Victoria's Secret's 'sacred cow' is 'on the precipice of collapse'

  • Over the weekend, Victoria's Secret released promos offering discounts on its strongest brands, PINK and Body by Victoria, suggesting that its business is under pressure, Jefferies analyst Randal Konik said.
  • Konik believes the brand is losing its "pricing power" because the promotions train customers to always want a lower price for Victoria's Secret products.
  • Victoria's "sacred cow" — its PINK brand — is "really hurting," according to Konik.
  • View Victoria's Secret parent L Brands stock price here.

Victoria's Secret is leading its "sacred cow" to slaughter.

Over the weekend, the company owned by L Brands started releasing bra and panty promotions for its PINK brand, long considered the primary growth engine and "sacred cow" for the fashion retailer, and its Body by Victoria line.

Retailers that closed stores in 2017:

13 PHOTOS
Retailers closing stores in 2017
See Gallery
Retailers closing stores in 2017
HIDE CAPTION
SHOW CAPTION
of
SEE ALL
BACK TO SLIDE

This move was in line with previous promotions the company has undertaken in the past few months to try to draw in-store traffic and drive up sales. However, PINK is one of Victoria's most well-known brands and was often spared from promotions for the retailer's lesser known and more expensive products. That has changed.

"We believe PINK is on the precipice of collapse and core VS remains pressured so severe EPS risk remains," Jefferies analyst Randal Konik wrote in a note.

Konik has warned that Victoria's Secret's promotions were eroding its "pricing power" because by offering discounts on its products, customers are trained to always expect to pay less.

The weekend's promotions for its "sacred cow" brand suggest that business is "really hurting," Konik says. The company offered a PINK panties promo of 10 panties for $35, dragging its average selling price down to $3.50 per unit. That's near the all time low of $3.11 per unit reached on March 15, according to Konik.

The same applies to the lingerie retailer's Body by Victoria bras, which were promoted down to $25 each. The bras usually range from $44.50 to $54.50.

"This is really concerning because the PINK biz accounts for near 40% of total VS sales and the Body By Victoria bra line has traditionally been one of the brand's strongest and largest," Konik said. "Promoting key franchise businesses is bad for long-term brand strength and also signals significant earnings downside risk ahead."

Konik maintained his price target of $30 per share, though he gave a bear case target of $23 per share.

L Brands' current stock price was $37.33 per share. It was down 37.69% for the year.

Read more about why Victoria's Secret's promotions are signaling that the company is under a lot of pressure.

Markets Insider

NOW WATCH: How Jay-Z and Diddy used their fame to make millions off of 'cheap grapes'

See Also:

SEE ALSO: Victoria's Secret is 'down to its last carrot to keep customers from fleeing'

Read Full Story