LB L Brands Inc

By Micah Maidenberg 

Victoria's Secret, the flagship beauty and lingerie line for L Brands Inc., simply isn't resonating with shoppers.

Revenue from Victoria's Secret products fell 1% for the five-week period ended July 7, compared with the same period last year, L Brands Chief Investor Relations Officer Amie Preston said in an audio message accompanying its latest sales report. Fewer customers visited stores for Victoria's Secret's semiannual sale, forcing the company to lengthen it by about two weeks and slash already reduced prices.

Those moves were meant "to drive traffic and clear inventory," Ms. Preston said in the message. As a result, merchandise margins fell "significantly," compared with last year, she added.

Investors on Thursday punished the Columbus, Ohio-based retailer's stock following the news. Shares in L Brands fell 12% to close at $32.34. The stock has fallen 46% since the start of the year.

Victoria's Secret "is broken," Randy Konik, managing director at Jefferies LLC, said in a research note.

"Consumers are going somewhere else," Mr. Konik added in an interview. "At any price, the consumer doesn't want their products anymore."

The brand's struggles come amid shifting cultural mores and consumer behavior. Some observers believe Victoria's Secret's emphasis on skinny, supermodel imagery to promote its merchandise is out of touch and that the company hasn't responded to demand for different kinds of underwear.

"Victoria's Secret just didn't get the memo that we're talking about bodies of all sizes and inclusiveness," said Jane Hali, chief executive of Jane Hali & Associates LLC, an investment research firm in Boca Raton, Fla. "Sexy isn't in. Comfort is in."

Competitors like Triumph, Adore Me and Calvin Klein are doing a better job at reaching consumers, according to analysts. American Eagle Outfitters Inc.'s Aerie brand just launched an ad campaign that features women with disabilities.

A spokeswoman for L Brands didn't respond to requests for comment. Led by CEO Leslie Wexner, L Brands has bucked trends in the retail business by adding stores, betting that female shoppers will still visit physical shops to try on products like underwear and beauty items.

For the five-week period ended July 7, L Brands reported $1.3 billion in sales, up 6% from the year-earlier period. The company booked $4.8 billion in sales for the 22-week period, up 8%. Despite Victoria's Secret's weak performance, L Brands' Bath & Body Works performed well, with sales up 10% for the five-week period.

Investors are looking for signs that L Brands can turn around Victoria's Secret.

"You can't have them missing margin plans. You can't have them missing sales plans on one of the biggest events of the year," said Ike Boruchow, a managing director at Wells Fargo Securities LLC who follows L Brands. "You need to see stability in the numbers."

Other retailers also struggled this week after their sales reports for the five-week period ended July 7 were released.

Cato Corp., based in Charlotte, N.C., reported same-store sales for the period were flat compared with last year, and its shares fell 13.5%. Lynnwood, Wash.-based Zumiez Inc.'s stock dropped 10% after it reported slower comparable sales growth. Buckle Inc.'s comparable sales slipped 1.2% for the period. Shares in the Kearney, Neb.-based company were down 7.7%.

Write to Micah Maidenberg at micah.maidenberg@wsj.com

(END) Dow Jones Newswires

July 12, 2018 21:46 ET (01:46 GMT)

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