L Brands (LB) decides to spin off Victoria’s Secret instead of selling it

Shares of L Brands Inc. (NYSE: LB) were down over 4% in morning hours on Tuesday after the company announced its decision to spin off its Victoria’s Secret business into a separate company. The stock has gained 76% since the beginning of the year.

Spin-off

L Brands has decided to spin off its business into two separate, public companies – Bath & Body Works and Victoria’s Secret. The company will spin off the assets and liabilities of the Victoria’s Secret business to its shareholders through a tax-free transaction that is expected to be completed this August.

L Brands reviewed the option of either a spin-off or sale of the Victoria’s Secret business and had discussions with several potential buyers before deciding that a spin-off would provide more value than a sale. Post the spin-off, Bath & Body Works will be led by Andrew Meslow and Victoria’s Secret will be led by Martin Waters.  

“Both Bath & 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.” – Sarah Nash, Chair of the Board

Preliminary Q1 results

L Brands also provided preliminary results for the first quarter of 2021. The company expects to report GAAP EPS of approx. $0.97 and adjusted EPS of approx. $1.25. The adjusted EPS number is ahead of the guidance range of $0.85-1.00 provided by the company earlier, reflecting strong sales and margins at the Bath & Body Works and Victoria’s Secret divisions, both of which benefited from stimulus payments and easing of the COVID-19 pandemic-related restrictions.

L Brands generated net sales of $3 billion for the first quarter of 2021 compared to $1.6 billion in Q1 2020. Last year’s results were impacted by store closures brought on by the pandemic. Q1 2021 sales increased 15% from the same period in 2019.

Net sales at Bath & Body Works totaled $1.4 billion in Q1 compared to $760.6 million last year. Q1 2021 sales increased 60% compared to Q1 2019. Victoria’s Secret’s net sales amounted to $1.5 billion in Q1 2021 compared to $893.6 million in Q1 2020. Sales dropped 7% compared to Q1 2019, reflecting the closure of 233 stores over the past two years.

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