By
with contributions from Evan Clark
 on January 30, 2020
Victoria's Secret Storefront

Victoria’s Secret is going on sale

Parent company L Brands Inc. is in talks to potentially sell the struggling intimates brand, a source confirmed to WWD. A representative from L Brands said the firm “would not comment on such rumors.”

But that didn’t stop the market — and L Brands stock — from moving on Wednesday.

Shares of the company, which also operates the Bath & Body Works and Pink businesses, shot up 12.9 percent to $23.22, leaving L Brands with a market capitalization of $6.4 billion. That’s well below the company’s peak in November 2015, when it enjoyed a market cap of over $29 billion.

victoria's secret models

Victoria’s Secret models during a runway show.  Shutterstock / FashionStock.com

News of the potential sale — and that Leslie H. Wexner, retail pioneer and L Brands chairman and chief executive officer, could give up the corner office — was first reported by the Wall Street Journal, which also identified private equity firm Sycamore Partners as the possible buyer.

Sycamore controls a portfolio of retailers, including The Limited, once part of Wexner’s retail empire; Belk; Hot Topic; Staples, and others, and also owns MGF Sourcing U.S., which recently filed a claim to put intimates brand La Senza, once owned by L Brands, into bankruptcy. A spokesman for the private equity firm declined to comment. 

Victoria’s Secret has been under pressure for some time — out of touch with consumers, shifting its strategy while weathering sales declines — but it is also facing a potential showdown to change faster.

Last year activist investor Barington Capital was pushing for L Brands to revamp its operations, particularly at Victoria’s Secret, and its outlook. A truce of sorts was reached and Barington became an adviser to the business, but that agreement comes up for renewal next month, in time for the activist to potentially launch a proxy fight to push for changes to the board.

Barington owned 617,800 shares, or roughly 0.2 percent, of the firm as of September, but that stake could have changed since then and the activist is known as a savvy player with experience pushing companies to improve operations.

There is also a desire to change within.

Executive vice president and chief financial officer Stuart Burgdoerfer told analysts in August that “everything is on the table.”

At L Brands’ annual shareholder meeting, which could be held in April, four of the company’s 12 board seats — held by Donna James, Michael Morris, Robert Schottenstein and Raymond Zimmerman — are up for reelection. Some speculate that they might not receive the support of shareholders. 

“The key here is that we’re getting a real first sign that [L Brands] might be open to the ideas that a lot of investors have kind of been pushing them foward for the last year,” said Ike Boruchow, senior retail analyst at Wells Fargo. “The view from our side is that the Victoria’s Secret business has gotten so bad that the company cannot sit on their hands and claim business as usual anymore.”

Revenues at the lingerie giant have fallen consistently in the last three years and the company is on track to lose even more money in 2020, Boruchow said. L Brands’ stock price has also fallen — by more than 75 percent since its October 2015 peak, mostly due to Victoria’s Secret’s declining sales. The recent holiday shopping season was also a disappointment for the lingerie brand

“Their holiday performance at Victoria’s Secret was the worst comp that we’ve ever seen,” Boruchow said. “They’ve tried to make smaller fixes and some management shake-ups over the past couple of years, while investors have been very loudly shouting they want bigger changes — bigger sweeping changes — from a management perspective, from a strategic perspective, from a marketing and branding perspective. The whole story here is all about optionality.”

Leonisa shapewear Victoria's Secret

In an effort to increase sales, Victoria’s Secret added shapewear by Colombian brand Leonisa to its web site in January.  Courtesy

Those options include selling the brand, overhauling Victoria’s Secret’s super sexy Angel image, replacing Wexner in the ceo spot — or any combination of all of those. 

Wexner has been leading his retail empire for more than five decades.

He is L Brands’ largest shareholder, controlling 47.7 million shares, or 17.4 percent of the company, according to the retailer’s most recent proxy statement. And while he’s clearly one of the industry’s most seasoned and visionary executives, some argue that it might be time for him to let someone else be in charge of the company’s day-to-day operations while he takes on a lesser role. 

“Les has done a phenomenal job for a very, very long time,” Boruchow said. “But there comes a time for some of these founder ceo’s to kind of take a backseat.

“The view is that there’s a lot of value in [Victoria’s Secret],” Boruchow said. “But it really does need the management team and Les Wexner to take the reins and unlock that value. Maybe when they do that [the new leadership] will pick up on some opportunities that have not been picked up on by the current team. It’s all about unlocking value.” 

Just who would succeed Wexner is unclear. L Brands has been tight-lipped about succession plans. 

If the company were to altogether Victoria’s Secret, the price tag would likely have to be heavily discounted. 

“I can’t imagine anyone in the U.S. [would want to buy Victoria’s Secret],” said Susan Anderson, retail analyst at B. Riley FBR. “Every retailer is having their own problems. And even a healthier one just wouldn’t want to take on all the liability. That leaves private equity and some international buyers that could be interested.”

Immediate obstacles would include reevaluating the company’s retail fleet, both domestically and international; reexamining the cost structure; refreshing the existing stores, and updating the brand’s image. 

Boruchow added that Victoria’s Secret has done little to adapt to consumers’ changing preferences towards brands that promote inclusivity and comfort. 

“They’re the same brand that they were a decade ago, but the customer is not the same,” Burochow said. “The psyche and mindset of what she’s looking for, what she’s shopping for, how she wants to feel about herself, how she wants to be marketed to and what her options are, are completely different. It’s as if the company has kind of missed that. Clearly the consumers are telling you with their wallet that the Victoria’s Secret brand is not what it used to be.” 

But neither Anderson nor Boruchow think Victoria’s Secret is a dead brand. In fact, the Victoria’s Secret name still carries a lot of equity.

Despite its troubles, the brand is still the market share leader in the intimate apparel space, both domestically and internationally. And for the fiscal year ending February 2019, Victoria’s Secret sales tallied more than $7.3 billion.

There was talk last year about L Brands spinning off Victoria’s Secret, but that strategy has lost some of its luster, particularly given Gap Inc.’s plan to separate Old Navy into a stand-alone company needed to be thrown out as conditions in retail worsened. 

That leaves the largest intimates player up for grabs and promises to only accelerate change at one of fashion’s best-known brands.