- Victoria's Secret is leaning on discounts to drive traffic to its stores.
- Analysts are concerned that discounts are eating into profit margins.
- Victoria's Secret's parent company, L Brands, reported first-quarter earnings for the lingerie brand on Wednesday. Same-store stores sales were up 1% across its stores and e-commerce platform, but they fell 5% from a store-only perspective.
Victoria's Secret is using promotions to drive traffic to its stores, and analysts are concerned.
On Wednesday, Victoria's Secret's parent company, L Brands, reported first-quarter earnings for the lingerie brand, which also owns teen retailer Pink. Same-store stores sales were up 1% across its stores and e-commerce platform, but they fell 5% from a store-only perspective.
Merchandising margin was down significantly during the quarter, thanks to heavy discounting eating into margins.
Victoria's Secret has increasingly leaned on promotions to drive traffic to stores. Pink, which was once Victoria's Secret's saving grace, has also ramped up its discounts in recent months, suggesting that this business could be under pressure.
"We believe Pink is on the precipice of collapse," Jefferies analyst Randal Konik wrote in a note to investors in March, commenting on the level of promotions in store.
In a call with investors on Thursday, analysts pressed management for details on their strategy for discounting in the future, and whether they were concerned about promotions eating into margins.
"We use strategic moments to promote and bring customers into the box," Jan Singer, CEO of Victoria's Secret Lingerie said on the call, adding that the brand was acquiring new customers and making them loyal.
It looks like the discounts are here to stay.
We visited Pink in April to see how much of the store was on sale. Here's what we found:
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We visited a Victoria's Secret store in Downtown Manhattan, which has a separate Pink section.
As we approached the Pink section, we instantly spotted its loud, 40%-off sale signs, which were tactically positioned to lure customers in to the store.
These promotions are an indicator that the brand is looking to drive traffic to stores.
The promotions were mostly on core products, such as underwear. This is surprising as this has been one of the strongest categories for the brand.
In the first-quarter earnings call, Pink CEO Denise Landman said that panty sales were strong.
In its fourth-quarter earnings, Landman said the "Wear Everywhere" collection and sports bras were key sellers during the quarter. Despite this, these bras were all on sale for $20 when we visited the store.
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