When it rains it pours for L Brands (LB). Its revenue is in decline amid a protracted slump at its Victoria’s Secret brand. S&P recently downgraded the company’s debt to BB- (non-investment grade, speculative):

S&P Ratings downgraded L Brands (ticker: LB) and Gap (GPS) by one notch each. L Brands’ new credit rating is BB- and Gap’s is BB, three and two tiers below investment grade, respectively…

“Customers are continuing to move away from purchasing at [Victoria’s Secret] in favor of other retailers that offer lower price points, greater array of merchandise sizes, and marketing campaigns focused on diversity and inclusivity,” wrote the S&P analysts. “We believe management has struggled to anticipate and react to rapidly evolving customer preferences.”

In Q3 2019 L Brands generated $1.7 billion in revenue, down 4% Y/Y. Victoria’s Secret represented over half of the company’s revenue, while Bath & Body Works represented about 40%.

Revenue for Victoria’s Secret fell 8% Y/Y, while comparable sales were down 5%. In response, the company plans to close over 50 Victoria’s Secret stores this year. That may help stop some of the hemorrhaging. Victoria’s Secret reported adjusted operating income of -$81 million during the most-recent quarter, down from $14 million in the year earlier period. This led to L Brands suffering an EBITDA loss of $3 million, down from $192 million in the year earlier period. Customer tastes may have changed. However, there appears to be something else afoot. Rihanna’s Savage X Fenty appears to be putting Victoria’s Secret in its rear view. Read more:


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