Victoria’s Secret Won’t Wait Forever

Victoria’s Secret, no stranger to the catwalk, is putting on its best look to take a spin. Whether it will turn buyers’ heads is another matter.

Parent L Brands Inc. said on Tuesday that the group would spin off Victoria’s Secret to focus on its fast-growing Bath & Body Works chain in the latest twist for the onetime lingerie powerhouse. Before the pandemic, after sliding sales and an image that was out of step with consumer tastes, L Brands sought to sell Victoria’s Secret and even lined up a $1.1 billion deal to offload a controlling stake to Sycamore Partners. But the transaction collapsed after the private equity group tried to extricate itself as the pandemic worsened and the chain closed stores and furloughed staff. Now, though, the retailer seems to be enjoying some tailwinds as Americans have spent their stimulus checks in the shops and economies have reopened — so much so that an alternative to a sale is credible and the company is targeting a separation in August. 

By announcing the split, L Brands isn’t necessarily closing the door to a sale. It is, however, sending the message to potential buyers that to acquire the once revered household name, they will have to pay more than the valuation it could achieve through a spinoff.

The New York Times reported on Tuesday that L Brands had received several bids of more than $3 billion for Victoria’s Secret. But this is short of what some analysts have estimated the retailer could be worth after signs of a turnaround. The company spurned the offers because it expects Victoria’s Secret to be valued at $5 billion to $7 billion in a spinoff to shareholders, the New York Times added. So there is clearly merit for the company in holding out for a higher offer — or a fuller valuation through the split.

Of course, if L Brands does go ahead with its plan, any interested party could simply make an offer for the shares once Victoria’s Secret is  separately listed. But not only would this be in the public arena, it might entail an even higher price if the turnaround continues to gain steam. 

Already, there are signs of a shift in demand from stay-at-home staples such as sweatpants to those more suited for getting out and about again, such as floaty dresses. This could see consumers swap their more comfortable lockdown lingerie for the more structured and elaborate styles sold by Victoria’s Secret. The chain, meanwhile, has finally taken steps to tackle its bloated estate, closing more than 200 Victoria’s Secret stores in a move that will put it in a better operational position even as trends move in its favor.

The momentum may not last. Stimulus checks and pent-up demand have lifted sales across the consumer sector. That effect could fade as Americans have more opportunities to spend, such as on travel and eating out. And Victoria’s Secret still has work to do to find an image that resonates with today’s shoppers while facing persistent competition from the likes of American Eagle Outfitter’s Inc.’s Aerie and Rihanna’s Savage X Fenty, which recently received investment from L Catterton, the private equity fund backed by LVMH founder Bernard Arnault.

The once iconic lingerie retailer may well continue on its promising comeback, delivering long-term value for shareholders. Given the uncertainty over the broader consumer sector, a deal before this point makes sense. No wonder Victoria’s Secret is doing all it can to tempt potential buyers to pay more.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries. She previously worked at the Financial Times.

©2021 Bloomberg L.P.

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