Victoria’s Secret Spins Off; Paper Source Folds Into Barnes & Noble Parent

Tuesday brought a little yin-yang to the U.S. retail market.

One big name, Victoria’s Secret, announced it’s set to spin off after a stunning fiscal turnaround. Another, Paper Source, said it’s ready for takeover after plunging into bankruptcy.

Victoria’s Phoenix

Fashion conglomerate L Brands, which also owns Bath & Body Works, shopped lingerie and fashion retailer Victoria’s Secret for months with a $5 billion to $7 billion price tag. Several bids topped $3 billion, but none hit the magic number, and L Brands decided the brand had enough momentum to pave its own way in a tax-free spin-off

• A year ago, Victoria’s was struggling to generate revenue, and L Brands lined up investment firm Sycamore Partners to buy it for just $1.1 billion. That deal fell apart at the outset of the pandemic.
• Then, under new CEO Martin Waters, the company embraced a “less is more” strategy by shuttering 200 stores, pulling back on promotions, and trimming costs across the company.
• Operating income soared to $400 million by Q4 2020 after Victoria’s lost almost $300 million in Q1.

“Perhaps no brand has transformed its fundamental earnings power and outlook more over the course of the pandemic,” analysts at Evercore said of the company’s performance. Once the deal clears in August, Victoria’s and Bath & Body Works will operate as stand-alone public companies.

Paper Source Joins the Fold

On Tuesday, Barnes & Noble owner Elliott Investment Management announced that it will neatly fold beleaguered Paper Source into its portfolio. The stationery retailer has been dealing with some unpleasant paperwork, and controversy, of late:

• In March, Paper Source filed for bankruptcy. With $100 million in debt and outstanding leases of $36 million weighing down its finances, it was hamstrung by operating expenses during the pandemic.
• Outcry exploded among Paper Source vendors that never got paid after the company’s top seven executives each got $1.47 million in bonuses during the pandemic. They then demanded $1 million more during the bankruptcy.

Adult Supervision: While Paper Source will operate independently and some of its management will remain in place, Elliott tapped Barnes & Noble CEO James Daunt to lead both companies.