Analyst Note| Jaime M. Katz, CFA |
No-moat L Brands remains determined to go it alone on a separation process, attempting to improve Victoria’s Secret's (VS) performance ahead of carving it out from Bath & Body Works (BBW). While management previously set into motion 250 store closures, put the U.K. business into administration (with Next rumored to become franchise partner in the locale), and executed on an inventory management overhaul (with fall receipts set to be 50% lower), it has announced further efforts to right size the brand. Specifically, L Brands plans is decreasing headcount by 850 (15% of office personnel) and re-imagining the store labor model. These efforts are set to deliver $400 million in run rate savings, which could move the VS segment back toward breakeven operating margin performance. While $175 million in expenses are anticipated for extraction in 2020, these come at a cost, with $75 million in severance set to flow through second-quarter results.