Victoria’s Secret killed L Brands Inc. (NYSE: LB), the lingerie retailer’s parent. Early in the year, it looked like it would be partially sold off to a private equity firm after years of falling sales. The deal fell apart. L Brands engineered, with some luck, a turnaround of sorts. As a consequence, L Brands was the best performing S&P 500 stock in the third quarter, with a gain of 183%.
Even with the breakout third quarter, L Brands stock is down 64% in the past five years and down 89% from September 30, 2015, to March of this year. Victoria’s Secret clothing had gone out of style. Its annual fashion show was among the most anticipated in retail and ran from 1995 until 2018, even having a spot on national TV each year.
Once the transaction to dump the brand dissolved, L Brands restructured. The big rally in shares started on July 28. L Brands laid off hundreds of people. Management said the decision would save $400 million a year. It also slashed inventory and said it had a strong cash position to weather the shutdown of its locations due to the pandemic. In what would seem to be bad news, it said Victoria’s Secret’s sales fell 40% in the second quarter. However, it had a sharp spike in online sales, the holy grail of the retail industry.
When the second-quarter results were officially announced, L Brands revenue had dropped 20% to $2.3 billion. Victoria’s Secret’s revenue in the United States and Canada declined 39% to $978 million. However, “Sales at the Victoria’s Secret direct business, which remained open throughout the quarter, increased by 65 percent to $613.9 million compared to $373.1 million last year.” The need for expensive physical stores had fallen sharply.
Most of the third-quarter gain in the stock came early in the period, just after it restructured. The good news for investors is that it held, and even padded, that gain through September 30. Now, shareholders need to hope the transition to e-commerce continues and undercuts Victoria’s Secret’s need for a costly brick-and-mortar presence.