L Brands Inc. reported a surprise adjusted profit for its second quarter as sales also topped expectations. But it sounded a warning about holiday sales.
Total sales fell 20% to $2.32 billion in the quarter ended Aug.1, with stores closed for part of the time due to COVID-19. By division, Victoria’s Secret sales in the U.S. and Canada fell 39% to $977.5 million. Sales at Bath & Body Works rose 13% in the U.S. and Canada to $1.2 billion.
Analysts had expected total sales of $2.19 billion for the quarter. (L Brands is still planning to separate its Bath & Body Works business from Victoria’s Secret.)
Total same-store sales surged 63%, way above expectations. Same-store sales for Bath & Body Works skyrocketed 123% as consumers stocked up on soap and hand sanitizers amid the pandemic. Same-store sales rose 28% at Victoria’s Secret.
L Brands said it lost $49.6 million, or $0.18 a share, in the quarter, compared with earnings of $37.6 million, or $0.14 a share in the year-ago quarter. Excluding one-time items, the company earned $0.25 a share, compared with earnings of $0.24 a share a year ago. Analysts had expected a loss of $0.42.
The retailer credited a series of “difficult decisions” — including a 15% reduction in its workforce, reducing inventory receipts and permanently closing more than 200 Victoria’s Secret stores during the quarter — to its success.
Despite its surprisingly strong results, L Brands sounded a note of caution about the all-important fourth quarter, noting the majority of its annual sales and profits occur in the holiday quarter.
“Given the traffic constraints imposed by social distancing protocols in stores and capacity restraints in our direct channel distribution centers, we have a very cautious outlook about our ability to manage our typical holiday volumes, which are about three times larger per week than the average week in the second quarter historically,” L Brands management said in commentary that accompanied its quarterly conference call.
The retailer said it «evaluating and testing ideas» to spread holiday volumes across a broader period of time by selling more in the third quarter.
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