Analyst Note| Jaime M. Katz, CFA |
No-moat L Brands fared better than we expected during the coronavirus-battered second quarter, bolstered by demand in the soap and sanitizer business. Bath & Body Works, or BBW, posted another stellar quarter, with comps rising 87% (at open locations), and direct sales rising 191%, leading to a segment sales rise of 13%, to $1.2 billion. Victoria’s Secret, or VS, again struggled, with sales tumbling 39%, to $978 million, as 65% growth at the direct business wasn't enough to offset downside from the store comp decline of 10%. But, both VS and BBW saw sequential profit improvement versus the first quarter as stores reopened, with both segments delivering “significantly” improved merchandise margin performance. This led to sequential improvement in segment operating margins, with BBW posting a 28% operating margin (closer to a typical volume-driven fourth-quarter result) and VS reporting a negative 4% metric (better than the negative 25% posted in the first quarter).