Victoria’s Secret’s Single Life

·4 min read

Victoria’s Secret is trying out the single life after all.

But as a stand-alone company, the lingerie giant is going to have to carve out a lasting place with young consumers, who are less forgiving of missteps and chasing their own notions of beauty.

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The good news is, with sales of $5.4 billion last year despite the pandemic, the brand still has plenty to work with and some time to connect.

Parent company L Brands Inc. gave up an effort to sell the business on Tuesday and said it would instead pursue a tax-free spin-off of the brand in August. That will, at last, separate Victoria’s Secret from Bath & Body Works, which saw its star rise as the lingerie business flagged in recent years.

Sales at Victoria’s Secret’s fell 27.9 percent last year, while Bath & Body Works was able to play to its strengths during the pandemic and jumped 20.1 percent to $6.4 billion.

Victoria’s Secret bounced back in the first quarter with a sales gain of 73.9 percent to $1.6 billion and operating profits of $245 million. But since the first quarter of 2019 — a comparison that skips over the distortions of last year’s lockdowns — the brand’s sales are down 7 percent, reflecting the closure of 233 stores.

Soon, the leaner and more-focused Victoria’s Secret with 929 stores will be truly on its own, without the support provided by Bath & Body Works’ success. Current chief executive officer Martin Waters will continue to lead the business.

And Sarah Nash, chair of L Brands, said the brand is ready.

“In the last 10 months, we have made significant progress in the turnaround of the Victoria’s Secret business, implementing merchandise and marketing initiatives to drive top-line growth, as well as executing on a series of cost-reduction actions, which together have dramatically increased profitability,” Nash said.

“Both Bath & Body Works and Victoria’s Secret are leaders in their respective markets, and, as separate businesses, each will be ideally positioned to benefit from a sharpened focus on pursuing growth strategies best suited to each company’s customer base and strategic objectives,” she said.

While bashing Victoria’s Secret as out of step with the current sensibility has become something of a sport in some circles, the business still has its boosters.

Simeon Siegel, stock analyst at BMO Capital Markets, is bullish on the brand and projected that it would be valued at $5 billion to $6 billion on a stand-alone basis.

“We think about Victoria’s Secret in the wrong way,” Siegel said.

The questions around the brand for the past several years have been centered on its marketing and whether it will be able to connect with younger consumers, he said, summing up: “Is this just a dead-man walking brand?”

“My response on that is, let’s let the math answer for us,” he said. “For every single person that says Victoria’s Secret is dead, there’s over $5 billion in revenue that’s answering against that. There are a lot of people that are shopping there.

“Revenues are the best measure of external customer buy in,” Siegel said. “Gross margin is the best measure of external brand perception. Victoria’s Secret’s problem has not been that no one wanted their product, it’s that people thought their brand perspective eroded and they only wanted it on sale.”

But Siegel argued the brand has used the slowdown in the last year to pare down to its best customers while also evolving by adjusting its marketing approach.

That sets up a smaller, but stronger Victoria’s Secret as well as an opportunity for rival Aerie, owned by American Eagle Outfitters, to pick up more share, he said.

If Victoria Secret is on the way back up, it’s been a long road back.

For years, the brand was unstoppable, leading its category and expanding globally as its leggy models strutted the runway in its televised runway spectaculars.

But it started losing its luster during the last decade.

L Brands founder Leslie Wexner stepped in to try to turn things around, observing in 2016 that, “The brand just got older with the customer.” But the promised turnaround was always somewhere in the future. Management was in flux, the brand seemed suddenly out of step with the quickly evolving times and Wexner himself was criticized for his past association with sex offender Jeffrey Epstein.

The company inked a deal to sell a 55 percent to Sycamore Partners for $525 million, but that fell through when the private equity firm walked away from the transaction during the pandemic. L Brands re-explored a sale this year, but after testing the market, is taking advantage of a hot Wall Street with a spin off instead.

L Brands held its own in the market on Tuesday, slipping just 1.8 percent to $67.57 on a down day for the market. Come August, it will become more clear how much of the stock price — valuing the overall company at $18.8 billion — is tied to Bath & Body Works and how much is linked to Victoria’s Secret.

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