Shareholders give earful to L Brands executives
L Brands shareholders were in the mood to complain, albeit politely, during the retailer’s annual meeting on Thursday.
Their concerns came after Leslie H. Wexner, L Brands founder and chairman, acknowledged in his opening remarks that the company had “a very disappointing 2017 ... with operating income declining.”
“I remind myself virtually every day that the fashion business is not for the faint of heart,” he said, smiling wryly. All three of the company’s big brands — Victoria’s Secret, Pink and Bath & Body Works — were in some state of change last year, Wexner said.
“Victoria’s Secret not only experienced a change in leadership but a change in assortment and a change in structure of leadership.”
The retail environment, however, “is strong, not only in stores but in the digital channel — and we’re highly engaged in that,” he said, later saying that the company’s online businesses are among the most profitable in the industry.
One shareholder who said she has owned the company’s stock “for decades” told Wexner that the company should bring back swimwear and apparel at its Victoria’s Secret stores.
“Yes, the underwear, the bras are fabulous, but this is not what customers are only asking for,” she said. “I visit stores in California, Florida, South Carolina, and the people I talk to are all asking about swimwear and apparel.”
Wexner defended the decision to jettison the categories. Swimwear is “a very erratic business,” he said. “The lingerie business is emerging stronger. We think remixing is insightful to customer needs.”
Another investor waved the company’s annual report and pointed to a page, asking why “sales increased marginally, but inventory increased substantially.”
Wexner pointed out that inventory levels are reported in comparison with the previous year. Stuart Burgdoerfer, L Brands chief financial officer, expanded on that answer.
“The No. 1 dissatisfier for customers is when something is not in stock,” he said. After pushing inventory “artificially low” in the previous year — something which L Brands executives later admitted was a mistake — the company brought inventory back up in 2017, thus leading to the reported increase.
Other questions included whether L Brands’ reputation at home was at risk during a politically divisive time and whether sales at overseas stores were at risk during times of upheaval.
In answering the first question, company counsel Bruce Soll noted that federal rules prohibit the retailer from contributing to federal elections, a prohibition which the company follows in state and local elections as well. However, the company does “encourage associates to serve in communities where they live and work,” he said.
In the case of overseas sales, “business went to complete hell when Brexit hit,” Wexner said, adding that he often checks in with the company’s Mideast franchisee after unrest flares up.
“Having said that, Victoria’s Secret is (the franchisee’s) No. 1 performing brand in the Mideast,” he said. In addition, “we’ve made significant headway in China, which I believe will become our largest market in the world.”