Victoria’s Secret parent L Brands is finally feeling the pain of mall traffic declines

27/02/2017
Bath & Body Works, which had been solid, is also losing its attraction

With the latest L Brands Inc. earnings, it looks as though the traffic and sales struggles other mall retailers have felt has finally hit Victoria’s Secret and Bath & Body Works.

L Brands LB, +0.44% shares took a 15.8% nosedive in Thursday trading, on the path to the largest one-day decline since 2008.

Late-Wednesday, the company guided for a mid-to-high-teens same-store sales decline during the month of February. Fourth-quarter same-store sales at Victoria’s Secret were down 3% while Bath & Body Works same-store sales were up 5%. Together, L Brands had flat same-store sales for the quarter.

The company says its exit from the swim and apparel categories are taking a toll, but analysts believe other new factors are hurting the company as well.

For department stores like Macy’s Inc. M, -1.04% and Sears Holdings Corp. SHLD, -2.49% the slowdown at malls is not news. Teen retailers like Wet Seal and Aeropostale Inc. AROPQ, -3.63% , which are traditionally mall fixtures, have filed for bankruptcy as consumer shopping activity has shifted away from malls and apparel.

But Victoria’s Secret, with its sexy lingerie, televised runway shows, and team of social-media-famous models, has been able to attract customers to this point. So has Bath & Body Works, which sells body care and fragrance products.

“Simply put, it seems the issues facing the mall are catching up to L Brands and although exited categories are having a very real impact on results, they are hardly the only culprit,” said Instinet in a Wednesday note. “Pressures are being felt beyond swim and apparel, as seen through a weak February at Bath & Body Works and the decline in core bra sales despite a low-double-digit increase in total core bra unit growth, given a shift to lower average unit retail (and lower-barrier-to-entry) bralettes and sports bras.”

Instinet rates L Brands stock neutral and cut the target price to $54 from $63, one of at least four firms to chop the price target since the earnings were announced.

UBS analysts say mall traffic has decelerated to a 14% decline year-over-year in February, from a 6% decline in January.

“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 Wednesday note.

UBS rates L Brands shares neutral and cut its price target to $52 from $64.

In 2016, the company announced that it would streamline the number of Victoria’s Secret categories to beauty, lingerie, and Pink, which is designed to appeal to a younger consumer.
Victoria’s Secret has placed its focus on sports bras and bralettes. However, bralettes, which normally lack the cups, padding and fasteners of a structured bra, are sold at a lower price point.

During the early Thursday call, Stuart Burgdoerfer, chief financial officer for L Brands, said Pink has been a “steady business,” but he acknowledged that “there was some AUR pressure in the constructed bra business in 2016.”

He believes the merchandise mix “will present some pressure in the first half of 2017. Should not in the back half of 2017,” he said, according to a FactSet transcript of the call.

To be sure, the battle over the bralette business isn’t new either. American Eagle Outfitters Inc.’s AEO, +0.32% Aerie brand and Urban Outfitters Inc. URBN, -2.84% are just two of the brands that have also made a play for dominance in the lingerie category based on the demand for the item. Abercrombie & Fitch Co. ANF, -2.61% recently relaunched its underwear brand Gilly Hicks.

And Amazon.com Inc. AMZN, -0.42% has launched the Iris & Lilly brand in Europe, which looks to be heading to the U.S.
“We think we’re seeing a significant change in the way people view bras and intimates creating new opportunities in the space,” said Ed Yruma, managing director at KeyBanc Capital Markets. Bralettes are less complex to make, which he says is “letting other people into the market.”

According to pricing work that KeyBanc discussed in a Feb. 10 note, Amazon’s bras are also at a 20%-plus discount to Victoria’s Secret and Pink.

Burgdoerfer said on the call that he thinks the company is “well-positioned” deal with the competition, but analysts have concerns.

“L Brands continues to deal with a Victoria’s Secret concept that is struggling to find its new identity (shifting core focus from core lingerie to ancillary categories), while they also appear to be seeing softness within their Bath & Body Works concept and international operations,” Wells Fargo wrote in a Tuesday note.

Wells Fargo rates L Brands shares market perform and cut the valuation range to $52 to $53 from $68 to $69.

See also: From a risk-of-bankruptcy standpoint, the retail business is the new oil and gas

Read also: If Lands’ End and Restoration Hardware are right about catalogs, the rest of the retail business is wrong

Stifel analysts say investing in L Brands will require two things right now: fortitude and conviction.

“We remain convinced of the appeal of these brands, of their ability to offer inspiring product and of the likelihood that the consumer will embrace the offerings,” Stifel said in a Tuesday note. “We believe that fourth-quarter 2017 will be critical for the company and its shares as improvement would provide visibility into 2018 and further potential upside.”

Stifel rates L Brands shares buy, but cut the price target to $61 from $75.

L Brands shares are down 38.7% for the past year while the S&P 500 index SPX, -0.26% is up 22.7% for the same period.

Fonte:http://www.marketwatch.com/story/victorias-secret-parent-l-brands-is-finally-feeling-the-pain-of-mall-traffic-declines-2017-02-23

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