Victoria’s Secret might’ve axed its famous annual catalogue, but fear not. Parent company L Brands (LB) has made the right move, according to analysts at Stifel,
The group bumped their rating on the stock from neutral to buy and set L Brands’ price target at $90—which moved shares up close to 2 % during midday trading Monday.
Investors have felt uncertain about L Brands’ stock in recent months, after Victoria’s Secret CEO Sharen Jester Turney abruptly stepped down in February and L Brands (formerly known as Limited Brands) later announced a series of restructuring initiatives including cutting its swimwear line by the end of 2016, dropping its annual catalogue, and reducing promotions. Shares have fallen nearly 19% year to date.
In a Monday note, Stifel wrote that investors’ concerns about Victoria’s Secrets cuts aren’t unwarranted. Those changes put in place by CEO Les Wexner will likely hold back sales in the near term—but the savings from those cuts will offset any loss in sales.
“These changes, in our opinion, will enable the brand to accelerate growth and strengthen the business for the long term by focusing and maximizing the merchandising effort while simplifying and modernizing the operating model,” the team of analysts led by Richard Jaffe said.
And according to Stifel, L Brands has made trims where the company was bloated—leaving behind a strong core product offering that has in past years, driven growth. That includes its lingerie, sleepwear, and cosmetics lines. In a sense, the company has cut out the distractions, Stifel noted.
Victoria’s Secret catalogues, though strong in name recognition, aren’t a sales driver, making the marketing tool extraneous. Stifel noted that while Victoria’s Secret cut back on catalogues by 40% in the fourth quarter, average per store sales rose 7%. Cutting out catalogues also means VS is focusing more on loyalty programs—a move that Stifel is bullish about in the long term.
And the selloff of shares in recent months means L Brands, which is also in charge of Bath and Body Works, is now selling at something of a discount.
“Worldwide brand recognition, combined with industry-leading sourcing capabilities and top notch management, has successfully created a competitive moat around the business providing for a significant long-term growth opportunity, in our opinion,” the analyst wrote.