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L Brands Cuts 850 Jobs and $400M in Victoria’s Secret Costs

L Brands Inc. is eliminating 850 corporate staff as it works to stabilize its business.

The 15 percent headcount reduction is part of the Ohio company’s efforts to drive $400 million in annual cost savings by retooling its management structure and labor model.

L Brands will also collaborate with suppliers to find areas to rein in costs and maximize margins for Victoria’s Secret, which it’s still planning to spin out into a separate, standalone business.

The company said Victoria’s Secret’s spring inventory receipts were down 45 percent versus a year ago, while fall receipts are projected to tumble 50 percent from last year.

Meanwhile, L Brands is continuing the process of closing 250 Victoria’s Secret stores this year, while also negotiating with landlords for rent breaks. And overseas, L Brands is working to reduce operating losses in the company-owned businesses in the U.K. and China.

Victoria’s Secret U.K. entered “light administration” in June so it could restructure lease agreements and explore a sale of the business to a “joint venture or franchise partner,” L Brands said, noting it is in exclusive talks with a major fashion retailer that has been identified as U.K.-based chain Next. In China, the brand’s unprofitable Hong Kong flagship closed, and L Brands said it is in talks with other landlords to either close or restructure lease terms at other money-losing locations.

L Brands expects to generate about $175 million of savings in fiscal 2020, with $75 million attributable to the job cuts to be recorded in the second quarter of fiscal 2020 on a pre-tax basis.

“The Board and management remain committed to separating the Bath & Body Works and Victoria’s Secret businesses, as well as improving the profitability of the Victoria’s Secret business. During the second quarter, we made meaningful progress toward these goals. Decisions relating to our workforce are incredibly difficult and not taken lightly, but these actions are necessary to best position our company for the long-term,” Andrew Meslow, L Brands CEO, said.

Most Victoria’s Secret and Bath & Body Works stores in North America have reopened after lengthy coronavirus closures. “Sales at both businesses have been strong and have exceeded the company’s expectations. Total company net sales for the second quarter are expected to be down approximately 20 percent compared to last year, including an increase of roughly 10 percent at Bath & Body Works and an approximate 40 percent decline at Victoria’s Secret,” L Brands said. The company added that total direct-to-consumer sales at both brands were up significantly versus last year.

L Brands has a cash balance as of July 24 at more than $2.5 billion, and the company said it has not drawn down any of its $1 billion asset-backed loan facility.

Jefferies analyst Randal Konik has long been a critic of L Brands. He believes the 40 percent decline in sales reflects just how impaired the Victoria’s Secret brand is, and isn’t so sure if cost reductions are enough to stem the losses. And while Bath & Body Works is doing well now, Konik says current sales merely reflect continued panic buying of hand sanitizer, meaning L Brands needs some other way to sustain the sales momentum. He also says L Brands must consider Bath & Body Works’ reliance on mall traffic.

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“The business has over 1,600 units, which will prove to be an anchor on fundamentals as trends slow over time,” Konik noted.