Victoria’s Secret is slimming down.
Parent company L Brands Inc. plans to cut 251 owned Victoria’s Secret stores, it said Wednesday in its first-quarter earnings report.
The news comes on the heels of L Brands’ contentious spat with Sycamore Partners, which bailed on the $525 million, 55 percent stake in the lingerie label it had agreed to in the lead up to the coronavirus pandemic. Now that the deal worth $1.1 billion collapsed, the company founded by Les Wexner is figuring out how to operate the panty purveyor as a separate, standalone company.
After killing off 251 locations this year, Victoria’s Secret will close out 2020 with 849 doors. Planned closures will affect 235 Victoria’s Secret and three Pink stores in the U.S., along with 10 Victoria’s Secret and three Pink stores in Canada.
Stuart Burgdoerfer, who was named Victoria’s Secret interim CEO after the failed Sycamore deal, is working with the brand’s leaders, including Victoria’s Secret intimates head John Mehas and his Pink counterpart Amy Hauk to “implement a profit improvement plan,” L Brands said.
Beyond closing hundreds of stores, the plan calls for cost reductions to stem the bleeding in China and the U.K., and a “meaningful reduction” in store selling costs. Victoria’s Secret will make inventory management a priority, trim sourcing costs and mitigate tariffs, according to the plan, which strives to improve the product assortment in a bid to drive full-price sales.
L Brands will turn its gaze inward and take a “holistic view of our home office organization,” it said. To operate efficiently, the company will set about decentralizing the bulk of functions and services on the road to separating the lotion and candle business from the bra brand and trim overhead expenses, which usually means job cuts.
L Brands said total first-quarter sales for the three months ended May 2 for Victoria’s Secret fell 46 percent to $821.5 million, with same-store sales down 15 percent and sales in the direct business decreasing 15 percent to $307.6 million. The balance of $513.9 million came from sales at company-owned stores in the U.S. and Canada. A six-day closure that hit distribution centers starting March 19 drove part of the e-commerce declines. After implementing additional safety measures, the warehouses reopened on March 25. “During April, when the online business was operational and stores were closed, direct sales increased by 30 percent,” L Brands said.
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The adjusted operating loss for the Victoria’s Secret segment was $203.1 million, against operating income of $32.7 million in the same year-ago quarter. The loss was mostly due to the 46 percent decline in sales, even though the company made significant expense savings in the quarter.
Temporary store closures in the U.K. and China due to COVID-19 also drove revenue declines in the quarter. The VS business will end 2020 with company-owned locations that include 21 VS stores in the U.K./Ireland, 5 Pink doors in the U.K., 27 VS stores and 40 VS Beauty and Accessories stores in Greater China.
“We are actively managing inventory levels, and we have made significant reductions to merchandise purchases,” L Brands said.
Compared with the year-ago quarter, L Brands reduced its spring inventory receipts for Victoria’s Secret and Pink by 45 percent. It closed all of the business’ stores in North America on March 17 and the majority of store associates were furloughed on April 5. The company also suspended store rent for April and May. L Brands has been negotiating rent payments and go-forward occupancy costs with landlords.