Holiday Central

Last-minute lingerie may revive Victoria's Secret sales

Model Lily Aldridge walks the runway at the 2013 Victoria's Secret Fashion Show.
Adam Jeffery | CNBC

With the holiday season underway, L Brands doesn't want to be haunted by the ghost of Christmas past.

Last year, the company's cash-cow, Victoria's Secret, lost out on sales because it was not promotional enough and was short on inventory in key categories, including sleepwear and beauty, Stifel Nicolaus analyst Richard Jaffe said in a research note.

This year, brand sales should get a boost from more promotions, greater depth in gift categories and an easier-to-shop beauty channel—including the always-popular fragrance category.

Beauty outposts placed throughout the store will offer gift sets at a wide range of prices. Both those and apparel items will be subject to promotions that preserve margins. Still, Jaffe said, in a highly competitive holiday environment, "it's going to be hard fought [for] every penny."

(Read more: Scenes from Victoria's Secret Fashion Show 2013)

It doesn't help that L Brands posted its first monthly same-store sales loss in nearly four years, reporting that sales fell 5 percent in November year over year.

Purveyor of push-up bras Victoria's Secret—which has generated about 65 percent of the company's sales this year—had a 3 percent sales decrease.

Diamond-covered bra worth $2.5 million

Margins took a hit from increased promotions in L Brands' PINK line, which appeals to a younger demographic and is more vulnerable to consumers' fickleness because of its apparel component, Citi analyst Oliver Chen said in an interview.

At Bath & Body Works, which represents nearly 25 percent of L Brands' net sales this year, analysts said an underwhelming Black Friday and what has so far been a poor promotional strategy this holiday season led to a 7 percent decline in comparable sales.

Retail analyst Kimberly Greenberger at Morgan Stanley said in a note that Bath & Body Works' approach in November to promote specific items during slow-traffic periods was a misguided attempt to spur demand.

Chen also called attention to the brand's Forever Midnight fragrance, which launched earlier in November and was not even featured on Black Friday. What's more, he said, in a mall environment bursting with bargains, the promotions didn't vary enough from last year's.

"They do have to offer better deals at that position," he said.

Although the efforts backfired, Greenberger wrote that "tactical shifts" should help Bath & Body Works' comps rebound in December.

I want a new CEO for Christmas

Despite lost momentum at Bath & Body Works and Victoria's Secret, analysts don't expect the slowdown to continue this month or bleed into L Brands' overall fourth-quarter sales figures. That would result in its first quarterly same-store sales decline since third-quarter 2009.

The management emphasized that a late Thanksgiving was the big driver of the miss. Aside from Bath & Body Works, executives said, its divisions met expectations for Thursday, Friday and Saturday, which fell within the month of November.

(Read more: Scenes from Lingerie Fashion Week)

Chen agreed that the late holiday—which bumped the Sunday after Thanksgiving and Cyber Monday into December—was a major factor in the miss. The season is just getting under way, and Victoria's Secret still has its annual fashion show, which will be broadcast Tuesday, and its semiannual sale.

ShopperTrak predicted that the last four days before Christmas will be among the 10 busiest of the holiday shopping season. That's particularly true for Victoria's Secret, Chen said, because of "guys who buy lingerie late in the season."

According to Greenberger, retail's lackluster performance on Black Friday offers a reason to be bullish. Following the National Retail Federation's announcement that sales were down 2.9 percent year over year, she said they must improve 4.7 percent for the rest of the season.

(Read more: Victoria's Secret unveils $10M Fantasy Bra)

But Victoria's Secret appeared to have lost some of its luster over the Thanksgiving period, according to BMO Capital Markets analyst John Morris.

In a note, he wrote that though Victoria's Secret stores looked busy on Black Friday, they didn't have the level of traffic or long lines they have in past years. He noted that Superstorm Sandy probably affected its November 2012 comp by one to two points, which should have given the brand an easier comparison this year.

Sales in the intimates category in general were up about 1 percent for the year ended in October, according the The NPD Group.

Was Victoria's Secret "not aggressive enough or not effective enough with their promotions during this period? Absolutely," said Jaffe at Stifel Nicolaus. "No matter what, the external environment is not an excuse."

(Read more: Mixed bag of retail sales for November)

Still, analysts pointed to better catalog and Web sales as bright spots. While lower apparel sales have caused Victoria's Secret to struggle in those areas for months, they posted a 9 percent gain in November, driven mainly by bras, PINK, sleepwear and beauty.

Management is working to revamp its catalog and online presence, putting more of an emphasis on its key categories and athletic wear, and less on apparel, which Chen said he believes is a step in the right direction.

PINK presents a big opportunity for L Brands longer term. The company stated in its third-quarter earnings call that it plans to increase its square footage for PINK, whose full assortment is in only about 25 percent of stores.

Still, Chen said it's hard to pinpoint whether the company has upside, especially considering the challenging consumer environment. He has placed a $67 price target and a buy rating on the stock.

L Brands shares fell 1.69 percent when it reported same-store sales results Thursday but have since regained some ground. Chen cited consistently good performance and successful strategy evolution in the company's ability to post positive comps for so long.

Jaffe, who recommends that investors hold the stock, sounded a similar note.

"I wouldn't overstate [November's miss] as a drastic problem," he said. "This is an extraordinarily successful retailer."

—By CNBC's Krystina Gustafson. Follow her on Twitter @KrystinaGustafs.