L Brands Inc. is a retailer that focuses primarily on apparel, along with home and body care products. Following a recent separation of its Victoria’s Secret business into its own public company, L Brands Inc has changed its name to ‘Bath and Body Works, Inc.’ and trades on the New York Stock Exchange under the symbol BBWI. The separation of the two came because of Victoria’s Secret’s changing fortunes, having previously been the leader in the lingerie industry.
We’re taking a deep dive into the former L Brands turned BBWI brand. This article looks at the separation of L Brands into BBWI and VSCO, along with the CEO of BBWI, Andrew Meslow, and CEO of VSCO, Martin Waters.
About L Brands Inc.
L Brands Inc has traded under two previous names, Limited Brands, Inc. and The Limited, Inc. This article will look into its current existence as Bath & Body Works, Inc. later. The American specialty retailer began as a clothing store called “The Limited” in 1963. The family-run business grew gradually, leading to a number of brand acquisitions in the 1980s.
It was first listed on the New York Stock Exchange in 1982 as “The Limited”. Victoria’s Secret originally came under the ownership of L Brands in 1982 when it was purchased from Roy Raymond for $1 million. It came when the organization was buying up several brands, including Henri Bendel, Lane Bryant, and Abercrombie and Fitch stores.
The 1990s saw a large growth and focus on initial development, including Bath & Body Works and Victoria’s Secret Beauty. Changing fortunes amongst the brands saw several being sold off. L Brands is no stranger to business misfortune. Henri Bendel ceased its operations in January 2019 after being one of the most popular New York-based accessories stores.
Prior to the spin-off of Victoria’s Secret, L Brands also spun off other brands. Lane Bryant was sold to Charming Shoppes in 2012, while Abercrombie & Fitch was sold to The Limited in 1988 and went public on the NYSE in 1996.
The current CFO of L Brands Inc, Stuart Burgdoerfer, was announced in February 2021. Martin Waters, the current CEO of Victoria’s Secret, was announced as his replacement. Prior to the spin-off of Victoria’s Secret and the changing of L Brands to its new BBWI ticker, a number of leadership changes were made.
The separation of L Brands and Victoria Secret
The separation of Victoria’s Secret from Bath and Body Works was to free a successful, growing brand from the misfortunate of a lingerie and apparel brand that had experienced its peak and was making large losses. When the two were together, the success of Bath and Body Works was being tarnished by the failures of Victoria’s Secret.
In February 2020, it was announced that Victoria’s Secret was being sold to Sycamore Partners, a private equity firm. They would gain 55% of control of Victoria’s Secret, with L Brands keeping a 45% stake. As a result, Bath & Body Works would become the sole business of L Brands. The sale collapsed in May 2020, with Wexner, the then CEO, stepping down as planned. The collapse of the sale was described as a “mutual termination”, with the settlement made in litigation.
The separation of Victoria’s Secret and Bath & Body Works, Inc. was announced in March 2021. As part of the spin-off, L Brands sold its stake in the UK business of Victoria’s Secret to Next PLC for an undisclosed financial agreement.
Before the spin-off, L Brands increased its fourth-quarter guidance with sales rising 10%. As expected, the bulk of this came from Bath & Body Works, which saw a 22% increase, while Victoria’s Secret experienced a 3% decrease. It reflected the difference in success between the two brands and how – arguably – one was holding the other back.
The reason a spin-off was chosen instead of another attempted saw was due to the gradual growth that Victoria’s Secret was beginning to see.
In August 2021, L Brands finished the separation of its Victoria’s Secret business into its own public company. It was achieved through a tax-free spin-off for L Brands shareholders. This new independent company – Victoria’s Secret & Co. – includes the various brands under the Victoria’s Secret umbrella, including PINK and Victoria’s Secret Beauty. You can find the company on the NYSE under the ticker symbol of VSCO.
As a result of the split, investors with shares in L Brands, Inc. at the time of the spin-off received shares in both Victoria’s Secret and Bath & Body Works. L Brands changed its ticker to BBWI to allow it to closer conform to Bath & Body Works, their last remaining brand name.
As part of the separation of L Brands, Victoria’s Secret announced a new board, primarily filled with women and a new approach that broke away from the ‘Victoria Secret Angels’ and instead focused on female empowerment and diversity. ‘VS Collective’ was also announced as a brand ambassador panel, including culturally diverse celebrities such as Priyanka Chopra Jonas, Megan Rapinoe, and Paloma Elsesser. These changes were made in a bid to make Victoria’s Secret culturally relevant in the modern era.
Bath & Body Works, Inc. on the Stock Market
BBWI is listed on the New York Stock Exchange. It continues to be one of the biggest growers within the retail space, which were previously being masked by the misfortunes of Victoria’s Secret. They had a remarkable third quarter in 2020, primarily driven by sales of soaps and sanitizers during the pandemic.
Throughout August 2021, Bath and Body Works’ stock has been rising after they crushed their estimated earnings. During the first report that was released following its separation, the company delivered better-than-expected earnings for its fiscal second quarter. It earned $1.34 per share, gaining from its loss of 18 cents a share the previous year.
The revenues for Bath and Body Works have jumped 36% year on year to $1.7 billion. They are also up 54% from the second quarter of 2019 for a pre-pandemic comparison. Stock market analysts are expecting EPS of $1.05 on the revenue at $1.7 billion. During the third quarter, the brand expects to have earnings of 55 to 50 cents per share. Other calls predict EPS of 65 cents.
Bath and Body Works Inc. is number 248 on the 2020 Fortune 500 list of the largest companies by revenue in the United States. The separation of Bath & Body Works, Inc. and Victoria’s Secret allows the former to be judged independently of the changing fortunes of Victoria’s Secret.
The continued strength of Bath & Body Works’ sales shows that their popularity goes beyond soaps and sanitizers, with a focus on body care items. The brand has already said that they expect a drop in sales of soap and sanitizer products after the heights of the pandemic. It appears that their 2020 growth was the result of broader growth than was originally estimated.
USB rated Bath and Body Works Stock as a buy-in August 2021 with a price target of $90. By comparison, Wells Fargo was rating Bath & Body Works as overweight with a price target of $80. The growth of Bath & Body Works has outpaced the benchmark of the S&P 500 Index after going up almost 50%. The index gained 19.1% in the same period.
The strength of the brand’s body care niche is showing strong year-on-year growth, adding further encouragement for potential investors in the brand.
Victoria’s Secret & Co on the Stock Market
Before the split, Victoria’s Secret was growing year on year with a slight increase in their pre-pandemic 2019 revenue. On its first day as a stand-alone company, Victoria’s Secret shares soared by 29%. It’s believed that its turnaround and growth as a culturally relevant brand have helped compel the brand to potential investors.
The misfortunes of Victoria’s Secret revolve primarily around its never-changing merchandise and marketing, which led to a heavy reliance on promotional offers. Even with consumer preferences changing and new competition entering the market, Victoria’s Secret remained unchanged.
The company ended its first day of trading at $58.23. Wells Fargo’s analysis at the time had Victoria’s Secret at overweight, with a price target of $100. MKM Partners described the stock as “compelling value” with a $88 price target.
Victoria’s Secret has had mixed earnings, which have been described by Yahoo as being a “recalibration” for the brand following the spin-off from Bath & Body Works. Their fortunes have differed greatly from its sister company. While Bath & Body Works’ shares went up almost 10%, Victoria’s Secret shares were coming under pressure.
For now, investors are being conservative about VSCO stock. Although the brand is not experiencing the same surging fortunes as Bath & Body Works, the future appears to be somewhat bright for Victoria’s Secret & Co.
About Andrew Meslow, CEO of Bath & Body Works Inc and L Brands.
Andrew Meslow was announced as the CEO of Bath & Body Works Inc. in December 2020 when a series of leadership changes were made at the then L Brands Inc. Julie Rosen joined as President and Deon Riley as Chief Human Resources Officer at the same time. Melsow’s appointment was also made at the same time as several internal promotions. Meslow had previously been Chief Operating Officer at Bath & Body Works for eight years.
He has almost 30 years of experience with specialty retail and leading areas such as merchandise planning and finance. Meslow joined L Brands in 2003, working in various roles within Victoria’s Secret before switching to Bath & Body Works in 2005 to become its Executive Vice President and Chief Financial Officer.
Before he came to L Brands, Meslow worked with the apparel-brand Banana Republic for over seven years. He served as the company’s Vice President and CFO. His career started in 1991 at Ann Taylor, working as part of the launch team for Loft.
When Leslie Wexner departed from L Brands Inc. as CEO in May 2020, Meslow stepped up as CEO of the organization. When this happened, L Brands announced that they were closing 250 Victoria’s Secret and 50 Bath and Body Works stores, along with spinning off Victoria’s Secret as an independent company.
When Meslow became CEO and took over the reins of Bath & Body Works and L Brands Inc., he reportedly received an $18.5 million payday. He was awarded stock valued at $12.3 million, making up the bulk of the value.
About Martin Waters, CEO of Victoria’s Secret & Co
Martin Waters became the CEO of Victoria’s Secret following the separation of the company from Bath and Body Works. He first joined L Brands as Head of the International Division in 2008. It was under Waters’ leadership that the number of brands expanded to have over 700 stores globally.
Before working at L Brands, Waters served at Boots International as Managing Director. Boots is Europe’s leading retailer for health and beauty products. He’s known for his extensive experience in merchandising, brand management, strategic planning, and marketing.
Waters appointed as CEO came after a strenuous year for Victoria’s Secret as it focused on finding ways to become relevant in a changing world where their products were largely seen as irrelevant and outdated in their view of women. His appointment came into effect after the spin-off of Victoria’s Secret.
Waters was educated at Manchester University and has a board membership at Victoria’s Secret & Co, along with Boys & Girls Clubs of America. In his role of CEO, Waters recalled how the decline of Victoria’s Secret was due to its inability to meet changes in society. He told the New York Times that “when the world was changing, we were too slow to respond”.
Bath & Body Works Inc. (BBWI) is currently trading at $66.26, while Victoria’s Secret & CO (VSCO) trades at $69.11 at the week commencing 23rd August.