Why Victoria’s Secret Needs $500 Million To Finance Split From Bath & Body Works (ANALYSIS)

Last Updated on June 23, 2021

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Victoria’s Secret is seeking a $500 million loan to finance its split from Bath & Body Works, which will see both retail brands traded independently on the stock market. L Brands, the company that owns both Victoria’s Secret and Bath & Body Works, decided to divide the companies after the lingerie brand received interest from multiple potential buyers. The board concluded that separating the retail brands would be a better option than selling, and the spinoffs will be completed by August.


The loan, which will fund the spinoff of Victoria’s Secret, to be called Victoria’s Secret and Co., is due 2028 and could pay interest 300 to 325 basis points above Libor rates. Bloomberg reported on the loan, citing an unnamed source who explained details of the move.


According to the report, JPMorgan Chase is overseeing the transaction, and investors’ orders are due by June 30. There has been no public comment from representatives of either Victoria’s Secret, Bath & Body Works, or their parent company, L Brands.


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Victoria’s Secret is trying to reinvent itself, getting away from the flashy fashion shows and in-your-face advertising. Photo credit: Shutterstock.com



The separation will allow L Brands to focus on each business independently, solidifying their unique niches in the market without affecting the priorities of the other. Victoria’s Secret is expected to make a cash payment to L Brands during its split, which the parent company would use to retire debt and repurchase stock.


When the split takes effect in August, the current L Brands CEO, Andrew Meslow, will hold his title and position at the newly independent Bath & Body Works while Victoria’s Secret CEO, Martin Waters, will take the lead in the stand-alone Victoria’s Secret & Co.


The move comes after a shocking success for the retail brand. L Brands Chair, Sarah Nash, claimed that “in the last ten months, we have made significant progress in the turnaround of the Victoria’s Secret business.” In recent years, the lingerie company has had its fair share of turmoil. In the aftermath of the #MeToo movement, Victoria’s Secret has been bashed on several occasions, with social media focused on its marketing tactics that employ scantily clad “supermodel” women to sell lingerie.


Victoria's Secret is getting a makeover. L Brands separating lingerie company from Bath & Body Works.
Victoria’s Secret is getting a makeover. L Brands IS separating the lingerie company from Bath & Body Works. Photo Credit: Sorbis / Shutterstock.com


The company has been trying to dig itself out of its hole in an attempt to reverse its slow decline. Recently, the “VS Collective” was announced, which is a group of influential women such as political activists and sports stars, who will shape the brand’s marketing going forward. Its brand and messaging will be led by this all-female team as the company transitions into its solo act.


L Brands is adamant that this separation is a huge step for both companies, and Victoria’s Secret will see massive sales growth in the next three to five years. Part of this growth is the anticipated rise of the company’s digital sales, which are expected to make up 50 percent of total sales in the next few years. This is a large leap from its 25 percent figure in 2019 and will transform the mall-dominant retail chain into a much different entity.


In preparation for the growth phase, Victoria’s Secret has boasted impressive numbers in the first quarter of this year. L Brands expected to earn $1.25 per share in the period that ended on May 1, compared to a previously anticipated 85 cents a share. Net sales were also expected to exceed analysts’ predictions. Net sales were estimated at $3.02 billion for the first quarter, compared to $1.65 billion in 2020.


Though it’s still unclear what Victoria’s Secret is using the $500 million loan for, executives warned investors that the lingerie company “will have debt obligations that could restrict our business and adversely impact our results of operations, financial condition or cash flows.” The statement added that “the separation of our business from LB may increase the overall cost of debt funding and decrease the overall debt capacity and commercial credit available to us.”


Victoria’s Secret may be taking out the tremendous loan to combat the expected problems involved with separating the companies. It’s also likely that the lingerie company needs hefty funds for its rebranding once its new name, Victoria’s Secret & Co., takes effect.