L Brands' spin-off of Victoria's Secret takes shape

By

Robin Driver

Published
May 12, 2021

Columbus, Ohio-based L Brands, Inc. revealed that its board has unanimously approved its planned spin-off of the Victoria’s Secret brand on Tuesday and provided further details about the transaction.

 
First announced last year and expected to be completed in August 2021, the proposed spin-off aims to free up the group’s two brands – Victoria’s Secret and Bath & Body Works – to concentrate on their own strategies moving forward.
 
In the words of the press release published by L Brands on Tuesday, “the spin-off will enable each company to maximize management focus and financial flexibility to thrive in an evolving retail environment and deliver profitable growth.”

Having previously considered both a spin-off and a sale of Victoria’s Secret with its financial advisors, the L Brands board ultimately decided that a tax-free spin-off of the brand to the company’s shareholders would provide them with more value.
 
Bath & Body Works has consistently outperformed Victoria’s Secret over the last few years, posting a 20.1% increase in sales totaling $6.43 billion in fiscal 2020, compared to a 27.9% decline at the lingerie brand, where sales totaled $5.41 billion. The business boasts high brand awareness and, according to L Brands, is in a strong position for continued growth both in North America and internationally.
 
On the other hand, the Victoria’s Secret business, which also includes the Pink lifestyle label, is currently focused on turning its fortunes around. Known for its ultra-sexy lingerie selection, the brand has struggled to keep step with shifts that have led the intimates sector to focus increasingly on questions of comfort, diversity and inclusivity.
 
Victoria’s Secret’s recent efforts have included the implementation of a profit improvement plan and actions taken to better adapt its product assortment, inventory mix, marketing and overall brand positioning to contemporary customers’ needs. According to L Brands, thanks to these strategies, the business is now in a position to strike out on its own.
 
“In the last ten months, we have made significant progress in the turnaround of the Victoria’s Secret business, implementing merchandise and marketing initiatives to drive top line growth, as well as executing on a series of cost reduction actions, which together have dramatically increased profitability,” said Sarah Nash, chair of the L Brands board, in the company’s release. “As a result of these efforts, Victoria’s Secret is now well-positioned to operate as a standalone, public company.”
 
Following the spin-off, L Brands CEO Andrew Meslow will maintain his position at the head of the company, leading Bath & Body Works forward in its new phase. Victoria’s Secret CEO Martin Waters will also stay in his current role. According to L Brands, details concerning each company’s management teams and boards will be announced in due course.

In addition to its update on the progress of the Victoria’s Secret spin-off, L Brands also provided preliminary first-quarter financial results on Tuesday. According to the company, it achieved net sales of $3.02 billion in the first quarter ended May 1, 2021, up 82.8% from $1.65 billion in the same period in the previous year, or 15% from $2.63 billion in Q1 2019, before the outbreak of the Covid-19 pandemic.
 
Quarterly sales totaled $1.47 billion at Bath & Body Works, up 60% from Q1 2019, and $1.55 billion at Victoria’s Secret, down 7% from the same period two years ago.
 
Earnings per share are expected to be a record $0.97.