L Brands files to spin off Victoria's Secret

UPDATE: June 21, 2021: L Brands on Monday took its final steps in separating Victoria's Secret into an independent, public company, by filing the necessary paperwork with the Securities and Exchange Commission, according to an announcement sent to Retail Dive. The business will be called Victoria's Secret & Co. and will include Victoria's Secret Lingerie, Pink and Victoria's Secret Beauty. The separation is expected to be completed in August.

"Today's filing is an important step toward creating two independent, public companies designed to thrive in an evolving retail environment," Andrew Meslow, CEO of L Brands, said in a statement. "We believe Victoria's Secret and Bath & Body Works will achieve new levels of success and unlock significant value for all stakeholders by pursuing growth strategies best suited to each company's customer base and strategic objectives."

Dive Brief:

L Brands plans a spinoff of its Bath & Body Works business some time next year, CEO Andrew Meslow said during a Morgan Stanley Virtual Global Consumer & Retail Conference Wednesday.
It could come early in 2021. Much of the necessary work was accomplished as a result of the company's February deal for Sycamore to take over Victoria's Secret, (which fell through a few months later), Meslow said. Work has continued since and will ramp up in the new year, he said.
The Bath & Body Works business is committed to shift away from the mall, and move many more stores into off-mall locations, Meslow also said.

Dive Insight:

Meslow on Wednesday painted a picture of a company very ready to split in two, a prospect that some analysts have advocated for quite a while.

"The board has been very consistent for well over a year now, that we believe that these two businesses will be best postioned as two separate businesses," he said. "Our business models are quite different, our approach is quite different ... and the trajectory of the two businesses, very different."

A major difference between the two is their prospects based on quality, Meslow said. The better quality in apparel, the less need a customer has for more. But the better quality in candles and soaps, the more they sell. Victoria's Secret's trajectory has changed a bit recently, however. While the lingerie giant has been struggling and losing market share for several quarters, it bounced back in its most recent quarter, after paring back sales in favor of better margins and higher profits.

That doesn't mean the separation plans will change. At the moment, the company is focused on delivering "the best possible" fourth quarter performance from both businesses. But its internal team and outside advisors will be "ramping up pretty significantly ... kicking off fresh into the new year" to accomplish the separation, Meslow said.

CFO Stuart Burgdoerfer said in August that work has been done to integrate shared functions into each brand, and that at the end of the quarter L Brands hired Goldman Sachs and J.P. Morgan for advice on "a range of alternatives" in how the businesses might be separated.

Whether tied to Victoria's Secret or not, more Bath & Body Works stores are destined to leave the mall, a plan that Meslow said is often underappreciated.

Ultimately, the personal care brand is likely to garner a third of its business through mall locations (down from about 55% now), a third through off-mall locations (about 45% now) and a third via e-commerce (about 30% this year), according to Meslow.