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L Brands To Split Into Two Independent Publicly Traded Companies

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Fashion retailer L Brands, Inc. (LB) announced Tuesday that its Board of Directors has unanimously approved a plan to separate the company into two independent publicly traded companies.

The two public companies will be Bath & Body Works, one of the world's leading bath, body and home fragrance retailers, and Victoria's Secret, including Victoria's Secret Lingerie, PINK and Victoria's Secret Beauty, a leading retailer of intimates and beauty products.

The company expects to create these companies through a tax-free spin-off of Victoria's Secret to L Brands' shareholders. The spin-off will enable each company to maximize management focus and financial flexibility to thrive in an evolving retail environment and deliver profitable growth.

Victoria's Secret is now well-positioned to operate as a standalone, public company after implementing merchandise and marketing initiatives to drive top line growth, as well as executing on a series of cost reduction actions in the past ten months, the company said.

L Brands had previously announced in May 2021 that its Board has been evaluating the possibility of either a spin-off or sale of Victoria's Secret with input from its financial advisors, Goldman Sachs and JP Morgan.

The Board has now concluded that the spin-off of Victoria's Secret into a separate, public company would provide shareholders with more value than a sale.

The company noted that both businesses have strong, well-tenured leadership teams with significant industry experience, well suited to lead the two companies going forward in their distinct markets.

Andrew Meslow, Chief Executive Officer of L Brands, will continue to lead Bath & Body Works following the spin-off. Martin Waters, Chief Executive Officer of Victoria's Secret, will continue to lead the new standalone business.

The additions to the management teams and the composition of the boards of directors for both companies will be named in due course.

The spin-off is expected to be effected through a pro-rata distribution to L Brands shareholders of common stock of a newly-formed entity holding certain assets and liabilities comprising the Victoria's Secret business.

The transaction is currently expected to be completed in August 2021, subject to certain customary conditions, including final approval of the L Brands Board.

Looking ahead to fiscal 2021, L Brands now expects to report first quarter earnings of about $0.97 per share, which includes a charge related to the early extinguishment of debt of $0.28 per share.

Excluding this charge, the company expects to report adjusted earnings of about $1.25 per share, up from the previous guidance range of $0.85 to $1.00 per share. The increase reflects continuing strong sales and margin results at both Bath & Body Works and Victoria's Secret, which benefitted from stimulus payments and the relaxation of COVID-19 restrictions.

The company reported net sales of $3.024 billion for the first quarter of fiscal 2021, sharply higher than $1.654 billion last year, which were negatively impacted by the closure of stores for approximately half the quarter due to the COVID-19 pandemic.

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