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May 11, 2021

Victoria’s Secret to go public under new plans

Victoria's Secret will become an independent publicly-traded company under new plans to separate the brand from Bath and Body Works, its owner L Brands has announced.

By Hannah Abdulla

Victoria’s Secret will become an independent publicly-traded company under new plans to separate the brand from Bath and Body Works, its owner L Brands has announced.

L Brands was rumored to have reignited talks with potential buyers for its Victoria’s Secret business at the end of last month, with analysts valuing the lingerie brand at as much as US$5bn.

While the board of L Brands said earlier this year it remained committed to separating the businesses before August. Options on the table were a spin-off of Victoria’s Secret into a public company or a private sale of the business.

In a statement today (11 May), the group says its board has concluded a spin-off of the brand would fetch more value than a sale. The transaction is expected to close in August.

Martin Waters, CEO of Victoria’s Secret, will continue to lead the new standalone Victoria’s Secret business following the separation.

“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,” says Sarah Nash, chair of the board. “As a result of these efforts, Victoria’s Secret is now well-positioned to operate as a standalone, public company.

“Further, both Bath and Body Works and Victoria’s Secret are leaders in their respective markets, and, as separate businesses, each will be ideally positioned to benefit from a sharpened focus on pursuing growth strategies best suited to each company’s customer base and strategic objectives.

“With this in mind, the Board believes that this path forward will return the highest value to shareholders and that the separation will allow each business to achieve its best opportunities for growth.”

In addition, L Brands says it expects to report first-quarter earnings per share of approximately $0.97, which includes a charge related to the early extinguishment of debt of $0.28 per share. Excluding this charge, the company expects to report adjusted earnings per share of approximately $1.25 versus its previous guidance of $0.85 to $1.

The increase reflects stimulus payments and the relaxation of Covid-19 restrictions.

The company reported preliminary net sales of $3.02bn for the period, compared to $1.65bn last time. At Victoria’s Secret, net sales were $1.55bn, compared $893.6m in the period year period, while those at Bath and Body Works were $1.47bn, compared to $760.6m last time.

No place to hide

Neil Saunders, managing director of GlobalData, notes after a hiatus brought about by the pandemic, L Brands is finally moving ahead with the separation of its two brands.

“However, rather than selling off Victoria’s Secret, as was the initial plan, the group has decided to create two separate public companies.

“The decision to spin-off Victoria’s Secret is telling and likely indicates that L Brands was not able to secure a bid that it considered high or compelling enough from a third-party. This both reflects L Brands’ growing confidence in the value of Victoria’s Secret, and the reluctance of investors to pay too high a premium when there is still uncertainty over the future trajectory of apparel retail.

“This disjoin goes to the heart of the view that Victoria’s Secret is on a pathway to recovery, a point that is often made by L Brands. On the surface there is little evidence to support this, especially as last year, sales fell by 29.7%. Admittedly, this came against the backdrop of the pandemic, but the full-year performance was somewhat worse than that of the overall apparel market, and considerably worse than rivals like Aerie. This is not to say that no progress has been made at Victoria’s Secret; however, the impact on the business has been negligible.

“L Brands could be relying on the fact that as it enters its new fiscal year, growth rates will look very strong because they come up against soft comparatives from 2020. However, this is a mathematical sleight of hand rather than a true indication of progress. Indeed, compared to 2019, sales will probably remain down.

“All that said, creating two separate public companies does make sense and given the current bull market, will likely create value over time. This is especially so for Bath and Body Works which, despite being the more successful of the two brands, is often overlooked and overshadowed by its less impressive sibling.

“However, the divorce gives Victoria’s Secret no place to hide. Its numbers will no longer be flattered by the contribution of Bath and Body Works and its management team will be fully accountable to investors. Such accountability is no bad thing and will likely sharpen efforts to enact a genuine turnaround at the company. “

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