L Brands, Inc.’s shares surged 12.9% during the trading session on Jan 29. The stock gained momentum on media speculations that the company is exploring alternatives for its beleaguered Victoria’s Secret lingerie brand. Reports also highlighted the possible stepping down of the company’s CEO, Les Wexner.
Meanwhile, no official confirmation was made by L Brands on the news. Nonetheless, per the reports, management has been in talks with Sycamore Partners, a private-equity firm, for a full or partial sale of the brand.
Industry experts are of the opinion that the move will help simplify the company’s organizational structure and allow it to invest in profitable zones. Some of the market pundits have even emphasized on the spinning-off of the Bath & Body Works chain and a board overhaul.
Weakness in the Victoria’s Secret brand, which once ruled the U.S. lingerie market, has been marring the company’s overall performance. L Brands is struggling to make a comeback in the wake of rising competition from intimate apparel brands like ThirdLove and Aerie. Also, the company has often been accused of failing to bring in trendy merchandise by industry experts.
We note that L Brands had earlier taken measures to fix the underperforming brand by introducing merchandise and marketing strategy as well as slashing the workforce to contain costs. But, these measures have failed to generate the desired results.
L Brands’ recent disappointing holiday performance, mainly owing to weak sales at Victoria's Secret, clearly demonstrates that this Zacks Rank #5 (Strong Sell) company’s actions to revive brand is failing to resonate with changing consumer preferences. While the overall company’s net sales fell 4.1%, comparable sales dropped 3% during the holiday period. Victoria's Secret comparable sales dropped 12% during the combined November and December period, wider than the decline of 4% in the prior-year period. Nonetheless, Bath & Body Works put up a stellar show with a 9% jump in comparable sales.
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