After a deal with private equity firm Sycamore Partners fell through last year as a result of the Covid-19 pandemic, L Brands Inc. (LB, Financial) announced on Tuesday it is spinning off its Victoria's Secret and Bath & Body Works brands into two separate publicly traded companies.
While there were multiple offers from other potential buyers, the Columbus, Ohio-based retail company's board of directors determined a spinoff of the two businesses would fetch more value and allow both brands to continue to build on the newfound momentum.
In a statement, Chairman Sarah Nash noted both the intimates label and the lotion and bath products retailer, which are leaders in their respective markets, are well-positioned to operate as standalone entities.
"As separate businesses, each will be ideally positioned to benefit from a sharpened focus on pursuing growth strategies best suited to each company's customer base and strategic objectives," she said. "With this in mind, the Board believes that this path forward will return the highest value to shareholders and that the separation will allow each business to achieve its best opportunities for growth."
The spinoff will be implemented through a tax-free, pro-rata distribution to L Brands' shareholders.
When the separation is completed, L Brands CEO Andrew Meslow will continue to hold his position as well as lead Bath & Body Works. Victoria's Secret CEO Martin Waters will also keep his leadership role.
The spinoffs are scheduled to be completed by August.
L Brands also provided preliminary first-quarter results that were stronger than expected as stimulus payments and relaxed Covid restrictions allowed for higher shopper traffic in its stores.
For the three months ended May 1, the retailer is anticipating adjusted earnings of $1.25 per share, which is up from the previous projections of 85 cents to $1 per share. Revenue is expected to be $3.02 billion, a significant increase from $1.65 billion last year.
Refinitiv analysts had forecasted earnings of 98 cents per share on $2.89 billion in sales.
In a statement, Meslow said he expects L Brands to deliver "record" results that are "driven by continued strength and exceptional performance at Bath & Body Works and a significant improvement at Victoria's Secret."
"We are confident in the growth opportunities for each business and are excited to share our vision for each business as we continue to work toward the August separation," he added.
The company will release its full earnings report after the market closes on May 19.
With an $18.3 billion market cap, shares of L Brands were down 4.58% at $65.64 following the spinoff announcement. Year to date, GuruFocus estimates the stock has climbed nearly 80%.
Disclosure: No positions.
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