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L Brands Down as Victoria's Secret Buyer Seeks to Scrap Deal
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Shares of L Brands, Inc. (LB - Free Report) crashed more than 15% on Apr 22, following the news of Sycamore Partners seeking to cancel the Victoria’s Secret buyout deal, which otherwise would have provided the private equity firm a majority stake in the lingerie brand. The owner of PINK and Bath & Body Works informed that Sycamore gave a notice on Apr 22, purporting to cancel the Feb 20, 2020, agreement.
L Brands views this move to be invalid and intends to take all possible legal actions in its defense. Moreover, it remains committed to closing this deal. The transaction was slated to conclude in the second quarter of this year.
Per media reports, this move came after L Brands closed stores, furloughed employees and failed to pay rent in response to the coronavirus outbreak. Sycamore believes that such actions are touted to hurt the company’s value. The firm alleged that L Brands has violated the conditions of the deal, which says that the company would "conduct the business in the ordinary course consistent with past practice”, per sources.
L Brands had signed a deal with Sycamore to sell 55% of Victoria Secret’s interests for $525 million. The remaining stake was to be retained by L Brands. The net proceeds from this deal would have been utilized to lower debt. Also, the deal would have allowed L Brands to focus on its core brand — Bath & Body Works. In the last reported quarter, comparable sales at Victoria’s Secret brand fell 10%, while the same at Bath & Body Works increased by an equivalent percentage.
L Brand’s Victoria’s Secret business has long been ailing with fading popularity among customers. Further, the company is struggling to make a comeback in the wake of rising competition from intimate apparel brands like ThirdLove and Aerie. We note that L Brands had earlier taken measures to improve brand performance by introducing merchandise and marketing strategies. However, these measures failed to generate the desired results.
Adding to the woes, the ongoing pandemic has sent jitters across the company. To combat this hurdle, L Brands have closed stores since March, furloughed 88,000 employees, lowered expenses and capital expenditures, including forward inventory receipts. It has also temporarily cut down base compensation by 20% for senior vice presidents and deferred annual merit increases. Notably, the cash compensation of the CEO and other board members remain suspended. Apart from these, management withdrew its first-quarter fiscal 2020 view. Going ahead, L Brands is likely to pay a heavy cost in terms of sales owing to such extreme measures undertaken to stay afloat during this crisis.
In the past three months, shares of this Zacks Rank #3 (Hold) company have plummeted 50.8% compared with the industry’s decline of 46%.
Dollar General Corporation (DG - Free Report) has an impressive long-term earnings growth rate of 12.2% and a Zacks Rank #2.
Kroger (KR - Free Report) has an expected long-term earnings growth rate of 4.9% and a Zacks Rank #2, at present.
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A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 8 stocks to watch. The report is only available for a limited time.
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L Brands Down as Victoria's Secret Buyer Seeks to Scrap Deal
Shares of L Brands, Inc. (LB - Free Report) crashed more than 15% on Apr 22, following the news of Sycamore Partners seeking to cancel the Victoria’s Secret buyout deal, which otherwise would have provided the private equity firm a majority stake in the lingerie brand. The owner of PINK and Bath & Body Works informed that Sycamore gave a notice on Apr 22, purporting to cancel the Feb 20, 2020, agreement.
L Brands views this move to be invalid and intends to take all possible legal actions in its defense. Moreover, it remains committed to closing this deal. The transaction was slated to conclude in the second quarter of this year.
Per media reports, this move came after L Brands closed stores, furloughed employees and failed to pay rent in response to the coronavirus outbreak. Sycamore believes that such actions are touted to hurt the company’s value. The firm alleged that L Brands has violated the conditions of the deal, which says that the company would "conduct the business in the ordinary course consistent with past practice”, per sources.
L Brands had signed a deal with Sycamore to sell 55% of Victoria Secret’s interests for $525 million. The remaining stake was to be retained by L Brands. The net proceeds from this deal would have been utilized to lower debt. Also, the deal would have allowed L Brands to focus on its core brand — Bath & Body Works. In the last reported quarter, comparable sales at Victoria’s Secret brand fell 10%, while the same at Bath & Body Works increased by an equivalent percentage.
L Brand’s Victoria’s Secret business has long been ailing with fading popularity among customers. Further, the company is struggling to make a comeback in the wake of rising competition from intimate apparel brands like ThirdLove and Aerie. We note that L Brands had earlier taken measures to improve brand performance by introducing merchandise and marketing strategies. However, these measures failed to generate the desired results.
Adding to the woes, the ongoing pandemic has sent jitters across the company. To combat this hurdle, L Brands have closed stores since March, furloughed 88,000 employees, lowered expenses and capital expenditures, including forward inventory receipts. It has also temporarily cut down base compensation by 20% for senior vice presidents and deferred annual merit increases. Notably, the cash compensation of the CEO and other board members remain suspended. Apart from these, management withdrew its first-quarter fiscal 2020 view. Going ahead, L Brands is likely to pay a heavy cost in terms of sales owing to such extreme measures undertaken to stay afloat during this crisis.
In the past three months, shares of this Zacks Rank #3 (Hold) company have plummeted 50.8% compared with the industry’s decline of 46%.
3 Retail Stocks to Watch Out
Costco Wholesale Corporation (COST - Free Report) has an impressive long-term earnings growth rate of 8.6%. Currently, it holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Dollar General Corporation (DG - Free Report) has an impressive long-term earnings growth rate of 12.2% and a Zacks Rank #2.
Kroger (KR - Free Report) has an expected long-term earnings growth rate of 4.9% and a Zacks Rank #2, at present.
Biggest Tech Breakthrough in a Generation
Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.
A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 8 stocks to watch. The report is only available for a limited time.
See 8 breakthrough stocks now>>