Investors did not like hearing that L Brands’ (LB) flagship brand Victoria’s Secret saw comparable sales fall in April, sparking a sell-off that sent the retailer’s stock down 10% on Thursday.
Wall Street analysts had been expecting a 4% increase in April comparable sales at the division, so the big shortfall only solidified fears that L Brands’ warhorse (and biggest brand by far) has lost its way.
Last month, L Brands said it would slash 200 corporate jobs at Victoria’s Secret to kickstart growth and cut organizational bloat by reorganizing the brand into three units: Victoria’s Secret Lingerie, PINK (a more youth oriented brand) and Victoria’s Secret Beauty. That news had been preceded two months earlier by the sudden department of long-time brand CEO Sharen Turney, the executive credited with turning Victoria’s Secret into a juggernaut.
This year, Victoria’s Secret has only posted one month of growth so far (February), an uncharacteristic slump for the brand. Founded in 1977, Victoria’s Secret has long been the leader in the women’s lingerie market, with $1.1 billion in revenues in 2015. But there is a lot of competition from brands like American Eagle Outfitters’ Aerie, whose comparable sales last year rose 20% and is a major threat to the PINK brand .
“We remain unclear on the direction of the brand as it divides into 3 business units and plans to eliminate more merchandise categories,” Credit Suisse said in a research note.
The troubles lately at Victoria’s Secret are reminiscent of the problems rocking Gap Inc’s (GPS) namesake and Old Navy and Banana Republic brands, all chains that have seen changes at the top in the last 16 months and whose sales are still falling sharply. That is likely scaring investors that Victoria’s Secret could be in for a rough, potentially protracted, patch now.
