Big Expectations From the Market Lead to Big Disappointment for This Retailer

Retailers were expected to have relatively stellar June sales growth, but the reality is much less exciting.

Jul 10, 2014 at 5:01PM

The good news is L Brands (NYSE:LB) had a solid comparable-store sales increase in June. The company saw all of its brands put up positive results, with an especially strong result from Victoria's Secret direct sales, which helped level the brand off for the year-to-date period. The bad news is the market was hoping for even more. This is likely to be an ongoing theme over the next week as more and more companies announce their June positions. The market is in a positive mood, which may help boost hopes for retailers -- who are positive that they've done everything they can.

L Brands makes June mostly sunny
Before we look at the clouds, here's the silver lining. L Brands put up a 2% increase in comparable sales across all of its brands. Last year, June was an absolute disaster, with sales flat in-store and direct sales at Victoria's Secret falling 9%. For the year-to-date period, L Brands' in-store sales are now up 2%, with direct sales flat.

Of the company's 2,936 stores, 94% are split between the Victoria's Secret and Bath & Body Works brands. The remaining 6% are largely La Senza brand stores, which have been relegated to a distant third. On the company's last earnings call, CFO Stuart Burgdoerfer said that the brand's comparable sales would no longer be reported as they are "not material to [L Brands'] overall results." 

As a result of Victoria's Secret's direct success and the in-store success of both major brands, L Brands ended up looking pretty good in June. It's a sentiment other retailers have echoed, most notably Costco, which reported June sales today that beat analysts' expectations, though barely.

That cloud from earlier
L Brands wasn't so lucky. Analysts had expected the company to turn in a 3.1% increase, and the stock took a 2% fall because of the shortcoming. It's likely to be a pattern that repeats itself; according to Thompson Reuters, same-store sales across all sectors are expected to grow by 4.7% -- almost a full percentage point higher than in June 2013. 

Companies reporting June sales should be ready to disappoint, as it seems like consumers were largely unimpressed with the selection available in June. Especially in the apparel sector, where growth has been slow to return, expect big names to post underwhelming sales in the next few days. Hopefully, July will be a bigger, better month.

Going where the growth is
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Andrew Marder has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Costco Wholesale. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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