Money

Victoria’s Secret warns on drop in the British pound


US lingerie brand Victoria’s Secret has become the latest company to warn it is feeling the pinch from a drop in the value of the British pound, saying sterling’s slide posed a challenge to the “fundamental economics” of importing merchandise into the UK.

Speaking at a conference in Ohio for investors in parent L Brands, the group’s international head Martin Waters said a relatively weak economy in the UK was undermining efforts to revive the company’s lossmaking business in the country.

Three years ago, he said, the UK business was “nicely profitable and positioned for growth”. Now, however, the company’s priority was just to break even in Britain. “That doesn’t sound like any great shakes . . . but with the UK being in the position that it is, we don’t think it’s safe to be investing heavily,” Mr Waters said.

He added: “We’ve seen significant [foreign exchange] pressure that has impacted the business, and actually challenges the fundamental economics of importing American merchandise into the UK.”

The remarks highlight the complicating effects for corporate America of the depressed pound, which is down 5.5 per cent against the dollar in the past six months even after a recovery in the past week.

Sterling’s weakness has made UK assets cheaper for prospective overseas buyers, spurring takeover deals including US toymaker Hasbro’s £3.3bn agreement to snap up Entertainment One, the company behind cartoon franchise Peppa Pig.

However, the falling pound increases import costs for businesses based in Britain and also dents sterling revenues for foreign groups that repatriate them.

Tilda, the London-based basmati rice brand, was recently sold for $342m by Hain Celestial, a New York consumer goods group. “While a solid business with accretive margins, given the premium valuation we received, currency volatility, Brexit uncertainty and the long-term business headwinds, it was the right time for Hain to divest it,” Mark Schiller, chief executive, told a conference last week.

Other US companies to caution about the weak pound include Post Holdings, the New York-listed owner of British cereal brand Weetabix. Presenting earnings last month, chief executive Robert Vitale said the company expected Weetabix full-year profits to be down by between $2m and $3m.

As well as the exchange rate issue, Victoria’s Secret is dealing with pressure on its underlying business in the UK similar to what is it facing in the US. The company brought racy underwear to the masses but has gone out of fashion as consumers have turned to “body positive” alternatives.

While it has just 26 stores in the UK and Ireland compared with more than 1,000 Victoria’s Secret outlets in the US, it is a high street stalwart in several British cities. The eponymous “Victoria” was originally modelled on an fictional English lady.

Mr Waters said the group was basing its UK turnround plan on a push into digital, less discounting and converting footfall in stores into spending.

L Brands‘ market capitalisation has fallen about $24bn since 2015. Like-for-like sales at Victoria’s Secret fell 6 per cent in the quarter that ended August. Bath & Body Works, which the group also owns, has held up better, posting an 8 per cent rise in comparable sales in the second quarter.

The group has also faced scrutiny over historic ties between founder Les Wexner and Jeffrey Epstein, the deceased accused sex trafficker. Mr Wexner told the conference he was “embarrassed” by the relationship.



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