(Filed Under wholesale Lingerie News). Overall sales at Victoria’s Secret and Pink rose modestly in the second quarter, while comparable sales declined for the two labels. Meanwhile, a second print catalog mailing was reported for the former brand, and a new CEO for the latter.
Victoria’s Secret and Pink company owned store and direct sales in the U.S. and Canada rose 4.8% in the three months ended August 4, to $1.7248 billion from $1.6463 billion in the same period last year. Store sales alone rose only 1.0% to $1.3648 billion, from $1.3510 billion, while direct sales jumped 21.9% to $360.0 million from $295.3 million in the three months ended July 29, 2017.
Overall sales for the two brands in the last quarter stand in contrast to the overall comparable store and direct sales in the U.S. and Canada which were down 1%. Comparable store sales alone were down 5%.
“Second quarter results at Victoria’s Secret were below our expectations,” admitted a spokesperson for L Brands. “The merchandise margin rate was down significantly across all major merchandise categories as we increased promotional activity to drive traffic and successfully clear inventory.”
“The total segment gross margin rate decreased significantly, driven by a decline in the merchandise margin rate,” and “operating income declined 38% to $114.2 million,” down from $183.1 million in the same quarter last year.
The spokesperson said the decline in Victoria’s Secret comparable sales was “driven by a decline in bras, partially offset by growth in panties and sleepwear. We continue to see strong customer response to recent bra launches, including Sexy Illusions and the T-shirt bra. However, this growth was offset by softness in products we are working to reset, including Body by Victoria.” The company added, “We also are investing in and expanding the sleepwear business for Fall, where we believe we have a significant growth opportunity. Customers have been responding well to our sleepwear assortment, and it is a key category for holiday.”
Changing its tune on its until-recently discarded print catalog, the company reported “We recently mailed another magalogue after seeing a positive customer response from the first one in May.”
Replacing current Pink CEO Denise Landman is Amy Hauk, currently president for merchandising and product development at L Brands owned Bath & Body Works. Hauk joined that store “in 2008 as senior vice president, general merchandise manager. Prior to that, she held senior merchant leadership positions at The Children’s Place, The Disney Store, Gap, Inc. and Macy’s. Landman will remain in the business through the end of the year to on board Hauk and facilitate the transition.”
Commenting on its Pink business, the company reported “comps decreased in the mid-single digit range for the second quarter, driven by declines in both lingerie and loungewear. Swim, which we are exiting, had a negative impact of about two points to the total comp. The total Pink merchandise margin rate was down significantly to last year. Pink introduced a new loungewear assortment for back-to-school at the beginning of August which included an investment in embellishment, detailing and bling. This helped drive record sales on Pink Friday on August 3rd, which was also supported by broad promotions.”
“August-to-date performance, however, has been soft driven by loungewear. We are applying learnings from the back-to-school time frame and are leveraging speed models in our supply chain to make adjustments to the go-forward assortment.”
In the conference call with analysts to discuss the quarter, Jan Singer, CEO of the Victoria’s Secret division, pointed to some positive developments. “I remain confident as what’s new in the assortment is what’s working and we are very focused on leveraging these learnings to accelerate our progress going forward. We see signs of progress in Illusion, one of our highest AUR constructed bras, and its margin accretive. It’s a bra with benefit balanced with fashion and it continues to meet and beat plan.”
“T-shirt bra also continued to see double-digit increases and building in sales on fewer frames and after three price increases. Total panty sales are up mid-single-digits and positive for the third consecutive quarter. Speed agility and fashion are fueling that book of business. And the key adjacent categories we’ve added back, like sleep, are seeing growth and are critical to creating new loyals as these categories flow more frequently and attach to bras. Again, while we’ve made progress in critical spaces, we still have more to do to close the gap created with changes taken in 2016, particularly the gap in key franchises and building back high value dual channel customers.”
Martin Waters, CEO of L Brands International, reported on the call, “we continue to invest in China,” adding “we continue to experience strong growth in the direct to consumer business and we opened three additional full assortment stores in the second quarter including a flagship store in Hong Kong.” But he said of the company’s stores in the U.K., “business continues to be challenged. We had more work to do there under a new leader who joined the business a month ago. In the balance of 2018 our priorities continue to be continuing to scale in China improving our performance in the U.K. and continuing to build on the success of our partner of stores around the world.”
While their stores remain challenged, so far this year Victoria’s Secret and Pink have reported only a net five closures in the U.S. and Canada since February. But Stuart Burgdoerfer, L Brands’ CFO, indicated more are coming in the months ahead. “Victoria’s Secret is going to close about 20 stores in North America this year, and it’s going to open about three,” he said during the conference call. “It will be a function of performance. It’s performance based. That’s how we evaluate the initial investments and that’s how we evaluate decisions as to whether to close doors or not.” — NM
The full transcript of the conference call can be found here: https://seekingalpha.com/article/4201680-l-brands-inc-lb-ceo-martin-waters-q2-2018-results-earnings-call-transcript?page=1
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