Victoria's Secret Fashion Show 2013 Shows that L Brands Is Still on Top

Victoria's Secret, owned by L Brands (BBWI), took to the runway on the evening of Dec. 10 as its fashion show aired on national television. Victoria's Secret has held its annual fashion show for 28 years now, though it has only been televised for 12.

The show was divided up into six-themed apparel groupings: "British Invasion," "Birds of Paradise," "Parisian Nights," "Shipwrecked," "Snow Angels" and the "Pink Network." The Victoria's Secret models, or "Angels" as they are called, appeared in the latest designs including lingerie, panties, bras, sleepwear, casual apparel, hosiery, and accessories, while promoting the brand's beauty and cosmetic collections as well. Along with the beautiful, toned, and very confident models, musical performances by Taylor Swift, Fall Out Boy, and Neon Jungle also took the stage. The annual fashion show proved to be another success with women (and men) captivated by the models' looks and the apparel they wore.

Pink has come a long way
Started in 1977 by Roy Raymond, Victoria's Secret has not only made a name for itself, but has become famous for its intimate apparel and excellence in customer service. Raymond started the company to appeal to men who were shopping for lingerie for their wife or girlfriend, but sold the company to L Brands in 1982. It was L Brands that transformed Victoria's Secret into what it is today, appealing now to women more than men.

Teenagers, older women, and everyone in between loves Victoria's Secret's collection of sleepwear, bras, panties, swimwear, and beauty products. The company also offers its PINK brand, which sells t-shirts, tanks, sleepwear, sweats, and hoodies. Customers trust more than the value of its stores' products; they trust that they will always receive a rewarding experience on account of Victoria's Secret's well-trained associates along with affordable yet fashionable apparel and accessories. Competitors have a long, tough road ahead if they hope to take the beauty crown away from Victoria's Secret.

Imitation is the sincerest form of flattery
Over the past 20 years, competitors like American Eagle Outfitters (AEO 1.37%) and Chico's FAS (CHS) have tried desperately to develop, launch, and operate their own intimates clothing brands to try and pull customers away from Victoria's Secret.

American Eagle Outfitters created its Aerie brand, which consists of 132 stores across the United States and sells apparel such as bras, panties, sleepwear, and other items. Interestingly enough, American Eagle Outfitters actually closed 26 Aerie stores during fiscal year 2013, sending the message to investors that the company is pulling back.

Chico's FAS's brand Soma Intimates also competes with Victoria's Secret, and currently consists of 249 stores nationwide. Victoria's Secret remains the dominant player in the industry and has the most stores compared to its competitors, with 1,035 stores in the United States and Canada. It also generates over 40% of parent company L Brands' total sales.




It's tough competing with pink
There is no doubt that American Eagle Outfitters is struggling based on its most recent third quarter results. Total revenues for American Eagle Outfitters decreased by 6% to $857 million, while the Aerie brand's total revenue decreased by $1.5 million to $48.5 million from the same period a year ago. Aerie's comparable store sales alone declined by 3% in the third quarter of fiscal 2013 as compared to the third quarter of 2012.

Chico's FAS's Soma Intimates, when lumped together with Chico's FAS brand stores, also experienced a 3.3% decline in comparable-store sales. Unfortunately, the company does not report results on the Soma Intimates brand alone. However, the overall results and store counts are quite telling, as the company opened twice as many Soma Intimates stores this year as it did Chico's FAS brand stores.

It is clear from this that Chico's FAS is still attempting to battle Victoria's Secret and refuses to throw in the towel as American Eagle appears to be doing. It's no wonder that both peers to L Brands saw their intimates brands experience year-over-year declines as total sales for Victoria's Secret stores increased by 4% to $1.328 billion over the same period a year ago. Comparable-store sales also increased by 4%, with 40 new store openings from the third quarter of fiscal 2012 to the third quarter of 2013.

Foolish takeaway
Despite attempts by the likes of American Eagle Outfitters and Chico's FAS to steal away its core customers, Victoria's Secret is still the standard in the women's intimate apparel industry. There is no greater proof of this than the buzz surrounding its recent fashion show which was broadcast during primetime on CBS.

Don't be distracted by its competitors, because Victoria's Secret is the only way for Foolish investors to invest in the growth of the women's intimate apparel market. Investors looking to take advantage of this trend should take a close look at L Brands and see if there's a place for this dynamic and trend setting fashion retailer in their portfolios.