L Brands (NYSE:LB) is close to a deal to sell its Victoria's Secret brand to Sycamore Partners, according to a report from CNBC. Terms of a deal are not final yet, as negotiations are ongoing and could still fall through. But a deal could be announced as soon as next week.
A sale of Victoria's Secret (VS) would be good news for shareholders of L Brands, given the abysmal performance of the VS business lately. The shares spiked about 7% on the news in pre-market trading on Monday.
A time to sell
In early January, preliminary sales results were issued for the holiday period that saw comparable sales at Victoria's Secret decline by 12%. Year to date for the current fiscal year, comp sales are down 8%, which reveals the situation getting worse. Victoria's Secret is not only losing share to American Eagle Outfitters' Aerie brand, but it's losing relevancy in the retail industry altogether.
Talks of a possible sale signals that management doesn't have the answers as to how to fix the iconic brand. Given that L Brands generates $13 billion in annual sales and that Victoria's Secret makes up most of that amount, the company would likely receive a hefty sum in a deal.
What would a sale mean for investors?
While Victoria's Secret is heading south in a hurry, L Brands' better half has been the Bath & Body Works business, where comp sales were up 9% year over year in November and December. By shedding Victoria's Secret, management would draw more attention to the better business, and that would likely send the shares higher.