(Filed Under wholesale Lingerie News). Victoria’s Secret and Pink North American operating income fell 22% in the third quarter to $163.9 million (down from $210.9 million in the same period last year), as sales rose to $1.584 billion, compared to $1.568 billion.
Comparable store sales for the two brands in the U.S. and Canada decreased 2% in the three months ended October 29, 2016, compared to the same quarter last year. When the direct business is added in, the decline was only 1%.
“Victoria’s Secret business continues to face headwinds related to changes we implemented in the business earlier this year,” declared Stuart Burgdoerfer, EVP and CFO of parent company L Brands. Those changes included the exit of swimwear and some apparel, the elimination of the print catalog, the ending of certain discount promotions as well as staff reductions numbering in the hundreds. He added that the results also reflected the “pressure related to our investment in China, the Victoria’s Secret Fifth Avenue flagship store, higher net non-operating expense principally interest and FX.”
In the conference call to discuss financial results, he added, “The changes we’ve made within the Victoria’s Secret business were proactive, delivered changes that will result in a more streamlined and efficient organization and will accelerate growth in our four categories. We made progress in the quarter on the implementation of these changes combining our store and product channels clearing through merchandise in the exited categories of swim and apparel and making changes to our promotional approach.”
Burgdoerfer insisted the company is “pleased with our results in the sport and bralette categories within the broad business. We drove a lot of unit volume growth, a lot of trial in those segments.” And he denied there were problems with the brands’ structured bras. “Actually we don’t have a point of view,” he said to one analyst, “that the core bra business at Victoria’s is getting worse by any stretch. I would say what our guidance reflects and, again, this is dynamic and we manage it week to week and month-to-month, is the balance between driving trial and volume between these two new categories of bras that we’ve talked a lot about, sport bras and bralettes, and balancing that trial and margin pressure, margin rate pressure with growth in those categories.”
He added, however, that “in terms of change in promotional strategy and where are we in that journey, I would say we’re still relatively early in that journey. So we have made some clear decisions to eliminate or reduce broad-based promotions like the free panty and $10 offer broad promotion that drove a lot of activity in the history of the business.” He continued that the company had “obviously made an important change in terms of the marketing, advertising” and promotion. Noting the elimination of the catalog he said Victoria’s Secret has “made very good progress on driving trial through pricing and promotion in sports bras, bralettes and certain of the Victoria’s Secret Beauty categories.”
For parent company L Brands, which also includes Bath & Body Works, La Senza and Henri Bendel, combined sales rose in the quarter to $2.581 billion, up from $2.482 billion in the three months ended October 31, 2015. Net income was $121.6 million compared to $164.0 million last year. — NM
The full transcript of the conference call can be found here: http://seekingalpha.com/article/4024307-l-brands-lb-ceo-nick-coe-q3-2016-results-earnings-call-transcript
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