L Brands Inc LB

Ahead of no-moat L Brands’ brand investor day on July 19, the firm announced several capital structure actions around its Bath and Body Works, or BBW, business, which is set to operate as a single entity after spinning off Victoria’s Secret, or VS (scheduled for Aug. 2). First, it plans to execute a secondary offering of 20 million shares belonging to former CEO Leslie Wexner and others. But L Brands has already agreed to repurchase 10 million of these shares at the to-be-determined offering price, executing on part of the firm’s new $1.5 billion share repurchase program (which replaced the previous $500 million plan announced in March) and limiting share dilution. Then, given the strong cash flow BBW should generate as a standalone business, the firm expects to maintain a $0.60 annual dividend. Lastly, BBW expects to reduce debt by up to $500 million and maintain a 2 times debt to EBITDAR ratio, which should improve financial flexibility. We view these moves as prudent but don’t see any change to our Standard capital allocation rating.