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L Brands Furloughs Workers, Trims Senior Executive Compensation

L Brands Inc. is facing the music.

The company, which said earlier this month that it was temporarily closing all Victoria’s Secret, Pink and Bath & Body Works stores, announced plans to cut costs and preserve liquidity on its balance sheet. The Ohio-based company said it is furloughing most store associates plus those not currently working to support the online businesses or who cannot work from home. All furloughed workers will continue to receive existing healthcare benefits.

Congress just passed–and President Trump signed–a $2.2 trillion emergency aid package to help corporate America and Americans while parts of the country are complying with state and local shelter-in-place orders to combat the spread of the coronavirus. The aid package provides Americans with additional unemployment benefits beyond what is offered by the states.

“As circumstances change, L Brands will make every effort to bring these associates back to work as soon as possible. Furloughed associates will also be able to apply for unemployment benefits, if eligible,” L Brands said.

The company will also temporarily reduce base compensation by 20 percent for senior vice presidents and above. The cash compensation of chairman and CEO Leslie H. Wexner and other members of L Brands’ board has been suspended. The company is deferring merit increases as well.

L Brands has also cut orders by reducing its “forward inventory receipts,” and has pulled back on expenses and capital expenditures.

After all its strategic moves to cut costs, including a $950 million draw down from its revolving credit facility and the suspension of its stock dividend, L Brands said it has more than $2 billion in cash.

L Brands is still slated to sell a 55 percent majority stake in its Victoria’s Secret and Pink businesses to private equity firm Sycamore Partners.

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Jefferies equity analyst Randal J. Konik was never fond of L Brands’ decision to focus just on its Bath & Body Works business. On Friday, the analyst raised doubt about L Brands’ future and has a “Sell” rating on shares of L Brands.

While Konik acknowledges that saving cash is the right move for now, the company’s existing debt levels remain high and even with most maturities extended, both the interest expense and the fixed cost base for rent are also sizable.

Though it once had 10 brands in its portfolio, L Brands will soon control just one, provided the Victoria’s Secret deal closes. Konik’s concern is that the Bath & Body Works business alone won’t be enough to support operations.

“The bad news is Bath & Body Works is a store-based candle company–hand sanitizer won’t mater long-term–and mall traffic and off-mall traffic alike is likely to erode more quickly post [COVID-19],” he said.

There’s also another problem for L Brands, and that concerns its store base. “L Brands announced that stores will be closed beyond the March 29th original plan, and a new open date is unknown….For a company like L Brands that is very dependent on store sales, the ramifications of little revenue combined with large debt loads are not good,” Konik said.