L Brands promises an ‘evolution’ is ahead for Victoria’s Secret brand

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Angels during the finale at the 2015 Victoria’s Secret Fashion Show.

Adam Jeffery | CNBC

COLUMBUS, Ohio – If there was one clear theme at Tuesday’s L Brands’ investor day, it was that it was time to move beyond past mistakes — both personal and corporate — that have lopped off nearly a third of the company’s value over the past year. 

“There’s a big belief in the company that we need to evolve,” said John Mehas, head of Victoria’s Secret Lingerie, speaking at the Hilton Columbus at Easton. 

The company, by its own admission, stayed tied to its sexy imaging at Victoria’s Secret stores for far too long as its shoppers looked for more comfortable and inclusive options sold by brands like Aerie and Third Love, among others.

Mehas, who joined the company in February from Tory Burch, said the brand is now looking to reconnect with the shoppers it’s lost, with new products, new executives and new marketing.

Shoppers will begin to see an “evolution” in the brand, he said. “[Customers have] been very vocal about what she’d like to see from us in terms of inclusivity, metoo, rethinking the fashion show. We’re essentially in agreement at this.”

Part of that shift will be a more diverse group of models in its marketing and advertising that will reflect women of all shapes and sizes. 

Stemming the losses at Victoria’s Secret is essential. Same-store sales at Victoria’s Secret, which makes up more than half L Brands’ annual sales, last quarter dropped 6%.

L Brands, which also owns Bath & Body Works, has seen its stock fall more than 28% from the start of the year. Shares were up 4% Tuesday. However, over the past three years, its stock has fallen roughly 40% cumulatively, while the S&P 500 has grown nearly 11%, according to Factset. Last year, the company cut its dividend in half, and some fear more cuts could be ahead. 

‘Really chic’ products

To help usher in change, the company has replaced the heads of Victoria’s Secret line and its younger Pink brand. Long-time controversial chief marketing officer, Edward Razek, who once said he was opposed to using transvestite or curvy models, announced last month he is stepping down from the role. L Brands said earlier this year it is “rethinking” its annual Victoria’s Secret Fashion show amid declining viewership.

Mehas highlighted the company’s new approach, which includes having more wireless bras in the mix and emphasizing matching bras and panties. He said Victoria’s Secret is improving its training of associates, who also have a new dress code. It has been experimenting selling other brands in its stores, like Livy and Bluebella, as well as collaborating with apparel brand, For Love and Lemons.

Mehas played a video that previewed its fall collection at its Bond Street store in London, in which one customer described the products as “high-end” and “really chic.”

“It’s quite different to the usual stuff that I’ve seen Victoria’s Secret put out,” exclaimed one customer.

Amy Hauk, who started in the role of Pink’s CEO last fall, said the company is “committed to learning” from its mistakes.

“Priority one is reclaiming the collegiate customer,” said Hauk.

The brand plans to rely more closely on the insights of its college representatives to win back that business, and it is moving away from logos and “bling.” The brand’s focus is on the “power of femininity.”

The company also expects that it can grow its Pink Sport sales to $1 billion. 

Jefferies analyst Randal Konik said that could be tough given the brand’s same-store sales have declined at a double-digit pace over the past three quarters. He thinks sales at the division could fall by 50% over the next 18 to 24 months. 

Executives continued to be upbeat about its Bath & Bodyworks brand, which Nick Coe, the division’s CEO, called “ludicrously powerful.” Last quarter, Bath & Body Works reported same-store sales that were up 8%.

It’s still early days 

With many of these initiatives still fresh, it was too early to evaluate their impact. Company executives said they expect to stabilize its Victoria’s Secret business and improve profit margins. 

When company executives were asked how they will manage items like liquidity and its dividend should the business not turn around as expected, L Brands CFO Stuart Burgdoerfer said, “We will make adjustments to those things if the operating results of the business doesn’t rebound, or further deteriorates.”

But the past was not far out of mind on Tuesday, as iconic pictures of scantily clad models flashed on the screens in the conference room in which the meeting took place.

Limited Brands Inc. chief executive Leslie H. Wexner.

Fred Squillante | The Columbus Dispatch | AP

The event took place near Easton Town Center, a retail mecca Wexner helped to create. Designed to look like a town center, legacy retailers like Chico’s and J Crew dot the landscape. 

Also, the meeting had kicked off with CEO and Chairman Les Wexner addressing his past missteps, which include putting significant financial trust in Jeffrey Epstein, the financier who killed himself in his jail cell while facing new sex charges.

“Being taken advantage of by someone who was so sick, so cunning, so depraved, is something that I’m embarrassed that I was even close to,” he said. “But that is in the past.”

The remarks came days after a top MIT official resigned over financial connections to Jeffrey Epstein.

And while Wexner said his relations to Epstein are in the past, investigations are underway. Wexner earlier this year handed over documents to federal investigators that he believes demonstrate “all sorts of irregularities and theft.” Wexner has said he discovered years ago that Epstein had misappropriated more than $46 million of his personal fortune, but has not yet publicly disclosed why he did not report the theft immediately.

Close ties

Wexner and L Brands remain closely interlinked. Wexner owns more than 16% of the company, according to FactSet, and has sat on the board for more than five decades.

Wexner’s wife, Abigail is a director on the board and formerly at worked at Davis Polk & Wardwell, the law firm L Brands hired to investigate its ties to Epstein. The firm has done much of L Brands’ work over the past several years.

Other L Brands board members include several executives with whom Wexner has close business and social relations.

The company earlier this year added two directors to its board as part of a truce with activist firm Barington Capital, who critiqued the independence of the board. 

Barington had also pushed to split up the company. Burgdoerfer and Wexner deferred two analyst questions about whether the company it would consider separating Bath & Body Works from Victoria’s Secret, other than noting the company looks “at that stuff from time to time.”

Wexner, in closing remarks, reassured investors and analysts that the leadership for the company is “better than its ever been.”

“We’ve done everything necessary to prepare to win. Now we gotta start scoring,” said Wexner.

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