Shares of L Brands (NYSE:LB) 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.
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.
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.