What A Victoria's Secret Spinoff Could Mean For L Brands Shareholders

A leading retailer of home, fragrance and women’s lingerie and beauty products has announced a spinoff intended to unlock shareholder value.

Here’s what investors should know about the spinoff of the Victoria’s Secret business from L Brands LB.

What Happened: L Brands announced it will spin off the Victoria’s Secret business in a tax-free move to current shareholders to unlock value. The deal is expected to be completed by August 2021.

“The spin-off will enable each company to maximize management focus and financial flexibility to thrive in an evolving retail environment and deliver profitable growth,” according to the company. 

L Brands said it underwent a process of evaluating a potential sale of the business or a spinoff to shareholders.

Several parties were interested in acquiring the business, and the company said it believed a spinoff would ultimately provide more value to shareholders.

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Why It’s Important: Both segments have strong market share positions and well-known brands that could do better on their own. The company expects to execute growth strategies “best suited to each company’s customer base and strategic objectives.”

L Brands said it expects to report first-quarter adjusted EPS of $1.25. The company had previously guided for 85 cents to $1, a range that was increased several times from the original guided figure.

The company's preliminary first-quarter revenue figure is $3.02 billion, up significantly from $1.65 billion last year.

Preliminary first-quarter revenue totals $1.47 billion for Bath & Body Works. Victoria’s Secret sales in the first quarter were $1.55 billion, down 7% from the first quarter of 2019.

Bath & Body Works saw large growth in both its stores and direct-to-consumer segments. Victoria’s Secret's first-quarter revenue is down 7% from the first quarter in 2019; the Victoria’s Secret segment has closed 233 stores since the first quarter of 2019.

A new spinoff and improved focus on the Victoria’s Secret brand could highlight new growth objectives for the company and a more focused approach on increasing sales.

The company also announced in March that it would buyback $500 million of its own shares and reinstate an annual dividend of 60 cents in June, two moves that could reward shareholders in the current fiscal year.

L Brands ended the first quarter with 1,752 Bath & Body Works stores, 929 Victoria’s Secret stores and 757 franchised stores.

Shares of L Brands have performed well alongside a sales recovery, with shares up over 450% in the last year.

Shares of L Brands are down 1% over a five-year period. 

LB Price Action: Shares of L Brands were down 4.77% at $65.51 at last check.