Digging Deeper into L Brands’ First-Quarter Performance



Victoria’s Secret stores continue to disappoint

As we discussed in Part 1, L Brands (LB) reported its first-quarter results after the market closed on May 23. While the company missed the earnings expectations, it beat analysts’ top-line expectations.

Enterprise-wide same-store sales rose 3% YoY (year-over-year) for the three-month period ending on May 5. Victoria’s Secret, which accounted for more than 60% of the company’s first-quarter sales, posted same-store sales growth of 1%—compared to -14% during the same period last year.

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However, the comps at Victoria’s Secret stores continued to decline and fell 5% during the quarter. The lingerie chain has been struggling amid intense competition and customers’ changing preferences. Brands like Aerie, owned by American Eagle Outfitters (AEO), have been strong in past quarters. Aerie’s sales comps grew 34% in the most recent quarter.

Bath & Body Works, L Brands’ second-largest brand, continued its strong performance. The comps rose 8% compared to a 2% increase in the first quarter of 2017. Store-only comparable sales also improved 5% compared to a 1% decline last year.

Stock price performance

L Brands stock had already fallen ~44% YTD (year-to-date) before the earnings release. The fashion retailer is among the biggest apparel losses this year. In comparison, Guess (GES), Abercrombie & Fitch (ANF), and American Eagle Outfitters have soared 44%, 46%, and 19%, respectively, to date. The S&P 500 Apparel and Accessories Index has also risen ~10% to date and outperformed the S&P 500 Index, which has risen ~2.2% YTD.

Weaker-than-expected results might push L Brands stock deeper into the red on May 24. The company fell 5% in the after-hours trading session on May 23.


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