Victoria's Secret Restructuring Weighs on L Brands Holiday Outlook

L Brands (LB) will likely see lower profits through the first half of 2017 because of the costs of restructuring its Victoria's Secret unit, company CFO Stuart Burgdoerfer said on a third-quarter earnings conference call this morning.

L Brands, which owns Bath & Body Works as well, last night issued an earnings forecast for the current fourth quarter that's between $1.85 and $2 a share, below the FactSet consensus of $2.03 a share.

The wider than normal guidance range for the company reflects "a little less predictability given the number of changes at Victoria's Secret," Burgdoerfer said.

L Brands said last spring that Victoria's Secret would exit its $500 million swimwear business, scrap its mail-order catalog and lay off about 200 employees, resulting in a $34.5 million charge. Victoria's Secret products are sold in more than 1,500 stores worldwide, according to the company.

L Brands will offset the loss of swimsuit sales with faster growth in other categories and by saving money by abandoning the catalog and having a lower payroll at Victoria's Secret, Burgdoerfer said.

BMO Capital Markets analyst John Morris said, though, that the swimwear business attracted customers to the stores and leaving it could keep those people from buying other products such as lingerie and cosmetics.

"Based on our field team research, we know the swim category drove new customer acquisition and believe that this category exit may have knock-on effects felt throughout the business," Morris said in a note yesterday.

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