(Filed Under Financial and General Interest News). Sales for Victoria’s Secret and Pink comparable stores in the U.S. and Canada rose 7% in the third quarter, and were up 5% year to date.
Meanwhile, Victoria’s Secret direct sales were up 4% for the three months ended October 31, 2015, but were down 2% year to date. The brand has been eliminating certain apparel categories in its direct business.
For parent company L Brands, third quarter income rose to $164.0 million on higher sales of $2.482 billion compared to $131.8 million on sales of $2.319 billion for the same period last year. For the first nine months of 2015, L reported $616.0 million in profits on sales of $7.759 billion compared to earnings of $477.1 million on sales of $7.385 billion for the nine months ended November 1, 2014.
In addition to Victoria’s Secret, L owns PINK, Bath & Body Works, La Senza and Henri Bendel. Its brands are sold in more than 700 additional non-company-owned locations worldwide. Looking ahead, the company stated, “it expects 2015 fourth quarter earnings per share to be $1.85 to $1.95. The company raised its adjusted full-year earnings forecast to $3.69 to $3.79 per share from $3.58 to $3.73.”
In a conference call to discuss the financial results, company executives commented on various aspects of the business. Stuart Burgdoerfer, EVP and CFO noted “Victoria’s Secret square footage in North America will increase by about 4% this year, driven by expansions of existing Victoria’s Secret stores and 26 net new openings." Some of these are Pink stores, which are located under the Victoria’s Secret umbrella.
Sharen Jester Turney, CEO and president, Victoria’s Secret, stated that at her division, in the quarter, “Total sales increased 8% to $1.6 billion and comps increased 7% on top of 3% last year. Operating income of $211 million was up $19 million or up 10% to last year,” adding that there was “double digit growth in our bra, panty and loungewear categories.”
“Merchandise margin dollars for this segment increased versus last year, driven by strength in both stores and direct. Rate was up slightly to last year. We finished the quarter with inventory levels up to last year, driven by planned strategic investments in PINK and increased beauty inventory.”
In the direct channel, Turney explained “Third quarter sales were up 4% as 20% growth in our go-forward categories more than offset $36 million of non-go-forward apparel. The merchandise margin rate and dollars were up to last year during the quarter as we continued to distort to the core. Operating income dollars and rate increased significantly.”
Martin Waters, president, international at L Brands reported that at “Victoria’s Secret international, we’re pleased with performance of our full assortment stores. In the UK, we have a busy quarter ahead with another four stores to open to end the year with 14 stores. In the Middle East, we opened our fifth store of the year two weeks ago in Istanbul, bringing the total to 16 VS stores and three PINK stores. Staying with Victoria’s Secret, our beauty and accessories business continues to progress well, with 342 locations opened at the end of the quarter, about a third of which are in airports. We have another 40 or so open in Q4.”
CFO Burgdoerfer added an important note on the rising cost of rents at all the company’s locations. “The most important thing, obviously, as it relates to real estate is having a terrific location within a given shopping venue. So we’re not looking to get the lowest rents, if you will. We’re looking to get the right locations.”
Speaking about the Victoria’s Secret beauty product business, which, she said, has about $1 billion in annual sales, Turney admitted, “it has not grown really over the last three years, it’s pretty much a flat business. As we have thought about our beauty business, we have continued to shrink the real estate in our beauty business because we feel like it has the opportunity to be much more productive. The strategic intent of taking beauty off the lease line and closer to the cash wrap has allowed us to become more productive.” She added, “We still believe in our beauty business. We still believe that there is growth in our beauty business.”
In a new shift, Victoria’s Secret will be “pulling up our semi-annual sale, which will be a shift out of January into the last week of December,” said Turney. This new strategy will allow the stores to convert earlier to spring merchandise. “We’re excited about this strategy.”
One of Victoria’s Secret’s important and ongoing initiatives has been to react as quickly as possible to market forces. And Turney emphasized, “we still believe that there is more opportunity to be had. I think that how we do business, speed is just one way to do it. And as the world keeps changing, the opportunities keep changing for us to think about how to get faster and faster. And each and every one of our partners throughout the world are on this journey with us.”
L has been closing many of its La Senza lingerie stores in Canada in recent years (as of January 31, 2015 there were 145, while on October 31 there were only 132), but the company is not giving up on the brand. President, international, Waters explained, “La Senza continues to be a work in progress, no doubt about that. But we’re pretty pleased with the progress we’ve made. We continue to see positive sales momentum in the business.” He added that L Brands finds momentum, “where we’re co-located with Victoria’s and PINK, is really strong. So there’s a real relevance for that brand in the market place alongside the other two businesses that we own. The logic for keeping it, I think, is obvious and compelling. We own the number one, number two and number three lingerie brands in the world, having a value play underneath of Victoria’s makes a ton of strategic sense. And so we’re very committed to its future.”
Finally, Victoria’s Secret CEO Turney pointed to the strong growth of her brand’s direct and mobile business. “We’re constantly investing and looking at our technology platforms to drive mobile, mobile continues to be a big part of our business. It continues to be the fastest growing piece of the business. So as we go forward and look at some of the investments that we’ll be making, it’s going to be made in terms of the technology that we need to help continue to drive this very, very powerful online business.”
The full transcript of the conference call can be found here: http://seekingalpha.com/article/3699666-l-brands-lb-ceo-leslie-wexner-on-q3-2015-results-earnings-call-transcript?page=1
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