Markets

Why L Brands Stock Is Surging Today

What happened

Investors are cheering a business update from L Brands (NYSE: LB), owner of the Victoria's Secret and Bath & Body Works retail chains. The company plans to cut annual costs by $400 million going forward -- a crucial move considering it's facing a steep drop in revenue from disruptions caused by the COVID-19 pandemic.

As of 12:40 p.m. EDT, L Brands stock was up a whopping 33% for the day.

A dollar bill is folded into the shape of an upward pointing arrow.

Image source: Getty Images.

So what

A large part of L Brands' annualized savings moving forward will come from layoffs. The company is laying off about 850 people from its corporate home office -- about 15% of its total. These layoffs will cost it $75 million in the second quarter between severance and ongoing benefits, but the company expects to save money in the long term.

L Brands is also closing down about 250 Victoria's Secret locations. The move isn't necessarily surprising. The company already tried to sell majority ownership of the chain, only to have the deal fall through because of the coronavirus. Stuck with it, the company has watched the women's apparel chain struggle in 2020. For upcoming second-quarter results, L Brands expects to report a 40% year-over-year drop in Victoria's Secret's sales. 

Now what

Long term, L Brands' management intends to separate Victoria's Secret and Bath & Body Works into different companies. That's likely a smart move. It will allow it to get some value from a stumbling Victoria's Secret brand while retaining the growing Bath & Body Works chain. The company expects to report a 10% increase in Bath & Body Works' Q2 sales -- surprising growth for a retail chain during the coronavirus pandemic.

While $400 million in annualized savings through layoffs and store closures improves L Brands' finances, investors should proceed with caution and skepticism. Today's moves take steps back now in order to go forward later. But turnaround plans are easier said than done.

10 stocks we like better than L Brands
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and L Brands wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

 

*Stock Advisor returns as of June 2, 2020

 

Jon Quast has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Latest Markets Videos

The Motley Fool

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

Learn More