Shoppers walk past a Victoria’s Secret store in a mall in San Diego, Calif., On April 22, 2021.

Bing Guan | Bloomberg | Getty Images

L Brands said Tuesday it would outsource its Victoria’s Secret brand instead of selling it.

The company said it has received interest and discussions with several potential buyers. However, the board decided that splitting Victoria’s Secret and Bath & Body Works into two separate public companies would be a better option. The spin-off is expected to be completed in August.

Andrew Meslow, Chief Executive of L Brands, will remain in his position and will also head Bath & Body Works after the spin-off, the company said. Martin Waters, CEO of Victoria’s Secret, will continue to run the independent business after the separation.

“We have made significant strides in running the Victoria’s Secret business over the past ten months,” said Sarah Nash, chairwoman of the L Brands board of directors, in a statement.

L Brands shares fell around 3% in premarket trading.

Improved outlook

The Columbus, Ohio-based retailer also released preliminary financial results for the first quarter, which were stronger than expected as stimulus payments and eased Covid restrictions helped drive customer traffic.

L Brands expects earnings of $ 1.25 per share for the May 1 period after adjustments, compared to an earlier outlook of 85 cents to $ 1 per share. Net sales are estimated at $ 3.02 billion compared to $ 1.65 billion last year.

According to a Refinitiv poll, analysts had expected L Brands to earn 98 cents per share on sales of $ 2.89 billion.

In particular, this is the third time the company has raised its outlook for the first quarter.

A turnaround is taking place

L Brands said the split will allow both brands to continue building on the newfound momentum. As a separate company, each company can better focus on growing and have greater financial flexibility to adapt to a changing retail landscape.

Victoria’s Secret has long had a dominant market share in the lingerie industry but fell out of favor due to its overtly sexy marketing that avoided certain body types. This marketing message didn’t work for many women and they had started shopping at other brands like Aerie that valued inclusivity and convenience. Victoria’s Secret had to spin to meet their needs.

Since that past holiday season, the momentum at Victoria’s Secret has picked up. The company’s efforts have included changes in marketing, fewer promotions, and most importantly, new products like more comfortable items like bralettes.

L Brands closed more than 200 stores in 2020 to focus on the more profitable locations and invest online.

Analysts from Citi and JPMorgan recently valued Victoria’s Secret as an independent company at around $ 5 billion.

L Brands resumed talks with potential buyers for Victoria’s Secret after a sale to private equity firm Sycamore Partners fell apart last year due to the Covid pandemic. That deal would have valued the lingerie label at $ 1.1 billion.

Sycamore sued L Brands last April for terminating a deal that would have given the private equity firm 55 percent control of Victoria’s Secret for around $ 525 million. It has been argued that L Brands violated the terms of the agreement by not paying rent and not taking workers off. L Brands prevented a lawsuit by agreeing to break off the deal.

The plans for the split were first published in the New York Times.

L Brands shares are up roughly 84% since the start of the year. It has a market cap of $ 19.2 billion.