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Is it Game Over for Victoria’s Secret?

Holiday was not kind to the Victoria’s Secret brand, or its parent L Brands Inc.

Net sales fell 4.1 percent to $3.91 billion over a nine-week period ended Jan. 5, while comparable sales decreased 3 percent, parent firm L Brands, which also owns Bath & Body Works (BBW), said Thursday.

Comparable sales at Victoria’s Secret, including its teen line Pink, fell 12 percent during November and December. Comps at Bath & Body Works were up 9 percent.

“Holiday comp and [earnings per share] guide were rough,” said Randal J. Konik, equity analyst at Jefferies, adding that demand for Victoria’s Secret has virtually disappeared. On top of that, he said, Pink comps came in even worse with “very high markdowns” indicating that the “brand is broken.”

And while BBW comp sales figures were healthy, the brand’s margins declined, thanks to the promotions needs to achieve those comps, “which means the end of good times is near,” he added.

Comps at the core Victoria’s Secret business were down 12 percent, indicating the brand is worsening sequentially, while underlying demand is very soft. “We conclude that the [Victoria’s Secret] brand is becoming irrelevant,” Konik said.

The analyst also believes that Pink is on the “verge of collapsing,” citing apparel trends as the reason why.

“Comps down mid-teens with lots of promos. The company said ‘lingerie comps up,’ but that’s with heavy promos,” Konik said. “That means Pink apparel is down more than 25 percent in comp, given apparel is about half the biz of Pink. What we find concerning about that metric on apparel is it implies the Pink brand is not wanted any longer.”

Jefferies sees Pink’ sales of roughly $3 billion slashed by half within 12 to 24 months, he added.

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And Konik believes the Victoria’s Secret franchise will continue to cede market share to American Eagle’s popular Aerie brand, whose “dominance continues to expand.”

With BBW comps up 9 percent, it might seems that L Brands has one business concept resonating with consumers. However, Konik believes that what appears to be reflective of holiday sales strength could see further declines down the road. That’s because mall traffic has dried up and BBW sells what amounts to commodities with its soaps, lotions and fragrance merchandise.

BBW demand and traffic is becoming more volatile, “and the company is only seeing demand strength when promos occur,” Konik said. “This trend is a canary in the coal mine as it tells you that the peak of cycle has been reached for BBW.”

With most stores for both brands located in malls where traffic continues to decline, coupled with L Brands’ debt load, Konik recommends investors sell L Brands shares.