L Brands, Inc. (LB - Free Report) continues to grapple with soft performance of Victoria’s Secret brand. After falling 4% in the month of July, Victoria’s Secret comparable sales (comps) declined 5% in the month of August. Management held weakness in the Pink brand behind the dismal comps run. The metric remained roughly flat for Lingerie. Moreover, merchandise margin rate fell significantly in the month under review, primarily owing to higher promotional activity.
However, comps at Bath & Body Works surged 15% in the month of August, following an increase of 10% in the preceding month. Merchandise margin rate increased owing to less promotional activity, partly offset by channel shift and transportation costs.
Consequently, L Brands reported 1% jump in comps for the four-week period ended Sep 1, 2018. Comps for the month under review fared better than the prior-year period, when the metric declined 4% and also showcased an improvement from the month of July, when comps remained flat. Moreover, net sales rose 1.7% to $856.3 million during the month under review.
L Brands has been reeling under consumers’ changing preferences that continue to impact its Victoria’s Secret lingerie brand. Further, weakness in the Pink brand has added to its woes. The reflection of the same was quite visible in the company’s recent second-quarter fiscal 2018 results.
We note that comparable store sales for the Pink brand declined in the mid-single digit range during the second quarter due to weakness in both lingerie and loungewear. The total PINK merchandise margin rate also declined considerably. Further, management highlighted that Victoria’s Secret’s results came below expectations, with comparable sales falling 1% and lower merchandise margin rate. Apart from these, the company has been grappling with shrinking gross margin from quite some time now.
These compelled management to trim fiscal 2018 view for the second time. (Read: L Brands Trims View Despite Q2 Earnings Beat, Stock Down)
Consequently, shares of this Zacks Rank #4 (Sell) stock plunged 33% against the industry’s growth of 10% in the past six months.
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