LB - L Brands

[Spekulatius]

LOL So true.

 

I get some help; my little brother is in grad school out in liberalville Long Island. Occasionally provides some useful insight and perspective.

 

You know what almost every girl in that demographic owns? Elephant pants.... a far cry from when I was in school and VS was mandatory(from the girl's perspective) if you wanted to be sexy...

Actually Long Island felt quite conservative when I lived there, at least some parts oft it. Now Stony Brook is a different matter.

[TwoCitiesCapital]

To the point of asking women, I have been asking my GF (25 years old) about her perspective on LB on many occasions over the last year.

 

She still likes them, but has admitted to hating the limited selection in bras (no bralettes).

 

That being said, she still has some PINK branded items, was excited to see them bring swimwear back, loves their athletic/athleisure options, and has a few other items from the store as well. She also shops at Arie and others so is not unaware of the alternatives.

 

I did the same back in 2009 when I was originally considering investing with the women I knew in college - they all said that no one can compete with LB.

 

A couple years back, I ran an Airbnb in NYC. Two French women stayed with me and hit EVERT VS on the island of Manhattan and came back with loads of stuff because, at the time, they couldn't get it in France.

 

Some of these anecdotes are more recent, others are from years ago, but I don't think societies' evolution of what is sexy/desirable/etc changes so quickly. I continue to believe that this is a temporary brand set-back and not an existential threat.

 

I do wish they'd stop putting their foot in their mouth with negative comments about inclusivity - the Epstein tie is just the flavor of the current news cycle and will fade.

[BG2008]

I think a bunch of middle aged guys trying to decipher L Brands is a disaster in the making

 

Maybe ask the opinion of some 20 year old women to weigh in.  I may ask my intern to comment on this thread.  If you are not talking about inclusivity, body positivity and etc, you shouldn't be touching this stock.  Rhianna made a cosmetic line that offer over 20 skin tones and one specific for albinos.  Apparently that decision created a ton of positive PR.  L Brands with its connection to Epstein and its overly focus on the VS show feels very demeaning to women, especially the early 20s who are raised on social justice and body positivity.  It just feels that L Brands are very out of touch.  But what do I know?  I'm a late 30s dude who never bought women's underwear.  Ask some young women for their opinion.

 

I agree with this to an extent. But at the end of the day VS was created by a man. Yoga pants were created by men. How women dress is also heavily influenced by men. Sure women primarily dress to compete against each other, but it all comes back to attracting a mate lol. As crass as that is it's true. So to say men shouldn't try to evaluate the market they helped create is a bit inaccurate. Both opinions certainly add value. Women have had many cultural and cosmetic shifts throughout history (see link). Yet at the end of the day most cosmetic choices have been partially driven by their "effectiveness" on men and partially driven by what makes women feel "sexy."

 

 

VS cancelled their fashion show this year so they are beginning to get a clue as to what shifting in the industry.

 

Historically true, but the game has shifted.  Instagram and influencers have totally changed the game.  If Kylie, Kim, and Khloe tried to start cosmetic and fashion brands 10-20 years ago, they would have to partner up with a brand or a retailer.  They unveil new products all day long now.  The same goes for Rhianna.  The game has changed.  Just like the CPG are being hurt by death by 1,000 cuts, the same is happening to fashion.  Admittedly, I use a lot of Instagram to follow mostly Michelin star restaurants and other interesting people.  But there is no shortage of wannabe professional Instragram models hawking all sorts of cosmetics, fashion, and weight loss solutions. 

 

One thing that I have to give credit to for large brands is that they are much better at quality control. 

[BG2008]

To the point of asking women, I have been asking my GF (25 years old) about her perspective on LB on many occasions over the last year.

 

She still likes them, but has admitted to hating the limited selection in bras (no bralettes).

 

That being said, she still has some PINK branded items, was excited to see them bring swimwear back, loves their athletic/athleisure options, and has a few other items from the store as well. She also shops at Arie and others so is not unaware of the alternatives.

 

I did the same back in 2009 when I was originally considering investing with the women I knew in college - they all said that no one can compete with LB. Obviously that was 10 years ago and the times have changed, but I'm still of the opinion that this is a temporary brand re-adjustment for the company and not an existential threat.

 

This is great feedback. 

 

I feel that the sample size of one is tough.  I ask my wife for her opinions on various brands over the years.  Lululemon, Ulta, etc.  She didn't see the value in Lulu and now loves it.  She totally dismissed Ulta and that has been a 5x since I asked her about it. 

 

Women don't buy much sexy underwear after a certain age.  So brands needs a complete new influx of new buyers.  This is why opinions of 18-20 year olds are so important.  I am not saying that my intern's opinion alone is valid.  But an opinion from a 20 year old is probably heavier in weight than that of a 25 year old. 

 

I swear I am not calling your GF old. :)

 

 

[TwoCitiesCapital]

To the point of asking women, I have been asking my GF (25 years old) about her perspective on LB on many occasions over the last year.

 

She still likes them, but has admitted to hating the limited selection in bras (no bralettes).

 

That being said, she still has some PINK branded items, was excited to see them bring swimwear back, loves their athletic/athleisure options, and has a few other items from the store as well. She also shops at Arie and others so is not unaware of the alternatives.

 

I did the same back in 2009 when I was originally considering investing with the women I knew in college - they all said that no one can compete with LB. Obviously that was 10 years ago and the times have changed, but I'm still of the opinion that this is a temporary brand re-adjustment for the company and not an existential threat.

 

This is great feedback. 

 

Women don't buy much sexy underwear after a certain age.  So brands needs a complete new influx of new buyers.  This is why opinions of 18-20 year olds are so important.  I am not saying that my intern's opinion alone is valid.  But an opinion from a 20 year old is probably heavier in weight than that of a 25 year old. 

 

I swear I am not calling your GF old. :)

 

LOL!

 

Totally understand and agree that newer entrants will carry more weight, but that also means the impacts of any brand perception are limited because in 5 years there is a new crop.

 

Also, moving beyond sexy underwear to athleisure, casual, and swim lines helps maintain the brand a little further along in a woman's life cycle is imagine so this trend is probably less important now than 10 years ago.

 

[Gregmal]

A lot of life wisdom here too!

 

"Women don't buy much sexy underwear after a certain age."

 

Yup. Sad, but true.

 

"Totally understand and agree that newer entrants will carry more weight"

 

Tell that to a married man with 3 kids...I kid, I kid...

 

Seriously though, I think the truth is somewhere in between. VS would be wise to work some kind of WTW/Oprah deal with Kylie Jenner or someone of that status...the problem as Ive viewed it for a while though is that they just don't seem to think their problem is as serious as everyone else does.

 

 

 

 

[Castanza]

This thread should come with a disclaimer:

 

"DO NOT APPROACH YOUNG WOMEN ASKING ABOUT THEIR UNDERWEAR

 

Even if it's in the name of DD  :P

[5xEBITDA]

As others have mentioned, Victoria’s Secret is going to need to start ramping up this advertising angle and re-working certain product sizes. Below is an interesting statistic from the article.

 

https://www.marketwatch.com/story/nike-becomes-latest-retailer-to-add-plus-size-mannequins-2019-06-07?mod=mw_theo_homepage

 

 

Though a plus-sized mannequin may seem unusual, most American women qualify as “plus-size” in the eyes of the fashion industry. More than half of adult American women (67%) wear a size 14 or larger, according to research firm Plunkett Research.

 

On the VS website, size 14 is the high end of the “large” size option with size 14+ needing an XL. Below is a breakdown of the percentage of total category products that are available in a size “XL”.

 

Panties – 92%

Lingerie – 67%

Sleep – 54%

Sport – 47%

Swim – 38%

Bras – 15%

 

Panties and bras make up the core of Victoria’s Secret and PINK products per company filings, with bras having the largest amount of SKUs (639 bra SKUs vs. 188 panties SKUs). Every 10-K / 10-Q since 2015, except 1Q18, references declines in bra sales. Their products can definitely cater to larger sizes on the panties / lingerie side, but bras cannot.

 

I would be curious to know the reason most customers visit a VS store. Is it for panties or bras, and do you just end up buying other products while you’re there? If people primarily shop for bras, then a large % of customers will simply skip the VS store because it is so unlikely they’ll find something in their size.

[spartansaver]

As others have mentioned, Victoria’s Secret is going to need to start ramping up this advertising angle and re-working certain product sizes. Below is an interesting statistic from the article.

 

https://www.marketwatch.com/story/nike-becomes-latest-retailer-to-add-plus-size-mannequins-2019-06-07?mod=mw_theo_homepage

 

 

Though a plus-sized mannequin may seem unusual, most American women qualify as “plus-size” in the eyes of the fashion industry. More than half of adult American women (67%) wear a size 14 or larger, according to research firm Plunkett Research.

 

On the VS website, size 14 is the high end of the “large” size option with size 14+ needing an XL. Below is a breakdown of the percentage of total category products that are available in a size “XL”.

 

Panties – 92%

Lingerie – 67%

Sleep – 54%

Sport – 47%

Swim – 38%

Bras – 15%

 

Panties and bras make up the core of Victoria’s Secret and PINK products per company filings, with bras having the largest amount of SKUs (639 bra SKUs vs. 188 panties SKUs). Every 10-K / 10-Q since 2015, except 1Q18, references declines in bra sales. Their products can definitely cater to larger sizes on the panties / lingerie side, but bras cannot.

 

I would be curious to know the reason most customers visit a VS store. Is it for panties or bras, and do you just end up buying other products while you’re there? If people primarily shop for bras, then a large % of customers will simply skip the VS store because it is so unlikely they’ll find something in their size.

 

I'm not so sure that taking that article and applying it to an entire woman's body is right. A woman's body does not grow proportionality with the boobs getting far more neglected than the butt. For example a woman may be an XL from the hips down, but a medium from the hips up.

[SHDL]

This is turning into an amazingly entertaining thread.

 

Here’s my anecdote:  My wife walked into a VS store not too long ago but she left quickly, empty handed, because all the dudes hanging around in the store made her feel uncomfortable.  She then bought what she was looking for at Macy’s, which was practically empty.  Maybe there is a lesson for them here, lol. 

 

As an investment this is a no go for me.  As much as I love swinging for the fences with retailers, these fashion verticals are way too sensitive to unpredictable changes in consumer trends.

[5xEBITDA]

As others have mentioned, Victoria’s Secret is going to need to start ramping up this advertising angle and re-working certain product sizes. Below is an interesting statistic from the article.

 

https://www.marketwatch.com/story/nike-becomes-latest-retailer-to-add-plus-size-mannequins-2019-06-07?mod=mw_theo_homepage

 

 

Though a plus-sized mannequin may seem unusual, most American women qualify as “plus-size” in the eyes of the fashion industry. More than half of adult American women (67%) wear a size 14 or larger, according to research firm Plunkett Research.

 

On the VS website, size 14 is the high end of the “large” size option with size 14+ needing an XL. Below is a breakdown of the percentage of total category products that are available in a size “XL”.

 

Panties – 92%

Lingerie – 67%

Sleep – 54%

Sport – 47%

Swim – 38%

Bras – 15%

 

Panties and bras make up the core of Victoria’s Secret and PINK products per company filings, with bras having the largest amount of SKUs (639 bra SKUs vs. 188 panties SKUs). Every 10-K / 10-Q since 2015, except 1Q18, references declines in bra sales. Their products can definitely cater to larger sizes on the panties / lingerie side, but bras cannot.

 

I would be curious to know the reason most customers visit a VS store. Is it for panties or bras, and do you just end up buying other products while you’re there? If people primarily shop for bras, then a large % of customers will simply skip the VS store because it is so unlikely they’ll find something in their size.

 

I'm not so sure that taking that article and applying it to an entire woman's body is right. A woman's body does not grow proportionality with the boobs getting far more neglected than the butt. For example a woman may be an XL from the hips down, but a medium from the hips up.

 

I agree its probably not right to make a blanket assumption on size, but it does seem fair to point out there is a disparity in size between available bras vs. other stuff.

[johnny]

I’m doubling down.

 

1. All the analysis in the last two pages of this thread are about VS’ problems. VS doesn’t need blowout performance to make this a buy; as long as they can make enough to pay the rent and the interest, you’re buying Bath and Body works (unblemished positive SSS for years) at a single digit PE here.

 

2. It’s pretty clear Wexner has Epstein issues. On balance I think this is neutral. May pull forward his full retirement a few years.

 

3. VS is already signaling they’re going to start paying lip-service to woke ideology. This is probably strategically correct as they can continue to actually sell the bombshell sexy identity while superficially having one trans model somewhere doing some token diversity runway shows. At the end of the day customers don’t want to stop being attractive to men, they want to be indulged in the delusion that they aren’t contributing to the oppressive social forces that trick men into thinking women with penises are less attractive. It’s not impossible to thread this needle. Starbucks sells milkshakes to people who want very strongly to believe they are not feeding their children milkshakes for breakfast. VS can evolve into a business selling breast-enhancement devices to women who want to believe that being a woman has nothing whatsoever to do with having breasts.

 

4. If mainstream heterosexual female attractive standards actually change for the median woman, VS will follow. It makes no sense for VS to aggressively skate to where ideological activists hope to get the puck, as there is little guarantee that the activists will succeed. The bra burning of the 1960s were not long-term bearish for the brassiere industry. And all of these inclusive woke brands you hear about...look at what sales data there is for them. Add those back to VS sales—are you now happy? I suspect a big part of what’s going on with VS is actually internal. Their error wasn’t in failing to have fat mannequins in the store, but letting Lululemon cleave off a big chunk of the average woman’s “body-forward” apparel spend. That may be an irreversible error, but it’s not an error that lends itself to sales going to zero.

 

I don’t mean to defend VS too aggressively. These results are terrible and they have clearly been making merchandising and marketing errors for years. But I don’t think it’s a guaranteed zero, which is what I think the current stock price implies. And please do know that I talk to every woman I meet about underwear, so all you self-deprecating middle aged men should consider me your younger, more handsome DD proxy and coattail accordingly.

 

 

[5xEBITDA]

Guys you should just buy the 6 3/4 bonds due '36 around ~85. They were trading at par a little more than a year ago and the Company is clearly moving in the direction of being more creditor friendly via de-leveraging. These bonds are structurally senior to ~$800 million of unsecured debt in addition to ~$6 billion capitalized operating leases due to their operating subsidiary guarantee.

 

The capital structure is more than covered by BBW so you're essentially buying a call option on VS improvements. I think if VS squeaks out just lightly positive results you can get a 1-year equity like return on these bonds with less downside risk than the equity. The bonds are also less sensitive to the Epstein stuff, too.

[johnny]

Great point on the bonds. You'd be sitting on a nice 20% for the last six months, relatively worry free. Common has done okay too, bought still think you were correct that the bonds were the better risk/reward bet, especially with this new NYT piece about, surprise surprise, some of the LB execs being a little handsy with the talent. Sort of surprising to me that the equity has done so well in the leadup and aftermath of that drop. It is kind of close to the worst case scenario here. Maybe it's so bad that the markets are feeling like it forces Wexler's hand on a big shakeup/spinoff?

 

Amazon Prime has an interesting piece on Rihanna's lingerie brand and their (maybe first? second?) VS-inspired (but anti-VS) runway show. It was a pretty interesting watch and especially interesting to consider how Rihanna was sort of in the VS orbit for a while and they totally failed to recognize her potential/make a deal with her. Just gave her enough of a taste of the market and credibility to go do her own thing and potentially eat their lunch, publicity-wise. VS is definitely a dead brand until there's a complete purge of all employees over the age of 50, and any guy who needs to have VS on his business card in order to pull tail.

 

It's worth affirming that watching the Rihanna/Fenty show confirmed that the way the woke-marketing stuff works is pretty clear. You take the lingerie/bathing suit/whatever you want to show off, and you first have a trans amputee hobble out in it while the crowd goes wild, followed by the BBWOCs, and then almost as if an afterthought, followed by a model that has it going on in all the traditional ways. So the brand and brand-adherents get to have their cake and eat it too; because ultimately women haven't stopped wanting to look like Victoria's Secret models, they've just decided they want to look like Victoria's Secret models living on a Community College Class Catalogue Cover.

[DooDiligence]

Great point on the bonds. You'd be sitting on a nice 20% for the last six months, relatively worry free. Common has done okay too, bought still think you were correct that the bonds were the better risk/reward bet, especially with this new NYT piece about, surprise surprise, some of the LB execs being a little handsy with the talent. Sort of surprising to me that the equity has done so well in the leadup and aftermath of that drop. It is kind of close to the worst case scenario here. Maybe it's so bad that the markets are feeling like it forces Wexler's hand on a big shakeup/spinoff?

 

Amazon Prime has an interesting piece on Rihanna's lingerie brand and their (maybe first? second?) VS-inspired (but anti-VS) runway show. It was a pretty interesting watch and especially interesting to consider how Rihanna was sort of in the VS orbit for a while and they totally failed to recognize her potential/make a deal with her. Just gave her enough of a taste of the market and credibility to go do her own thing and potentially eat their lunch, publicity-wise. VS is definitely a dead brand until there's a complete purge of all employees over the age of 50, and any guy who needs to have VS on his business card in order to pull tail.

 

It's worth affirming that watching the Rihanna/Fenty show confirmed that the way the woke-marketing stuff works is pretty clear. You take the lingerie/bathing suit/whatever you want to show off, and you first have a trans amputee hobble out in it while the crowd goes wild, followed by the BBWOCs, and then almost as if an afterthought, followed by a model that has it going on in all the traditional ways. So the brand and brand-adherents get to have their cake and eat it too; because ultimately women haven't stopped wanting to look like Victoria's Secret models, they've just decided they want to look like Victoria's Secret models living on a Community College Class Catalogue Cover.

 

You have officially been added to the hall of the gods of analysis on the mountain of Pith.

 

;D

[Spekulatius]

Great point on the bonds. You'd be sitting on a nice 20% for the last six months, relatively worry free. Common has done okay too, bought still think you were correct that the bonds were the better risk/reward bet, especially with this new NYT piece about, surprise surprise, some of the LB execs being a little handsy with the talent. Sort of surprising to me that the equity has done so well in the leadup and aftermath of that drop. It is kind of close to the worst case scenario here. Maybe it's so bad that the markets are feeling like it forces Wexler's hand on a big shakeup/spinoff?

 

Amazon Prime has an interesting piece on Rihanna's lingerie brand and their (maybe first? second?) VS-inspired (but anti-VS) runway show. It was a pretty interesting watch and especially interesting to consider how Rihanna was sort of in the VS orbit for a while and they totally failed to recognize her potential/make a deal with her. Just gave her enough of a taste of the market and credibility to go do her own thing and potentially eat their lunch, publicity-wise. VS is definitely a dead brand until there's a complete purge of all employees over the age of 50, and any guy who needs to have VS on his business card in order to pull tail.

 

It's worth affirming that watching the Rihanna/Fenty show confirmed that the way the woke-marketing stuff works is pretty clear. You take the lingerie/bathing suit/whatever you want to show off, and you first have a trans amputee hobble out in it while the crowd goes wild, followed by the BBWOCs, and then almost as if an afterthought, followed by a model that has it going on in all the traditional ways. So the brand and brand-adherents get to have their cake and eat it too; because ultimately women haven't stopped wanting to look like Victoria's Secret models, they've just decided they want to look like Victoria's Secret models living on a Community College Class Catalogue Cover.

 

You have officially been added to the hall of the gods of analysis on the mountain of Pith.

 

;D

 

I agree.

[fareastwarriors]

L Brands nears sale of Victoria’s Secret to Sycamore Partners

 

L Brands is nearing a deal to sell its Victoria’s Secret brand to private equity firm Sycamore Partners in a deal that could be announced as soon as next week, people familiar with the matter tell CNBC.

 

L Brands CEO Les Wexner has been under mounting pressure due to his ties to the late sex criminal Jeffrey Epstein.

 

He has also been criticized for the poor performance of the company’s Victoria’s Secret brand under his watch.

 

https://www.cnbc.com/2020/02/09/l-brands-nears-sale-of-victorias-secret-to-sycamore.html

[johnny]

What a weird deal. You don't get a clean separation of the businesses, but you're forced to take the mark on VS. Worst of both worlds, but maybe it's all worth it to purge Wexler. I'm thinking Oprah for new VS CEO?

[5xEBITDA]

What a weird deal. You don't get a clean separation of the businesses, but you're forced to take the mark on VS. Worst of both worlds, but maybe it's all worth it to purge Wexler. I'm thinking Oprah for new VS CEO?

 

They have a very complicated capital structure with a lot of covenants that get in the way of doing a "cleaner" deal. This is likely the best thing they could come up with without incurring additional headaches / financing fees / refinancing the entire capital structure (very expensive!).

[mwtorock]

As long as they get rid of VS, we should see a re evaluation of the business with just BBW. It is a super brand with global potential.

[5xEBITDA]

As long as they get rid of VS, we should see a re evaluation of the business with just BBW. It is a super brand with global potential.

 

I kind of disagree with this because, while acknowledging that BBW is growing great and is throwing off good cash flow, the main risk here is that growth slows...I have no idea how to underwrite the continued growth of BBW, but they are throwing up impressive comp #s that may be difficult to top YoY going forward.

 

I liked when LB was part growth of BBW and a call option on VS turnaround, but with this most recent deal you are left leverage neutral, the VS call option has been diluted, and you really just have BBW growth left which I think could be a big shoe that drops.

[johnny]

Same boat here on BBW. BBW is fine, but it isn't quantifiably superior to VS just a few years ago (and it is nowhere near how Pink looked, standalone).

 

As 5x says, the story is totally different here than it was a year ago. Used to be you were getting BBW at a discount to peer valuation, with a free spin of the wheel on VS. My previous bear case for VS was like $3 billion. Turns out I'm an idiot. My new bear case is supermodel bones being found in some VP's backyard.

[KCLarkin]

Last I checked, LB failed to give away VS to Sycamore. Now it is trading at 17 earnings in the middle of the pandemic? What the...?

[mwtorock]

Last I checked, LB failed to give away VS to Sycamore. Now it is trading at 17 earnings in the middle of the pandemic? What the...?

 

People are seeing better growth from BBW and some light at the end of tunnel for VS. A lot of B&M went up a lot too, so maybe just a rising tide lifting all boats...

[Peregrine]

BBW results were shocking to me. I'm guessing a lot of people buying candles to spruce up the home environment these days? Maybe the expensive soaps also helping?