Author Topic: LB - L Brands  (Read 11784 times)

Castanza

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LB - L Brands
« on: March 05, 2019, 08:24:58 AM »
Anyone else have L Brands on their watch list? Stock has been beaten down for a few years now. Potentially could see the spin-off of Bath & Body Works from Victoria Secret.

https://thefly.com/landingPageNews.php?id=2874500&headline=LB

« Last Edit: March 05, 2019, 01:57:56 PM by Parsad »
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johnny

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Re: L Brands
« Reply #1 on: March 05, 2019, 09:12:11 AM »
Hard to figure out what where the bottom is for VS.

On the positive side, I don't think the past few years are quite the disaster the numbers might suggest without context. A totally new space for underwear opened up and its defining feature is that it's explicitly counter-programmed to VS. If you think that this reaction is going to totally sweep the culture, then it's a problem. But I think it's more likely that we just saw somebody develop 7-Up, and all of this marketing about how it is the 'unCola' will only serve to reinforce the fact that there is something called Cola, and we all know what The Cola actually is, and when somebody asks for cola, we know what they really want.

But what is the steady-state of this? How many girls will become VS loyalists v. anti-Victorian progressive purists? Of the non-partisans, what will their individual closet mix look like? If the median $50 bra buyer decides that VS gear is really a "weekend-only" thing, that could be a serious problem (VS is actually 100% underwear-share for a lot of women, and not necessarily because they're Va-Va-Vooming around 24/7).

Anyway, VS currently owns what I'll call the MaleGaze segment, and that's still very valuable so long as males are gazing the way the Good Lord intended. Hyperlibs might think that the enlightened men of 2040 are going to be Respecting-Off to pictures of RealWomen with stretch marks or whatever, but I'll take the other side of that bet.

The real threat for VS is that, concurrent with the AllBodiesAreBeautiful pressure from the bottom, new MaleGaze brands could come in at the top and start contesting their lock on the market. My fear is that, for a corporation of their size, the path of least resistance will be to try to adopt a Middle Position, and like all moderates in the midst of revolution, they're going to end up with an ice-pick in their skull.

The other very real possibility I fear (and something that I think could lead to the disaster scenario above) is that they're not going to be able to take another two years of SSS pain, and they're going to start coming up with SOLUTIONS that will be very bad, like showing the "other side" of VS and hiring plus-size trans models with colostomy bags or whatever. I think there may be some temptation to look at Dove, Nike, Starbucks, and try to pattern match the "SJW tailwind" thing to lingerie, and that's just going to be brand suicide.

I'm going to buy one share today because I'm starting to get a lot of heat from Mrs. johnny for spending too much time researching lingerie brands.

TwoCitiesCapital

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Re: L Brands
« Reply #2 on: March 05, 2019, 10:23:15 AM »
Hard to figure out what where the bottom is for VS.

On the positive side, I don't think the past few years are quite the disaster the numbers might suggest without context. A totally new space for underwear opened up and its defining feature is that it's explicitly counter-programmed to VS. If you think that this reaction is going to totally sweep the culture, then it's a problem. But I think it's more likely that we just saw somebody develop 7-Up, and all of this marketing about how it is the 'unCola' will only serve to reinforce the fact that there is something called Cola, and we all know what The Cola actually is, and when somebody asks for cola, we know what they really want.

But what is the steady-state of this? How many girls will become VS loyalists v. anti-Victorian progressive purists? Of the non-partisans, what will their individual closet mix look like? If the median $50 bra buyer decides that VS gear is really a "weekend-only" thing, that could be a serious problem (VS is actually 100% underwear-share for a lot of women, and not necessarily because they're Va-Va-Vooming around 24/7).

Anyway, VS currently owns what I'll call the MaleGaze segment, and that's still very valuable so long as males are gazing the way the Good Lord intended. Hyperlibs might think that the enlightened men of 2040 are going to be Respecting-Off to pictures of RealWomen with stretch marks or whatever, but I'll take the other side of that bet.

The real threat for VS is that, concurrent with the AllBodiesAreBeautiful pressure from the bottom, new MaleGaze brands could come in at the top and start contesting their lock on the market. My fear is that, for a corporation of their size, the path of least resistance will be to try to adopt a Middle Position, and like all moderates in the midst of revolution, they're going to end up with an ice-pick in their skull.

The other very real possibility I fear (and something that I think could lead to the disaster scenario above) is that they're not going to be able to take another two years of SSS pain, and they're going to start coming up with SOLUTIONS that will be very bad, like showing the "other side" of VS and hiring plus-size trans models with colostomy bags or whatever. I think there may be some temptation to look at Dove, Nike, Starbucks, and try to pattern match the "SJW tailwind" thing to lingerie, and that's just going to be brand suicide.

I'm going to buy one share today because I'm starting to get a lot of heat from Mrs. johnny for spending too much time researching lingerie brands.

+1

The "anti-VS" movement is real, but agree that's it's the defining of a new segment and NOT a redefinition of the market. My GF still loves VS for their bathing suits and athleisure and doesn't see them as evil even though she also shops at Arie.

And as you pointed out, as far as men go, VS would still be my one-stop shop if I was in the market for lingerie. In a few years, this whole thing will have blown over and VS will likely remain the standard bearer for the industry - temporary missteps notwithstanding.


rb

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Re: L Brands
« Reply #3 on: March 05, 2019, 10:28:48 AM »
Wow Johnny, seems like you have this whole thing figured out eh.  ::)

Anyway, I did have this thing on my watch list a couple of years ago  after it took a drop as I thought that the brands were really solid and that they're experiencing some temporary weakness (classical stuff). But for one reason (the women I talked to weren't all that impressed with it) or another I didn't pull the trigger back then. Since then the business deteriorated more than I thought possible so I decided that I probably don't understand the business all that well and left it alone. That has saved me a lot of money.

rkbabang

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Re: L Brands
« Reply #4 on: March 05, 2019, 12:39:45 PM »
Wow Johnny, seems like you have this whole thing figured out eh.  ::)

Anyway, I did have this thing on my watch list a couple of years ago  after it took a drop as I thought that the brands were really solid and that they're experiencing some temporary weakness (classical stuff). But for one reason (the women I talked to weren't all that impressed with it) or another I didn't pull the trigger back then. Since then the business deteriorated more than I thought possible so I decided that I probably don't understand the business all that well and left it alone. That has saved me a lot of money.
Wow Johnny, seems like you have this whole thing figured out eh.  ::)

Anyway, I did have this thing on my watch list a couple of years ago  after it took a drop as I thought that the brands were really solid and that they're experiencing some temporary weakness (classical stuff). But for one reason (the women I talked to weren't all that impressed with it) or another I didn't pull the trigger back then. Since then the business deteriorated more than I thought possible so I decided that I probably don't understand the business all that well and left it alone. That has saved me a lot of money.

I had the same experience. My wife talked me out of investing in it a couple of years ago after a drop in price.  Looking back now I'm glad I listened.

Castanza

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Re: L Brands
« Reply #5 on: March 06, 2019, 05:56:49 AM »
Hard to figure out what where the bottom is for VS.

On the positive side, I don't think the past few years are quite the disaster the numbers might suggest without context. A totally new space for underwear opened up and its defining feature is that it's explicitly counter-programmed to VS. If you think that this reaction is going to totally sweep the culture, then it's a problem. But I think it's more likely that we just saw somebody develop 7-Up, and all of this marketing about how it is the 'unCola' will only serve to reinforce the fact that there is something called Cola, and we all know what The Cola actually is, and when somebody asks for cola, we know what they really want.

But what is the steady-state of this? How many girls will become VS loyalists v. anti-Victorian progressive purists? Of the non-partisans, what will their individual closet mix look like? If the median $50 bra buyer decides that VS gear is really a "weekend-only" thing, that could be a serious problem (VS is actually 100% underwear-share for a lot of women, and not necessarily because they're Va-Va-Vooming around 24/7).

Anyway, VS currently owns what I'll call the MaleGaze segment, and that's still very valuable so long as males are gazing the way the Good Lord intended. Hyperlibs might think that the enlightened men of 2040 are going to be Respecting-Off to pictures of RealWomen with stretch marks or whatever, but I'll take the other side of that bet.

The real threat for VS is that, concurrent with the AllBodiesAreBeautiful pressure from the bottom, new MaleGaze brands could come in at the top and start contesting their lock on the market. My fear is that, for a corporation of their size, the path of least resistance will be to try to adopt a Middle Position, and like all moderates in the midst of revolution, they're going to end up with an ice-pick in their skull.

The other very real possibility I fear (and something that I think could lead to the disaster scenario above) is that they're not going to be able to take another two years of SSS pain, and they're going to start coming up with SOLUTIONS that will be very bad, like showing the "other side" of VS and hiring plus-size trans models with colostomy bags or whatever. I think there may be some temptation to look at Dove, Nike, Starbucks, and try to pattern match the "SJW tailwind" thing to lingerie, and that's just going to be brand suicide.

I'm going to buy one share today because I'm starting to get a lot of heat from Mrs. johnny for spending too much time researching lingerie brands.

I've had pretty much all these same thoughts. I've talked with my wife extensively about this. I don't think it makes sense to market to the trans movement. The demographic isn't large enough to make a real difference on the bottom line. maybe some good publicity, but in the current attention span of our culture that doesn't mean anything.

I think you've highlighted the main issue at play and that is their current product style, maybe price, and who the market is. Their current model is still the "bombshell" model style (push-up bras, all that wonderful jazz.) But the current fashion trend seems to be this more "free" "hippy type" stigma. More specifically, bralettes and the ability to make a girl or woman feel more comfortable with their individual differences.

This IS a market that they can penetrate, but it will take a lot of leg work on their part, because they have to change their current perception and then play catch-up. American Eagle has done a great job at that and they have done really well this past year. That's pretty much all they sell. I believe my wife has even bought stuff from there recently and I asked her if it was strange because I thought that store was more geared towards the 15-20ish age range. But turns out her and a lot of her friend (granted we are late 20's) have been going there too, because they have a better selection of those products.

I think that women's beauty products really go in cycles. Granted i'm not old enough to verify this with first hand knowledge, but it seems this current "millennial generation." mimics very closely the ideals, style, culture, etc of the people from the 70's. I think that will eventually change again and in some time (a generation maybe?) we will see the whole "bombshell" look come back. Once society kind of solidifies and comes to terms with this whole social movement of "equality", being heard, being recognized for who you are, etc. People will then begin to search for things to set them apart after a bit of time. If human nature and history tell us anything about women, this will probably be facilitated through looks and beauty products.
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HJ

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Re: LB - L Brands
« Reply #6 on: March 06, 2019, 08:54:22 AM »
I'm not sure the changing bra business is all driven by the political narratives.  VS 1) has no answer to the popularity of bralettes, which are cheaper to make than push ups and more comfort.  Teenage brands like Urban Outfitter and American Eagle had rebirths riding on that business.  2) On the athleisure front, they don't have an answer to the popularity of Nike / Lululemon sports bras.  It's also interesting to note that VS is a very domestic brand.  They haven't been very successful pushing it in Europe or Asia over the years.  Does that say something about the nature of the brand and its relevance into the future?

Castanza

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Re: LB - L Brands
« Reply #7 on: March 06, 2019, 10:00:51 AM »
I'm not sure the changing bra business is all driven by the political narratives.  VS 1) has no answer to the popularity of bralettes, which are cheaper to make than push ups and more comfort.  Teenage brands like Urban Outfitter and American Eagle had rebirths riding on that business.  2) On the athleisure front, they don't have an answer to the popularity of Nike / Lululemon sports bras.  It's also interesting to note that VS is a very domestic brand.  They haven't been very successful pushing it in Europe or Asia over the years.  Does that say something about the nature of the brand and its relevance into the future?

I don't think its necessarily a hard political stance against VS. But I think it's a sub-conscience reaction to our current political/cultural movements. This has to undoubtedly have a large affect on what products are successful etc.

I don't think LULU has saturated that market. However, one thing I will say affects women far more than men is life style creep. Once someone buys LULU I believe they feel they are buying a better/trendy product and will continue to stick with that brand. There have been dozens of studies that show this. Women are much more likely to buy a product specifically because of brand than men (I do think this is changing a bit though). LULU also is now marketing towards men which could end up being an advantage.

Nike seems to have a price range between the two with extremes on either end. The thing about Nike is they continually pump out new product. Constantly shifting styles etc. all of which affect the competition and the styles they also bring to the table as it constantly keeps pressure on them.

You're right in saying that VS doesn't have competitive items in the specific areas you mentioned. The question is can they?
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mbreject

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Re: LB - L Brands
« Reply #8 on: March 06, 2019, 10:35:17 AM »
I don't know about other brands or design but the quality of VS products has been going down for a couple of years. The material isn't as nice as it used to be and it's just not durable.

johnny

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Re: LB - L Brands
« Reply #9 on: March 08, 2019, 07:40:06 AM »
My position on this has changed substantially after having done a little more research. I think that there is some much deeper cause for concern with VS, and having reviewed the Barington letter, I'm even more concerned about the pressures on them to do the absolute incorrect thing to try and right the ship.

I'm going to give Barginton the benefit of the doubt and assume that they're motivation is simple: they want BBW split off, and want to capture a quick gain on the re-rating. I'm going to assume everything else they say about fixing VS is just mumbling bullshit to insulate them from charges that they have no idea about the market and are just pushing for some quick financial engineering profits. Because what they propose is asinine delusional bullshit. But it's the sort of bullshit that might get Mister Barington a guest slot on CNBC, so maybe there's that incentive too.

Anyway, that's enough making fun of Barington. Here's my current thinking on the company:

1. Victoria's Secret has had problems for quite a while. There would have been clear internal signs (visible to management) as far back as 2012, maybe even a bit earlier. Given this fact, we're forced to confront two possibilities: either they were completely oblivious to what should have been obvious to them for several years, or they have spent the past 7 years actually trying (and failing) to remedy the problems. Neither of these is particularly bullish, I think management is a huge huge problem here.

2. I oversimplified the competitive threat to VS when I said that they were explicitly counter-programming. They are, but this is a branding exercise that is happening in conjunction with genuine structural changes in the industry that VS has betrayed no awareness of. The CEO of the company is an 80 year old dude, and I sincerely think the burden is now on him and his entire team to demonstrate that they should be considered credible here.

3. On credibility, they were proudly boasting about their dividend increases as recently as a few months before completely slashing their dividend. Maybe this is the sort of embarassing thing I tend to fixate on irrationally, but to me it's consistent with the broader theme that I've been developing in my research: that this management team absolutely has to go.

4. Similar sign of no long-term strategy: exiting swimwear and re-entering swimwear a year later, and in each case boasting about how the decision demonstrated their strategic dynamism. Self-explanatory.

5. They have spent years touting their highly rational and lucrative store capex. They claim IRRs > 20% for capex. They've been making the claim for five years. Over that five years they've done $3B in capex. The return from the past five years of capex alone should be about $600 million. What was the net income for the entire company this year? About $600 million. Weird!

That said, Barington's letter demonstrates zero understanding of the actual structural issues here (no, it's not a failure to be "inclusive"), and I'm also skeptical about the economics of separating the two businesses. I've no experience here, but it seems to me that having VS and BBW implicitly coalition-bargain for deals with real estate owners provides some strategic value, and I also imagine there is some supplier/best practices sharing along their overlapping product lines. Finally, since the target demographic for VS and BBW overlaps almost perfectly, there's a nice delusion-challenging control dynamic in the fact that you have another store in almost every mall where theres a VS; in other words you should be much more empowered to dismiss excuses for poor performance at the individual store level, since you have another store targetting the exact same demo in the exact same geography with the exact same income one story above. They don't seem to have taken advantage of this intel advantage, but it's there for anybody who isn't stupid.

The basic underlying claim of Barington seems true: BBW is being seriously undervalued because of the VS issues, and VS is seriously underperforming relative to their potential. The problem is that I don't see current management as solving either problem, and I don't see Barginton as a savior either.

But I will continue doing the very hard work of researching this extensively, because I feel like I owe a debt to this great board.
« Last Edit: March 08, 2019, 07:50:35 AM by johnny »