key takeaways - lb.gcs-web.com
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KEY TAKEAWAYS
Global, leading brands, led by talented, experienced teams– High emotional content– Highly attractive retail categories of intimate apparel and personal care
and beauty– Deep customer engagement
Disciplined execution; strong capabilities– Speed and agility– Disciplined financial management– Proactive management of real estate
Significant growth opportunities in North America and internationally
1. Our consolidated results have deteriorated driven by Victoria’s Secret North America and, to a lesser extent, International.
2. Bath & Body Works results remain consistent and among the best in specialty Retail.
3. We have taken significant actions– Closed Henri Bendel and sold La Senza - eliminating $74 million in annual
operating losses– Reduced the regular dividend by 1/2 with the intent to reduce debt,
freeing up $325 million per year in cash flow– Closed (and also opened) or remodeled stores where appropriate– Appointed Amy Hauk to lead PINK and hired John Mehas to run VS
Lingerie– Continued investment in Direct business– Continuing to refresh our Board of Directors
STATE OF THE BUSINESS
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STRONG BRANDS – LEAD THEIR CATEGORIES, HIGH EMOTIONAL CONTENT
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Victoria’s Secret
Approximately $4 billion in global Lingerie retail sales More than 400 million store visits per year Nearly 1 billion website visits per year
– More than 65 million Instagram followers – More than 29 million Facebook fans– More than 11 million Twitter followers
Victoria’s Secret PINK
Approximately $3 billion in global retail sales– 7.9 million Instagram followers– 14.5 million Facebook fans– Approximately 13 million PINK Nation members
Victoria’s Secret Beauty
Approximately $1.5 billion in global retail sales 6 of the top 20 fragrances in the U.S.
– Bombshell– Tease– Heavenly– Bombshell Seduction– Love– Very Sexy
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VS PINK Adore Me Aerie Third Love
Social Media Followers (Millions)
Twitter Facebook Instagram
One of the largest specialty personal care and home fragrance brands in the world
– Nearly $5 billion in global retail sales– More than 350 million store visits per year– More than 300 million website visits per year– In 2018, Bath & Body Works had ~150 million transactions– 235 stores outside North America with strong customer response
#1 Brand in America for:
– Three-wick candles– Electric fragrance diffuser for the home … Wallflower– Body moisturizer (lotion & body cream)– Fine fragrance mist– Men’s body moisturizer– Hand soap– Hand sanitizer
#1 Home Fragrance Retailer in America
Bath & Body Works
STRONG BRANDS – LEAD THEIR CATEGORIES, HIGH EMOTIONAL CONTENT
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$1.95 $2.19
$2.04
$1.68 $1.44
2014 2015 2016 2017 2018
1On an adjusted basis. 2017 is based on 52 weeks.
Sales1
($Billions)Operating Income1
($Billions)
SALES & PROFIT TRENDS
$11.5 $12.2 $12.6 $12.5 $13.2
2014 2015 2016 2017 2018
% Growth 6% 6% 3% (1%) 6% % Growth 12% 12% (7%) (17%) (15%)
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*Category exits include apparel, swim and makeup
SALES GROWTH BY SEGMENT
%$USD Billions 2014 2018 Inc/(Dec)
Total L Brands $11.5 $13.2 16%
Victoria's Secret Lingerie (Go-Forward) $3.2 $3.3 4%PINK $2.1 $2.8 32%Victoria's Secret Beauty $1.0 $1.1 9%Category Exits* $0.9 $0.1 nm
Victoria's Secret $7.2 $7.4 2%
Bath & Body Works $3.3 $4.6 38%
International $0.3 $0.6 81%
Revenue
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SIGNIFICANT CASH FLOW
(1)Restated to reflect the required change in presentation related to the new accounting standard for stock-based compensation adopted in 2017.
($ in millions) 2014 2015 2016 2017 2018
Operating Cash Flow(1) $1,877 $2,027 $1,990 $1,406 $1,377
Capital Expenditures ($715) ($727) ($990) ($707) ($629)
Free Cash Flow $1,162 $1,301 $1,000 $699 $748
Regular Dividend ($399) ($587) ($683) ($686) ($666)
Retained Cash Flow $763 $714 $317 $13 $82
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SIGNIFICANT CASH RETURNED TO SHAREHOLDERS
CASH DISTRIBUTION(1) SINCE 2014Regular Dividends $3.0 Billion
Special Dividends $1.5 Billion
Share Repurchases(2) $1.6 Billion
Total $6.1 Billion
(1)Reflects cash distributions from fiscal 2014 through February 2, 2019.(2)From fiscal 2014 through February 2, 2019, 27.3 million shares were repurchased at an average price of $60.31 per share. 9
Note: Total shareholder return data is current as of 3/22/2019; LB stock price closed at $26.67
SHAREHOLDER RETURNS FOR SELECT RETAILERS
1 Foot Locker 39.7 1 Best Buy 33.7 1 Best Buy 24.9 1 TJX 25.12 TJX 31.3 2 Wal-Mart Stores 16.0 2 Home Depot 21.2 2 Foot Locker 21.4
Median of 3 Fast Retailing 28.6 Median of 3 Fast Retailing 15.9 Median of 3 TJX 12.7 Median of 3 Inditex 19.8quartile: 4 Target 17.6 quartile: 4 Home Depot 15.7 quartile: 4 American Eagle 12.7 quartile: 4 L Brands 19.623.1% 5 Wal-Mart Stores 15.4 15.8% 5 Tiffany & Co. 15.0 12.7% 5 Children's Place 12.0 19.7% 5 Fast Retailing 18.8
6 H&M 14.5 6 TJX 12.1 6 Fast Retailing 9.8 6 Tiffany & Co. 18.37 Ralph Lauren 13.9 7 Giordano 10.9 7 Target 9.3 7 Giordano 15.98 Tiffany & Co. 10.8 8 American Eagle 10.0 8 Wal-Mart Stores 8.0 8 Children's Place 15.0
Median of 9 Abercrombie & Fitch 10.7 Median of 9 Ralph Lauren 9.5 Median of 9 Foot Locker 6.6 Median of 9 Ralph Lauren 12.8quartile: 10 Home Depot 10.3 quartile: 10 Children's Place 4.0 quartile: 10 Inditex 6.2 quartile: 10 Target 12.010.5% 11 Best Buy 7.1 6.8% 11 Target 2.2 6.4% 11 Tiffany & Co. 4.7 12.4% 11 Walgreen Co. 11.2
12 Inditex 6.3 12 Gap (2.1) 12 Giordano 1.8 12 Best Buy 10.513 American Eagle 4.9 13 Inditex (2.1) 13 Walgreen Co. 1.2 13 American Eagle 9.714 Walgreen Co. (2.9) 14 Foot Locker (2.6) 14 Ralph Lauren (3.9) 14 Gap 9.5
Median of 15 Buckle (4.6) Median of 15 Abercrombie & Fitch (3.6) Median of 15 Abercrombie & Fitch (5.4) Median of 15 Wal-Mart Stores 9.4quartile: 16 Giordano (9.8) quartile: 16 Coach (4.3) quartile: 16 Coach (6.0) quartile: 16 Coach 9.2(7.2%) 17 Gap (18.6) (3.9%) 17 Walgreen Co. (7.1) (5.7%) 17 Gap (7.2) 9.3% 17 Abercrombie & Fitch 3.5
18 L Brands (25.4) 18 Buckle (10.6) 18 Buckle (10.2) 18 Buckle 2.619 Bed Bath & Beyond (33.0) 19 H&M (16.5) 19 H&M (10.2) 19 H&M 2.420 Children's Place (33.2) 20 Li & Fung (22.6) 20 L Brands (10.2) 20 Chico's 0.2
Median of 21 Coach (38.5) Median of 21 Chico's (28.1) Median of 21 Chico's (21.4) Median of 21 Bed Bath & Beyond (4.9)quartile: 22 Esprit Holdings (39.7) quartile: 22 L Brands (28.6) quartile: 22 Li & Fung (26.0) quartile: 22 Li & Fung (10.6)(39.7%) 23 Ascena Retail Group (45.7) (28.6%) 23 Bed Bath & Beyond (33.5) (26.0%) 23 Bed Bath & Beyond (26.2) (10.6%) 23 Ascena Retail Group (15.8)
24 Chico's (48.7) 24 Esprit Holdings (36.8) 24 Esprit Holdings (32.8) 24 Home Depot (26.3)25 Li & Fung (58.5) 25 Ascena Retail Group (53.5) 25 Ascena Retail Group (43.1) 25 Esprit Holdings (26.5)
3-year Total Return 5-year Total Return 10-year Total Return1-year Total Return
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KEY TAKEAWAYS
Global, leading brands, led by talented, experienced teams– High emotional content– Highly attractive retail categories of intimate apparel and personal
care and beauty– Deep customer engagement
Disciplined execution; strong capabilities– Speed and agility– Disciplined financial management– Proactive management of real estate
Significant growth opportunities in North America and internationally
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86% 2018 fourth quarter open to buy at beginning of Fall season
DISCIPLINED EXECUTION: SPEED AND AGILITY
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Examples:
Victoria’s Secret / PINK Panties 14 Days
Fragrant Body Care (lotion, shower gel and fine fragrance mist) 21 Days
ORDER MANUFACTURESHIP TO
DISTRIBUTION CENTER
SHIP TO STORE
DISCIPLINED EXECUTION: SPEED AND AGILITY
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BALANCED, PROACTIVE CAPITAL STRUCTURE MANAGEMENT
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($ in millions)
HEALTHY MATURITY PROFILE
MATURITY PROFILE PROVIDES FLEXIBILITY
$1,000
$338
$780
$956
$500
$297
$500
$350
$1,000
$700
$300
$0
$200
$400
$600
$800
$1,000
$1,200
7.00% 6.625% 5.625% 5.625% 5.25% 6.95% 6.875% 6.75% 7.60%6.694%
Bonds Revolver
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1. Performance based investment – we can and do adjust spending levels based on performance
2. High sales per foot productivity
3. Strong financial profile– Project IRR’s of ~20%– 99% of stores are cash flow positive
4. Diverse real estate portfolio across venue tiers and types
5. Minimal exposure to vulnerable venues due to strong lease termination rights which provide flexibility
6. Actively managing the store fleet
DISCIPLINED EXECUTION: REAL ESTATE
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High profitability across all mall types in North America
33% of stores are not in malls
Leases provide significant protection based on occupancy and co-tenancy provisions
25% in C malls with above fleet average profit rates and remaining average lease term of less than 3 years
Minimal exposure in vulnerable venues due to strong lease termination rights which provide flexibility
DISCIPLINED EXECUTION: REAL ESTATE
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DISCIPLINED EXECUTION: REAL ESTATE
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15% Growth
Note: U.S. stores sales per Selling Square Foot. 2017 is based on 52 weeks.
Victoria’s Secret Bath & Body Works
DISCIPLINED EXECUTION: REAL ESTATE
INDUSTRY-LEADING SALES PRODUCTIVITY
$836 $864 $844 $774 $757
2014 2015 2016 2017 2018
$774 $815 $831 $835
$891
2014 2015 2016 2017 2018
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Store Closures
Store Openings
DISCIPLINED EXECUTION: REAL ESTATE
Over the last 10 years:
Opened 822 stores primarily in top tier and off-mall venues Closed 675 stores primarily in lower tier venues and sold 130 stores in the La Senza fleet
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DISCIPLINED EXECUTION: REAL ESTATE
CONSISTENT COMP PERFORMANCE BETWEEN TOP AND BOTTOM MALL TIERS
‐20%
‐15%
‐10%
‐5%
0%
5%
10%
15%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Bath & Body Works U.S. Stores
A
C
2017 2018
‐20%
‐15%
‐10%
‐5%
0%
5%
10%
15%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Victoria's Secret U.S. Stores
A
C
2017 2018
Victoria’s Secret / PINK and Bath & Body Works real estate investments in the U.S. generate a profit rate of 18% and projected internal rates of return of 24%
Financial Returns1
Victoria’s Secret
Bath & Body Works
L Brands U.S.
Number of Stores 667 740 1,407Projected Internal Rate of Return 18% 35% 24%Profit Rate 2 11% 30% 18%
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DISCIPLINED EXECUTION: REAL ESTATE
1 Includes store investments since 20122 Calculated as Four-Wall Profit / Sales
Aver
age d
ollar
turn
DISCIPLINED EXECUTION: INVENTORY MANAGEMENT
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3.94.1 4.2 4.3 4.4
2014 2015 2016 2017 2018
Note: 2017 is based on 52 weeks.
KEY TAKEAWAYS
Global, leading brands, led by talented, experienced teams– High emotional content– Highly attractive retail categories of intimate apparel and personal care and beauty– Deep customer engagement
Disciplined execution; strong capabilities– Speed and agility– Disciplined financial management– Proactive management of real estate
Significant growth opportunities in North America and internationally
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GROWTH FRAMEWORK
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Low-SingleDigits
Relatively Flat
Mid-Teens Low-Twenties
Direct Sales International North America
Square FootageNorth AmericaComp Stores
5 – 10% TOTAL SALES GROWTH
COMP STORE SALES GROWTH
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North AmericaComp Stores
Strong brands which lead their categories – high emotional content and close connections with customers
Frequent launches of compelling new merchandise –leveraging speed
Engaging store designs in best locations
Speed, agility and disciplined management of inventory
Passionate and capable sales force
Low-SingleDigits
ENGAGING STORE DESIGNS – DRIVE TRAFFIC AND CREATE EMOTIONAL EXPERIENCES
27Dolphin Mall – Miami, FL
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ENGAGING STORE DESIGNS – DRIVE TRAFFIC AND CREATE EMOTIONAL EXPERIENCES
Southcenter – Seattle, WA
Easton Town Center – Columbus, OH 29
ENGAGING STORE DESIGNS – DRIVE TRAFFIC AND CREATE EMOTIONAL EXPERIENCES
PASSIONATE AND CAPABLE SALES FORCE
Selective recruitment and hiring
Attractive pay and benefits
Training and culture
Stable, performance-oriented teams
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Low-SingleDigits
Relatively Flat
Mid-Teens Low-Twenties
Direct Sales International North America
Square FootageNorth AmericaComp Stores
5 – 10% TOTAL SALES GROWTH
GROWTH FRAMEWORK
North America SSF Growth (CAGR)
2013 - 2017 2018 2019F
Victoria’s Secret / PINK
Gross 5% 1% 0%
Net of closures 4% (1%) (3%)
Bath & Body Works
Gross 3% 5% 4%
Net of closures 2% 4% 3%
L Brands
Gross 4% 2% 2%
Net of closures 3% (3%) (1%)
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GROWTH FRAMEWORK
PERFORMANCE-BASED
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Performance BasedPerformance-Based* 2018 ROIC of 13.8% uses the new lower tax rate of 26%. If we used previous years tax rate of 39%, the 2018 ROIC would be 11.2%.
GROWTH FRAMEWORK
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Low-SingleDigits
Relatively Flat
Mid-Teens Low- Twenties
Direct Sales International North America
Square FootageNorth AmericaComp Stores
5 – 10% TOTAL SALES GROWTH
GROWTH FRAMEWORK
DIRECT CHANNEL GROWTH
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A Very Significant, Profitable Business
$2.5 billion in volume at a 20+% operating income rate
Organizational changes at Victoria’s Secret to integrate stores and direct channels –brand/customer focus
Increasing investments (talent and dollars) to accelerate growth in North America and globally
DIRECT CHANNEL GROWTH
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$2.5 Billion; 20+% Operating Income Rate
% Sales Growth
Sales
($US
D) in
Milli
ons
Penetration
12017 is based on 52 weeks.
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18% 29% 13% 18% 21%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
22.0%
$500
$1,000
$1,500
$2,000
$2,500
2014 2015 2016 2017 2018
Digital Sales (Go‐Forward) and Penetration 2014 ‐ 2018
Digital Sales Digital Penetration
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Low-SingleDigits
Relatively Flat
Mid-Teens Low- Twenties
Direct Sales International North AmericaSquare Footage
North AmericaComp Stores
5 – 10% TOTAL SALES GROWTH
GROWTH FRAMEWORK
SIGNIFICANT INTERNATIONAL GROWTH
2014 2018 2014 – 2018CAGR
Total VS & BBW International Segment ($ US millions)
Store Count 394 753 18%
Retail Sales¹ $790 $1,507 18%
L Brands Recognized Revenue $336 $605 16%
Operating Income² $78 ($7) NM
1Represents total retail sales from company-owned and partner-owned stores; partner-owned sales may be unaudited and/or non-GAAP.²Operating Income results are non-GAAP. 38
SIGNIFICANT GROWTH OPPORTUNITY OUTSIDE NORTH AMERICA
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NEW MARKETENTRY
NEW MARKET ENTRY
GLASGOW, SCOTLAND
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NEW MARKET ENTRY
BANGKOK, THAILAND
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NEW MARKET ENTRY
JAKARTA, INDONESIA
NEW MARKET ENTRY
KUALA LUMPUR,MALAYSIA
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NEW MARKET ENTRY
SAN JOSÉ, COSTA RICA
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NEW MARKET ENTRY
MELBOURNE, AUSTRALIA
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NEW MARKET ENTRY
ROME,ITALY
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NEW MARKET ENTRY
HONGKONG
WHAT HAVE WE LEARNED IN CHINA?• Fully integrated digital and physical retail strategy• Best sellers largely similar to USA and …• Huge opportunity in local distortions (e.g. sizing,
Chinese New Year, Singles Day)
WHAT ARE WE DOING NEXT IN CHINA?• Continued focus on the fundamentals• Focus on smaller store formats to unlock scale• Pilot Bath & Body Works
WHAT HAVE WE LEARNED IN CHINA?• Fully integrated digital and physical retail strategy• Best sellers largely similar to USA and …• Huge opportunity in local distortions (e.g. sizing,
Chinese New Year, Singles Day)
WHAT ARE WE DOING NEXT IN CHINA?• Continued focus on the fundamentals• Focus on smaller store formats to unlock scale• Pilot Bath & Body Works
HONG KONG
2019 STORE GROWTH
L BRANDS, INC. INTERNATIONAL STORE COUNT
2019 FORECAST
2018Year End
2019New Stores
2019Closures
2019 FcstYear End
Wholly Owned Stores
Victoria's Secret Full Assortment - U.K. 20 0 0 20
PINK - U.K. 5 0 0 5
Victoria's Secret Full Assortment - Ireland 1 0 0 1
Victoria's Secret Full Assortment - Greater China 15 3 to 5 0 18 to 20
Victoria's Secret Beauty & Accessories - Greater China 38 12 to 15 5 to 6 44 to 48
Wholly Owned Total 79 15 to 20 5 to 6 88 to 94
Partner Owned Stores
Victoria's Secret Full Assortment 47 18 to 20 0 65 to 67
PINK 9 1 to 2 0 10 to 11
Victoria's Secret Beauty & Accessories - Local Market 219 5 to 7 18 to 20 204 to 208
Bath & Body Works - Local Market 223 44 to 48 4 to 5 262 to 267
Victoria's Secret Beauty & Accessories - Travel Retail 164 15 to 18 18 to 20 159 to 164
Bath & Body Works - Travel Retail 12 4 to 5 0 to 1 15 to 17
Partner Owned Total 674 87 to 100 40 to 46 715 to 734
Total VS & BBW International 753 102 to 120 45 to 52 803 to 82849
KEY TAKEAWAYS
Global, leading brands, led by talented, experienced teams– High emotional content– Highly attractive retail categories of intimate apparel and personal care and beauty– Deep customer engagement
Disciplined execution; strong capabilities– Speed and agility– Disciplined financial management– Proactive management of real estate
Significant growth opportunities in North America and internationally
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APPENDIX
Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures
This presentation contains certain unaudited “Adjusted” financial information which represents non-GAAPfinancial measures. The adjusted financial information should not be construed as an alternative to the reportedresults determined in accordance with generally accepted accounting principles. Further, the Company’sdefinition of adjusted income information may differ from similarly titled measures used by other companies.While it is not possible to predict future results, management believes the adjusted information is useful for theassessment of the ongoing operations of the Company. The adjusted financial information should be read inconjunction with the Company’s historical financial statements and notes thereto contained in the Company’squarterly reports on Form 10-Q and annual report on Form 10-K. The following pages contain reconciliations ofcertain reported results to the adjusted results used in this presentation.
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APPENDIX
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Reported Adjustments Adjusted
Net Sales 13,237$ -$ 13,237$
Gross Profit 4,899 95 4,993
General, Administrative and Store Operating Expenses 3,563 (7) 3,556
Operating Income 1,237 200 1,437
Earnings Per Share 2.31 0.51 2.82
The Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures reflect the following:
The "Adjustments" column includes the following:
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·
·
Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures
2018(in millions except per share amounts)
A $99.2 million ($55.1 million net of tax of $44.1 million) loss on the sale of La Senza to an affiliate of Regent LP.
An $80.9 million charge ($72.7 million net of tax of $8.2 million), included in buying and occupancy expenses, related to the impairment of certain Victoria’s Secret store assets.
$20.3 million ($15.0 million net of tax of $5.3 million) of Henri Bendel closure costs, included in buying and occupancy expenses ($13.8 million) and general, administrative and store operating expenses ($6.5 million).
APPENDIX
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Reported Adjustments Adjusted
Net Sales 12,632$ -$ 12,632$
Gross Profit 4,959 - 4,959
General, Administrative and Store Operating Expenses 3,231 - 3,231
Operating Income 1,728 - 1,728
Earnings Per Share 3.42 0.22 3.20
The Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures reflect the following:
The "Adjustments" column includes the following:
˙·
Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures
2017(in millions except per share amounts)
A $45.0 million pre-tax loss ($28.8 million net of tax of $16.2 million), included in other income (loss), associated with the early extinguishment of our June 2019 notes.A $92.2 million tax benefit related to changes in U.S. tax legislation.
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APPENDIX
Reported Adjustments Adjusted
Net Sales 12,574$ -$ 12,574$
Gross Profit 5,125 11 5,136
General, Administrative and Store Operating Expenses 3,122 (24) 3,099
Operating Income 2,003 35 2,037
Earnings Per Share 3.98 (0.23) 3.74
The Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures reflect the following:
The "Adjustments" column includes the following:
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·
·
·
A $41.7 million tax benefit related to the favorable tax settlement of a discrete tax matter.
A $35.8 million pre-tax loss ($22.4 million net of tax of $13.4 million), included in other income, associated with the early extinguishment of our July 2017 notes.
Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures
2016(in millions except per share amounts)
Pre-tax charges of $34.5 million ($21.4 million net of tax of $13.1 million) related to actions at Victoria’s Secret, including severance charges, fabric cancellations and the write-off of catalogue paper.A $108.3 million pre-tax gain ($70.2 million net of tax of $38.1 million), included in other income, related to a $124.4 million cash distribution from Easton Town Center.
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APPENDIX
Reported Adjustments Adjusted
Net Sales 12,154$ -$ 12,154$
Gross Profit 5,204 - 5,204
General, Administrative and Store Operating Expenses 3,012 - 3,012
Operating Income 2,192 - 2,192
Earnings Per Share 4.22 (0.23) 3.99
The Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures reflect the following:
The "Adjustments" column includes the following:
˙
Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures
2015(in millions except per share amounts)
A $78.1 million pre-tax gain ($69 million net of tax) included in other income related to the sale of our remaining interest in the third-party apparel sourcing business.