By Khadeeja Safdar 

Dwindling traffic at U.S. shopping centers has caught up with Victoria's Secret and Bath & Body Works, two retail stalwarts that previously shrugged off the trend.

L Brands Inc., which owns the two brands, blamed a "substantial reduction in mall traffic in February" for the weak outlook at both of them. It also cited Victoria's Secret's exit from swimwear and apparel and other investments in its business.

For February, L Brands now expects a 20% drop in Victoria's Secret stores open at least a year, and a mid-single-digits decline at Bath & Body Works. The company also warned that its full-year profits could fall nearly 25% from 2016's.

Retailers such as Macy's Inc. and Target Corp. have pointed to decreasing traffic to their physical stores for sales slowdowns, but Victoria's Secret and Bath & Body Works have enjoyed years of sales growth, even though most of their locations are inside malls.

"The mall and store traffic weakness witnessed across the apparel sector has finally become apparent at the seemingly untouchable" brands, Stifel analyst Richard Jaffe wrote in a research note.

L Brands shares fell 16% to $48.74 in midday trading Thursday.

The traffic decline is compounding problems for Victoria's Secret, which has been trying to reinvent itself amid changing customer preferences and growing competition. Last year, L Brands Chief Executive Les Wexner took charge of the brand and announced changes, including shifting away from catalog mailings and getting out of the swimwear business. The company has also been focusing on opening stores abroad, particularly in China.

Executives said they expected those restructuring efforts to weigh on the company's results, but analysts said L Brands's full-year earnings outlook signaled a deeper problem.

The fact that it is worse than expected "means it is more than just an exit of categories," said Nomura Instinet analyst Simeon Siegel. "That would not explain the weakness at Bath & Body Works."

Victoria's Secret has struggled with its merchandise as consumer preferences have shifted to sports bras and bralettes -- cheaper bras without underwire and padding -- from the push-up bras that the brand is best known for. As it added those products to its lineup, it promoted them with markdowns, which hurt margins. The company plans to tone down the promotional activities for those styles this year, said Finance Chief Stuart Burgdoerfer.

The company said sports bras and bralette sales grew, but the overall bra business suffered as consumers turned to those lower-priced products. In its core lingerie business, total bra and panty sales declined in the mid-single digits compared with last year.

Victoria's Secret also faces heightened competition as new players get into the lingerie business.

American Eagle Outfitters Inc.'s Aerie line has opened new stores, targeting younger consumers, and Amazon.com Inc. plans to start selling its own line of competitively priced women's intimate apparel to the U.S. market.

Write to Khadeeja Safdar at khadeeja.safdar@wsj.com

 

(END) Dow Jones Newswires

February 23, 2017 12:42 ET (17:42 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.
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