Victoria’s Secret takes lingerie business private at $1.1B price tag

'Significant opportunity to reinvigorate growth'

L Brands Inc. is taking lingerie business Victoria's Secret private, selling a controlling stake to Sycamore Partners for $525 million and leaving personal-care business Bath & Body Works as a stand-alone public company.

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The separation "provides the best path" to restoring profitability at Victoria's Secret, CEO Leslie Wexner said in a statement. Built on sex appeal, the store gained renown for its annual lingerie runway show, which garnered as many as 10 million viewers in 2010 before sliding to less than a third of that as its revealing imagery raised eyebrows in the #MeToo era.

Last year alone, the company grappled with fallout from Wexner's long association with disgraced financier Jeffrey Epstein, who died in a Manhattan jail after his arrest on child sex-trafficking charges, even as it struggled with declining foot traffic in the shopping malls where many of its stores are located. Sales at stores open at least a year tumbled 8 percent in the first nine months of 2019, compared with just 5 percent the year before, and the company closed 38 locations.

L Brands, which Wexner has led for decades, will retain a 45 percent stake in Victoria's Secret, which has an enterprise value of $1.1 billion, and he will step down as CEO and chairman once the deal is completed.

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"We believe there is a significant opportunity to reinvigorate growth and improve the profitability of Victoria’s Secret," said Stefan Kaluzny, managing director of Sycamore, which has invested in retail brands including casual-wear chain Aeropostale, department store Belk and shoemaker Stuart Weitzman.

That experience and the firm's record of success "will bring a fresh perspective and greater focus to the business," Wexner said. "As a private company, Victoria's Secret will be better able to focus on longer-term results. We are pleased that, by retaining a significant ownership stake, our shareholders will have the ability to meaningfully participate in the upside potential of these iconic brands."

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The transaction moves L Brands' smaller business, Bath & Body Works, into a spotlight where it has the potential to shine. The chain has "one of the strongest growth stories in retail," Lorraine Hutchinson, an analyst with Bank of America, said in a report on Thursday, predicting that it could keep delivering growth despite challenges for other brick-and-mortar retailers.

Bath & Body Works' revenue surged 12 percent to $2.99 billion in the first nine months of 2019, the most recent period for which data were available.

"Bath & Body Works has been able to generate its own traffic by capitalizing on strong replenishment demand and providing a constant stream of newness," Hutchinson said earlier this month. "Trial is crucial, especially for a business where scent and efficacy are so important."

Allowing L Brands investors a share in Victoria's Secret would let them benefit if Sycamore succeeds, she said, perhaps by overhauling the brand's image and marketing and adding back swimwear lines.