L Brands to spin off Victoria’s Secret

L Brands has announced plans to spin off its Victoria’s Secret chain, a year after its deal to sell a majority stake in the lingerie brand to private equity firm Sycamore Partners fell through. 

The business, founded by billionaire Leslie Wexner, will operate as two separate companies, bringing an end to a process that has dragged on for months as executives weighed up how best to maximise the success of Bath & Body Works against languishing demand for Victoria’s Secret. 

L Brands said in a statement on Tuesday that it had held discussions with potential buyers for Victoria’s Secret but had ultimately decided that a tax-free spin off was in the best interest of shareholders. 

The decision to split the company in two comes after sales at Victoria’s Secrets and Bed & Body Works increased in the first quarter of 2021, with shoppers returning to buy lingerie and bath and home products as coronavirus lockdown restrictions have eased.

Victoria’s Secret net sales nearly doubled to $1.6bn in the first quarter of the year compared with $893m during the same period in 2020. Bath & Body Works hit net sales of $1.5bn in the first quarter of 2021 compared with $760m a year earlier.

While sales at Victoria’s Secret have improved, they are still below the brand’s heyday when it dominated the US lingerie market, as it plays catch-up to changing consumer tastes. 

The two divisions of L Brands underwent a significant restructuring over the past year, particularly Victoria’s Secret, after the pandemic forced many of their stores to shut down.

“In the last 10 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 L Brands’ board.

L Brands agreed to sell 55 per cent of Victoria’s Secrets to Sycamore in February 2020 at a $1.1bn valuation, but the private equity group pulled out of the deal after the retailer started shutting stores and furloughing staff in response to the pandemic. 

Shortly after agreeing a deal to take Victoria’s Secret private, Wexner announced he would give up his dual roles as chief executive and chair of L Brands, amid increasing scrutiny over his relationship with Jeffrey Epstein, the late convicted sex offender. 

The retailer said it is convinced that Victoria’s Secret, which will continue to be led by its current chief executive, Martin Waters, is now placed to reach a higher valuation by being spun off to L Brands’ shareholders.

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