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Feb. 10, 2020, 7:13 a.m. EST

L Brands would still face challenges if it sold off Victoria’s Secret, analysts say

L Brands stock soared 12% after a WSJ report that strategic alternatives for Victoria’s Secret are being considered

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By Tonya Garcia, MarketWatch

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“Most notably, a Victoria’s Secret sale or a Bath & Body Works spinoff could unlock significant value given that L Brands shares do not appear to appropriately value Bath & Body Works outperformance.”

If Victoria’s Secret is on its own, Cowen analysts say the company will still have problems with the merchandise.

“We reiterate market perform given skepticism around a deal occurring in the near-term, and we continue to focus on Victoria’s Secret issues that remain to be addressed, namely around bra assortment and marketing,” analysts led by Oliver Chen wrote.

Cowen has a price target of $22 on Victoria’s Secret.

Cowen analysts said a sale of Victoria’s Secret or a deal that would take the underwear brand private while leaving Bath & Body Works public is most likely since L Brands holiday results missed expectations.

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Jefferies analysts highlight L Brands’ debt, which topped $5 billion after the third quarter.

“We see a heavy debt load creating a large obstacle for investors that seek a split of Bath & Body Works and Victoria’s Secret,” analysts said.

The Wall Street Journal report also says Chief Executive Les Wexner is in discussions to step down from that role, though he could stay on as chairman.

Wexner has become embroiled in the Jeffrey Epstein case through a business relationship that included a role for Epstein in the Victoria’s Secret business. Wexner, who has run the company since 1963, said in a letter that Epstein misappropriated a large sum of his money.

L Brands shares are down 10.7% over the past year while the S&P 500 index /zigman2/quotes/210599714/realtime SPX -0.34% is up nearly 23% for the period.

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June 4, 2020 5:10p

Tonya Garcia is a MarketWatch reporter covering retail and consumer-oriented companies. You can follow her on Twitter @tgarcianyc. She is based in New York.

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