business exiting swimwear, restructuring, and shutting down its famous catalogue, Konik believes the problems stem from the rise of new competition and an oversaturation of stores.
The two intimates brands still hold considerable market share, but smaller competitors are quickly entering the market. The last few years lowered barriers to entry for the intimates category as the athleisure movement took over, leading to the popularity of sports bras and bralettes. Sports bras and bralettes are sold at a lower price and are cheaper to manufacture given the producer won’t have to worry about traditional cup/band sizing which can be tricky to navigate. The popularity of this cheaper bra option “has led to eroding pricing power,” and has cut into Victoria’s Secret’s margins.
The PINK brand, once a growth driver for L Brands, is “falling out of favour,” while competition grows, Konik wrote. Aerie, a subsidiary of American Eagle Outfitters, continues to expand as Victoria’s Secret and Pink lose market share. The American Eagle sub-brand’s revenue still pales in comparison to Victoria’s Secret, but has seen accelerated growth. Aerie reported comp sales of 34% last quarter. In comparison, Victoria’s Secret comp sales (which includes ecommerce) rose just 1%.
L Brands is down almost 42% this year.
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