This article comes from WeChat public account: Investing (ID: Investing-com) , author: Mourning
The once magnificent Victorian Secret is now a recognized performance drag. Thursday, parent company L Brands Inc (NYSE: LB) finally decided to “broken arm” to the private equity company Sycamore Partners The sale of a 55% stake in Victoria’s Secret is settled-this is the end of an era.
Does this also mean that L Brands is over four years old and has wiped out 75% of the value of the stock?
L Brands stock price trend, source: Yingwei Finance Investing.com
Victoria Secret “Closing curtain”, Bath & Body Works will carry the beam
The biggest change is that L Brands will be able to focus on another brand, Bath & Body Wo.rks (BBW for short) . BBW’s main products are bath and body care products, which are mainly healthy and natural. As of the end of last year, BBW had a total of 1741 stores in North America; in comparison, there were 1,094 Weimi stores.
The reason why L Brands’ stock price has not fallen even worse is that this bathroom product line is supporting it.
According to L Brands’ expectations, its comparable same-store sales in the fourth quarter are expected to decline by 2%, of which Victoria Secret is expected to decline by 10%, and BBW is expected to increase by 10%. From the beginning of the decline of L Brands’ stock price in 2016, BBW’s same-store sales have continued to grow, and since 2018, the growth has accelerated, which is far from the performance of Wei Mi.
Mapping: Investing.com
Bornstein’s estimate of BBW’s corporate value is $ 11.4 billion (The transaction announced on Thursday valued Victoria’s Secret at only $ 1.1 billion , L Brands’ current market value is US $ 6.48 billion) ; Bank of America Merrill Lynch calls BBW “one of the best growth cases in the retail industry.”
From the perspective of sales growth rate, BBW increased by 10.8% to USD 1.06 billion in the third quarter of 2019 from USD 956.2 million; sales growth rates in the first three quarters of 2019 and 2018 were 11.8% and 11.6%, respectively. . Moreover, compared to Wei Mi’s losses, BBW contributed 80% of L Brands’ operating profit and its operating profit remained above 20%.
Wells Fargo pointed out that, given that L Brands’ share price does not appear to properly reflect the outstanding performance of BBW, the sale of Victoria ’s SecretExpected to unlock great value.
Reducing the burden of debt, L Brands points to $ 30?
Selling Victoria’s Secret also has a direct role in helping ease L Brands’ debt burden. Analysts estimate that the proceeds of this transaction, plus L Brands’ remaining cash, could reduce debt by about $ 1 billion. L Brands’ net debt is currently around $ 4 billion.
In addition, L Brands will also be able to be released from the $ 2.5 billion leased liability of Victoria’s Secret, and it will not be required to bear most of the risks brought by Victoria’s Secret transformation.
It is worth noting that L Brands has not completely sold off the Wei Mi brand, but retains a 45% minority stake . The advantage of this is that if the private equity company Sycamore Partners can radically transform the Victoria Secret, Victoria Secret still has hope for revival.
According to data from Bloomberg Intelligence, Even in trouble, Victoria’s Secret is still the largest lingerie retailer in the United States. Previously, although L Brands adjusted its product mix, it did not carry out large-scale reforms like many competitors.
Bloomberg analyst Andrea First (Andrea Felsted) states that assuming the transaction generates a value of 1 billion Around USD, calculated according to Bernstein’s estimate of the value of BBW ($ 11.4 billion) , after subtracting net debt, its equity It will be $ 8 billion, compared with L Brands’ market value of $ 6.8 billion as of Wednesday.
On Thursday, Bank of America Merrill Lynch reiterated its “Buy” rating on L Brands with a target price of $ 30. Currently, of the 28 analysts tracking the stock, 8 have a “buy” or “overweight” rating, 18 “hold” ratings, and two “sell” or “underweight” ratings.
Of course, for investments that want to bet on L Brands’ stock price rebound, it is also necessary to clearly understand the risks it faces in the future, such as debt and BBW’s growth space. As the base of comparison becomes larger, BBW will be more difficult to achieve as strong as everGrowth; moreover, BBW is closely linked to department stores, and it is also vulnerable to the structural decline in shopping mall passenger flow.
This article comes from WeChat public account: Investing (ID: Investing-com) , author: Mourning