Victoria's Secret's Pink brand is 'without fans and rudderless'

  • Pink is the next sore spot for L Brands' Victoria's Secret, according to Jefferies analyst Randal Konik. 
  • He says sales for the brand fell by low double digits in the fourth quarter and are set to keep sliding.  
  • Konik went to a Pink event at Rutgers University that he says proved the brand is "without fans and rudderless."
  • Watch L Brands trade live

Pink is the next trouble spot at Victoria's Secret, according to longtime L Brands skeptic Randal Konik, who last week visited a brand event at Rutgers University. 

"Our visit to Rutgers University on 3/29 shows the PINK brand without fans and rudderless," he wrote in a note sent out to clients on Monday. "We believe PINK sales may be cut in half or more within the next 12-24 months creating further EPS cuts for LB so sell shares."

The problems at Victoria's Secret are nothing new, but what is new is that the Pink brand is struggling. Comp sales for Pink fell by low double digits during the fourth quarter, and Konik says that decline is set to continue. He added that the brand can't rely on heavy promos to keep driving traffic, and that the slowdown is coming as the Bath & Body Works brand also begins to wane. Bath & Body Works' comp sales weren't positive for just the second time in 24 months in February.    

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Remington filed for Chapter 11 bankruptcy protection in March.

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The jewelry chain Claire's filed for bankruptcy in March.

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The owner of the Fallas chain of discount stores filed for bankruptcy in August.

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Brookstone filed for Chapter 11 bankruptcy protection in August.

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Toys R Us filed for bankruptcy in September.

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Mattress Firm filed for bankruptcy in October.

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Sears filed for bankruptcy in October.

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But at least one investor thinks there's still hope at L Brands. Last month, in a letter to Leslie Wexner, the chairman and CEO of L Brands, the activist investor Barington Capital called on the company to quickly improve the performance of Victoria's Secret by "correcting past merchandising mistakes and ensuring that it communicates a compelling, up-to-date brand image that resonates with today's consumers."

Barington asked the company to unlock Bath & Body Works' value by launching an initial public offering for the brand or by spinning off Victoria's Secret. Barington also seeks a shakeup of the L Brands board of directors.

And while Konik thinks that an activist investor is a good thing, he disagrees on the value of L Brands. 

"The leverage is high, the VS brand is broken and they are not calculating the risk of PINK sales being cut in half which is real," Konik wrote. 

"Their view is BBW has all this value and to be fair BBW is a good biz for now but it’s cyclical and mall dependent which means the distribution model is flawed and business momentum not sustainable. Furthermore if the company were to be split all the debt has to be put on BBW not VS where losses are going to mount and cash flows can’t cover interest payments."

Konik has a $16 price target for L Brands — about 41% below where shares were trading on Monday — and "underperform" rating for the stock. 

L Brands was up about 6% this year, including Monday's 1.1% loss. 

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