L Brands Inc. is making significant cutbacks.
The company, parent to Victoria’s Secret and Bath & Bodyworks, announced on Monday plans to cut annual costs by around $400 million, with about $175 million in savings to be reached this fiscal year. As part of the cutbacks, L Brands will lay off 15% of its head office staff, or about 850 associates.
Along with the layoffs, L Brands is making a series of moves aimed at improving Victoria’s Secret’s bottom line. The company is executing its previously disclosed plan to shutter 250 doors this year, and it is negotiating with landlords for ongoing rent relief. Plus, it is changing its management structure and labor model to reduce store costs.
In addition, L Brands said it is seeking to increase merchandise margin rates and is working with suppliers to reduce expenses. It said spring inventory receipts were down 45% year-on-year as a result of this action, with fall receipts expected to fall 50%.
L Brands had reached an agreement in February to sell a 55% stake in Victoria’s Secret to private equity firm Sycamore Partners for $525 million — but the deal fell apart in May amid the coronavirus crisis. Now, L Brands is works toward separating Victoria’s Secret and Bath & Bodyworks into two separate companies. The stronger-performing Bath & Bodyworks business would be a pure-play public company, while Victoria’s Secret would be a standalone.
“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,” said L Brands CEO Andrew Meslow. “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.”
L Brands will report its second quarter earnings on Aug. 19. The company expects to report a 20% decline in net sales versus last year, including a 40% drop in sales at Victoria’s Secret and a 10% increase at Bath & Body Works. As of July 24, the retail conglomerate’s cash balance stood at more than $2.5 billion, with no amounts drawn under its $1 billion loan facility. It has reopened most North American units under both banners and says sales “have been strong and have exceeded” expectations.