L Brands' Q3 Guidance Highlights Brick-And-Mortar Troubles

L Brands Inc LB announced weaker-than-expected guidance for the third quarter, which could point to the growing problems endured by most traditional retailers. The company, which owns Victoria's Secret, Pink, Bath & Body Works, La Senza and Henri Bendel, reported a second quarter EPS of $0.68. That number proved to be in-line with Wall Street estimates. Sales were just a hair under at $2.77 billion versus the Street estimate of $2.8 billion. Wall Street might have been content with those numbers, but L Brands also announced that it expects to report a Q3 EPS between $0.40 and $0.45 -- pennies blow the Street estimate of $0.48. The company expects its FY15 EPS to fall within the $3.58 to $3.73 range. The company will have to come in at the higher end just to stay in-line with FY expectations. "Remember: with brick-and-mortar stores, the trend is online," Rob Enderle, principal analyst at Enderle Group, told Benzinga. "What you're seeing is a very slow erosion of the brick-and-mortar stores. At the end of the day, these companies have to flip to a much stronger online model if they want to start growing with online companies. The issue here is so much of their properties are primarily brick-and-mortar sales and they have to flip." Offline sales continue to be a huge portion of Victoria's Secret's success, as evidenced by the long lines in their mall outlets. "This is a blended property, so it's more than Victoria's Secret," said Enderle. "There will always be some outliers. The individual performance of the stores aren't what you're looking for here, it's the overall performance of the mix."

'Ahead Of The Curve'

Many consumers still like to try on their clothes and underwear before making a purchase, so Victoria's Secret might be safe for the time being. However, Enderle reminded investors that not all of L Brands' properties sell clothing. "This is a case where you want to see the firm step out and get ahead of the curve a little bit and be one of the properties at least experimenting with fixing the problem," said Enderle, referring to the threat of online-only retailers like Amazon.com, Inc. AMZN. "With things you want to smell and touch…that seems to work reasonably well in malls. On the other hand, we've seen perfume move really well online with scent samples." Disclosure: At the time of this writing, Louis Bedigian had no position in the equities mentioned in this report.