Victoria's Secret is at a 'tipping point,' getting weaker by the day, L Brands analyst says

Key Points
  • One retail analyst says Victoria's Secret is only "getting weaker by the day."
  • L Brands' latest revenue data show comp sales were down 5 percent — across all of its brands — in April, sending shares of the stock down 6½ percent Thursday.
A woman walks past a Victoria's Secret store at Huaihai Road in Shanghai, China.
VCG | Getty Images

L Brands is proving brick-and-mortar retail is a tough business to be in today.

After another weak monthly sales report, there is growing concern about L Brands' ability to turn around its Victoria's Secret business, which has been struggling since it eliminated swim wear and apparel.

"The only thing that matters here is mounting evidence the VS monopoly is losing share every single day," Jefferies analyst Randal Konik wrote in a note to clients Thursday. "Core lingerie remains down and PINK growth is slowing which means share losses are accelerating."

L Brands said its exit of the swim and apparel categories had reduced total company sales by 6 percentage points, and Victoria's Secret same-store sales by 10 percentage points this period.

CEO Les Wexner's decision to discontinue Victoria's Secret's swim line has eliminated roughly $500 million in annual sales from the business.

The company decided to exit these categories largely so it could focus on more profitable segments and push harder into lower-priced sports bras and unstructured bralettes. Those items are currently popular with younger consumers who have been flocking to rivals like Aerie, an intimates label owned by American Eagle. But the bet has yet to pay off.

Company-wide, L Brands' net sales fell 2 percent, to $719.6 million, for the four weeks ended April 29, versus net sales of $737.5 million for the period a year ago. Comparable sales — a metric closely monitored for retail stocks — also dropped 5 percent, the company said.

Shares of L Brands closed down nearly 7 percent on Thursday, below the $50 mark.

In addition to the shifting strategy at Victoria's Secret, the company is also being hurt by smaller crowds at the malls — a trend that is expected to continue as more shopping shifts online.

Another L Brands-owned company, Bath & Body Works, reported comparable sales growth of 10 percent for the latest period, but it will likely see increasing pressure as foot traffic in malls weakens, Konik said.

The Jefferies analyst predicts L Brands' earnings will be down for the next three years based on the continued weaker performance from its businesses.

With Thursday's declines pushing L Brands shares further into red territory, the stock is down more than 38 percent over the past 12 months and about 25 percent this year.

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