L Brands Will Close 250 Victoria’s Secret Stores and Proceed With Spin-Off

The intimates brand restructures as it prepares for a likely sale

L Brands is proceeding with plan to separate Victoria's Secret, announcing that the chain is closing 250 stores.
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L Brands is moving forward with its plan to separate Victoria’s Secret from the rest of its business as it reorganizes it to create an independent company “that one could reasonably market for a sale,” said Stuart Burgdoerfer, the intimates brand’s interim CEO, during the first quarter earnings call this morning.

However, Burgdoerfer said that much work remains to be completed to strengthen Victoria’s Secret’s foundation and allow it “to navigate appropriately through this unprecedented situation for retail.”

The company is initiating a comprehensive review of the Victoria’s Secret business, with an eye toward retaining key talent. The work is expected to be concluded by the end of the second quarter, according to Burgdoerfer, who is also L Brands’ CFO.

He said that L Brands will consider a wide range of options as far as it concerns Victoria’s Secret’s separation. It is also weighing all options for the brand in the China and the U.K. in order to reduce or eliminate losses in those markets.

Burgdoerfer’s comments clarify L Brands’ intentions after it agreed to terminate a deal to sell a majority stake in the intimates brand to private equity firm Sycamore Partners.

The steps to prepare Victoria’s Secret for a possible sale include shuttering 250 of its locations—with more likely to be announced—while reopening all of the remaining stores by the end of July. The retailer has already started conversations with landlords about the future of its locations.

In addition, L Brands is seeking to reduce costs and decentralize operations the banner shares with Bath & Body Works, namely real estate and technology, Burgdoerfer said. Victoria’s Secret also has a successful personal care business, which shares operations such as sourcing with Bath & Body Works, that would need to be separated.

Sources familiar with the situation said Victoria’s Secret, despite its challenges, remains an attractive business. The sources, who requested anonymity because negotiations are confidential, said the intimates brand’s core issues are largely tied to those of image and marketing.

An overhaul of the brand would include being more inclusive in its messaging, following a plan similar to that of Abercrombie & Fitch, is both feasible to achieve and would be a priority.

Abercrombie & Fitch launched a campaign earlier this year that featured a cast that reflected diversity in terms of culture, ethnicity, sexuality and body type. It was a marked departure from that brand’s sexually charged marketing of yore that emphasized chiseled abs and the lifestyle of a narrow subset of American youth.

A number of buyers may end up stepping forward in the coming months, namely private equity and strategics who have historically eyed such businesses in the past, sources have said. Sycamore may even return to the bidding table, as it has a known history of either inking deals or coming close to doing so, only to back out at the last minute to renegotiate a lower price, as in the case of Talbots.

Meanwhile, first quarter sales at Victoria’s Secret declined 46% to about $820 million, while comparable store sales fell about 15%. The division also suffered an adjusted operating loss of about $203 million compared to operating income of nearly $33 million for the same period a year prior.

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