Victoria’s Secret parent company L Brands Inc. confirms it’s not paying rent while stores are closed.
It is also extending payment terms to vendors and reducing its spring inventory receipts — 45 percent at the lingerie brand and 20 percent at Bath & Body Works — which is also owned by L Brands, compared with the same time last year.
These are just some of the steps the company is taking amid the coronavirus pandemic that has forced retailers to shutter stores in North America since March.
“L Brands is taking prudent action to maintain its solid cash position and financial flexibility,” according to a company press release.
The news comes just a week after Sycamore Partners — the private equity firm that agreed to buy a majority stake in the lingerie business, including the Pink brand, for $525 million back in February — filed a lawsuit against L Brands saying the company was in breach of its original contract. The reason, the private equity firm alleged, was because the retailer was taking steps amid the pandemic that left it unprofitable.
“Less than one month after L Brands entered into the transaction agreement with [Sycamore], however, it closed nearly all of its approximately 1,600 Victoria’s Secret and Pink brick-and-mortar locations globally, including all 1,091 of its Victoria’s Secret and Pink stores in the United States and Canada,” the court documents filed by Sycamore read.
“More importantly, however, L Brands also took the following voluntary actions with respect to the Victoria’s Secret Business: furloughed most of the employees of the Victoria’s Secret business; reduced by 20 percent the base compensation of all employees at the level of senior vice president and above, and deferred annual merit increases for 2020; drastically reduced new merchandise receipts which, when coupled with L Brands’ failure to dispose of existing out-of-season, obsolete and excess merchandise, has saddled the Victoria’s Secret business with a stock of merchandise of greatly diminished value, and failed to pay rent during April 2020 for its retail stores in the United States,” the documents read. “All of these actions were taken by L Brands in violation of the transaction agreement. These actions have caused significant damage to the Victoria’s Secret business.”
The next day, L Brands responded with a complaint of its own. The company did not deny or confirm any rent payments, but said the agreement with Sycamore was legally binding.
Now, as the transaction hangs in limbo — and stores in North America are still closed because of health concerns — L Brands is taking further steps to protect its business.
That includes updating its revolving credit facility to increase its liquidity and reducing annual capital spend, from $550 million to around $250 million.
Shares of L Brands, which closed down 6.96 percent to $11.89, are down more than 52 percent year-over-year.