Victoria's Secret went back to basics, and analysts say that's a good thing.
In 2016, the lingerie giant scrapped its popular swimwear collection along with some of its apparel offerings in order to focus on underwear. More than a year and a half later, the decision is reportedly still having a negative impact on its business.
In its most recent quarterly results, Victoria's Secret parent company L Brands reported that same-store sales at the lingerie brand were down by 1%. According to the company, its exit from swimwear and apparel is responsible for some of this.
"For the 48 weeks ended Dec. 30, 2017, the exit of the swim and apparel categories had a negative impact of about 3 percentage points and 5 percentage points to total company and Victoria’s Secret comparable sales, respectively," the earnings press release reads.
Still, analysts say they believe getting rid of swimwear was a good decision.
"They are returning to focus on their core, which for Victoria's Secret was undergarments. I think that was a brilliant move," Bridget Weishaar, an equity analyst at Morningstar, told Business Insider.
Swimwear was once a $500 million part of Victoria’s Secret business and accounted for 6.5% of its sales, but CEO Les Wexner abandoned it to focus on other parts of the business.
"We are making these changes to accelerate our growth ... by narrowing our focus and simplifying our operating model," CEO Les Wexner said at the time. "I am certain that these changes are necessary for our industry-leading brands to reach their significant potential."
Victoria's Secret once ruled the underwear market in the US, but in recent years it has lost market share to other brands, like Aerie, that promote natural beauty and self-acceptance in their ad campaigns. Aerie has seen 11 consecutive quarters of same-store sales growth, while Victoria's Secret, whose bread and butter has long been padded bras and sexy ad campaigns, saw negative sales growth for the past year.
Victoria's Secret has since refocused on developing its underwear collection, releasing the bralette and more structured pieces such as the "Sexy Illusions" bra. In doing so, it has managed to achieve a strong balance of fashion and function, Gabriella Santaniello, analyst and founder of A Line Partners, told Business Insider.
According to a Morgan Stanley note to investors, the business is on track for a turnaround. Excluding swimwear and apparel numbers, same-store sales "finally returned to positive territory in October after nine months of flat to negative results."
The note continued: "While Victoria's Secret turnaround is taking longer than we or the market expected, recent results support our thesis that the business is finally on the road to positive comps and improving margins."
Via Business Insider.