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L Brands Inc LB

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Efforts to Remedy Victoria’s Secret Underway at L Brands; Shares Undervalued

Jaime M. Katz, CFA Senior Equity Analyst

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.

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Company Profile

Business Description

L Brands is a women's intimate, personal-care, and beauty retailer operating under the Victoria's Secret, Pink, and Bath & Body Works brands. The company generates the majority of its business in North America, with about 5% of sales coming from international markets in fiscal 2019. Distribution channels include more than 2,900 stores and online, which represented about 20% of total sales in 2019. The company still plans to break Bath & Body Works into a standalone business, but the timing and process of such a transaction has yet to be offered.

Contact
Three Limited Parkway
Columbus, OH, 43230
T +1 614 415-7000
Sector Consumer Cyclical
Industry Apparel Retail
Most Recent Earnings Apr 30, 2020
Fiscal Year End Feb 1, 2021
Stock Type Distressed
Employees 94,400

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