Malls' Woes Hurt Victoria's Secret, Bath & Body Works
February 23 2017 - 12:57PM
Dow Jones News
By Khadeeja Safdar
Dwindling traffic at U.S. shopping centers has caught up with
Victoria's Secret and Bath & Body Works, two retail stalwarts
that previously shrugged off the trend.
L Brands Inc., which owns the two brands, blamed a "substantial
reduction in mall traffic in February" for the weak outlook at both
of them. It also cited Victoria's Secret's exit from swimwear and
apparel and other investments in its business.
For February, L Brands now expects a 20% drop in Victoria's
Secret stores open at least a year, and a mid-single-digits decline
at Bath & Body Works. The company also warned that its
full-year profits could fall nearly 25% from 2016's.
Retailers such as Macy's Inc. and Target Corp. have pointed to
decreasing traffic to their physical stores for sales slowdowns,
but Victoria's Secret and Bath & Body Works have enjoyed years
of sales growth, even though most of their locations are inside
malls.
"The mall and store traffic weakness witnessed across the
apparel sector has finally become apparent at the seemingly
untouchable" brands, Stifel analyst Richard Jaffe wrote in a
research note.
L Brands shares fell 16% to $48.74 in midday trading
Thursday.
The traffic decline is compounding problems for Victoria's
Secret, which has been trying to reinvent itself amid changing
customer preferences and growing competition. Last year, L Brands
Chief Executive Les Wexner took charge of the brand and announced
changes, including shifting away from catalog mailings and getting
out of the swimwear business. The company has also been focusing on
opening stores abroad, particularly in China.
Executives said they expected those restructuring efforts to
weigh on the company's results, but analysts said L Brands's
full-year earnings outlook signaled a deeper problem.
The fact that it is worse than expected "means it is more than
just an exit of categories," said Nomura Instinet analyst Simeon
Siegel. "That would not explain the weakness at Bath & Body
Works."
Victoria's Secret has struggled with its merchandise as consumer
preferences have shifted to sports bras and bralettes -- cheaper
bras without underwire and padding -- from the push-up bras that
the brand is best known for. As it added those products to its
lineup, it promoted them with markdowns, which hurt margins. The
company plans to tone down the promotional activities for those
styles this year, said Finance Chief Stuart Burgdoerfer.
The company said sports bras and bralette sales grew, but the
overall bra business suffered as consumers turned to those
lower-priced products. In its core lingerie business, total bra and
panty sales declined in the mid-single digits compared with last
year.
Victoria's Secret also faces heightened competition as new
players get into the lingerie business.
American Eagle Outfitters Inc.'s Aerie line has opened new
stores, targeting younger consumers, and Amazon.com Inc. plans to
start selling its own line of competitively priced women's intimate
apparel to the U.S. market.
Write to Khadeeja Safdar at khadeeja.safdar@wsj.com
(END) Dow Jones Newswires
February 23, 2017 12:42 ET (17:42 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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