At the Barclays Retail and Consumer Discretionary Conference, L Brands CFO Stuart Burgdoerfer and Investor Relations Rep. Amie Preston gave insights into the company's long-term growth strategies and how L Brands (NYSE: LB ) plans to continue to improve its performance as well as its returns to shareholders.
Burgdoerfer emphasized that L Brands' main focus for long-term growth is the expansion of store square footage and inventory. The company plans to expand in North America and internationally by opening up 140 stores in 10 countries, and it will open up international locations on a franchise basis for cultural purposes. The company wants to make sure that the stores are run correctly with respect to their locations.
What makes Victoria's Secret so compelling is its in-store experience with impeccable floor plans, well-designed products, and emotionally compelling marketing for women of all ages. Chico's FAS (NYSE: CHS ) , which owns Soma intimates, is striving to be a relevant competitor as far as intimate apparel is concerned, but its target market mainly consists of women who are 35 years of age or older.
Also, Chico's is known for the crisp White House Black Market brand, which has limited room to expand its color scheme. However, Victoria's Secret's target market enjoys each and every single color that the color spectrum can manifest in each and every season for all things sexy, compelling, and beautiful.
Pretty in PINK
Since the launch of the PINK brand in 2004 or so, the sub-brand has accounted for $1.7-1.8 billion in sales. L Brands plans to double this by increasing the square footage and inventory of this business as well. PINK only has 200 stores, and the current free-standing stores produce sales of about $1,100 per square foot.
Investor Relations Rep. Amie Preston emphasized that PINK trumps the competition with brand ambassadors who visit college campuses and active social media interaction. Another plus is that PINK is directly linked to Victoria's Secret, which gives young customers a very sexy goal to aspire to as they grow into adulthood.
American Eagle Outfitters (NYSE: AEO ) launched its lingerie brand Aerie around 2006, competing with PINK by catering to high school graduates and college-aged girls. However there isn't much that Aerie can accomplish on that front yet with PINK being linked to the sexiest brand on earth. Victoria's Secret and PINK are well-established brands with very loyal customer bases that continue to grow. Aerie may be able to catch up with PINK in the long term, but with only about 120 stores, that will take a while.
More Bath and Body Works
CFO Stuart Burgdoerfer was excited to share that Bath and Body Works is a unique personal-care specialty brand that accounts for $3 billion of L Brands' revenue and has a 21% operating margin. He also pointed out that the closest competitor to Bath and Body Works is L'Oreal's The Body Shop, and Bath and Body Works does about three to four times the volume of its competitor. L Brands has seen an increase in revenue of 4% from April 2013 to April 2014, while L'Oreal reported that its sales decreased 2.2% overall with The Body Shop showing a sales decrease of 3% from the first quarter of 2013 to the first quarter of 2014.
Getting it right will yield dividends
Burgdoerfer emphasized that L Brands' contribution to innovation in the intimate-apparel industry is based on the selling of emotion. L Brands is a company based on creating compelling marketing campaigns to launch functional and exciting products that will keep customers coming back over and over again. He expressed that the company spends more time improving what works than worrying about market share battles.
So what does this all mean for shareholders? The CFO made the point that L Brands is not going to sit on extra cash, and acquisitions are not a part of the company's game. Approximately $691 million of capital excess was accounted for in 2013 and the company expects its capital excess to be about $750 million in 2014. The regular dividend has increased to $1.36 per share over the last five or six years, and the company is paying out about 40% of its earnings.
He also said that the company is partial to giving out a special dividend because it provides a "clear, certain and unambiguous return for shareholders." The company's founder holds a 17% stake in the company, so shareholder value is concrete and understood.
L Brands knows how to get it right with appealing to loyal and potential customers, and the company continues to show long term growth potential. L Brands is a great buy for your portfolio.
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