L Brands (NYSE:LB), once the premier name in women’s retail, is now just Bath & Body Works.
The company has sold 55% of its Victoria’s Secret brand to private equity, valuing it at $1.1 billion. The cash will help pay down debt that stood at over $5.7 billion at the end of January.
Reporters are all talking about the fall of LB founder and CEO Leslie Wexner. He was still worth $4.6 billion on Feb. 21, according to Forbes. Wexner had become a key player in the Jeffrey Epstein scandal, with Epstein serving as Wexner’s personal financial advisor.
For investors, the question is whether Bath & Body Works is worth $6.5 billion, or anything like it.
What’s Left of L
Victoria’s Secret, an intimate apparel chain, had about $7 billion of revenue last year. That means the rest of the company had revenue of about $7.5 billion.
The Limited, the company’s clothing store chain and the L in L Brands, went bankrupt in 2017. It was bought by Sycamore Partners, the same private equity firm that just bought most of Victoria’s Secret.
Other Sycamore investments include Talbots, Nine West, Belk, Aeropostale, Jones New York and Staples. Belk is now the exclusive outlet for The Limited, both online and offline.
This means that as shopping malls disintegrate under the pressure of Walmart (NYSE:WMT) and e-commerce, Sycamore is becoming a major player. Under Stefan Kaluzny, the company has made a practice of re-capitalizing stores, pocketing much of the proceeds in the form of dividends.
What’s Bath & Body Works Worth?
But it’s Bath & Body Works that needs investor focus now.
Bank of America upgraded L Brands stock last year and continues to defend the chain. It says Bath & Body Works, which sells perfumed soaps and other bathroom supplies, had sales of $1.1 billion in the last quarter, up 11%. Bank of America said the chain represents 80% of L Brands’ operating income.
L Brands will continue to own 45% of Victoria’s Secret, and that stake could be completely spun-out under Sycamore.
Investors were mostly turning their thumbs down on the deal. L Brands shares fell 3.6% on what was a down day for Wall Street. The shares opened Feb. 21 near $24, with a price-to-earnings ratio of 17.7. But the 30 cent per share dividend yields a fat 4.9%.
Andrew Meslow, who had been COO for Bath & Body Works, will now be CEO of both the chain and the company. Nick Coe, who had been Bath & Body Works’ CEO, was given a vice chairman title and a vague set of duties involving strategy and acquisitions.
There may be more deals to come. Barington Capital Group, an activist investment firm headed by James Mitarotonda, which called for these transactions a year ago, had its special advisor role at L Brands extended for a year.
The Bottom Line on L Brands Stock
As an investor, I wouldn’t trust Stefan Kaluzny or James Mitarotonda to feed my cats.
Private equity people work for themselves, not shareholders. Kaluzny’s track record of destroying equity and putting debt in his pocket doesn’t make me feel good. Mitarotonda specializes in restaurants, not retailing, and his investments aren’t a who’s who of turnarounds either.
I don’t know why Bank of America is lauding this stock. I don’t think Bath & Body Works can carry the valuation of the company, let around over $5 billion of debt. And I don’t see a turnaround at Victoria’s Secret under Kaluzny.
My advice is to get out while you can. Leave what’s left to the vultures.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.
