Victoria's Secret is seeing no progress in solving its biggest problem, analyst says
- Victoria's Secret's parent company L Brands is set to report its January sales on Thursday.
- Victoria's Secret will see a 2% decrease in January comparable sales, according to UBS analyst Jay Sole.
- The lingerie retailer had extremely heavy promotions last month, but failed to attract enough orders to boost its sales and profits, he said.
- Watch L Brands trade live here.
Victoria's Secret's coming monthly sales report will show no progress in rehabilitating slumping sales, UBS says.
"Victoria's Secret's January sales report is more likely a negative catalyst than a positive one," said UBS analyst Jay Sole in a note distributed Tuesday. The lingerie brand's parent company, L Brands, is set to report its January sales on Thursday.
By UBS's estimate, Victoria's Secret's discount depth increased to 59% in January, up 4% year-over-year. The firm compiled its forecast by collecting prices from Victoria's Secret's US website on a weekly basis.
The retailer's heavy promotions in January included a "buy 2, get 1 free" discount code for bras and sleep, $20 gift cards for future purchases after $40+ in spending (versus $15 rewards card with $75+ spend last January), and a free overnight tote with a $75 Angel Card purchase.
As the brand didn't attract enough orders to offset its margin loss, the heavy promotions actually deteriorated the its total sale numbers, and led to an even lower profit, according to Sole. He estimates that the Victoria's Secret brand will see a 2% drop in comparable sales in January. He also lowered his earnings estimate for L Brands by $0.02 to $2.06 a share in the fourth quarter of 2018.
"We think a disappointing VS result could cause a small share price drop since the pivotal question on the stock is can LB rehabilitate the VS brand image," Sole said.
UBS has a "neutral" rating for L Brands and $27.50 price target - near where shares were trading Tuesday.
L Brands was up 2.7% this year.
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- The Victoria's Secret fashion show illustrates 'how out of touch the brand still is'
- The owner of Victoria's Secret tumbles after missing on sales, halving its dividend, and replacing its CEO
