Will L Brands $400 Million Cost-Cutting Strategy Work?
L Brands surged on Wednesday to a new 52-week high after the company unveiled a new cost-cutting strategy that it will employ.
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L Brands Inc. (NYSE: LB) surged on Wednesday, hitting a new 52-week high, after the company unveiled a new cost-cutting strategy that it will employ. This plan involves potentially spinning off Bath & Body Works, as well as the Victoria’s Secret Beauty and PINK businesses.
The company said that it expects to deliver approximately $400 million in annualized cost reductions through its profit improvement plan for Victoria’s Secret and actions to decentralize and streamline shared corporate and other functions.
L Brands expects to achieve about $175 million of savings in the fiscal 2020 year. The company also expects to record pretax severance costs of roughly $75 million related to layoffs in the second quarter.
Ultimately, the company will cut its home office headcount by 15%, or 850 associates. At the same time, it is executing its previously announced plan to close 250 Victoria’s Secret stores in 2020, while negotiating with landlords for ongoing rent relief.
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Internationally, L Brands is working to reduce operating losses in company-owned businesses in the United Kingdom and China. In the United Kingdom, the company is restructuring lease agreements and exploring the sale of the business to a joint venture or franchise partner. In China, the firm closed its flagship store in Hong Kong and is close to a resolution to close or restructure lease terms on other unprofitable stores.
L Brands also gave a business update for its second quarter, which it will report in mid-August. The company said that total net sales are expected to be down about 20% year over year, which includes an increase of 10% at Bath & Body Works and a 40% decline at Victoria’s Secret.
Total direct channel sales at both of these businesses are up significantly compared to last year, but they are offset by a decline in store sales, as stores were closed for some time during the COVID-19 pandemic.
For the second quarter, analysts are calling for a net loss of $0.70 per share and $1.89 billion in revenues. The same period of last year reportedly had $0.24 in EPS and $2.9 billion in revenue.
L Brands stock traded up about 35% to $25.75 on Wednesday, in a 52-week range of $8.00 to $26.66. Analysts have a consensus price target of $16.50.
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Chris Lange is a financial and geopolitical writer with more than a decade of experience covering a myriad of topics. He has published thousands of articles for 24/7 Wall St., with past coverage focused heavily on stocks, IPOs, healthcare, defense, global affairs, and technology.
His work has been quoted, or referenced by a number of outlets including Business Insider, USA Today, Yahoo Finance, MSN, The Motley Fool, and many other publications. A graduate of Southwestern University, he studied business with a focus on investments and has previous experience in banking and startups.
When not reading or writing the news, he is following his passion for Lacrosse, playing chess, or building solar projects with his dad.
