Please ensure Javascript is enabled for purposes of website accessibility

Why L Brands Shares Fell 46.6% in March

By Adria Cimino – Apr 6, 2020 at 7:45AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Temporary store shutdowns and a dividend suspension weighed on the stock.

What happened

Shares of L Brands (BBWI -2.69%) slid 46.6% in March, according to data provided by S&P Global Market Intelligence, after the company temporarily shuttered stores and took steps to preserve its finances as the coronavirus outbreak deepened.

L Brands shut its Bath & Body Works and Victoria's Secrets shops in the U.S. and Canada and furloughed most store employees. The company also drew down $950 million from its revolving credit facility, suspended its quarterly dividend as of the second quarter of fiscal 2020, and cut base pay of senior vice presidents by 20%. L Brands also suspended cash payments to the chairman and board of directors.

Satin bras in a variety of colors inside a drawer.

Image source: Getty Images.

So what

The retailer took the cost-cutting steps as precautionary measures as the coronavirus spread now totals more than 1.14 million cases worldwide. L Brands said that it has more than $2 billion in cash and that, along with the above steps, will provide a sufficient level of liquidity. Though L Brands has taken the necessary course of action to protect itself now, the company had a difficult 2019. Sales at its Victoria's Secret brand have been declining, dragging down earnings and L Brands' share price. The story culminated earlier this year with L Brands agreeing to sell its majority stake in Victoria's Secret to Sycamore Partners for $525 million. As part of the deal, L Brands retains a 45% minority stake.

Now what

The length of the coronavirus crisis -- and therefore the store shutdowns -- will determine the final impact on L Brands' sales and earnings. The sooner the company can reopen stores, the better. Still, that doesn't mean L Brands is out of the woods. With the U.S. reporting a record number of unemployment claims, consumers may be reluctant to shop for nonessential items until their financial situations stabilize. Beyond the crisis, investors in consumer discretionary stocks will be watching for the completion of L Brands' deal with Sycamore. Sycamore's recovery plan for Victoria's Secret as well as how L Brands' will sustain sales growth at Bath & Body Works will also be in focus. The question then will be whether Bath & Body Works' revenue will be enough to drive recovery at L Brands.

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Bath & Body Works, Inc. Stock Quote
Bath & Body Works, Inc.
BBWI
$34.75 (-2.69%) $0.96

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.