Dive Brief:

• Private equity firm Sycamore Partners is in talks with L Brands founder and CEO Les Wexner to take over the company's Victoria's Secret brand, according to an updated story yesterday from The Wall Street Journal. A Sycamore spokesperson declined to comment to Retail Dive. Neither L Brands nor Victoria's Secret immediately responded to Retail Dive's requests for comment.
• The publication previously reported that L Brands was in talks to sell off the brand and that Wexner was set to step down, except to retain his seat on the board as chairman. That was subsequently confirmed by other news outlets.
• L Brands has an existing partnership with Sycamore: The firm took a controlling stake about eight years ago in the company's Mast Global Fashion sourcing and logistics unit, and in 2015 took over the rest, as L Brands spun it off into a separate company.

Dive Insight:

A sale of Victoria's Secret is looking increasingly likely, as investors will be sorely disappointed if none materializes.

The idea has been brewing at least since March, when activist investor Barrington Capital began agitating for assertive action to split Victoria's Secret from the smaller but better performing Bath and Body Works retailer in order to unlock value.

The reasoning has only been confirmed, as the holidays affirmed a pattern that has grown entrenched at L Brands: Victoria's Secret, its largest brand,​ suffered a 12% comp decline, with slowed traffic and margins squeezed by heavy promotions, and its Pink sub-brand's comps fell in the mid-teens, with margins also down significantly. But the personal care business drew customers in with its promotions and drove comps up 9%.

At this point, few are surprised by the notion, according to MKM Partners Managing Director Roxanne Meyer. "Absent any deal for a VS spinoff, we continue to believe more aggressive actions would need to be taken to preserve cash and that the share price will retreat to the high-teens," she said in emailed comments. Without a split, such actions this year should include a "significantly more aggressive net store closing program" of Victoria's Secret locations, a 30% to 50% cut to capital expenditures into the brand compared to last year, and "a further reduction to the dividend in order to focus on reducing the debt load," she added.​

The purported discussions are taking place just ahead of the company's annual year-end board meeting, when some long-serving members may be displaced, perhaps at Barrington's behest, several analysts noted in client reports this week. And a few noted that, unlike Gap Inc.'s withdrawal of its own plans to spin off Old Navy, dis-synergies from a split aren't likely to derail such action. Sycamore already owns a major L Brands supplier in Mast Global Fashion. The primary sourcing loss would be "the shared use of the Beauty Park for sourcing product, which we believe could be wholly assumed by [Bath & Body Works], but could continue to be leveraged by VS," according to MKM Partners.

"LB sees a number of centralized functions that would result in dis-synergies including sourcing, real estate, logistics, tech, International, HR, construction, and general FP&A," J.P. Morgan analysts said in emailed comments about recent discussions they had with L Brands executives. "That said, [management] noted these dis-synergies could still be worked around if a separation took place and 'dis-synergies alone would not be a reason to base a decision on.'"