L Brands Inc. is cutting back sharply, with a plan to reduce annual costs by $400 million as it spins off the ailing Victoria’s Secret business from its much stronger Bath & Body Works unit.
Bath & Body Works will remain a “pure-play public company,” while Victoria’s Secret operates as a stand-alone business. This is try number two for the company to put Bath & Body Works front and center, coming after an earlier deal to sell control of Victoria’s Secret to Sycamore Partners fell through after the private equity firm said the retailer violated their agreement by closing its stores during the pandemic.
Once the deal fell through, L Brands said it would go it alone and split up the businesses. Tuesday’s plan lays out how the company plans to start the process.
Investors liked the start and pushed shares of the company up 15.5 percent to $22.10 in after-hours trading.
The cost savings will come though plans to boost profitability at Victoria’s Secret and to decentralize and streamline corporate functions. About $175 million of the savings will be reached this year, including $75 million to cut 15 percent of the headcount in the firm’s home office, or 850 associates.
The company is also working to be more disciplined with inventory at Victoria’s Secret, with fall receipts down 50 percent from a year earlier. The chain also previously revealed plans to close 250 doors this year.
Victoria Secret’s U.K. business also entered in to what the firm described as “light administration” or bankruptcy in June to restructure leases and said it “subsequently signed Heads of Terms with a major fashion retailer and is in an exclusive period of negotiation.”
Andrew Meslow, chief executive officer of L Brands, said: “The board and management remain committed to separating the Bath & Body Works and Victoria’s Secret businesses, as well as improving the profitability of the Victoria’s Secret business. During the second quarter, we made meaningful progress toward these goals. Decisions relating to our workforce are incredibly difficult and not taken lightly, but these actions are necessary to best position our company for the long term.“
L Brands reports its second-quarter results on Aug. 19 and expects Victoria’s Secret to show a 40 percent sales decline for the period.