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05/11/2021

L Brands to Spin Off Victoria’s Secret

After a failed acquisition, L Brands has decided to spin off Victoria’s Secret into its own company, separating Bath & Body Works from the intimates brand.
Victoria's Secret shopping bag

L Brands, which operates 2,681 company-operated specialty stores in the United States, Canada and Greater China, will create two companies through a tax-free spinoff of Victoria’s Secret, including Victoria’s Secret lingerie, PINK and Victoria’s Secret beauty, to L Brands’ shareholders. The plan was unanimously approved by the board of directors.

The announcement comes after Victoria’s Secret suffered sales declines for the last few years after competitors adapted to body positivity trends with more inclusive and comfortable intimate apparel far better than Victoria’s Secret. L Brands Founder Lex Wesner stepped down as CEO in 2020 following claims of a misogynistic culture at the company. Victoria’s Secret also stopped putting on its famed runway show in 2019 following declining viewership.

Since then, the company has rebounded. In 2020, it entered into an agreement with private equity group Sycamore Partners, which would acquire a 55% in the company for roughly $525 million under terms of the deal. However, Sycamore filed suit to back out of the deal. L Brands has continued to consider a sale or spinoff since the deal fell through, the company stated.

“In the last ten months, we have made significant progress in the turnaround of the Victoria’s Secret business, implementing merchandise and marketing initiatives to drive top line growth, as well as executing on a series of cost reduction actions, which together have dramatically increased profitability,” said Sarah Nash, chair of the board. “As a result of these efforts, Victoria’s Secret is now well-positioned to operate as a standalone, public company.”

Victoria’s Secret CEO Martin Waters will continue as CEO of the new spinoff, while L Brands CEO Andrew Meslow will lead Bath & Body Works after the transaction.

“Further, 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,” Nash said. “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.”

The spinoff is expected to close in August 2021, subject to closing conditions and L Brands’ board’s approval.

The company also reported its expected first quarter earnings, with total operating income of approximately $570 million, including approximately $380 million at Bath & Body Works and approximately $245 million at Victoria’s Secret. Its official earning will be reported May 19.

“We anticipate L Brands will deliver a record first quarter earnings result, driven by continued strength and exceptional performance at Bath & Body Works and a significant improvement at Victoria’s Secret,” Meslow said. “We are confident in the growth opportunities for each business and are excited to share our vision for each business as we continue to work toward the August separation.”