Victoria’s Secret Parent Company Beats Earnings Expectations – WWD

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Victoria’s Secret’s Angels may have fallen out of favor among some consumers, but they’re rising in the eyes of investors. 

The lingerie retailer’s parent company L Brands, which also owns Bath & Body Works, released quarterly earnings results Wednesday afternoon, beating expectations and causing the stock to jump more than 3 percent during after-hours trading as a result.  

“We continue to face an extremely challenging environment, yet we are confident we’re setting the stage for a promising future,” the company said in a statement. 

For the three-month period ending Aug. 1, L Brands registered $2.3 billion in total company revenues, down from $2.9 billion a year earlier. 

Almost all of the gains came through Bath & Body Works, with some increases in Victoria’s Secret’s direct-to-consumer business up 65 percent to $613 million, compared with $373 million last year. 

But it wasn’t enough to offset losses. Total sales in Victoria’s Secret’s North American business which includes the lingerie, beauty and Pink divisions fell 39 percent to $977 million, down from $1.6 billion a year ago. Even with some stores open, same-store comparable sales decreased 10 percent during the quarter. 

L Brands lost $49.6 million during the quarter as a result, compared with gains of $37.6 million a year earlier. 

“The second quarter of 2020 continued to be an unprecedented time for the world, the retail industry and our business,” the company said. “During the second quarter, we took a number of important steps to prepare Victoria’s Secret and Bath & Body Works to operate as standalone separate companies, improve L Brands’ profitability, maintain liquidity during the pandemic and maximize our financial performance.”

That includes securing Goldman Sachs and JP Morgan to serve as financial advisers in the process of turning Victoria’s Secret into a private company, although the exact date has not yet been revealed. The more lucrative Bath & Body Works will remain on the public market. 

But even pre-spinoff, analysts have been bullish on the stock. Shares of L Brands rose to 52-week highs last month after the company unveiled $400 million worth of cost-saving measures, including trimming its workforce by about 15 percent, or by 850 people. 

“Though [L Brands’] plan to spinoff [Victoria’s Secret] was foiled earlier this year, the stock has had a strong run as a new story has developed,” Ike Boruchow, senior retail analyst at Wells Fargo, wrote in a note. “[Management] appears deeply committed to readying each concept to stand on its own, particularly as steps are being made toward cleaning up the [Victoria’s Secret] business, which should make it a much cleaner asset down the road when they reengage with potential buyers.

“[L Brands’] recent announcements have helped drown out the bear case,” Boruchow continued. His firm rated the stock “overweight” and set a new, higher price target of $35 a share. 

The retailer was forced to close all stores in mid-March to prevent the spread of the coronavirus. Victoria’s Secret and Pink also temporarily shut down their e-commerce sites.

To help cut costs, the company previously said it would close roughly 250 stores in 2020, with many more closures likely to occur in 2021 and beyond. 

As of Aug. 1, L Brands’ total store fleet was 2,709 locations, spread across North America, the U.K. and China. Within the Victoria’s Secret brand there are 884 Victoria’s Secret stores in North America and 90 internationally. 

“While the closure of these stores will result in a decrease in sales, we expect the impact to overall profitability to be about neutral, as we expect roughly 30 percent to 40 percent of sales from the closed stores to transfer to nearby locations or the direct channel,” L Brands said. The company said it will also continue to negotiate rent reductions or abatements at some locations. 

L Brands has also previously said it is reevaluating its Victoria’s Secret businesses in both China and the U.K. So far that’s translated into closing the Hong Kong flagship and filing for credit protection in the U.K. (similar to a Chapter 11 bankruptcy), while considering a possible sale of the U.K. business. The company expects to save nearly $25 million because of Hong Kong store closure. 

Still, other headwinds abound. L Brands founder and chairman emeritus Leslie H. Wexner remains embroiled in more than one sex trafficking case involving convicted sex offender Jeffrey Epstein, who handled Wexner’s money for years. Harvard law professor Alan Dershowitz wants Wexner to testify under oath that Epstein accuser Virginia Giuffre — who also accused Dershowitz of sexually abusing her while still a minor — is making allegations only to extort money from wealthy men. But Wexner is fighting to stay out of it.

L Brands ended the quarter with $2.6 billion cash on its balance sheet. The company also paid pre-tax charges of $117 million and $80 million related to impairment fees for Victoria’s Secret leases and stores assets and restructuring fees, such as severance, respectively. The retailer is not providing forward-looking guidance, but is hosting a conference call with analysts Thursday morning to discuss the results. 

Shares of L Brands, which closed up 0.23 percent Wednesday to $28.47 a piece, are up about 43 percent year-over-year.



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