BBWI

Please note, after the close on August 2, 2021 L Brands Inc (LB) changed its company name and symbol to Bath & Body Works Inc (BBWI) after spinning off Victorias Secret & Co. (VSCO). Shareholders of LB received 1 share of VSCO for every 3 shares of LB. BBWI and VSCO began trading separately on August 3. The text of the idea will make reference to the original company, L Brands Inc.

Publicly traded companies mentioned herein: L Brands Inc (LB)

Highlights

As a result of COVID-19’s impact on the business, and Sycamore Partners walking away from the Victoria’s Secret (VS) deal ($525MM for 55% of the business), the presenter sees L Brands (LB) as likely to end up in some form of restructuring to deal with the burden of its debt, including leases, and he is comfortable being short the stock in the $10 - $11 range. Optically, LB appears to be cheap based on its trailing fundamentals (FCF, EBITDA, etc.), but without a logical option to deal with the poor performance of VS, the pressure on LB will rise (Bath & Body Works is a better business, but it can’t shoulder the entire load going forward, in his opinion). Bulls will argue that Bath & Body is worth more than the current market value (assuming VS is worth nothing); however, an argument can be made that VS is worth less than zero to the parent, especially in the wake Sycamore Partners walking away without penalty. If his assessment of the situation and outlook is correct, the stock should trade down to the $8 - $9 range near-term as the market cap resets to ~50% of net debt, which is where levered businesses approaching distress normally trade.