L Brands has drawn $950 million from its revolving credit facility, giving the company more than $2 billion in cash. The move was made "in an abundance of caution and as a proactive measure" amid temporary coronavirus-related store closures, per a company press release.
L Brands also withdrew its previous earnings guidance for the current quarter given uncertainty around the COVID-19 pandemic's impact.
These moves follow Moody's downgrade of L Brands, including its corporate family rating which fell to Ba3 from Ba2, according to an emailed note. Analysts with the ratings firm cited a lack of diversity in the retailer's portfolio once it sells off a majority stake in Victoria's Secret. But they also noted L Brands has good liquidity, and they hold a stable outlook for the company.
Analysts by and large hailed L Brands' decision last month to sell a majority stake in its struggling Victoria's Secret lingerie business, but the consequences of the move won't necessarily be all positive.
"Although the divestiture of Victoria's Secret will enable L Brands to focus on the growth of its stronger brand, Bath & Body Works, its platform will be less diversified and certain dis-synergies and execution risk will be faced," Moody's Vice President Christina Boni said in a statement. She added, though, that the "lack of concept diversification is mitigated by Bath & Body Works' consistent operating performance and its planned reduction of debt."
Moody's stable outlook assumes that the Bath & Body Works banner will continue posting positive comparable sales and operating income growth, and will keep in place a conservative financial policy, according to the release.
On Tuesday, L Brands said that it no longer expects the first quarter adjusted loss of about five cents per share that it had projected on Feb. 26, a profit guide that had included Victoria's Secret for the last time. The company won't update that further, per its Tuesday release. In a brief client note that morning, Credit Suisse analyst Michael Binetti called the decisions "concerning."
The same day the retailer said that it temporarily closed all Bath & Body Works, Victoria's Secret and PINK stores in the U.S. and Canada through March 29, adding to a raft of closures by retailers to help stem the spread of COVID-19, a disease caused by a member of the coronavirus family. Such closures could end up getting extended, depending on the course of the outbreak. But Victoria's Secret in particular could suffer disproportionately, due to its over-exposure to lesser malls, according to Nick Egelanian, president of retail development firm Siteworks.
Along with store closures, consumers' avoidance of shopping beyond what is necessary, especially at brick-and-mortar stores, are likely to accelerate failures at already faltering malls, Egelanian said in a phone interview. They in turn will take many struggling retail tenants down with them, he said.