L Brands’ December sales droop, stock slips
L Brands reported disappointing December sales on Thursday, joining other retailers that had a glum holiday season. Shares of the Columbus-based retailer closed with a loss of 4.4 percent.
Kohl’s and Macy’s were among the others reporting disappointing results, and even though Target posted healthier sales in the combined November and December season, its shares also slid, as Wall Street took a dim view of the retail sector.
December sales at L Brands dropped to $2.477 billion from $2.516 billion a year
earlier. Comparable-store sales, a key indicator of a retailer’s health, were flat in the important holiday month.
L Brands reported that comparable-store sales at Victoria’s Secret were down 6 percent, driven by drooping sales in lingerie and in the Pink brand. That was significantly worse than the 1 percent drop in comparable-store sales that Victoria’s Secret had reported for December 2017, and the 4 percent drop that the retailer had reported for December 2016.
Victoria’s Secret profit margins were “down significantly to last year,” said Chief Investor Relations officer Amie Preston. The retailer tried to lure shoppers into stores by cutting prices.
Profit margins aren’t likely to get much better as the struggling lingerie brand has entered January with a continuation of its semi-annual sale. However, the calendar might bring a bit of relief: “At the end of the month, we will focus on Valentine’s Day,” Preston said.
On a more positive note, L Brands reported that it expects its fourth-quarter earnings to be at the higher end of its forecast of $1.90 to $2.10 per share. That does not include a charge that L Brands will take of approximately $80 million related to the sale of lingerie brand La Senza.
Although the prediction about fourth-quarter earnings drew approval from Wall Street, “Victoria’s Secret’s December sales miss on ‘down significantly’ (profit) margin leaves us concerned,” wrote Morgan Stanley analyst Kimberly Greenberger in a note to investors. “We continue to look to the second half of 2019, at the earliest, for marked improvement.”
L Brands also could point to continued good news at Bath & Body Works, where comparable-store sales in December were up by 11 percent, driven by strong results in both the holiday and semi-annual sales.
Significantly, profit margins at Bath & Body Works were up, as the retailer was able to sell more of its merchandise without offering discounts. That means that although the semi-annual sale continues into January, there is “less distressed inventory to clear this year due to our successful holiday,” Preston said.
Although that is good news, the fact that Bath & Body Works “does have less distressed inventory to clear this year due to a successful holiday season ... could impact the timing and depth of January promotions as well as overall sales performance,” Greenberger said. “Thus, investors should be prepared for Bath & Body Works to deliver potentially its weakest comparable-store sales of the year in January.”