Victoria’s Secret’s shrinking profit margin a concern

L Brands’ comparablestore sales increased in May.

Wednesday’s news sent shares up before the stock market opened, but shares closed trading at $37.09, 10 cents lower on the day.

Comparable-store sales, a key indicator of a retailer’s health, increased 5 percent from May 2017. In that month, comparable-stores had decreased by 7 percent from the same month in 2016.

L Brands’ overall sales increased to $851.9 million last month from $774.3 million a year earlier.

Victoria’s Secret reported that comparable-store sales increased 2 percent, with beauty products and lingerie L Brands’ comparable-store sales, a key indicator of a retailer’s health, increased 5 percent in May from a year earlier.

the best performers. That was vastly better than the 14 percent decrease during May 2017.

However, Victoria’s Secret’s profit margin last month was down “significantly” from a year earlier, said Amie Preston, L Brands’ chief investor relations officer. The profit margin was hurt by the retailer’s decision to offer heavy discounts to bring customers into stores.

That left many on Wall Street “subdued,” said analyst Chethan Mallela of Barclays Equity Research in a note to investors.

Although comparablestore sales were better than expected, those sales came at the expense of the profit margin. “We expect concerns about the state of this business to persist,” Mallela said.

“As one sell-side analyst noted this morning, it’s not hard to (post positive comparable-store sales) when you are giving stuff away,” said Ken Perkins, president of research firm Retail Metrics.

In addition, comparablestore sales in Victoria’s Secret stores — excluding online sales — decreased 2 percent, indicating that online sales were a big part of the chain’s overall increase.

On a brighter note, Bath & Body Works reported that its comparable-store sales in May increased by 10 percent. Although its profit margin also was hurt by discounting, the price cuts were similar to last year’s and produced an even better response from customers, Preston said. In addition, online sales continued to grow briskly.

“Bath & Body Works continues to be one of the most consistently visited stores in the mall,” Perkins said.