A pedestrian walks past a Victoria’s Secret storefront closed and boarded up on Robson Street during the COVID-19 crisis on April 17, 2020 in Vancouver, Canada.
Andrew Chin | Getty Images
Victoria’s Secret owner L Brands said Tuesday it is preparing to cut 15{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} of its corporate workforce, or about 850 jobs, in a bid to trim costs as its business takes a hit from the coronavirus pandemic.
The company said it hopes to save about $400 million annually through its cost-cutting efforts, which include the layoffs. L Brands expects to see about $175 million of savings in fiscal 2020. It also expects to record about $75 million of pre-tax severance costs in the second quarter of 2020, specifically tied to the job cuts.
Shares of the company shot up more than 6{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} in after-hours trading, having closed the day down less than 1{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f}.
“Decisions relating to our workforce are incredibly difficult and not taken lightly, but these actions are necessary to best position our company for the long-term,” L Brands Chief Executive Andrew Meslow said in a statement, adding that the company is working toward improving the profitability of its embattled Victoria’s Secret lingerie business.
As of Feb. 1 2020, the company employed roughly 94,400 employees, 68,900 of those being part-time, according to L Brands’ latest annual filing.
Other cost-cutting measures include closing stores, slimming down inventory and negotiating with landlords for rent relief, the retailer said Tuesday.
L Brands in May had said it planned to shut permanently about 250 Victoria’s Secret and Pink stores in the U.S. and Canada in 2020, or roughly a quarter of its shops in North America.
“We would expect to have a meaningful number of additional store closures beyond the 250 that we’re pursuing this year … meaning there will be more in 2021 and probably a bit more in 2022,” Stuart Burgdoerfer, the interim CEO of Victoria’s Secret, said at the time.
The company on Tuesday also offered a preliminary look at its second-quarter financial results, which are expected to be released on Aug. 19.
L Brands expects total net sales for the second quarter to come in roughly 20{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} lower than a year ago, despite a roughly 10{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} increase at Bath & Body Works. The company is expecting to post a 40{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} decline at Victoria’s Secret.
It said most of its stores in North America are reopen after being temporarily shut due to the Covid-19 crisis.
“Sales at both businesses have been strong and have exceeded the company’s expectations,” the company said in its press release.
According to BMO Capital Markets analyst Simeon Siegel, L Brands will be much healthier as it becomes leaner.
“It’s a classic example of a brand that stretched too far in pursuit of growth,” he said. “But its revenues are the confirmation it still has tremendous buy-in from consumers.”
L Brands, as of July 24, had a cash balance of more than $2.5 billion, with no amounts drawn down under its $1 billion asset-backed loan facility, the company added.
L Brands shares are up about 6{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} this year. The retailer has a market cap of $5.3 billion.
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