Victoria’s Secret is showing signs of a turnaround even though sales fell during the most recent quarter.
L Brands Inc. LB, +16.11% stock soared 15.4% in Thursday trading after the company reported third-quarter comp sales growth at the Victoria’s Secret lingerie chain and reached record profit and sales at Bath & Body Works.
Victoria’s Secret has struggled to regain its footing after falling out of fashion and out of favor. L Brands executives said the company still faces challenges related to COVID-19, for instance, store capacity limitations that range from 25% to 50%.
But in prepared remarks, the company said Victoria’s Secret has improved, with comp store sales up 4%, though third-quarter sales for the brand fell 14% to $1.353 billion. Stores closed more than four consecutive days were excluded from the comp store calculation. Sales in the direct business rose 42% to $470 million.
“The relaunch of Body by Victoria, with updated and modernized fashion, was a success,” the company said in prepared remarks. “Our sleepwear and lounge categories are strong, driven by customers ‘nesting’ at home.”
Sales at Bath & Body Works rose 55% to $1.702 billion, with one-third of the brand’s growth coming from the soaps and sanitizers category.
The company, which has a big mall presence, also said it has reached agreements with many of its landlords resulting in rent waivers or abatements related to store closures, rent relief for recovery periods due to traffic declines, and rent defferals.
L Brands reported adjusted earnings per share of $1.13, well ahead of the FactSet consensus for 14 cents per share. And sales of $3.06 billion, up from $2.68 billion last year and also ahead of the FactSet consensus for $2.67 billion.
“L Brands reported a material 3Q beat (one of the strongest prints we’ve seen this year) with upside surprises all the way down the P&L and across the portfolio (impressive top-line and margin results at both Victoria’s Secret and Bath & Body Works),” wrote Wells Fargo analysts.
“Simply put, Bath & Body Works just delivered one of the strongest quarters we’ve ever seen, while Victoria’s Secret also managed to pull-off a material comp/profit beat and appears to be back on track.”
Wells Fargo rates L Brands stock overweight with a $60 price target.
“Pandemic agnostic: it seems Bath & Body Works wins in any environment,” wrote BMO Capital Markets analysts led by Simeon Siegel.
Analysts note that Victoria’s Secret sales fell, but profit rose.
BMO rates L Brands stock outperform with a $45 price target, up from $35.
GlobalData isn’t as impressed with the results.
“Given the ongoing deterioration at Victoria’s Secret, performance has been very lopsided with Bath & Body Works doing all the heavy lifting,” wrote Neil Saunders, managing director. “One of the issues for Victoria’s Secret is that it has been difficult to pivot to more comfortable garments because this is generally out of step with the overall brand image and is not what it is best known for.”
Saunders suggests that L Brands use the time during the pandemic to make “big changes” to fix the problems at Victoria’s Secret.
L Brands stock has more than doubled for the year to date, up 114%, while the S&P 500 index SPX, +0.11% has gained 10.3% for the period.