(Bloomberg) – L Brands Inc. shares rose more in four months after the retailer detailed a cost-cutting plan and said its Bath & Body Works chain managed to grow last quarter despite the challenging retail environment.
The company, which also owns Victoria’s Secret, plans to cut 850 office jobs, or about 15% of its corporate staff. The effort will help him save up to $ 400 million annually, including $ 175 million this year, L Brands said Tuesday night.
The move represents a “significant reduction in expenses,” said Simeon Siegel, an analyst at BMO Capital Markets, in a note. The company also has a significant opportunity to increase merchandise profit margins, he said.
L Brands is looking for a change after the coronavirus pandemic exacerbated challenges, including slow sales and changing consumer tastes. Chief Executive Andrew Meslow said in a statement that management is focused on “improving the profitability of the Victoria’s Secret business” and still plans to separate the lingerie chain from the top performing Bath & Body Works brand.
L Brands rose as much as 39% in New York on Wednesday, the biggest intraday gain since March 24. Shares were up 5.5% this year through Tuesday’s close.
L Brands-linked debt was among the top winners in the US high-yield market on Wednesday, according to Trace bond trading data. Its 9.375% notes maturing in 2025 rose more than 3.5 cents to about 110 cents, while its 7.5% bonds maturing in 2029 rose more than 5 cents on the dollar to 103.5 cents.
The divergent fortunes of the brands are on display in the fiscal quarter that is almost drawing to a close: L Brands said it expects to report that Victoria’s Secret net sales will drop approximately 40% in the period, while Bath & Body Works will increase a 10% It will report second quarter earnings on August 19 after giving the preliminary estimate.
The bathroom brand benefits from the renewed demand for soap and hand sanitizer amid the coronavirus. The performance “positions it among the strongest in the retail sector as it benefits from the strength of its categories in a Covid environment,” Roxanne Meyer, an analyst at MKM Holdings, said in a note.
The retailer is also saving cash in other ways, including a plan announced this year to close about 250 Victoria’s Secret locations, about a quarter of its stores in the United States. L Brands said Tuesday that it is managing its inventory and working with suppliers to reduce merchandise costs. In October, the company reduced its headquarters, cutting about 50 employees at its offices in New York and Columbus, Ohio.
Hundreds of corporate jobs are being put at risk as the retail industry faces the impact of the pandemic. Last month, Macy’s said it was cutting 3,900 corporate and management jobs. Tailored Brands and Levi Strauss & Co. are also cutting corporate positions.
(Updates with bond trading in the sixth paragraph)
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