L Brands shares drop on Victoria's Secret struggles

Key Points
  • Shares of L Brands were trading down about 6 percent before the market's open.
  • Comparable sales of Victoria's Secret in store and online were down 4 percent.
  • Weakness in Victoria's Secret was offset by stronger performance in Bath & Body Works.
A woman walks past a Victoria's Secret store at Huaihai Road in Shanghai, China.
VCG | Getty Images

Shares of L Brands sunk about 6 percent before the opening bell on Thursday, after it continued to struggle with weakness in its Victoria's Secret business.

The once high-flying brand now competes against a host of new competition including American Eagle's Aerie. The brand has also been hurt by a decline in mall traffic.

Third-quarter comparable-sales at Victoria's Secret fell 4 percent. The decline was steeper, some 5 percent, when considering only Victoria's Secret's stores.

"We believe fundamental issues remain at Victoria's Secret ... and L Brands can no longer rely on this division as a source of stability," said Randal J. Konik, an analyst at Jefferies.

A stronger performance at Bath & Body Works offset pains at Victoria's Secret. The fragrance and body-care store saw all sales increase 4 percent for the quarter on a comparable basis. Within its stores, comparable-sales rose 1 percent.

However, Konik said he's sees Bath & Body Works' strong performance as a risk because the business could be "closer to peaking." Both sales and margins slowed at the division in the third quarter.

The company said its earnings per share fell 29 percent to 30 cents, compared to 42 cents for the same quarter the year prior. Its net sales of $2.62 billion were an increase of 1 percent.

L Brands last year announced Victoria's Secret would stop selling swim and apparel to help streamline the brand and focus on its more profitable goods, like its bras. The company is still feeling the effects of that change, and said it contributed to a 2 percent decline in its comparable sales.

The company also has been hurt by shoppers preference for bralettes, which usually sell at a lower margin. Victoria's Secret has been attempting to increase sales of its higher-margin constructed bras but so far has seen "limited success," according to Konik.