L Brands coy on talk of Victoria's Secret spin off - Just Style
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L Brands coy on talk of Victoria’s Secret spin off

By Georges Corbineau 06 Mar 2019

L Brands has refused to be drawn directly into comments following calls from activist investor Barington Capital Group for the group to spin off its Victoria’s Secret brand in a move it claims will “meaningfully improve long-term value for shareholders”.

Yesterday (5 March), Barington announced it has sent a letter to L Brands CEO Leslie Wexner, detailing its recommendations on how the company can address a number of its “current challenges” and meaningfully improve long-term value for shareholders. 

“Unfortunately, over the past three years the company has significantly underperformed its peers and the market as a whole,” the firm said.  “Barington believes this is primarily due to the disappointing financial performance of Victoria’s Secret resulting from merchandising missteps and the failure to maintain a compelling brand image that resonates with today’s consumers. Furthermore, Victoria’s Secret’s struggles have overshadowed the exceptional performance of Bath & Body Works, resulting in the market failing to value the segment appropriately.”

In its most recent financial results, L Brands booked a mixed fourth quarter as net sales increased but earnings tumbled as a US$99.2m pre-tax charge related to the sale of La Senza took its toll on profits. Net income totalled $540.1m, compared to $664.1m for the 14-week period last year. 

Specifically, Victoria’s Secret posted a fall in fourth-quarter sales to US$2.53bn from $2.67bn a year earlier.

Now, the letter calls for the company to “take swift action” to improve the performance of Victoria’s Secret by correcting past merchandising mistakes and ensuring the brand resonates with today’s consumers. It suggested the way to do this would be to pull in a financial advisor “to help explore opportunities to unlock the tremendous value of Bath & Body Works, such as through a spin off of Victoria’s Secret or an initial public offering (IPO) of Bath & Body Works.”

An additional suggestion was for L Brands to shake up its board of directors, with Barington stating: “We recommend that the company improve the composition of its board of directors, as we believe that the lack of director independence and diversity on the L Brands board has hindered its ability to effectively oversee and advise management.”

James Mitarotonda, chairman and CEO of Barington, added: “We strongly believe in the value potential of L Brands and are confident that changes can be made to create meaningful long-term value for shareholders.”

In response, L Brands has issued a statement confirming receipt of the letter.

“L Brands welcomes open communications with our shareholders and values input that may advance our goal of enhancing shareholder value,” the company said.

However, it did not comment specifically when asked by just-style if it was considering spinning off the Victoria’s Secret brand. 

Instead, its statement made reference to changes it has made to its business to “enhance performance and accelerate growth” including the closure of the Henri Bendel business and sale of La Senza as well as debt reduction measures, and new product launches.

“L Brands is committed to creating long-term shareholder value by delivering growth, strengthening its financial performance and building its leading market positions, and we will continue to take actions that we believe will enable us to achieve this objective,” the company said.