Leslie Wexner is reportedly in talks to give up his role as chief executive officer (“CEO”) at L Brands (NYSE:LB) and considering options for (1) a breakup of the company or (2) a sale of Victoria’s Secret. Chatter of Wexner’s departure comes amid a reckoning for the retail industry. Traditional retailers are facing headwinds for sales through physical locations. In its most recent quarter, L Brands reported net sales of $2.7 billion, down 4% Y/Y. Revenue from Victoria’s Secret fell 8%, while revenue from Bath & Body Works (“BBW”) rose 11%. Victoria’s Secret represented 53% of total revenue, so its demise hurt total sales.

Retailers like L Brands, Kohl’s (NYSE:KSS), and Abercrombie & Fitch (NYSE:ANF) have had to resort to heavy promotions to attract customers. The discounting crimped margins, which caused gross profit to fall faster than revenue. Gross margin for L Brands was 28%, down 500 basis points versus the year-earlier period. Gross profit of $741 million fell 20% Y/Y. General and administrative expenses and store expenses actually grew. The fallout was that EBITDA was -$3 million versus $192 million in the year-earlier period.

Competitive Threats To Victoria’s Secret Emerge

The company’s margin erosion could worsen. The company reported a drop in holiday sales; same store sales fell 3% compared to the year-earlier period. The sales decline likely led to a falloff in gross profit and EBITDA. Management was relying on a strong holiday season to create momentum for the Victoria’s Secret brand; it didn’t happen. For the month of December, retail sales through department stores declined over 5% Y/Y, yet rose by double digits through non-store retailers. This implies even fewer customers are shopping through the company’s 1,500 company-owned and non-company owned locations for Victoria’s Secret and Victoria’s Secret Beauty and Accessories. Read more:


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