• cnbc

Victoria's Secret might be 'broken' as L Brands slashes its outlook

  • L Brands, which owns Victoria's Secret and Bath & Body Works, slashes its full-year earnings outlook.

  • Analysts are concerned about unhealthy inventories at some stores and a huge footprint still in malls.

  • L Brands' stock has tumbled more than 40 percent in 2018.

Victoria's Secret is looking broken, according to one analyst, following the earnings report by tha lingerie retailer's parent company, L Brands.

Shares of L Brands, which also owns Bath & Body Works, initially sold off Thursday after the company slashed its full-year profit outlook. However, as the retailer discussed during a call with the financial community its plans to improve performance, the stock recouped its losses and climbed more than 3 percent.

"The release ... sheds light on just how promotional the biz was, with merchandise margin down significantly," Jefferies analyst Randal Konik said in a note to clients. He added that L Brands' "rock" in Bath & Body Works "over the past few years is starting to destabilize."

For fiscal 2018, L Brands now expects earnings per share to fall within a range of $2.70 and $3, down from a prior estimate of $2.95 to $3.25.

Industry experts increasingly fear the company is highly exposed in U.S. malls suffering from weaker foot traffic and has no plans for major cuts in square footage. L Brands, in fact, is adding even more stores under the Bath & Body Works chain, including its offshoot for candles, White Barn.

L Brands, through Victoria's Secret, Pink, Bath & Body Works, La Senza and Henri Bendel, has a little more than 3,000 company-owned stores spread across the U.S., Canada, the United Kingdom and Greater China.

"The dark store environment, the conspicuous sexuality of the offer, and the brash marketing are increasingly out of step with what modern consumers want," GlobalData Retail managing director Neil Saunders said about Victoria's Secret.

The age-old lingerie player is facing increased competition from more millennial-focused brands like American Eagle's Aerie division, Adore Me and ThirdLove. Those brands offer trendy lace bralettes and comfortable pieces more aggressively than push-up bras. Amazon has been making a bigger bet on the business, too, in partnering with Calvin Klein. Victoria's Secret's racy ad campaigns also don't sit well with some women in light of the #MeToo movement.

"Niche players may only have a small share compared to Victoria's Secret, but their innovative approaches mean they are nibbling away at its market share," Saunders said.

L Brands shares have fallen more than 40 percent so far this year. The retailer has a market capitalization of roughly $9.5 billion.


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