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L Brands Sparks Investor and Wall Street Enthusiasm After Unveiling $400 Million Cost-Savings Plan

By Rich Duprey – Jul 29, 2020 at 11:04AM

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The retailer's plan to spin off Victoria's Secret and remake Bath & Body Works was given a big thumbs-up.

Wall Street is trying to get out in front of what many see as a major transformation under way at L Brands (BBWI 3.34%), the owner of Victoria's Secret and Bath & Body Works. No fewer than six analysts substantially upgraded their price targets on the retailer, though none more than Deutsche Bank, which hiked its outlook to $27 a share, 68% higher than its prior $16 target and 42% above where L Brands closed yesterday.

J.P. Morgan went from a neutral to overweight rating on the stock and told investors the retailer's risk-reward profile made it "too hard to ignore."

Bath & Body Works store

Image source: L Brands.

Work in progress

What caught their eye was L Brands' plan to trim $400 million in annualized costs as it prepares to spin off Victoria's Secret following a failed planned sale earlier this year.

To achieve those savings, the retailer will do the following:

  • Lay off 15% of its home office workers, or 850 people
  • Manage inventory costs, as inventory receipts at Victoria's Secret tumbled 45% in the spring and are expect to collapse another 50% in the fall
  • Close 250 Victoria's Secret stores while changing the company's management structure
  • Negotiate for rent relief on remaining stores
  • Reduce operating losses in company-owned stores in the U.K. and China

L Brands had agreed to sell a 55% stake in Victoria's Secret for $525 million to private equity firm Sycamore Partners, but the deal fell apart when the coronavirus outbreak forced the retailer to close stores, leading the hedge fund to charge L Brands had violated their contract.

Investors apparently agree with Wall Street's assessment that the retailer is hitting an inflection point and returning to growth and profitability. L Brands' stock is soaring 35% higher this morning and already closing in on Deutsche Bank's price target.

Rich Duprey 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.

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