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Victoria’s Secret rebound lifts L Brands as Q3 profits soar


Dive Brief:

  • In a third quarter performance demonstrating renewed strength at Victoria’s Secret, L Brands on Wednesday said net sales rose 14.1% to $3.06 billion, with Victoria’s Secret sales falling 14.2% and Bath & Body Works sales rising 54.9%.

  • Comp sales including e-commerce rose 28%, with Bath & Body Works up 56% and Victoria’s Secret up 4%. In stores only, comps rose 13%, with Bath & Body Works up 38% and Victoria’s Secret down 10%. The retailer excluded stores closed four days or more due to the pandemic.

  • The company swung into the black in the period, reaching net income of $330.6 million from net loss of $252 million a year ago, and operating income of $580.6 million from last year’s operating loss of $151.2 million. Gross margin expanded 870 basis points to 44.5% of sales, according to a company presentation.

Dive Insight:

Bath & Body Works continued its streak of booming sales and profits both in stores and online in the third quarter. But it was signs of new life at L Brands’ lingerie brand that could shake up what had been an emerging worry that its personal care brand was its only hope.

Victoria’s Secret’s was able to raise its prices 22%, and its operating income rose a whopping 264% year over year to $115 million, “roughly $250M above our forecast,” UBS analysts led by Jay Sole noted in emailed comments, calling the scenario a “potential narrative changer.”

It’s possible that the scenario “is not just a ‘one-off,'” UBS also said, because the lingerie brand has new management, whose merchandise changes are now having an impact, who have committed to reducing markdowns and who have streamlined expenses. Customers are also responding well to new assortments, according to UBS and BMO Capital Markets analysts.

The tactic of gleaning bigger profits from lower sales at Victoria’s Secret has been pushed by BMO analysts for months. “This is what we were looking for and we believe this is only the beginning,” BMO Managing Director Simeon Siegel said in emailed comments, calling the quarter’s margin improvement the “strongest in years.”

Any success story at L Brands will still include Bath & Body Works, of course. Siegel noted significant merchandise margin expansion at both brands, and said that shows that neither needs promotional markdowns — not Bath & Body Works because it’s strong enough to demand full price, and not Victoria’s Secret because it loses money on the additional sales they may spur.



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