(Filed Under wholesale Lingerie News). As it reported first quarter results, L Brands revealed it is planning to close approximately 250 Victoria’s Secret stores across North America over the next several months, as well as significantly more in 2021 and 2022.
The company is taking these and other steps as it prepares VS and sister brand Pink to operate as an independent company. The ultimate goal is to render Bath & Body Works, the other L Brands business, as a separate, stand alone “pure play public company such that it gets appropriately valued in the market.”
So explained Stuart Burgdoerfer, who has long been the L Brands CFO, and was recently named the interim CEO of what they are now calling, internally, Victoria’s Secret NewCo. He made his revelations during the conference call to explain the first quarter financial results.
While Bath & Body Works has continued to perform well in recent years, L Brands as a whole has suffered. The hope is that Bath & Body Works, and its underlying public stock, will soar once they are no longer tied to lingerie.
In announcing the financial results for the three months ending May 2, L Brands reported a 46% drop in sales for its lingerie brands in North America. Victoria’s Secret and Pink direct and store sales in the U.S. and Canada fell to $821.5 million, compared to $1.5109 billion in the quarter ended May 4, 2019.
As of May 2, L Brands reported it was operating a total of 889 Victoria’s Secret stores in the U.S. and 32 in Canada, as well as 144 Pink stores in the U.S. and five in Canada. There were also 21 Victoria’s Secret shops in the U.K. and Ireland and 24 in Greater China, as well as five Pink stores in the U.K.
Reducing by 250 the 1070 VS and Pink lingerie stores in the U.S. and Canada, will reduce the total to about 820 by the end of 2020. By comparison, in January 2016 L Brands reported it was operating 990 Victoria’s secret stores in the U.S. and 37 in Canada, as well as 128 Pink stores in the U.S. and nine in Canada for a total of 1164.
It is interesting to note how rapidly the status of brick and mortar stores has changed at Victoria’s Secret. Asked about store performance during a conference call in August 2017, Burgdoerfer boasted: “as you know, our sales productivity, our financial results, our metrics related to our store fleet are very, very strong on a selling foot basis with productivity over $800 a foot in total, and continuing at 99% of our stores being cash flow positive.”
During the conference call to discuss the current quarter, Burgdoerfer outlined additional plans for separating out the lingerie operations, an effort he said he expects “will be largely concluded or concluded by the end of the second quarter.” He explained, “Victoria’s Secret NewCo and all the shared functions, sourcing, production, technology, HR functions, finance functions, store design functions, real estate functions, a wide range of shared organizations today, we are embarking on a process to decentralize those functions to create two stand-alone companies.”
Burgdoerfer said that he expects “to have the stores we aren’t closing to be opened by the end of July,” and “to have a meaningful number of additional store closures beyond the 250 that we are pursuing this year, meaning, there will be more in 2021 and probably a bit more in 2022.” The goal, he continued, “is all about strengthening the foundation, having the right sized store business, responding to the changing consumer behavior around digital and having a more balanced mix. Might end up being about 50-50 balanced mix between the digital channel and our business in the store related channel and it will be a healthier business, a better business. So that’s our game plan.”
The interim CEO said that work is underway to address losses in operating income and EBITDA for the lingerie divisions “in the UK and China,” but added “we won’t be prepared to comment in detail about them other than we are looking at all options with respect to those geographies in those markets.”
Asked about inventories and margins at Victoria’s Secret, Burgdoerfer replied “there has been a ton of work done there internally and with our sourcing partners and we believe we have managed it well, but there is more to do there.” He continued, “I have lots of reasons to believe that the margin rate context should be substantially better for Victoria’s as we move into the fall season and particularly in the fourth quarter for the business. With that said, as we open stores in Q2, we’re going to be in semi-annual sale mode. And so, there will be in the second quarter margin rate pressure as you would understand, given where we are in the calendar and the need to clear goods in Q2.”
For L Brands as a whole, net sales were “$1.654 billion for the first quarter ended May 2, 2020, compared to sales of $2.629 billion” for the same quarter last year. “Net loss was $296.9 million compared to net income of $40.3 million last year.” Commented Andrew Meslow, L Brands’ new CEO, “We are all focused and energized by our opportunities to drive long-term shareholder value, including implementing a profit improvement plan at Victoria’s Secret, separating the Victoria’s Secret and Bath & Body Works businesses, and continuing to drive strong growth at Bath & Body Works.” — NM
The full transcript of the conference call can be found here: https://seekingalpha.com/article/4349419-l-brands-inc-lb-ceo-andrew-meslow-on-q1-2020-results-earnings-call-transcript?part=single
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