L Brands [LB] Annual Investor Update Meeting: Key Takeaways

Executive Summary

• Ahead of its Annual Investor Update Meeting, L Brands updated its third-quarter 2016 expectations, guiding to the low end of its EPS range of $0.40–$0.45 for the quarter, which is roughly 13% below the consensus estimate. The company said that weakness in Victoria’s Secret October comps (which were down 2.0%) and lower merchandise margins drove the guidance revision.
• Victoria’s Secret is currently undergoing an evolution as the company works to keep the brand young and relevant by creating an emotional connection with customers. The brand’s efforts include offering newness in its product ranges, facilitated by a focus on speed to market.
• Management continued to highlight the importance of improving speed. The company had approximately 90% of its inventories for the fourth quarter available to buy at the beginning of the fall season, which allows for agility and a “read, react and chase” approach to planning the business.
• As the company looks to connect with customers, it is also focusing on its real estate portfolio and the freshness of its stores in terms of the in-store experience they provide. The company has tested various remodels, and has looked to see a definite improvement in store sales performance before rolling out changes across a chain. Remodeling improvements that were tested at Bath & Body Works, for example, generated 25% higher sales in the remodeled locations.
• The most significant growth opportunity for L Brands is the Chinese market, which management said could potentially equal the size of the US market. The company currently operates 31 Victoria’s Secret Beauty and Accessories stores in China and will launch a Chinese e-commerce site in the next few days, followed by three full-assortment stores later this year.