Victoria’s Secret Owner Soars Most Since March on Cost Cuts
(Bloomberg) -- L Brands Inc. shares jumped the most in four months after the retailer detailed a cost-cutting plan and said its Bath & Body Works chain managed to grow last quarter despite the challenging retail environment.
The company, which also owns Victoria’s Secret, plans to eliminate 850 office jobs, or about 15% of its corporate staff. The effort will help it save as much as $400 million annually, including $175 million this year, L Brands said Tuesday evening.
The move represents a “meaningful expense reduction,” Simeon Siegel, an analyst at BMO Capital Markets, said in a note. The company also has a significant opportunity to increase merchandise profit margins, he said.
L Brands is seeking a turnaround after the coronavirus pandemic exacerbated challenges including sluggish sales and changing consumer tastes. Chief Executive Officer Andrew Meslow said in a statement that management is focused on “improving the profitability of the Victoria’s Secret business” and still plans to separate the lingerie chain from the better-performing Bath & Body Works brand.
L Brands jumped as much as 39% in New York Wednesday, the biggest intraday gain since March 24. The shares rose 5.5% this year through Tuesday’s close.
Debt tied to L Brands were among the top gainers in the U.S. high-yield market on Wednesday, according to Trace bond trading data. Its 9.375% notes due 2025 jumped more than 3.5 cents to around 110 cents while its 7.5% bonds due 2029 were up more than 5 cents on the dollar to 103.5 cents.
The brands’ divergent fortunes are on display in the fiscal quarter that is almost at its end: L Brands said it expects to report Victoria’s Secret’s net sales will be down about 40% in the period, while Bath & Body Works will rise 10%. It will report second-quarter earnings Aug. 19 after giving the preliminary estimate.
The bath brand is benefiting from renewed demand for soap and hand sanitizer amid the coronavirus. The performance “positions it to be among the strongest in the retail sector as it benefits from the strength of its categories in a Covid environment,” Roxanne Meyer, an analyst with MKM Holdings, said in a note.
The retailer is also saving cash in other ways, including a plan announced this year to close about 250 Victoria’s Secret locations -- about a quarter of its U.S. stores. L Brands on Tuesday said it’s managing its inventory and working with suppliers to reduce merchandise costs. In October, the company slimmed down its headquarters, cutting about 50 employees in its offices in New York and Columbus, Ohio.
Hundreds of corporate jobs are now being put at risk as the retail industry contends with the impact of the pandemic. Last month, Macy’s said it was eliminating 3,900 corporate and management jobs. Tailored Brands and Levi Strauss & Co. are cutting corporate positions, too.
©2020 Bloomberg L.P.