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Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
______________________________________________________ 
FORM 10-K
______________________________________________________ 
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 1, 2020
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from                  to                 
Commission file number 1-8344
______________________________________________________ 
L BRANDS, INC.
(Exact name of registrant as specified in its charter)
_________________________________________________

Delaware
 
31-1029810
(State or other jurisdiction
of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
 
Three Limited Parkway,
 
 
Columbus,
Ohio
 
43230
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code (614) 415-7000
______________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.50 Par Value
LB
The New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☒    No  ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ☐    No  ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒    Accelerated filer ☐    Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
The aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed second fiscal quarter was: $5,587,493,009.
Number of shares outstanding of the registrant’s Common Stock as of March 20, 2020: 276,533,315.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Proxy Statement for the Registrant’s 2020 Annual Meeting of Stockholders are incorporated by reference into Part III.
 

Table of Contents

Table of Contents
 
 
 
Page No.
Part I
 
 
 
 
 
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
 
 
Part II
 
 
 
 
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
 
 
 
Part III
 
 
 
 
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
 
 
Part IV
 
 
 
 
 
Item 15.
Item 16.
 

Table of Contents

PART I

ITEM 1. BUSINESS.
General
L Brands, Inc. (“we” or the "Company”) operates in the highly competitive specialty retail business. Founded in 1963 in Columbus, Ohio, we have evolved from an apparel-based specialty retailer to a segment leader focused on women’s intimate and other apparel, personal care, beauty and home fragrance products. We sell our merchandise through company-owned specialty retail stores in the United States (“U.S.”), Canada, the United Kingdom ("U.K."), Ireland and Greater China (China and Hong Kong); through websites; and through international franchise, license and wholesale partners (collectively, "partners").
On February 20, 2020, we and SP VS Buyer LP ("Sycamore"), an affiliate of Sycamore Partners Management, L.P., entered into a Transaction Agreement (the "Transaction Agreement'') pursuant to which, among other things, we will transfer certain assets and liabilities relating to our business conducted under the Victoria's Secret and PINK brands to our newly formed subsidiary ("Victoria's Secret Holdco") and sell 55% of the equity interests of Victoria's Secret Holdco to Sycamore. After taking into account certain liabilities, Sycamore will purchase the 55% interest in Victoria's Secret Holdco. for approximately $525 million. We will retain a 45% interest in Victoria’s Secret to enable our shareholders to participate in the upside potential of the business. We intend to use the proceeds from the transaction, along with approximately $500 million of excess balance sheet cash, to reduce debt. For additional information, see "Recent Developments" below. For additional information regarding the risks and other uncertainties and factors related to the transaction, refer to Item 1A. Risk Factors.
Bath & Body Works
Bath & Body Works, which sells products under the Bath & Body Works, White Barn, C.O. Bigelow and other brand names, is one of the leading specialty retailers of body care, home fragrance products, soaps and sanitizers. We sell our Bath & Body Works products online and at more than 1,735 Bath & Body Works company-owned stores in the U.S. and Canada. Additionally, Bath & Body Works has more than 275 stores in more than 30 other countries operating under franchise, license and wholesale arrangements.
Victoria’s Secret
Victoria’s Secret, including PINK, is a specialty retailer of women's intimate and other apparel with fashion-inspired collections and prestige fragrances. We sell our Victoria’s Secret products online and at more than 1,180 Victoria’s Secret and PINK company-owned stores in the U.S., Canada, U.K., Ireland and Greater China. Additionally, Victoria’s Secret and PINK have more than 440 stores in more than 70 countries operating under franchise, license and wholesale arrangements.
Divestiture and Closure
La Senza
On January 6, 2019, we completed the sale of the La Senza business to an affiliate of Regent LP, a global private equity firm. For additional information, see Note 5 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.
Henri Bendel
In January 2019, we closed all of our Henri Bendel stores and the e-commerce website. For additional information, see Note 5 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.
Fiscal Year
Our fiscal year ends on the Saturday nearest to January 31. As used herein, “2019,” “2018,” “2016” and “2015” refer to the 52-week periods ended February 1, 2020, February 2, 2019, January 28, 2017 and January 30, 2016, respectively. "2017" refers to the 53-week period ended February 3, 2018.
Real Estate
Company-owned Retail Stores
Our company-owned retail stores are located in shopping malls, lifestyle centers and street locations in the U.S., Canada, the U.K., Ireland and Greater China. As a result of our strong brands and established retail presence, we have been able to lease high-traffic locations in most retail centers in which we operate.

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The following table provides the number of our company-owned retail stores in operation for each brand as of February 1, 2020 and February 2, 2019:
 
February 1, 2020
 
February 2, 2019
Victoria’s Secret U.S.
1,053

 
1,098

Victoria’s Secret Canada
38

 
45

Bath & Body Works U.S.
1,637

 
1,619

Bath & Body Works Canada
102

 
102

Victoria's Secret U.K. / Ireland
26

 
26

Victoria's Secret Greater China
23

 
15

Victoria's Secret Beauty and Accessories Greater China
41

 
38

Total
2,920
 
2,943


The following table provides the changes in the number of our company-owned retail stores operated for the past five fiscal years:
 
Beginning
of Year
 
Opened
 
Closed
 
Acquired (a)
 
Sold (b)
 
End of Year
2019
2,943

 
64

 
(87
)
 
—

 
—

 
2,920

2018
3,075

 
88

 
(90
)
 
—

 
(130
)
 
2,943

2017
3,074

 
66

 
(65
)
 
—

 
—

 
3,075

2016
3,005

 
72

 
(29
)
 
26

 
—

 
3,074

2015
2,969

 
72

 
(36
)
 
—

 
—

 
3,005

_______________
(a)    Relates to the acquisition of Victoria's Secret Beauty and Accessories franchise stores in Greater China.
(b)    Relates to the sale of the La Senza business. For additional information see Note 5 to the Consolidated Financial
Statements included in Item 8. Financial Statements and Supplementary Data.    
Franchise, License and Wholesale Arrangements
In addition to our company-owned stores, our products are sold at hundreds of partner locations in more than 70 countries. Under these arrangements, third parties operate stores that sell our products under our brand names. Revenue recognized under franchise and license arrangements generally consists of royalties earned and recognized upon sale of merchandise by franchise and license partners to retail customers. Revenue is generally recognized under wholesale and sourcing arrangements at the time the title passes to the partner. We continue to increase the number of locations under these types of arrangements as part of our international expansion.
The following table provides the number of our international stores operated by our partners for each business as of February 1, 2020 and February 2, 2019:
 
February 1, 2020
 
February 2, 2019
Victoria’s Secret Beauty and Accessories
360

 
383

Victoria’s Secret
84

 
56

Bath & Body Works
278

 
235

Total
722
 
674




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Our Strengths
We believe the following competitive strengths contribute to our leading market position, differentiate us from our competitors and will drive future growth:
Industry Leading Brands
We have developed and operate brands that allow us to target markets across the economic spectrum, across demographics and across the world. We believe that our three brands, Victoria's Secret, PINK and Bath & Body Works, are highly recognizable, which provides us with a competitive advantage.
•
At Victoria’s Secret, we market glamorous and sexy product lines to our customers. While bras and panties are the core of what we do, this brand also gives our customers choices in beauty products, fragrances, sleepwear, loungewear, athletic attire and personal care accessories.
•
At PINK, we market products to the college-aged woman. While bras and panties are the core of what we do, this brand also gives our customers choices in apparel, loungewear, athletic attire and accessories.
•
Bath & Body Works caters to our customers’ entire well-being, providing shower gels and lotions, aromatherapy, home fragrance, soaps and sanitizers and body care accessories.
In-Store Experience and Store Operations
We view our customers' in-store experience as an important vehicle for communicating the image of each brand. We utilize visual presentation of merchandise, in-store marketing, music and our sales associates to reinforce the image represented by the brands.
Our in-store marketing is designed to convey the principal elements and personality of each brand. The store design, furniture, fixtures and music are all carefully planned and coordinated to create a unique shopping experience. Every brand displays merchandise uniformly to ensure a consistent store experience, regardless of location. Store managers receive detailed plans designating fixture and merchandise placement to ensure coordinated execution of the company-wide merchandising strategy.
Our sales associates and managers are a central element in creating the atmosphere of the stores by providing a high level of customer service.
Digital Experience
In addition to our in-store experience, we strive to create a customer-centric digital platform that integrates the digital and physical brand experience. Our digital presence, including social media, our websites and our mobile applications, allows us to get to know our customers better and communicate with them anytime and anywhere.
Product Development, Sourcing and Logistics
We believe a large part of our success comes from frequent and innovative product launches, which include bra launches at Victoria’s Secret and PINK and new fragrance and other product launches at Bath & Body Works. Our merchant, design and sourcing teams have a long history of bringing innovative products to our customers. Additionally, we believe that our sourcing and production function (Mast Global) has a long and deep presence in the key sourcing markets including those in the U.S. and Asia, which helps us partner with the best manufacturers to get high-quality products quickly.
Experienced and Committed Management Team
We were founded in 1963 and have been led since inception by Leslie H. Wexner. Our senior management team has a wealth of retail and business experience at L Brands, Inc. and other companies such as The Gap, Ralph Lauren, Tory Burch, Starbucks, Land's End, Levi Strauss, Boots, The Home Depot and Yum Brands. We believe that we have one of the most experienced management teams in retail.
Upon closing of the transaction contemplated by the Transaction Agreement (the "Closing"), Mr. Wexner will step down as Chief Executive Officer and Chairman of the Board to become Chairman Emeritus, remaining as a member of the Board. Andrew Meslow, Chief Executive Officer of Bath & Body Works, will be appointed by the Board as the Chief Executive Officer of L Brands, Inc. and as a director of L Brands, Inc., effective upon the Closing. Mr. Meslow, who joined L Brands, Inc. in 2003, has 29 years of experience in the retail industry, including the last 15 at Bath & Body Works. Additionally, Sarah E. Nash, a member of the Board, will be appointed as the Chair of the Board effective upon the Closing.

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Table of Contents

Additional Information
Merchandise Vendors
During 2019, we purchased merchandise from approximately 340 vendors located throughout the world. No vendor provided 10% or more of our merchandise purchases.
Distribution and Merchandise Inventory
Most of our merchandise is shipped to our distribution centers in the Columbus, Ohio, area. We use a variety of shipping terms that result in the transfer of title of the merchandise at either the point of origin or point of destination.
Our policy is to maintain sufficient quantities of inventories on hand in our retail stores and distribution centers to enable us to offer customers an appropriate selection of current merchandise. We emphasize rapid turnover and take markdowns as required to keep merchandise fresh and current.
Information Systems
Our management information systems consist of a full range of retail, financial and merchandising systems. The systems include applications related to point-of-sale, e-commerce, merchandising, planning, sourcing, logistics, inventory management, data security and support systems including human resources and finance.
Seasonal Business
Our operations are seasonal in nature and consist of two principal selling seasons: Spring (the first and second quarters) and Fall (the third and fourth quarters). The fourth quarter, including the holiday season, accounted for approximately one-third of our net sales for 2019, 2018 and 2017 and is typically our most profitable quarter. Accordingly, cash requirements are highest in the third quarter as our inventories build in advance of the holiday season.
Working Capital
We fund our business operations through a combination of available cash and cash equivalents and cash flows generated from operations. In addition, our credit facilities are available for additional working capital needs and investment opportunities.
Regulation
We and our products are subject to regulation by various federal, state, local and foreign regulatory authorities. We are subject to a variety of tax and customs regulations and international trade arrangements.
Trademarks and Patents
Our trademarks and patents, which constitute our primary intellectual property, have been registered or are the subject of pending applications in the U.S. Patent and Trademark Office and with the registries of many foreign countries and/or are protected by common law. We believe our products are identified by our intellectual property and, thus, our intellectual property is of significant value. Accordingly, we intend to maintain our intellectual property and related registrations and vigorously protect our intellectual property assets against infringement.
Segment Information
We have three reportable segments: Victoria’s Secret, Bath & Body Works and Victoria's Secret and Bath & Body Works International. For additional information, including the financial results of our reportable segments, see Note 21 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.
Other Information
For additional information about our business, including our net sales and profits for the last three years and selling square footage, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Competition
The sale of women's intimate and other apparel, home fragrance, personal care and beauty products and accessories through retail stores is a highly competitive business with numerous competitors, including individual and chain specialty stores, department stores and discount retailers. Brand image, marketing, design, price, service, assortment and quality are the principal competitive factors in retail store sales. Our online businesses compete with numerous online merchandisers. Image presentation, fulfillment and the factors affecting retail store sales discussed above are the principal competitive factors in online sales.

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Table of Contents

Associate Relations
As of February 1, 2020, we employed approximately 94,400 associates; 68,900 of whom were part-time. In addition, temporary associates are hired during peak periods, such as the holiday season.
Executive Officers of Registrant
Set forth below is certain information regarding our executive officers.
Leslie H. Wexner, 82, has been our Chief Executive Officer since our founding in 1963 and Chairman of the Board of Directors since 1975.
Stuart B. Burgdoerfer, 57, has been our Executive Vice President and Chief Financial Officer since April 2007.
Charles C. McGuigan, 63, has been our Chief Operating Officer since May 2012 and our Chief Executive Officer and President of Mast Global since February 2011.
Shelley B. Milano, 63, has been our Chief Human Resources Officer since April 2018.
James L. Bersani, 61, has been our President of Real Estate since March 2014 and has led our Real Estate function since April 2006.
Recent Developments
Victoria’s Secret Transaction
On February 20, 2020, we and Sycamore entered into a definitive agreement that is intended to deliver long-term value to L Brands, Inc. shareholders by positioning Bath & Body Works as a standalone public company and transitioning Victoria's Secret, including business conducted under the Victoria's Secret and PINK brands and certain support functions, into a privately-held entity.
After taking into account certain liabilities, Sycamore will purchase a 55% interest in Victoria's Secret for approximately $525 million. We will retain a 45% interest in Victoria’s Secret to enable our shareholders to participate in the upside potential of the business. The transaction is expected to close in the second quarter of 2020, subject to customary closing conditions. We will report the results of Victoria's Secret as discontinued operations beginning in the first quarter of 2020.
Upon the Closing, Leslie H. Wexner will step down as Chief Executive Officer and Chairman of the Board to become Chairman Emeritus, remaining as a member of the Board. Andrew Meslow, Chief Executive Officer of Bath & Body Works, will be appointed by the Board as the Chief Executive Officer of L Brands, Inc. and as director of L Brands, Inc., effective upon the Closing. Sarah E. Nash, a member of the Board, will be appointed as the Chair of the Board effective upon the Closing.
Company Response to Coronavirus
We are closely monitoring the outbreak of respiratory illness caused by a novel coronavirus that was first detected in Wuhan, China and has since spread globally. The coronavirus has been declared by the World Health Organization to be a “pandemic,” has spread to many countries, including the U.S., and is impacting worldwide economic activity. A public health epidemic, including the coronavirus, poses the risk that we or our employees, contractors, suppliers, and other business partners may be prevented from conducting business activities for an unknown period of time. Related industries in the U.S. and across the world may be adversely affected, including manufacturing and textile production. The situation and preventative or protective actions that governments around the world have taken to contain the spread of the coronavirus have resulted in a period of disruption, including closure of stores where our products are sold, limited store operating hours, reduced customer traffic and consumer spending, labor shortages and delays in manufacturing and shipping of products and raw materials in the U.S., China and other countries. To the extent the impact of the coronavirus continues or worsens, we may have difficulty obtaining the materials necessary for the manufacturing of our products, factories which produce our products may remain closed for sustained periods of time, and industry-wide shipment of products may be negatively impacted. Further, if the impact of the coronavirus continues or worsens, consumer behavior may be altered for an extended period of time which would impact our cash and liquidity and financial condition. The coronavirus and resulting economic disruption has also led to significant volatility in the capital markets and may adversely impact our stock price and ability to access cash. Any one adverse effect of the coronavirus, or a combination of adverse effects, could materially impact our results and financial condition.
Subsequent to February 1, 2020, we announced actions in response to the continued spread of the coronavirus.

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On March 16, 2020, in an abundance of caution and as a proactive measure, we elected to borrow $950 million from our secured revolving credit facility ("Secured Revolving Facility"), leaving our availability under the Secured Revolving Facility at $22 million.
On March 17, 2020, we announced the temporary closure of all Bath & Body Works, Victoria’s Secret and PINK stores in the United States and Canada through March 29, 2020. Associates will continue to receive pay and benefits through April 4, 2020, which is one week longer than originally announced.
Based on the continued spread of the coronavirus and stay-at-home orders by government officials across the country, we are extending the closure of our stores beyond the initial March 29th date. As the situation continues to evolve rapidly, we are not currently able to predict the timing of store reopenings. However, we are monitoring the situation closely and will provide updates as appropriate. We continue to serve customers through our direct channels.
In an effort to further strengthen our financial flexibility and efficiently manage through the pandemic, we are proactively taking the following additional actions:
•
Suspending our quarterly cash dividend beginning in the second quarter of fiscal 2020. We remain committed to paying dividends over the long-term and will re-evaluate when appropriate.
•
Executing a substantial reduction in expenses and capital expenditures.  This includes an ongoing reduction in forward inventory receipts.
•
Temporarily reducing base compensation by 20% for senior vice presidents and above.  The cash compensation of Chairman and CEO Leslie H. Wexner and other members of the Board of Directors has been suspended. Additionally, we are deferring annual merit increases.
•
Furloughing most store associates and those who are not currently working to support the online businesses or who cannot work from home, effective April 5, 2020 until further notice. All furloughed associates will continue to receive existing healthcare benefits. As circumstances change, we will make every effort to bring these associates back to work as soon as possible. Furloughed associates will also be able to apply for unemployment benefits, if eligible.
As of March 27, 2020, we currently have more than $2 billion in cash, which includes the $950 million borrowed under the Secured Revolving Facility on March 16, 2020.  Our Secured Revolving Facility has certain financial covenants, including a debt to consolidated EBITDA covenant, which may be breached as early as the end of the fiscal quarter ending May 2, 2020. If we were to violate a covenant, our lenders would have the right to accelerate our Secured Revolving Facility indebtedness, demand cash collateral in respect of the letters of credit issued thereunder and terminate the funding commitments available thereunder.  While we believe that we would be able to obtain temporary waivers for any such breach of a covenant to prevent an acceleration of our outstanding indebtedness or obtain a replacement credit facility, we cannot conclude with certainty that we would have the ability to obtain necessary waivers or negotiate less restrictive debt covenants with our lenders. We are in active conversations with the lenders under our credit facility to obtain a replacement credit facility that does not contain a debt to consolidated EBITDA financial covenant or a temporary waiver in respect of such financial covenant in our existing Secured Revolving Facility. We believe that our current cash balance, along with the actions taken as outlined above, provides us with sufficient current liquidity.
These recent developments could have a material adverse effect on our results of operations, financial condition and cash flows.  Additional information on this risk and other uncertainties and factors, is set forth in Item 1A. Risk Factors.
Available Information
We are subject to the reporting requirements of the Exchange Act and its rules and regulations. The Exchange Act requires us to file reports, proxy statements and other information with the U.S. Securities and Exchange Commission ("SEC"). The SEC maintains a website that contains reports, proxy statements and other information regarding issuers that file electronically with the SEC. These materials may be obtained electronically by accessing the SEC's website at www.sec.gov.
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available, free of charge, on our website at www.lb.com.
Copies of any of the above-referenced documents will also be made available, free of charge, upon written request to:
L Brands, Inc.
Investor Relations Department
Three Limited Parkway
Columbus, Ohio 43230

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ITEM 1A. RISK FACTORS.
We caution that any forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) contained in this report or made by our company or our management involve risks and uncertainties and are subject to change based on various factors, many of which are beyond our control. Accordingly, our future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. Words such as “estimate,” “project,” “plan,” “believe,” “expect,” “anticipate,” “intend,” “planned,” “potential” and any similar expressions may identify forward-looking statements. Risks associated with the following factors, among others, in some cases have affected and in the future could affect our financial performance and actual results and could cause actual results to differ materially from those expressed or implied in any forward-looking statements included in this report or otherwise made by our company or our management:
•
general economic conditions, consumer confidence, consumer spending patterns and market disruptions including severe weather conditions, natural disasters, significant health hazards or pandemics, terrorist activities, financial crises, political crises or other major events, or the prospect of these events;
•
the seasonality of our business;
•
the risk that the transactions contemplated (the “VS Transaction”) by the transaction agreement dated as of February 20, 2020 between us and SP VS Buyer LP (the “Transaction Agreement”) are not consummated, including the risk that required regulatory approvals for the VS Transaction may not be obtained;
•
difficulties arising from business uncertainties and contractual restrictions while the VS Transaction is pending;
•
difficulties arising from turnover in company leadership or other key positions;
•
our ability to attract, develop and retain qualified associates and manage labor-related costs;
•
liabilities arising from divested businesses;
•
the dependence on mall traffic and the availability of suitable store locations on appropriate terms;
•
our ability to grow through new store openings and existing store remodels and expansions;
•
our ability to successfully expand internationally and related risks;
•
our independent franchise, license and wholesale partners;
•
our direct channel businesses;
•
our ability to protect our reputation and our brand images;
•
our ability to attract customers with marketing, advertising and promotional programs;
•
our ability to protect our trade names, trademarks and patents;
•
the highly competitive nature of the retail industry and the segments in which we operate;
•
consumer acceptance of our products and our ability to manage the life cycle of our brands, keep up with fashion trends, develop new merchandise and launch new product lines successfully;
•
our ability to source, distribute and sell goods and materials on a global basis, including risks related to:
•
political instability, environmental hazards or natural disasters;
•
significant health hazards or pandemics, which could result in closed factories, reduced workforces, scarcity of raw materials, and scrutiny or embargoing of goods produced in infected areas;
•
duties, taxes and other charges;
•
legal and regulatory matters;
•
volatility in currency exchange rates;
•
local business practices and political issues;
•
potential delays or disruptions in shipping and transportation and related pricing impacts;
•
disruption due to labor disputes; and
•
changing expectations regarding product safety due to new legislation;
•
our geographic concentration of vendor and distribution facilities in central Ohio;
•
fluctuations in foreign currency exchange rates;
•
stock price volatility;

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•
our ability to pay dividends and related effects;
•
our ability to maintain our credit rating;
•
our ability to service or refinance our debt;
•
shareholder activism matters;
•
the ability of our vendors to deliver products in a timely manner, meet quality standards and comply with applicable laws and regulations;
•
fluctuations in product input costs;
•
our ability to adequately protect our assets from loss and theft;
•
fluctuations in energy costs;
•
increases in the costs of mailing, paper and printing;
•
claims arising from our self-insurance;
•
our ability to implement and maintain information technology systems and to protect associated data;
•
our ability to maintain the security of customer, associate, third-party or company information;
•
our ability to comply with laws and regulations or other obligations related to data privacy and security;
•
our ability to comply with regulatory requirements;
•
legal and compliance matters; and
•
tax, trade and other regulatory matters.
We are not under any obligation and do not intend to make publicly available any update or other revisions to any of the forward-looking statements contained in this report to reflect circumstances existing after the date of this report or to reflect the occurrence of future events even if experience or future events make it clear that any expected results expressed or implied by those forward-looking statements will not be realized.
The following discussion of risk factors contains “forward-looking statements.” These risk factors may be important to understanding any statement in this Form 10-K, other filings or in any other discussions of our business. The following information should be read in conjunction with Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation and Item 8. Financial Statements and Supplementary Data.
In addition to the other information set forth in this report, the reader should carefully consider the following factors which could materially affect our business, financial condition or future results. The risks described below are not our only risks. Additional risks and uncertainties not currently known or that are currently deemed to be immaterial may also adversely affect our business, operating results and/or financial condition in a material way.
Our net sales, profit results and cash flows are sensitive to, and may be affected by, general economic conditions, consumer confidence, spending patterns, weather, significant health hazards or pandemics or other market disruptions.
Our net sales, profit, cash flows and future growth may be affected by negative local, regional, national or international political or economic trends or developments that reduce the consumers’ ability or willingness to spend, including the effects of national and international security concerns such as war, terrorism or the threat thereof. In addition, market disruptions due to natural disasters, significant health hazards or pandemics, or other major events or the prospect of these events could also impact consumer spending and confidence levels. Extreme weather conditions in the areas in which our stores are located, particularly in markets where we have multiple stores, could adversely affect our business. Purchases of women’s intimate and other apparel, beauty and personal care products and accessories often decline during periods when economic or market conditions are unsettled or weak. In such circumstances, we may increase the number of promotional sales, which could have a material adverse effect on our results of operations, financial condition and cash flows.
We are closely monitoring the outbreak of respiratory illness caused by a novel coronavirus that was first detected in Wuhan, China and has since spread globally. The coronavirus has been declared by the World Health Organization to be a “pandemic,” has spread to many countries, including the U.S., and is impacting worldwide economic activity. A public health epidemic, including the coronavirus, poses the risk that the we or our employees, contractors, suppliers, and other business partners may be prevented from conducting business activities for an unknown period of time. Related industries in the U.S. and across the world may be adversely effected, including manufacturing and textile production. The situation and preventative or protective actions that governments around the world have taken to contain the spread of the coronavirus have resulted in a period of disruption, including closure of stores where our products are sold, limited store operating hours, reduced customer traffic and

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consumer spending, labor shortages or the extended furlough of our employees and delays in manufacturing and shipping of products and raw materials in the U.S., China and other countries. To the extent the impact of the coronavirus continues or worsens, we may have difficulty obtaining the materials necessary for the manufacturing of our products, factories which produce our products may remain closed for sustained periods of time, and industry-wide shipment of products may be negatively impacted. Further, if the impact of the coronavirus continues or worsens, consumer behavior may be altered for an extended period of time which would impact our cash and liquidity and financial condition. The coronavirus and resulting economic disruption has also led to significant volatility in the capital markets and may adversely impact our stock price and ability to access cash. Any one adverse effect of the coronavirus, or a combination of adverse effects, could materially impact our results and financial condition. Our actual results could differ materially from our guidance due to this risk, and other uncertainties and factors.
Recently, the decision by the U.K. to leave the European Union (commonly referred to as “Brexit”) has increased the uncertainty in the economic and political environment in Europe. Ongoing uncertainty remains as to what kind of post-Brexit agreement between the U.K. and the European Union, if any, may be approved by the U.K. parliament. Our business in the U.K. may be adversely impacted by this uncertainty, fluctuations in currency exchange rates, changes in trade policies, or changes in labor, immigration, tax or other laws.
Our net sales, operating income, cash and inventory levels fluctuate on a seasonal basis.
We experience major seasonal fluctuations in our net sales and operating income, with a significant portion of our operating income typically realized during the fourth quarter holiday season. Any decrease in sales or margins during this period could have a material adverse effect on our results of operations, financial condition and cash flows.
Seasonal fluctuations also affect our cash and inventory levels, since we usually order merchandise in advance of peak selling periods and sometimes before new fashion trends are confirmed by customer purchases. We must carry a significant amount of inventory, especially before the holiday season selling period. If we are not successful in selling inventory, we may have to sell the inventory at significantly reduced prices or may not be able to sell the inventory at all, which could have a material adverse effect on our results of operations, financial condition and cash flows.
We have entered into an agreement pursuant to which we will transfer certain assets and liabilities relating to our business conducted under the Victoria’s Secret and PINK brands (the “Victoria’s Secret Business”) to a newly formed subsidiary (“Victoria’s Secret Holdco”) and sell 55% of the equity interests of Victoria’s Secret Holdco to an affiliate of Sycamore Partners Management, L.P. (“Sycamore”). The proposed VS Transaction involves risks, including risks that the proposed transaction may not be completed on the currently contemplated timeline, or at all, and may not achieve the intended benefits.
The VS Transaction is expected to close in the second quarter of 2020, subject to customary closing conditions, including; (1) the expiration or termination of the applicable waiting period under the Hart-Scott Rodino Antitrust Improvements Act of 1976, as amended, (2) the receipt of approval under the Competition Act of Canada, (3) the absence of any applicable law, injunction or other judgment that prohibits the closing, and (iv) the completion of certain restructuring transactions. In addition, each of our and Sycamore’s obligation to complete the VS Transaction is subject to, among other things, the accuracy of the other party’s representations and warranties in the Transaction Agreement (subject in most cases to “material” and “material adverse effect” qualifications), and the other party’s compliance with its covenants and agreements in the Transaction Agreement in all material respects. The Transaction Agreement provides that we or Sycamore may choose not to proceed with the VS Transaction if the VS Transaction has not been completed by August 20, 2020, which date may be extended by either party to November 20, 2020 under certain circumstances where the restructuring transactions have not been completed pending governmental approvals.
The satisfaction of the required conditions could delay the consummation of the proposed transaction with Sycamore or prevent it from occurring. Further, there can be no assurance that the conditions to the closing of the proposed transaction will be satisfied or waived or that the proposed transaction will be consummated. With respect to regulatory approvals, there can be no assurance that the required regulatory approvals will be received in a timely manner or at all, or that such approvals will not contain adverse conditions. Failure to consummate the proposed transaction in a timely manner or at all could negatively impact the market price of our common stock, as well as our future business and its financial condition, results of operations and cash flows.
Assuming the VS Transaction is completed, there can be no assurance that we will be able to realize the anticipated value and benefits therefrom, and the VS Transaction may adversely affect our business. The proposed transaction will result in a smaller, less diversified and more narrowly focused business than before the VS Transaction, which makes us more vulnerable to changing market and economic conditions. Additionally, a potential loss of synergies from separating the businesses could negatively impact our balance sheet, profit margins or earnings, and the price of our common stock may not be equal to or

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greater than the value of our common stock had the VS Transaction not occurred. If we fail to achieve some or all of the benefits that we expect to achieve as a result of the VS Transaction, or do not achieve them in the time we expect, our results of operations and financial condition could be materially adversely affected.
We will be subject to business uncertainties and contractual restrictions while the VS Transaction is pending.
Uncertainty about the effect of the VS Transaction on employees, commercial partners and vendors may have an adverse effect on us. These uncertainties may impair our ability to retain and motivate key personnel and could cause commercial partners, vendors and others that deal with us to defer or decline entering into contracts with us or seek to change existing business relationships with us. Certain of our contracts contain restrictions that may give rise to a right of termination or cancellation in connection with the VS Transaction. In addition, if key employees depart because of uncertainty about their future roles and the potential complexities of the VS Transaction, our business could be harmed. Furthermore, the Transaction Agreement contains restrictions on our ability take certain actions relating to the Victoria’s Secret Business outside the ordinary course of business prior to the closing, which may delay or prevent us from undertaking certain actions or business opportunities that may arise prior to the closing.
Turnover in company leadership or other key positions may have an adverse impact on company performance.
Upon the consummation of the VS Transaction, our current Chief Executive Officer ("CEO") will step down and a new CEO will be appointed. Leslie H. Wexner will step down from his position as our CEO and Chairman of the Board after leading the company for more than five decades. Mr. Wexner will remain a member of the Board as Chairman Emeritus. Andrew Meslow, the current Chief Executive Officer of Bath & Body Works, will become our new CEO and will be appointed as a member of the Board. Sarah E. Nash, a member of the Board, will be appointed as the Chair of the Board, effective upon Closing. Additionally, current lead independent director Allan Tessler, as well as directors Gordon Gee and Raymond Zimmerman, will retire as of the date of the annual meeting, and upon Mr. Tessler's retirement, Ms. Nash will serve as lead independent director. Such leadership transitions can be inherently difficult to manage, and an inadequate transition of our CEO may cause disruption to our business, including to our relationships with vendors and employees.
We may well experience further changes in key leadership or key positions in the future. The departure of key leadership personnel, especially a long-serving CEO, can take from the company significant knowledge and experience. This loss of knowledge and experience can be mitigated through successful hiring and transition, but there can be no assurance that we will be successful in such efforts. Attracting and retaining qualified senior leadership may be more challenging under adverse business conditions. Failure to attract and retain the right talent, or to smoothly manage the transition of responsibilities resulting from such turnover, would affect our ability to meet our challenges and may cause us to miss performance objectives or financial targets or disrupt our relationships with our customers.
We may be impacted by our ability to attract, develop and retain qualified associates and manage labor-related costs.
We believe our competitive advantage is providing a positive, engaging and satisfying experience for each individual customer, which requires us to have highly trained and engaged associates. Our success depends in part upon our ability to attract, develop and retain a sufficient number of qualified associates, including store personnel and talented merchants. The turnover rate in the retail industry is generally high, and qualified individuals of the requisite caliber and number needed to fill these positions may be in short supply in some areas. Competition for such qualified individuals or changes in labor and healthcare laws could require us to incur higher labor costs. Our inability to recruit a sufficient number of qualified individuals in the future may delay planned openings of new stores or affect the speed with which we expand. Delayed store openings, significant increases in associate turnover rates or significant increases in labor-related costs could have a material adverse effect on our results of operations, financial condition and cash flows.
Retained or contingent liabilities from businesses that we divest could adversely affect our financial results. Our continued involvement with Victoria’s Secret Holdco is also subject to various arrangements, and conditions outside of our control could affect our future results.
In the fourth quarter of 2018, we completed the sale of La Senza to an affiliate of Regent LP, a global private equity firm, and in the first quarter of 2020, we signed a Transaction Agreement with Sycamore to effect the VS Transaction. As a result of the La Senza divestiture and upon the consummation of the VS Transaction, we may incur unexpected contingent liabilities, including with respect to leases assumed by the buyer. Our divestiture activities may also present financial and operational risks. Those risks may include difficulties separating personnel, financial and other systems, and indemnities and potential disputes with the buyer of La Senza and/or Victoria’s Secret Holdco. Any of these factors could adversely affect our financial condition and results of operations. In addition, we will continue to have financial involvement with Victoria’s Secret Holdco after the closing, including through our 45% interest in Victoria’s Secret Holdco, transition services agreements and guarantees.

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Under these arrangements, performance by Victoria’s Secret Holdco or other conditions outside of our control could affect our future results.
Our net sales depend on a volume of traffic to our stores and the availability of suitable lease space.
Most of our stores are located in retail shopping areas including malls and other types of retail centers. Sales at these stores are derived, in part, from the volume of traffic in those retail areas. Our stores benefit from the ability of the retail center and other attractions in an area, including “destination” retail stores, to generate consumer traffic in the vicinity of our stores. Sales volume and retail traffic may be adversely affected by factors that we cannot control, such as economic downturns or changes in consumer demographics in a particular area, consumer trends away from brick-and-mortar retail toward online shopping, competition from internet and other retailers and other retail areas where we do not have stores, significant health hazards or pandemics, the closing of other stores or the decline in popularity or safety in the shopping areas where our stores are located and the deterioration in the financial condition of the operators or developers of the shopping areas in which our stores are located.
Part of our future growth is significantly dependent on our ability to operate stores in desirable locations with capital investment and lease costs providing the opportunity to earn a reasonable return. We cannot be sure as to when or whether such desirable locations will become available at reasonable costs. Some of our store locations require significant upfront capital investment and have material lease commitments. Additionally, we are dependent upon the suitability of the lease spaces that we currently use. The leases that we enter into are generally noncancelable leases with initial terms of 10 years. If we determine that it is no longer economical to operate a store and decide to close it, we may remain obligated under the applicable lease for, among other things, payment of the base rent for the balance of the lease term.
These risks could have a material adverse effect on our ability to grow and our results of operations, financial condition and cash flows.
Our ability to grow depends in part on new store openings and existing store remodels and expansions.
Our continued growth and success will depend in part on our ability to open and operate new stores and expand and remodel existing stores on a timely and profitable basis. Accomplishing our new and existing store expansion goals will depend upon a number of factors, including the ability to partner with developers and landlords to obtain suitable sites for new and expanded stores at acceptable costs, the hiring and training of qualified personnel and the integration of new stores into existing operations. There can be no assurance we will be able to achieve our store expansion goals, manage our growth effectively, successfully integrate the planned new stores into our operations or operate our new, remodeled and expanded stores profitably. These risks could have a material adverse effect on our ability to grow and results of operations, financial condition and cash flows.
Our plans for international expansion include risks that could impact our results and reputation.
We intend to further expand into international markets, including mainland China, through partner arrangements and/or company-owned stores. The risks associated with our expansion into international markets include difficulties in attracting customers due to a lack of customer familiarity with our brands, our lack of familiarity with local customer preferences and seasonal differences in the market. Any of these difficulties may lead to disruption in the overall timing of our international expansion efforts or increased costs. Further, entry into other markets may bring us into competition with new competitors or with existing competitors with an established market presence. Other risks include general economic conditions in specific countries or markets, volatility in the geopolitical landscape, restrictions on the repatriation of funds held internationally, disruptions or delays in shipments, occurrence of significant health hazards or pandemics, changes in diplomatic and trade relationships, political instability and foreign governmental regulation. For example, in December 2019, a strain of coronavirus was reported to have surfaced in Wuhan, China, resulting in temporary store closures and a decrease in consumer traffic in China. To date, this virus has begun to spread globally. We expect the coronavirus to negatively impact our results of operations, particularly in the Greater China business, and our plans for expansion in China, though the extent and duration of this impact remain uncertain. To the extent the impact of the coronavirus continues or worsens, we may have difficulty obtaining the materials necessary for the manufacturing of our products, factories which produce our products may remain closed for sustained periods of time and industry-wide shipment of products may be negatively impacts. Such expansions will also have upfront investment costs that may not be accompanied by sufficient revenues to achieve typical or expected operational and financial performance.
We also have risks related to identifying suitable partners. In addition, certain aspects of these arrangements are not directly within our control, such as the ability of these third parties to meet their projections regarding store openings and sales and their compliance with federal and local law. We cannot ensure the profitability or success of our expansion into international markets.

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Further, our results of operations and financial condition may be adversely affected by fluctuations in currency exchange rates. See “Fluctuations in foreign currency exchange rates could impact our financial condition and results of operations” below.
These risks could have a material adverse effect on our results of operations, financial condition and cash flows.
Our licensees, franchisees and wholesalers could take actions that could harm our business or brand images.
We have global representation through independently owned stores operated by our partners. Although we have criteria to evaluate and select prospective partners, the level of control we can exercise over our partners is limited, and the quality and success of their operations may be diminished by any number of factors beyond our control. For example, our partners may not have the business acumen or financial resources necessary to successfully operate stores in a manner consistent with our standards and may not hire and train qualified store managers and other personnel. Our brand image and reputation may suffer materially, and our sales could decline if our partners do not operate successfully. These risks could have an adverse effect on our results of operations, financial condition and cash flows.
Our direct channel businesses include risks that could have an effect on our results.
Our direct operations are subject to numerous risks that could have a material adverse effect on our results. Risks include, but are not limited to, the difficulty in recreating the in-store experience through our direct channels; domestic or international resellers purchasing merchandise and reselling it outside our control; our ability to anticipate and implement innovations in technology and logistics in order to appeal to existing and potential customers who increasingly rely on multiple channels to meet their shopping needs; the failure of and risks related to the systems that operate our web infrastructure, websites and the related support systems, including computer viruses, theft of customer information, privacy concerns, telecommunication failures and electronic break-ins and similar disruptions.
Our failure to maintain efficient and uninterrupted order-taking and fulfillment operations could also have a material adverse effect on our results. The satisfaction of our online customers depends on their timely receipt of merchandise. If we encounter difficulties with the distribution facilities, or if the facilities were to shut down for any reason, including as a result of fire, natural disaster or work stoppage, we could face shortages of inventory; incur significantly higher costs and longer lead times associated with distributing our products to our customers; and cause customer dissatisfaction.
Any of these issues could have a material adverse effect on our operations, financial condition and cash flows.
Our ability to protect our reputation could have a material effect on our brand images.
Our ability to maintain our reputation is critical to our brand images. Our reputation could be jeopardized if we fail to maintain high standards for merchandise quality and integrity. Any negative publicity, including information publicized through traditional or social media platforms and similar venues such as blogs, websites and other forums, may affect our reputation and brand and, consequently, reduce demand for our merchandise, even if such publicity is unverified or inaccurate.
Failure to comply with or the perception that the Company has failed to comply with ethical, social, product, labor and environmental standards, or related political considerations, could also jeopardize our reputation and potentially lead to various adverse consumer actions, including boycotts. Failure to comply with local laws and regulations, to maintain an effective system of internal controls, to maintain the security of customer, associate, third-party or company information or to provide accurate and timely financial statement information could also hurt our reputation. Damage to our reputation or loss of consumer confidence for any of these or other reasons could have a material adverse effect on our results of operations, financial condition and cash flows, as well as require additional resources to rebuild our reputation.
If our marketing, advertising and promotional programs are unsuccessful, or if our competitors are more effective with their programs than we are, our revenue or results of operations may be adversely affected.
Customer traffic and demand for our merchandise are influenced by our advertising, marketing and promotional activities, the name recognition and reputation of our brands and the location of and service offered in our stores. Although we use marketing, advertising and promotional programs to attract customers through various media, including social media, websites, mobile applications, email, print and television, some of our competitors may expend more for their programs than we do, or use different approaches than we do, which may provide them with a competitive advantage. Our programs may not be effective or could require increased expenditures, which could have a material adverse effect on our revenue and results of operations.

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Our ability to adequately protect our trade names, trademarks and patents could have an impact on our brand images and ability to penetrate new markets.
We believe that our trade names, trademarks and patents are important assets and an essential element of our strategy. We have obtained or applied for federal registration of these trade names, trademarks and patents and have applied for or obtained registrations in many foreign countries. There can be no assurance that we will obtain such registrations or that the registrations we obtain will prevent the imitation of our products or infringement of our intellectual property rights by others. In particular, the laws of certain foreign countries may not protect proprietary rights to the same extent as the laws of the U.S. If any third-party copies our products or our stores in a manner that projects lesser quality or carries a negative connotation, it could have a material adverse effect on our brand image and reputation as well as our results of operations, financial condition and cash flows.
Our ability to compete favorably in our highly competitive segment of the retail industry could impact our results.
The sale of women’s intimate and other apparel, personal care products and accessories is highly competitive. We compete for sales with a broad range of other retailers, including individual and chain specialty stores, department stores and discount retailers. In addition to the traditional store-based retailers, we also compete with direct marketers or retailers that sell similar lines of merchandise and who target customers through online channels. Brand image, marketing, design, price, service, assortment, quality, image presentation and fulfillment are all competitive factors in both the store-based and online channels.
Some of our competitors may have greater financial, marketing and other resources available and trends across our product categories may favor our competitors. We rely to a greater degree than some of our competitors on physical locations in shopping malls and centers and so declines in traffic to such locations may affect us more significantly than our competitors. Some of our competitors sell their products in stores that are located in the same shopping malls and centers as our stores. In addition to competing for sales, we compete for favorable site locations and lease terms in shopping malls and centers.
Increased competition, combined with declines in mall traffic, could result in price reductions, increased marketing expenditures and loss of pricing power and market share, any of which could have a material adverse effect on our results of operations, financial condition and cash flows.
Our ability to manage the life cycle of our brands and to remain current with fashion trends and launch new product lines successfully could impact the image and relevance of our brands.
Our success depends in part on management’s ability to effectively manage the life cycle of our brands and to anticipate and respond to changing fashion preferences and consumer demands and to translate market trends into appropriate, salable product offerings in advance of the actual time of sale to the customer. Customer demands and fashion trends change rapidly. If we are unable to successfully anticipate, identify or react to changing styles or trends or we misjudge the market for our products or any new product lines, our sales will be lower, potentially resulting in significant amounts of unsold finished goods inventory. In response, we may be forced to increase our marketing promotions or price markdowns. These risks could have a material adverse effect on our brand image and reputation as well as our results of operations, financial condition and cash flows.
We may be impacted by our ability to adequately source, distribute and sell merchandise and other materials on a global basis.
We source merchandise and other materials directly in international markets and in our domestic market. We distribute merchandise and other materials globally to our partners in international locations and to our stores. Many of our imports and exports are subject to a variety of customs regulations and international trade arrangements, including existing or potential duties, tariffs or safeguard quotas. We compete with other companies for production facilities.
We also face a variety of other risks generally associated with doing business on a global basis. For example:
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political instability, environmental hazards or natural disasters which could negatively affect international economies, financial markets and business activity;
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significant health hazards or pandemics, which could result in closed factories, reduced workforces, scarcity of raw materials, and scrutiny or embargoing of goods produced in infected areas;
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imposition of new or retaliatory trade duties, sanctions or taxes and other charges on imports or exports;
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evolving, new or complex legal and regulatory matters;
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volatility in currency exchange rates;

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•
local business practice and political issues (including issues relating to compliance with domestic or international labor standards) which may result in adverse publicity or threatened or actual adverse consumer actions, including boycotts;
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potential delays or disruptions in shipping and transportation and related pricing impacts;
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disruption due to labor disputes; and
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changing expectations regarding product safety due to new legislation or other factors.
We also rely upon third-party transportation providers for substantially all of our product shipments, including shipments to and from our distribution centers, to our stores and to our customers. Our utilization of these delivery services for shipments is subject to risks, including increases in labor costs and fuel prices, which would increase our shipping costs, and associate strikes and inclement weather, which may impact our transportation providers’ ability to provide delivery services that adequately meet our shipping needs.
For example, the recent outbreak of respiratory illness caused by a novel coronavirus first identified in Wuhan, China has led to work and travel restrictions within, to, and out of mainland China, which in turn has led to delays in textile mill and factory openings, and delays in workers returning, following the Chinese New Year holiday. To date, this virus has begun to spread globally, and various governments have either enforced further restrictions or have begun pondering taking action soon. These restrictions and delays, which may further expand depending on the progression of the illness, may make it difficult for our suppliers to source raw materials in China, manufacture finished goods in China and export our products from China. Additionally, our suppliers throughout Asia source a significant amount of fabric from China. If the severity and reach of the coronavirus outbreak increases, there may be significant and material disruptions to our supply chain and operations, and delays in the manufacture and shipment of our products, which may then have a material adverse effect on our results of operations. Our future performance will depend upon these and the other factors listed above, which are beyond our control, and the occurrence or deepening impact of one or more of these events could have a material adverse effect on our results of operations, financial condition and cash flows.
We rely on a number of vendor and distribution facilities located in the same vicinity, making our business susceptible to local and regional disruptions or adverse conditions.
To achieve the necessary speed and agility in producing our beauty, personal care and home fragrance products, we rely heavily on vendor and distribution facilities in close proximity to our headquarters in Central Ohio. As a result of geographic concentration of the vendor and distribution facilities that we rely upon, our operations are susceptible to local and regional factors, such as accidents, system failures, economic and weather conditions, natural disasters, demographic and population changes, and other unforeseen events and circumstances. Any significant interruption in the operations of these facilities could lead to inventory issues or increased costs, which could have a material adverse effect on our results of operations, financial condition and cash flows.
Fluctuations in foreign currency exchange rates could impact our financial condition and results of operations.
We are exposed to foreign currency exchange rate risk with respect to our sales, profits, assets and liabilities denominated in currencies other than the U.S. dollar. In addition, our royalty arrangements are calculated based on sales in local currency and, as such, we are exposed to foreign currency exchange rate fluctuations. Although we use foreign currency forward contracts to hedge certain foreign currency risks, these measures may not succeed in offsetting all of the short-term negative impacts of foreign currency rate movements on our business and results of operations. Hedging would generally not be effective in offsetting the long-term impact of sustained shifts in foreign exchange rates on our business results. As a result, the fluctuation in the value of the U.S. dollar against other currencies could have a material adverse effect on our results of operations, financial condition and cash flows.
Our stock price may be volatile.
Our stock price may fluctuate substantially as a result of variations in our actual or projected performance or the financial performance of other companies in the retail industry. Any guidance that we provide is based on goals that we believe are reasonably attainable at the time guidance is given. If, or when, we announce actual results that differ from those that have been predicted by us, outside investment analysts or others, our stock price could be adversely affected. Investors who rely on these predictions when making investment decisions with respect to our securities do so at their own risk.
In addition, the stock market may experience price and volume fluctuations that are unrelated or disproportionate to operating performance.

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On March 27, 2020, our Board of Directors announced that it planned to suspend our annual ordinary dividend, beginning with the quarterly dividend to be paid in our second fiscal quarter in 2020. There can be no assurance if, when and at what level our Board of Directors may resume making dividend payments.
On March 27, 2020, our Board of Directors announced that it planned to suspend our annual ordinary dividend, beginning with the quarterly dividend to be paid in our second fiscal quarter in 2020. While we remain committed to paying dividends over the long-term and will re-evaluate when appropriate, there can be no assurance if, when and at what level our Board of Directors may resume making dividend payments. Our dividend program requires the use of a portion of our cash flow. Our ability to pay dividends depends on our ability to generate sufficient cash flows from operations in the future. This ability is subject to certain economic, financial, competitive and other factors that are beyond our control. Our failure to pay dividends may negatively impact our stock price.
Our ability to maintain our credit rating could affect our ability to access capital and could increase our interest expense.
The credit rating agencies periodically review our capital structure and the quality and stability of our earnings. A deterioration in our capital structure or the quality and stability of our earnings could result in a downgrade of our credit rating. Any negative ratings actions could constrain the capital available to our company or our industry and could limit our access to funding for our operations. We are dependent upon our ability to access capital at rates and on terms we determine to be attractive. If our ability to access capital becomes constrained, our interest costs will likely increase, which could have a material adverse effect on our results of operations, financial condition and cash flows. Additionally, changes to our credit rating could affect our future interest costs.
If we breach covenants in our Secured Revolving Facility, our ability to service or refinance our debt as well as our financial stability may be impacted.
We currently have substantial indebtedness. Our Secured Revolving Facility contains covenants which require maintenance of certain financial ratios and also, under certain conditions, restrict our ability to pay dividends, repurchase common shares and make other restricted payments as defined in the agreement. Our cash flow from operations provides the primary source of funds for our debt service payments. If our cash flow from operations declines, we may be unable to service or refinance our current debt, or make certain restricted payments as defined in our Secured Revolving Facility. If we fail to comply with any covenant, including our financial maintenance covenants, it could result in an event of default and our lenders could terminate the commitments under our Secured Revolving Facility as well as certain foreign borrowing facilities and make the entire debt incurred thereunder immediately due and payable or we may be forced to sell assets, restructure our indebtedness or seek additional equity capital, which would dilute our stockholders’ interests. In particular, as of March 27, 2020, we currently have more than $2 billion in cash, which includes the $950 million borrowed under the Secured Revolving Facility on March 16, 2020. However, our Secured Revolving Facility has certain financial covenants, including a debt to consolidated EBITDA covenant, which may be breached as early as the end of the fiscal quarter ending May 2, 2020. We are in active conversations with our lenders regarding a temporary waiver in respect of such financial covenant or the possibility of entering into a replacement credit facility without a similar covenant. If we are unable to obtain a temporary waiver for that anticipated covenant breach or to obtain a replacement credit facility without a similar covenant, our lenders would have the right to accelerate our Secured Revolving Facility indebtedness, demand cash collateral in respect of the letters of credit issued thereunder and terminate the funding commitments available thereunder. If this occurs, we might not be able to repay our debt or borrow sufficient funds to refinance it. Even if new financing is available, it may not be on terms that are acceptable to us.
Shareholder activism could cause us to incur significant expense, hinder execution of our business strategy and impact our stock price.
Shareholder activism, which can take many forms and arise in a variety of situations, could result in substantial costs and divert management’s and our board’s attention and resources from our business. Additionally, such shareholder activism could give rise to perceived uncertainties as to our future, adversely affect our relationships with our associates, customers or service providers and make it more difficult to attract and retain qualified personnel. Also, we may be required to incur significant fees and other expenses related to activist shareholder matters, including for third-party advisors. Our stock price could be subject to significant fluctuation or otherwise be adversely affected by the events, risks and uncertainties of any shareholder activism.
We may be impacted by our vendors’ ability to manufacture and deliver products in a timely manner, meet quality standards and comply with applicable laws and regulations.
We purchase products from third-party vendors. Factors outside our control, such as production or shipping delays or quality problems, could disrupt merchandise deliveries and result in lost sales, cancellation charges or excessive markdowns.

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In addition, quality problems could result in a product liability judgment or a widespread product recall that may negatively impact our sales and profitability for a period of time depending on product availability, competition reaction and consumer attitudes. Even if the product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding any assertions could adversely impact our reputation with existing and potential customers and our brand image.
Our business could also suffer if our third-party vendors fail to comply with applicable laws and regulations. While our internal and vendor operating guidelines promote ethical business practices and our associates visit and monitor the operations of our third-party vendors, we do not control these vendors or their practices. The violation of labor, environmental or other laws by third-party vendors used by us, or the divergence of a third-party vendor’s or partner’s labor or environmental practices from those generally accepted as ethical or appropriate, could interrupt or otherwise disrupt the shipment of finished products to us or damage our reputation.
These risks could have a material adverse effect on our results of operations, financial condition and cash flows.
Our results may be affected by fluctuations in product input costs.
Product input costs, including freight, labor and raw materials, fluctuate. These fluctuations may result in an increase in our production costs. We may not be able to, or may elect not to, pass these increases on to our customers which may adversely impact our profit margins. These risks could have a material adverse effect on our results of operations, financial condition and cash flows.
Our ability to adequately protect our assets from loss and theft.
Our assets are subject to loss, including those caused by illegal or unethical conduct by associates, customers, vendors or unaffiliated third parties. We have experienced events such as inventory shrinkage in the past, and we cannot assure that incidences of loss and theft will decrease in the future or that the measures we are taking will effectively reduce these losses. Higher rates of loss or increased security costs to combat theft could have a material adverse effect on our results of operations, financial condition and cash flows.
Our results may be affected by fluctuations in energy costs.
Energy costs have fluctuated in the past. These fluctuations may result in an increase in our transportation costs for distribution, utility costs for our retail stores and costs to purchase products from our manufacturers. A continual rise in energy costs could adversely affect consumer spending and demand for our products and increase our operating costs, both of which could have a material adverse effect on our results of operations, financial condition and cash flows.
We may be impacted by increases in costs of mailing, paper and printing.
Postal rate increases and paper and printing costs will affect the cost of our order fulfillment and promotional mailings. We rely on discounts from the basic postal rate structure, such as discounts for bulk mailings and sorting. Future paper and postal rate increases could adversely impact our earnings if we are unable to recover these costs or if we are unable to implement more efficient printing, mailing, delivery and order fulfillment systems. These risks could have a material adverse effect on our results of operations, financial condition and cash flows.
We self-insure certain risks and may be impacted by unfavorable claims experience.
We are self-insured for various types of insurable risks including associate medical benefits, workers’ compensation, property, general liability and automobile up to certain stop-loss limits. Claims are difficult to predict and may be volatile. Any adverse claims experience could have a material adverse effect on our results of operations, financial condition and cash flows.
We significantly rely on our ability to implement and sustain information technology systems and to protect associated data.
Our success depends, in part, on the secure and uninterrupted performance of our information technology systems. Our information technology systems, as well as those of our service providers, are vulnerable to damage from a variety of sources, including telecommunication failures, malicious human acts and natural disasters. Moreover, despite maintaining comprehensive measures, some of our systems, e-commerce environments, servers and those of our service providers are potentially vulnerable to physical or electronic break-ins, computer viruses and similar disruptive problems. Additionally, these types of problems could result in a breach of confidential customer, merchandise, financial, employee or other important information (including personal information) which could result in damage to our reputation and/or litigation. The increased use of smartphones, tablets and other mobile devices may also heighten these and other operational risks. Despite the precautions we have taken, unanticipated problems may nevertheless cause failures in our information technology systems.

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Sustained or repeated system disruptions that interrupt our ability to process orders and deliver products to the stores, impact our customers’ ability to access our websites in a timely manner or expose confidential customer information, merchandise, financial or other important information (including personal information) could have a material adverse effect on our results of operations, financial condition and cash flows.
In addition, from time to time, we make hardware, software and code modifications and upgrades to our information technology systems for point-of-sale, e-commerce, merchandising, planning, sourcing, logistics, inventory management and support systems including human resources and finance. Modifications involve replacing existing systems with successor systems, making changes to existing systems or acquiring new systems with new functionality. We are aware of inherent risks associated with replacing these systems, including not accurately capturing data and system disruptions. Information technology system disruptions, if not anticipated and appropriately mitigated, could have a material adverse effect on our operations, financial condition and cash flows.
Any significant compromise or breach of our data security, including the security of customer, associate, third-party or company information, could have a material adverse effect on our reputation, results of operations, financial condition and cash flows.
In the operation of our business, we collect, use, transmit and otherwise process a large volume of personal and other confidential, proprietary and sensitive information. Information systems are susceptible to an increasing threat of continually evolving cybersecurity risks. Any significant compromise or breach of our data security, media reports about such an incident, whether accurate or not, or our failure to make adequate or timely disclosures to the public or law enforcement agencies following any such event, whether due to delayed discovery or a failure to follow existing protocols, could significantly damage our reputation with our customers, associates, investors and other third parties, cause the disclosure of personal, confidential, proprietary or sensitive customer, associate, third-party or company information, cause interruptions to our operations and distraction to our management, cause our customers to stop shopping with us and result in significant legal, regulatory and financial liabilities and lost revenues.
While we train our associates and have implemented systems, processes and confidential security measures to protect our physical facilities and information technology systems against unauthorized access and prevent data loss, there is no guarantee that these procedures are adequate to safeguard against all data security breaches. Despite these measures, we may be vulnerable to targeted or random security breaches, phishing attacks, denial of service attacks, acts of vandalism, computer viruses, malware, ransomware, misplaced or lost data, programming and/or human errors or similar events. Our systems and facilities are also subject to compromise from internal threats, such as theft, misuse, unauthorized access or other improper actions by employees, third-party service providers and other third parties with otherwise legitimate access to our systems, website or facilities. Furthermore, because the methods of cyber-attack and deception change frequently, are increasingly complex and sophisticated, and can originate from a wide variety of sources, including nation-state actors, despite our reasonable efforts to ensure the integrity of our systems and website, it is possible that we may not be able to anticipate, detect, appropriately react and respond to, or implement effective preventative measures against, all cybersecurity incidents.
In addition to our own systems, networks and databases, we use third-party service providers to store, transmit and otherwise process certain of this information on our behalf. Due to applicable laws and regulations or contractual obligations, we may be held responsible for any cybersecurity incident attributed to our service providers as they relate to the information we share with them or to which they are granted access. Although we contractually require these service providers to implement and use reasonable security measures, we cannot control third parties and cannot guarantee that a security breach will not occur in their systems.
We may be required to expend significant capital and other resources to protect against, respond to, and recover from any potential, attempted, or existing cybersecurity incidents. As cybersecurity incidents continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities. In addition, our remediation efforts may not be successful. The inability to implement, maintain and upgrade adequate safeguards could have a material adverse effect on our results of operations, financial condition and cash flow. Moreover, there could be public announcements regarding any cybersecurity incidents and any steps we take to respond to or remediate such incidents, and if securities analysts or investors perceive these announcements to be negative, it could, among other things, have a substantial adverse effect on the price of our common stock.
While we currently maintain cybersecurity insurance, such insurance may not be sufficient in type or amount to cover us against claims related to breaches, failures or other data security-related incidents, and we cannot be certain that cyber insurance will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance

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coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our results of operations, financial condition and cash flows.
Changes in laws or regulations relating to data privacy and security, or any actual or perceived failure by us to comply with such laws and regulations, or contractual or other obligations relating to data privacy and security, could have a material adverse effect on our reputation, results of operations, financial condition and cash flows.
We are, and may increasingly become, subject to various laws and regulations, as well as contractual obligations, relating to data privacy and security in the jurisdictions in which we operate. The regulatory environment related to data privacy and security is increasingly rigorous, with new and constantly changing requirements applicable to our business, and enforcement practices are likely to remain uncertain for the foreseeable future. These laws and regulations may be interpreted and applied differently over time and from jurisdiction to jurisdiction, and it is possible that they will be interpreted and applied in ways that may have a material adverse effect on our results of operations, financial condition and cash flows.
In the U.S., various federal and state regulators, including governmental agencies like the Consumer Financial Protection Bureau and the Federal Trade Commission, have adopted, or are considering adopting, laws and regulations concerning personal information and data security. Certain state laws may be more stringent or broader in scope, or offer greater individual rights, with respect to personal information than federal, international or other state laws, and such laws may differ from each other, all of which may complicate compliance efforts. For example, the California Consumer Privacy Act (“CCPA”), which increases privacy rights for California residents and imposes obligations on companies that process their personal information, went into effect on January 1, 2020. Among other things, the CCPA requires covered companies to provide new disclosures to California consumers and provide such consumers new data protection and privacy rights, including the ability to opt-out of certain sales of personal information. The CCPA provides for civil penalties for violations, as well as a private right of action for certain data breaches that result in the loss of personal information. This private right of action may increase the likelihood of, and risks associated with, data breach litigation. In addition, laws in all 50 U.S. states require businesses to provide notice to consumers whose personal information has been disclosed as a result of a data breach. State laws are changing rapidly and there is discussion in Congress of a new comprehensive federal data privacy law to which we would become subject if it is enacted.
We are subject to international laws, regulations and standards in many jurisdictions, which apply broadly to the collection, use, retention, security, disclosure, transfer and other processing of personal information. For example, the E.U. General Data Protection Regulation (“GDPR”), which became effective in May 2018, greatly increased the European Commission’s jurisdictional reach of its laws and adds a broad array of requirements for handling personal data. EU member states are tasked under the GDPR to enact, and have enacted, certain implementing legislation that adds to and/or further interprets the GDPR requirements and potentially extends our obligations and potential liability for failing to meet such obligations. The GDPR, together with national legislation, regulations and guidelines of the EU member states and the United Kingdom governing the processing of personal data, impose strict obligations and restrictions on the ability to collect, use, retain, protect, disclose, transfer and otherwise process personal data. In particular, the GDPR includes obligations and restrictions concerning the consent and rights of individuals to whom the personal data relates, the transfer of personal data out of the European Economic Area or the United Kingdom, security breach notifications and the security and confidentiality of personal data. The GDPR authorizes fines for certain violations of up to 4% of global annual revenue or €20 million, whichever is greater.
All of these evolving compliance and operational requirements impose significant costs, such as costs related to organizational changes, implementing additional protection technologies, training associates and engaging consultants, which are likely to increase over time. In addition, such requirements may require us to modify our data processing practices and policies, distract management or divert resources from other initiatives and projects, all of which could have a material adverse effect on our results of operations, financial condition and cash flows. Any failure or perceived failure by us to comply with any applicable federal, state or similar foreign laws and regulations relating to data privacy and security could result in damage to our reputation and our relationship with our customers, as well as proceedings or litigation by governmental agencies or customers, including class action privacy litigation in certain jurisdictions, which would subject us to significant fines, sanctions, awards, penalties or judgments, all of which could have a material adverse effect on our results of operations, financial condition and cash flows.
We may be impacted by our ability to comply with regulatory requirements.
We are subject to numerous regulatory requirements. Our policies, procedures and internal controls are designed to comply with all applicable foreign and domestic laws and regulations, including those required by the Sarbanes-Oxley Act of 2002, the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, the SEC and the New York Stock Exchange (the “NYSE”), among others. Although we have put in place policies and procedures aimed at ensuring legal and regulatory compliance, our

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associates, subcontractors, vendors, licensees, franchisees and other third parties could take actions that violate these laws and regulations. Any violations of such laws or regulations could have an adverse effect on our reputation, market price of our common stock, results of operations, financial condition and cash flows.
It can be difficult to comply with sometimes conflicting regulations in local, national or foreign jurisdictions as well as new or changing regulations. Also, changes in such laws could make operating our business more expensive or require us to change the way we do business. For example, changes in product safety or other consumer protection laws could lead to increased costs for certain merchandise, or additional labor costs associated with readying merchandise for sale. It may be difficult for us to oversee regulatory changes impacting our business, and our responses to changes in the law could be costly and may negatively impact our operations.
We may be adversely impacted by certain compliance or legal matters.
We, along with third parties we do business with, are subject to complex compliance and litigation risks. Actions filed against us from time to time include commercial, tort, intellectual property, customer, employment, wage and hour, data privacy, securities, anti-corruption and other claims, including purported class action lawsuits. The cost of defending against these types of claims against us or the ultimate resolution of such claims, whether by settlement or adverse court decision, may harm our business. Further, potential claimants may be encouraged to bring suits based on a settlement from us or adverse court decisions against us. We cannot currently assess the likely outcome of such suits, but if the outcome were negative, it could have a material adverse effect on our reputation, results of operations, financial condition and cash flows.
In addition, we may be impacted by litigation trends, including class action lawsuits involving consumers and shareholders, that could have a material adverse effect on our reputation, the market price of our common stock, results of operations, financial condition and cash flows.
We may be impacted by changes in taxation, trade and other regulatory requirements.
We are subject to income tax in local, national and international jurisdictions. In addition, our products are subject to import and excise duties and/or sales or value-added taxes in many jurisdictions. We are also subject to the examination of our tax returns and other tax matters by the Internal Revenue Service and other tax authorities and governmental bodies. We regularly assess the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of our provision for taxes. There can be no assurance as to the outcome of these examinations. Fluctuations in tax rates and duties, changes in tax legislation or regulation or adverse outcomes of these examinations could have a material adverse effect on our results of operations, financial condition and cash flows.
There is increased uncertainty with respect to tax policy and trade relations between the U.S. and other countries. Major developments in tax policy or trade relations, such as the imposition of unilateral tariffs on imported products, could have a material adverse effect on our results of operations, financial condition and cash flows.

ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.

ITEM 2. PROPERTIES.
The following table provides the location, use and size of our distribution, corporate and product development facilities as of February 1, 2020:
Location
 
Use
 
Approximate
Square
Footage
Columbus, Ohio area
 
Corporate, distribution and shipping
 
6,938,000

New York
 
Office, sourcing and product development/design
 
495,000

Kettering, Ohio
 
Call center
 
94,000

Hong Kong
 
Office and sourcing
 
60,000

Mainland China
 
Office
 
36,000

Canada
 
Office
 
21,000

Various international locations
 
Office and sourcing
 
153,000


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United States
Our business for the Victoria’s Secret, Bath & Body Works and Victoria's Secret and Bath & Body Works International segments is principally conducted from office, distribution and shipping facilities located in the Columbus, Ohio, area. Additional facilities are located in New York and Kettering, Ohio.
Our distribution and shipping facilities consist of eight buildings located in the Columbus, Ohio, area. These buildings, including attached office space, comprise approximately 6.9 million square feet.
As of February 1, 2020, we operate 2,690 retail stores located in leased facilities, primarily in malls and shopping centers, throughout the U.S. A substantial portion of these lease commitments consists of store leases generally with an initial term of 10 years. The store leases expire at various dates between 2020 and 2033.
Typically, when space is leased for a retail store in a mall or shopping center, we supply all improvements, including interior walls, floors, ceilings, fixtures and decorations. The cost of improvements varies widely, depending on the design, size and location of the store. In certain cases, the landlord of the property may provide an allowance to fund all or a portion of the cost of improvements, serving as a lease incentive. Rental terms for new locations usually include a fixed minimum rent plus a percentage of sales in excess of a specified amount. We usually pay certain operating costs such as common area maintenance, utilities, insurance and taxes. For additional information, see Note 8 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.
International
Canada
We lease offices in the Montreal, Quebec, and Toronto, Ontario, areas.
As of February 1, 2020, we operate 140 retail stores located in leased facilities, primarily in malls and shopping centers, throughout the Canadian provinces. These lease commitments consist of store leases with initial terms of 5 to 10 years expiring on various dates between 2020 and 2030.
United Kingdom / Ireland
As of February 1, 2020, we operate 26 retail stores in leased facilities in the U.K. and Ireland. These lease commitments consist of store leases with initial terms ranging from 10 to 35 years expiring on various dates between 2021 and 2045.
Greater China
We lease offices in Shanghai, Shenzhen and Hong Kong within Greater China.
As of February 1, 2020, we operate 64 retail stores in leased facilities in Greater China. These lease commitments consist of store leases with initial terms ranging from 3 to 15 years expiring on various dates between 2020 and 2032.
Other International
As of February 1, 2020, we also have global representation through stores operated by our partners:
•
360 Victoria’s Secret Beauty and Accessories stores in 68 countries;
•
278 Bath & Body Works stores in more than 30 countries;
•
72 Victoria's Secret stores in 28 countries; and
•
12 PINK stores in 5 countries.
We also operate sourcing-related office facilities in various international locations.

ITEM 3. LEGAL PROCEEDINGS.
We are a defendant in a variety of lawsuits arising in the ordinary course of business. Actions filed against our Company from time to time include commercial, tort, intellectual property, customer, employment, data privacy, securities and other claims, including purported class action lawsuits. Although it is not possible to predict with certainty the eventual outcome of any litigation, in the opinion of management, our current legal proceedings are not expected to have a material adverse effect on our results of operations, financial condition and cash flows.
In July 2019, a plaintiff shareholder filed a putative class action complaint in the U.S. District Court for the Southern District of Ohio alleging that we made false and/or misleading statements relating to the November 2018 announcement that we were

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reducing our quarterly dividend. In September 2019, a different plaintiff shareholder filed a second putative class action complaint in the U.S. District Court for the Southern District of Ohio containing substantially the same allegations and seeking substantially the same relief.  In October 2019, the Court issued an order consolidating the two putative class actions, appointing a lead plaintiff, and approving that lead plaintiff’s selection of lead counsel.  The lead plaintiff filed a consolidated amended complaint on December 20, 2019 that asserted substantially the same allegations and sought substantially the same relief as the initial complaint.  We filed a motion to dismiss the consolidated amended complaint on February 18, 2020.  The lead plaintiff must file any opposition to our motion to dismiss no later than May 4, 2020.  Our reply brief in further support of our motion to dismiss is due on June 3, 2020.  We view this lawsuit as meritless and intend to defend against this lawsuit vigorously. 

On February 19, 2020, a plaintiff shareholder filed a complaint in the U.S. District Court for the Southern District of Ohio alleging derivative claims on behalf of L Brands, Inc. against certain current and former directors and officers of L Brands, Inc.  We were named as nominal defendant.  The lawsuit asserts claims for breach of fiduciary duty, corporate waste and unjust enrichment in connection with alleged misstatements about our quarterly dividend prior to the announced reduction of the dividend in November 2018. We intend to seek dismissal of the lawsuit.
 
ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Our common stock (“LB”) is traded on the NYSE. As of February 1, 2020, there were approximately 34,000 shareholders of record. However, including active associates who participate in our stock purchase plan, associates who own shares through our sponsored retirement plans and others holding shares in broker accounts under street names, we estimate the shareholder base to be approximately 138,000.
The following table provides our quarterly market prices and cash dividends per share for 2019 and 2018:
 
 
Market Price
 
Cash Dividend
per Share
 
High
 
Low
 
2019
 
 
 
 
 
Fourth quarter
$
23.63

 
$
15.80

 
$
0.30

Third quarter
24.09

 
15.82

 
0.30

Second quarter
28.02

 
21.45

 
0.30

First quarter
29.02

 
24.73

 
0.30

2018

 

 

Fourth quarter
$
38.00

 
$
23.71

 
$
0.60

Third quarter
33.97

 
25.89

 
0.60

Second quarter
38.14

 
30.42

 
0.60

First quarter
51.13

 
33.88

 
0.60


In February 2020, our Board of Directors declared our first quarter of 2020 dividend of $0.30 per share. This dividend was distributed on March 6, 2020 to shareholders of record at the close of business on February 21, 2020.



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The following graph shows the changes, over the past five-year period, in the value of $100 invested in our common stock, the Standard & Poor’s ("S&P") 500 Composite Stock Price Index and the Standard & Poor’s 500 Retail Composite Index.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN (a) (b) (c)
AMONG L BRANDS, INC., THE S&P 500 INDEX AND THE S&P 500 RETAIL COMPOSITE INDEX
lb5yearreturntable2019.jpg
_______________
(a)
This table represents $100 invested in stock or in index at the closing price on January 31, 2015, including reinvestment of dividends.
(b)
The January 28, 2017 cumulative total return includes the $2 special dividend in March 2016.
(c)
The January 30, 2016 cumulative total return includes the $2 special dividend in March 2015.
The following table provides our repurchases of our common stock during the fourth quarter of 2019:
Period
 
Total
Number of
Shares
Purchased (a)
 
Average Price
Paid per
Share (b)
 
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Programs (c)
 
Maximum
Dollar Value of Shares
that May
Yet be Purchased
Under the Programs (c)
 
 
(in thousands)
 
 
 
(in thousands)
November 2019
 
20

 
$
17.17

 
—

 
$
78,677

December 2019
 
5

 
18.26

 
—

 
78,677

January 2020
 
8

 
22.91

 
—

 
78,677

Total
 
33

 


 
—

 
 
 ________________
(a)
The total number of shares repurchased includes shares repurchased in connection with tax payments due upon vesting of employee restricted stock awards and the use of our stock to pay the exercise price on employee stock options.
(b)
The average price paid per share includes any broker commissions.
(c)
For additional share repurchase program information, see Note 19 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.


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ITEM 6. SELECTED FINANCIAL DATA.
 
 
Fiscal Year Ended
 
 
February 1, 2020
 
February 2, 2019
 
February 3,
2018 (a)
 
January 28, 2017
 
January 30, 2016
Summary of Operations
 
(in millions)
Net Sales
 
$
12,914

 
$
13,237

 
$
12,632

 
$
12,574

 
$
12,154

Gross Profit
 
4,450

 
4,899

 
4,959

 
5,125

 
5,204

Operating Income (b)
 
258

 
1,237

 
1,728

 
2,003

 
2,192

Net Income (Loss) (c)
 
(366
)
 
644

 
983

 
1,158

 
1,253

 
 
(as a percentage of net sales)
Gross Profit
 
34.5
%
 
37.0
%
 
39.3
%
 
40.8
%
 
42.8
%
Operating Income
 
2.0
%
 
9.3
%
 
13.7
%
 
15.9
%
 
18.0
%
Net Income (Loss)
 
(2.8
%)
 
4.9
%
 
7.8
%
 
9.2
%
 
10.3
%
 
 
 
 
 
 
 
 
 
 
 
Per Share Results
 
 
 

 

 

 

Net Income (Loss) Per Basic Share
 
$
(1.33
)
 
$
2.33

 
$
3.46

 
$
4.04

 
$
4.30

Net Income (Loss) Per Diluted Share
 
$
(1.33
)
 
$
2.31

 
$
3.42

 
$
3.98

 
$
4.22

Dividends Per Share
 
$
1.20

 
$
2.40

 
$
2.40

 
$
4.40

 
$
4.00

Weighted Average Diluted Shares Outstanding (in millions)
 
276

 
279

 
287

 
291

 
297

 
 
 
 
 
 
 
 
 
 
 
Other Financial Information
 
(in millions)
Cash and Cash Equivalents
 
$
1,499

 
$
1,413

 
$
1,515

 
$
1,934

 
$
2,548

Total Assets (d)
 
10,125

 
8,090

 
8,149

 
8,170

 
8,493

Working Capital (d)
 
873

 
1,274

 
1,262

 
1,451

 
2,281

Net Cash Provided by Operating Activities
 
1,236

 
1,377

 
1,406

 
1,990

 
2,027

Capital Expenditures
 
458

 
629

 
707

 
990

 
727

Long-term Debt
 
5,487

 
5,739

 
5,707

 
5,700

 
5,715

Other Long-term Liabilities (d)
 
490

 
1,004

 
924

 
831

 
904

Shareholders’ Equity (Deficit)
 
(1,499
)
 
(869
)
 
(753
)
 
(729
)
 
(259
)
 
 
 
 
 
 
 
 
 
 
 
Comparable Sales Increase (Decrease) (e)
 
(1
%)
 
3
%
 
(3
%)
 
2
%
 
5
%
Comparable Store Sales Increase (Decrease) (e)
 
(3
%)
 
(1
%)
 
(4
%)
 
1
%
 
5
%
Return on Average Assets (d)
 
(4
%)
 
8
%
 
12
%
 
14
%
 
16
%
Current Ratio (d)
 
1.4

 
1.6

 
1.6

 
1.7

 
2.2

 
 
 
 
 
 
 
 
 
 
 
Stores and Associates at End of Year
 
 
 
 
 
 
 
 
 
 
Number of Stores (f)
 
2,920

 
2,943

 
3,075

 
3,074

 
3,005

Selling Square Feet (in thousands) (f)
 
12,258

 
12,396

 
12,656

 
12,395

 
11,902

Number of Associates
 
94,400

 
88,900

 
93,200

 
93,600

 
87,900

 ________________
(a)
The fiscal year ended February 3, 2018 ("2017") represents a 53-week fiscal year.
(b)
Operating income includes the effect of the following special items:
(i)
In 2019, a $720 million impairment charge related to Victoria's Secret goodwill and a $253 million charge related to the impairment of certain Victoria's Secret long-lived store assets.
(ii)
In 2018, a $99 million loss on the sale of La Senza, an $81 million charge related to the impairment of certain Victoria's Secret long-lived store assets and $20 million of Henri Bendel closure costs.

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(iii)
In 2016, a $35 million charge related to strategic actions at Victoria's Secret, including severance charges, fabric cancellations and the write-off of catalogue paper.
(c)
In addition to the special items previously discussed in (b), net income (loss) includes the effect of the following special items:
(i)
In 2019, a $30 million loss associated with the early extinguishment of notes maturing between 2020 and 2022, and $28 million of charges to increase reserves related to ongoing contingent obligations for the La Senza business.
(ii)
In 2017, a $92 million tax benefit related to changes in U.S. tax legislation partially offset by a $29 million loss associated with the early extinguishment of our 2019 Notes.
(iii)
In 2016, a $70 million gain related to a $124 million cash distribution from Easton Town Center, LLC, a $42 million tax benefit related to the favorable resolution of a discrete income tax matter, partially offset by a $22 million loss associated with the early extinguishment of our 2017 Notes.
(iv)
In 2015, a $69 million gain related to the divestiture of our remaining ownership interest in our third-party apparel sourcing business.
For additional information on these special items, see the Notes to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.
The effect of the special items described in (b) and (c) above decreased earnings per share by $3.62 and $0.51 in 2019 and 2018, respectively, and increased earnings per share by $0.22 in 2017, and $0.23 in 2016 and 2015.
(d)
The 2019 amounts reflect our adoption of Accounting Standards Codification ("ASC") 842, Leases, in the first quarter of 2019.
(e)
The percentage change in comparable sales represents direct and comparable store sales. The percentage change in comparable store sales represents the change in sales at comparable stores only and excludes the change in sales from our direct channels. A store is typically included in the calculation of comparable sales when it has been open 12 months or more and it has not had a change in selling square footage of 20% or more. Additionally, stores of a given brand are excluded if total selling square footage for the brand in the mall changes by 20% or more through the opening or closing of a second store. The percentage change in comparable sales is calculated on a comparable calendar period as opposed to a fiscal basis. Therefore, the percentage change in comparable sales for 2019, 2018, 2016, and 2015 were calculated on a 52-to-52-week basis, and the percentage change in comparable sales for 2017 was calculated on a 53-to-53-week basis. Comparable sales attributable to our international stores are calculated on a constant currency basis.
(f)
Number of stores and selling square feet excludes independently owned Victoria's Secret Beauty and Accessories, Victoria's Secret, PINK, Bath & Body Works and La Senza stores operated by our partners.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis of financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") as codified in the Accounting Standards Codification. The following information should be read in conjunction with our financial statements and the related notes included in Item 8. Financial Statements and Supplementary Data.
Our operating results are generally impacted by economic changes and, therefore, we monitor the retail environment using, among other things, certain key industry performance indicators including competitor performance and mall traffic data. These can provide insight into consumer spending patterns and shopping behavior in the current retail environment and assist us in assessing our performance as well as the potential impact of industry trends on our future operating results. Additionally, we evaluate a number of key performance indicators including comparable sales, gross profit, operating income and other performance metrics such as sales per average selling square foot and inventory per selling square foot in assessing our performance.
Executive Overview
Beginning in 2018, we began making significant changes in our business to focus resources on core categories to enhance performance and accelerate growth. In 2018, these actions included:
•
Closing Henri Bendel;

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•
Selling the La Senza business; and
•
Reducing our regular dividend.
Further, on February 20, 2020, we announced the sale of 55% of the Victoria's Secret business to Sycamore for proceeds of approximately $525 million. The transaction is designed to best position our brands for long-term success and drive shareholder value, and we believe this transaction will highlight the value and performance of the standalone Bath & Body Works business, enhance management focus and reduce structural complexity.
We have a multi-year goal to grow Bath & Body Works and increase operating margins by focusing on these key business priorities:
•
Grow our business in North America;
•
Extend our brand internationally; and
•
Focus on the fundamentals of our business.
We also continue to focus on:
•
Attracting and retaining top talent;
•
Maintaining a strong cash and liquidity position while optimizing our capital structure; and
•
Returning value to our shareholders.
The following is a discussion regarding certain of our key business priorities:
Grow our business in North America
The core assortment of Bath & Body Works is body care, home fragrance products, soaps and sanitizers, which together make up the majority of sales and profits for the business. We see clear opportunities for substantial growth in these categories by focusing on product newness and innovation and expanding into under-penetrated market and price segments. We will continue to invest in the White Barn concept, which continues to yield strong results. In 2020, we plan to increase our square footage at Bath & Body Works North America through the opening of new Bath & Body Works stores, substantially in off-mall locations, and the remodeling of existing stores.
Our Bath & Body Works direct business, with over $950 million in sales and an operating margin in excess of 20%, grew sales by 32% over last year. We continue to invest in direct channel fulfillment to further accelerate growth.
Extend our brand internationally
We believe there is substantial opportunity for international growth. We have a separate, dedicated team that has taken a methodical, "test and learn" approach to expansion. We plan to expand our presence outside of North America by increasing the number of stores operated by our international partners. Our partners opened 43 net new Bath & Body Works stores in 2019, bringing the total in the Middle East, Latin America, Southeast Asia and Europe to 278 stores. Our partners plan to open additional stores in 2020.
Focus on the fundamentals of our business
We are focused on the fundamentals of our business which include knowing our customers, focusing on core merchandise categories, inventory management, speed and agility, managing real estate and store selling and execution. In terms of speed and agility, we are focused on inventory discipline through lead-time reductions and in-season agility to increase sales and reduce promotional activity. In terms of real estate, we will continue to proactively and rigorously review our portfolio, and we will continue to open and close stores when we believe it makes sense to do so. Finally, we continue to optimize our store selling and execution by concentrating on a better store experience and developing, retaining and investing in talented, trained and productive store associates.
2019 Overview
L Brands' overall financial performance in 2019 was below our expectations. Operating income declined as growth at Bath & Body Works was more than offset by declines at Victoria’s Secret. Our net sales decreased $323 million to $12.914 billion primarily driven by Victoria's Secret and the sale of La Senza and closure of Henri Bendel in the fourth quarter of 2018. Our operating income decreased $979 million to $258 million, primarily due to Victoria's Secret underperformance, and goodwill and long-lived store asset impairment charges. Our operating income rate decreased to 2.0% from 9.3%.
At Bath & Body Works, an aligned, experienced leadership team and strong customer response to our merchandise assortments, driven by a close connection to our customer and a fast and agile supply chain, resulted in another record year, on top of a record 2018. In 2019, Bath & Body Works’ comparable sales increased 10% and operating income increased 11%. Sales in the digital

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channel increased 32%. We ended the year with more than 800 newly remodeled stores, which include the White Barn store design. These stores present a new, compelling store experience for the brand and customers alike, driving sales growth.
Victoria’s Secret underperformed in 2019. Reduced traffic resulted in increased promotion that negatively impacted margin rates. Victoria’s Secret segment comparable sales declined 7% for the year, and operating income declined to a loss of $616 million, due to a $690 million goodwill impairment charge and sales and margin underperformance.
In Victoria’s Secret Lingerie, comparable sales declined in the high-single digit range in 2019, and the merchandise margin rate declined significantly. In the fourth quarter, we continued to pull back on promotional activity in bras, and while sales were down significantly, the merchandise margin rate was up. Sleepwear performance was below our expectations, with sales and merchandise margin rate down significantly to last year.
PINK comparable sales declined in the low-double digit range in 2019, and the merchandise margin rate declined significantly. Growth in bras and panties was more than offset by a decline in apparel, particularly in tops.
Victoria’s Secret Beauty had a good year and a solid holiday performance, with positive low-single digit comparable sales and an improvement in the merchandise margin rate.
Outside North America, we opened 59 net new stores in 2019, ending the year with 812 stores. Revenue in our international segment was about flat in 2019 compared to last year, and the operating loss increased by $199 million, primarily driven by store asset and goodwill impairment charges in Greater China.
For additional information related to our 2019 financial performance, see “Results of Operations – 2019 Compared to 2018.”
We are committed to returning value to our shareholders. During 2019, we paid $332 million in dividends. We use cash flow generated from operating and financing activities to fund our dividends and share repurchase programs. Since 2000, we have returned approximately $21 billion to shareholders through dividends and share repurchases.

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Adjusted Financial Information

In addition to our results provided in accordance with GAAP above and throughout this Form 10-K, provided below are non-GAAP measurements which present operating income, net income and earnings per share in 2019, 2018 and 2017 on an adjusted basis, which remove certain special items. We believe that these special items are not indicative of our ongoing operations due to their size and nature. We use adjusted financial information as key performance measures of results of operations for the purpose of evaluating performance internally. These non-GAAP measurements are not intended to replace the presentation of our financial results in accordance with GAAP. Instead, we believe that the presentation of adjusted financial information provides additional information to investors to facilitate the comparison of past and present operations. Further, our definition of adjusted financial information may differ from similarly titled measures used by other companies. The table below reconciles the GAAP financial measures to the non-GAAP financial measures.
(in millions, except per share amounts)
2019
 
2018
 
2017
Detail of Special Items included in Operating Income
 
 
 
 
 
Impairment of Goodwill (a)
$
(720
)
 
$
—

 
$
—

Victoria's Secret Long-lived Store Asset Impairment (b)
(253
)
 
(81
)
 
—

Loss on Divestiture of La Senza (c)
—

 
(99
)
 
—

Henri Bendel Closure Costs (d)
—

 
(20
)
 
—

Total Special Items included in Operating Income
$
(973
)
 
$
(200
)
 
$
—

 
 
 
 
 
 
Detail of Special Items included in Other Income (Loss)
 
 
 
 
 
La Senza Charges (e)
(37
)
 
—

 
—

Loss on Extinguishment of Debt (f)
(40
)
 
—

 
(45
)
Total Special Items included in Other Income (Loss)
$
(77
)

$
—


$
(45
)
 
 
 
 
 
 
Detail of Special Items included in Provision for Income Taxes
 
 
 
 
 
Tax Benefit related to Changes in U.S. Tax Legislation (g)
$
—

 
$
—

 
$
92

Tax Effect of Special Items included in Operating Income and Other Income (Loss)
46

 
58

 
16

Total Special Items included in Provision for Income Taxes
$
46


$
58


$
108

 
 
 
 
 
 
Reconciliation of Reported Operating Income to Adjusted Operating Income
 
 
 
 
 
Reported Operating Income
$
258

 
$
1,237

 
$
1,728

Special Items included in Operating Income
973

 
200

 
—

Adjusted Operating Income
$
1,231

 
$
1,437

 
$
1,728

 
 
 
 
 
 
Reconciliation of Reported Net Income (Loss) to Adjusted Net Income
 
 
 
 
 
Reported Net Income (Loss)
$
(366
)
 
$
644

 
$
983

Special Items included in Net Income (Loss)
1,004

 
142

 
(63
)
Adjusted Net Income
$
638

 
$
786

 
$
920

 
 
 
 
 
 
Reconciliation of Reported Earnings (Loss) Per Diluted Share to Adjusted Earnings Per Diluted Share
 
 
 
 
 
Reported Earnings (Loss) Per Diluted Share
$
(1.33
)
 
$
2.31

 
$
3.42

Special Items included in Earnings (Loss) Per Diluted Share
3.62

 
0.51

 
(0.22
)
Adjusted Earnings Per Diluted Share
$
2.29

 
$
2.82

 
$
3.20

 ________________
(a)
In the fourth quarter of 2019, we recognized a $690 million pre-tax goodwill impairment charge ($687 million after-tax) related to the Victoria's Secret segment. In the third quarter of 2019, we recognized a $30 million goodwill impairment charge (no tax impact) related to the Victoria's Secret and Bath & Body Works International segment. For additional information see Note 9, "Goodwill and Trade Names" included in Item 8. Financial Statements and Supplementary Data.

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(b)
In the fourth quarter of 2019, we recognized a $35 million pre-tax impairment charge ($30 million after-tax) related to Victoria's Secret long-lived store assets. In the third quarter of 2019, we recognized a $218 million pre-tax impairment charge ($200 million after-tax) related to Victoria's Secret long-lived store assets. In the third quarter of 2018, we recognized an $81 million pre-tax impairment charge ($73 million after-tax) related to Victoria's Secret long-lived store assets. For additional information see Note 7, "Property and Equipment, Net" included in Item 8. Financial Statements and Supplementary Data.
(c)
In the fourth quarter of 2018, we recognized a $99 million ($55 million after-tax) loss on the sale of La Senza. For additional information see Note 5, "Restructuring Activities" included in Item 8. Financial Statements and Supplementary Data.
(d)
In the third quarter of 2018, we recognized $20 million ($15 million after-tax) of closure costs related to the closure of the Henri Bendel business. For additional information see Note 5, "Restructuring Activities" included in Item 8. Financial Statements and Supplementary Data.
(e)
In the third quarter of 2019, we recognized $37 million of pre-tax charges ($28 million after-tax) to increase reserves related to ongoing contingent obligations for the La Senza business, which was sold in the fourth quarter of 2018. For additional information see Note 17, "Commitments and Contingencies" included in Item 8. Financial Statements and Supplementary Data.
(f)
In the second quarter of 2019, we redeemed $764 million of outstanding notes maturing between 2020 and 2022, resulting in a pre-tax loss on extinguishment of $40 million (after-tax loss of $30 million). In the fourth quarter of 2017, we redeemed our $500 million 8.50% Senior Unsecured Notes due June 2019 resulting in a pre-tax loss on extinguishment of $45 million (after-tax loss of $29 million). For additional information see Note 13, "Long-term Debt and Borrowing Facilities" included in Item 8. Financial Statements and Supplementary Data.
(g)
In the fourth quarter of 2017, we recorded a $92 million tax benefit related to changes in U.S. tax legislation. For additional information see Note 12, "Income Taxes" included in Item 8. Financial Statements and Supplementary Data.
2020 Outlook
On February 20, 2020, we announced the sale of 55% of the Victoria’s Secret business to Sycamore for proceeds of approximately $525 million. The transaction is the result of a comprehensive review of a broad range of options undertaken by our Board of Directors, with input from outside financial advisors, designed to best position our brands for long-term success and drive shareholder value. We believe this transaction will highlight the value and performance of the standalone Bath & Body Works business, enhance management focus and reduce structural complexity.
Additionally, we believe that a private entity structure creates the best environment for a Victoria’s Secret turnaround. We believe that Sycamore, which has substantial experience in the retail industry, will bring a new perspective and greater focus to the business. We are pleased that, by retaining a significant ownership stake, our shareholders will have the ability to meaningfully participate in the upside potential of this iconic brand.
Over the next several months, we will be reviewing the functional and corporate support required for the standalone Bath & Body Works business, with a view to simplify our existing structure, while recognizing that we will still be supporting the Victoria’s Secret businesses through a Transition Services Agreement with various terms for different services, which will minimize near-term dissynergies.
The management team, in conjunction with our Board, will also be evaluating the capital structure and cash priorities for the standalone Bath & Body Works business.
Upon the Closing, which is expected to occur in the second quarter, Leslie H. Wexner will step down as Chief Executive Officer and Chairman of the Board to become Chairman Emeritus, remaining as a member of the Board. Andrew Meslow, Chief Executive Officer of Bath & Body Works, will be appointed by the Board as the Chief Executive Officer of L Brands, Inc. and as a director of L Brands, Inc., effective upon the Closing. Sarah E. Nash, a member of the Board, will be appointed as the Chair of the Board effective upon the Closing.
The global retail sector and our business continue to face an uncertain environment and, as a result, we will continue to manage our business thoughtfully, and we will focus on the execution of the retail fundamentals.
At the same time, we are aggressively focusing on bringing compelling merchandise assortments, marketing and store and online experiences to our customers. We will look for, and seek to capitalize on, those opportunities available to us.
We are closely monitoring the outbreak of respiratory illness caused by a novel coronavirus that was first detected in Wuhan, China and has since spread globally. The coronavirus has been declared by the World Health Organization to be a “pandemic,” has spread to many countries, including the U.S., and is impacting worldwide economic activity. A public health epidemic, including the coronavirus, poses the risk that we or our employees, contractors, suppliers, and other business partners may be prevented from conducting business activities for an unknown period of time. Related industries in the U.S. and across the

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world may be adversely affected, including manufacturing and textile production. The situation and preventative or protective actions that governments around the world have taken to contain the spread of the coronavirus have resulted in a period of disruption, including closure of stores where our products are sold, limited store operating hours, reduced customer traffic and consumer spending, labor shortages and delays in manufacturing and shipping of products and raw materials in the U.S., China and other countries. To the extent the impact of the coronavirus continues or worsens, we may have difficulty obtaining the materials necessary for the manufacturing of our products, factories which produce our products may remain closed for sustained periods of time, and industry-wide shipment of products may be negatively impacted. Further, if the impact of the coronavirus continues or worsens, consumer behavior may be altered for an extended period of time which would impact our cash and liquidity and financial condition. The coronavirus and resulting economic disruption has also led to significant volatility in the capital markets and may adversely impact our stock price and ability to access cash. Any one adverse effect of the coronavirus, or a combination of adverse effects, could materially impact our results and financial condition.
These recent developments could have a material adverse effect on our results of operations, financial condition and cash flows.  Additional information on this risk and other uncertainties and factors, is set forth in Item 1A. Risk Factors.
Company-Owned Store Data
The following table compares 2019 company-owned store data to the comparable periods for 2018 and 2017:
 
 
 
 
 
 
 
 
% Change
  
2019
 
2018
 
2017
 
2019
 
2018
Sales per Average Selling Square Foot (a)
 
 
 
 
 
 
 
 
 
Victoria’s Secret U.S.
$
684

 
$
739

 
$
784

 
(7
%)
 
(6
%)
Bath & Body Works U.S.
931

 
891

 
844

 
4
%
 
6
%
Sales per Average Store (in thousands) (a)

 

 

 


 


Victoria’s Secret U.S.
$
4,455

 
$
4,763

 
$
5,003

 
(6
%)
 
(5
%)
Bath & Body Works U.S.
2,428

 
2,279

 
2,107

 
7
%
 
8
%
Average Store Size (selling square feet)

 

 

 


 


Victoria’s Secret U.S.
6,551

 
6,484

 
6,415

 
1
%
 
1
%
Bath & Body Works U.S.
2,631

 
2,585

 
2,532

 
2
%
 
2
%
Total Selling Square Feet (in thousands)

 

 

 


 


Victoria’s Secret U.S.
6,898

 
7,119

 
7,210

 
(3
%)
 
(1
%)
Bath & Body Works U.S.
4,306

 
4,185

 
4,032

 
3
%
 
4
%
 ________________
(a)
Sales per average selling square foot and sales per average store, which are indicators of store productivity, are calculated based on store sales for the period divided by the average, including the beginning and end of year, of total square footage and store count, respectively.

The following table represents company-owned store data for 2019:
 
Stores Operating at
 
 
 
 
 
Stores Operating at
 
February 2, 2019
 
Opened
 
Closed
 
February 1, 2020
Victoria’s Secret U.S.
1,098

 
7

 
(52
)
 
1,053

Victoria’s Secret Canada
45

 
—

 
(7
)
 
38

Total Victoria's Secret
1,143

 
7

 
(59
)
 
1,091

Bath & Body Works U.S.
1,619

 
38

 
(20
)
 
1,637

Bath & Body Works Canada
102

 
1

 
(1
)
 
102

Total Bath & Body Works
1,721

 
39

 
(21
)
 
1,739

Victoria's Secret U.K. / Ireland
26

 
—

 
—

 
26

Victoria's Secret Beauty and Accessories
38

 
10

 
(7
)
 
41

Victoria's Secret Greater China
15

 
8

 
—

 
23

Total Victoria's Secret and Bath & Body Works International
79

 
18

 
(7
)
 
90

Total L Brands Stores
2,943

 
64

 
(87
)
 
2,920


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The following table represents company-owned store data for 2018:
 
Stores Operating at
 
 
 
 
 
 
 
Stores Operating at
 
February 3, 2018
 
Opened
 
Closed
 
Sold (a)
 
February 2, 2019
Victoria’s Secret U.S.
1,124

 
3

 
(29
)
 
—

 
1,098

Victoria’s Secret Canada
46

 
—

 
(1
)
 
—

 
45

Total Victoria's Secret
1,170

 
3

 
(30
)
 
—

 
1,143

Bath & Body Works U.S.
1,592

 
54

 
(27
)
 
—

 
1,619

Bath & Body Works Canada
102

 
1

 
(1
)
 
—

 
102

Total Bath & Body Works
1,694

 
55

 
(28
)
 
—

 
1,721

Victoria's Secret U.K. / Ireland
24

 
2

 
—

 
—

 
26

Victoria's Secret Beauty and Accessories
29

 
13

 
(4
)
 
—

 
38

Victoria's Secret Greater China
7

 
8

 
—

 
—

 
15

Total Victoria's Secret and Bath & Body Works International
60

 
23

 
(4
)
 
—

 
79

Henri Bendel
27

 
—

 
(27
)
 
—

 
—

La Senza U.S.
5

 
7

 
—

 
(12
)
 
—

La Senza Canada
119

 
—

 
(1
)
 
(118
)
 
—

Total L Brands Stores
3,075

 
88

 
(90
)
 
(130
)
 
2,943

_______________
(a)    Relates to the divestiture of La Senza. For additional information see Note 5, "Restructuring Activities"
included in Item 8. Financial Statements and Supplementary Data.

The following table represents company-owned store data for 2017:
 
Stores Operating at
 
 
 
 
 
Stores Operating at
 
January 28, 2017
 
Opened
 
Closed
 
February 3, 2018
Victoria’s Secret U.S.
1,131

 
13

 
(20
)
 
1,124

Victoria’s Secret Canada
46

 
2

 
(2
)
 
46

Total Victoria's Secret
1,177

 
15

 
(22
)
 
1,170

Bath & Body Works U.S.
1,591

 
32

 
(31
)
 
1,592

Bath & Body Works Canada
102

 
—

 
—

 
102

Total Bath & Body Works
1,693

 
32

 
(31
)
 
1,694

Victoria's Secret U.K. / Ireland
18

 
6

 
—

 
24

Victoria's Secret Beauty and Accessories
31

 
4

 
(6
)
 
29

Victoria's Secret Greater China
—

 
7

 
—

 
7

Total Victoria's Secret and Bath & Body Works International
49

 
17

 
(6
)
 
60

Henri Bendel
29

 
—

 
(2
)
 
27

La Senza U.S.
4

 
1

 
—

 
5

La Senza Canada
122

 
1

 
(4
)
 
119

Total L Brands Stores
3,074

 
66

 
(65
)
 
3,075


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Noncompany-Owned Store Data
The following table represents noncompany-owned store data for 2019:
 
Stores Operating at
 
 
 
 
 
Stores Operating at
 
February 2, 2019
 
Opened
 
Closed
 
February 1, 2020
Victoria’s Secret Beauty & Accessories
383

 
24

 
(47
)
 
360

Victoria's Secret
56

 
28

 
—

 
84

Bath & Body Works
235

 
47

 
(4
)
 
278

Total
674

 
99

 
(51
)
 
722

The following table represents noncompany-owned store data for 2018:
 
Stores Operating at
 
 
 
 
 
 
 
Stores Operating at
 
February 3, 2018
 
Opened
 
Closed
 
Sold (a)
 
February 2, 2019
Victoria’s Secret Beauty & Accessories
397

 
32

 
(46
)
 
—

 
383

Victoria's Secret
37

 
19

 
—

 
—

 
56

Bath & Body Works
185

 
56

 
(6
)
 
—

 
235

La Senza
194

 
2

 
(17
)
 
(179
)
 
—

Total
813

 
109

 
(69
)
 
(179
)
 
674

_______________
(a)    Relates to the divestiture of La Senza. For additional information see Note 5, "Restructuring Activities"
included in Item 8. Financial Statements and Supplementary Data.
The following table represents noncompany-owned store data for 2017:
 
Stores Operating at
 
 
 
 
 
Stores Operating at
 
January 28, 2017
 
Opened
 
Closed
 
February 3, 2018
Victoria’s Secret Beauty & Accessories
391

 
34

 
(28
)
 
397

Victoria's Secret
28

 
9

 
—

 
37

Bath & Body Works
159

 
28

 
(2
)
 
185

La Senza
203

 
4

 
(13
)
 
194

Total
781

 
75

 
(43
)
 
813


Results of Operations—2019 Compared to 2018
The following information summarizes our results of operations for 2019 compared to 2018.
Operating Income (Loss)
The following table provides our segment operating income (loss) and operating income (loss) rates (expressed as a percentage of net sales) for 2019 in comparison to 2018:
 
 
 
 
 
Operating Income (Loss) Rate
 
2019

2018
 
2019
 
2018
 
(in millions)
 
 
 
 
Victoria’s Secret
$
(616
)
 
$
462

 
(9.1
%)
 
6.3
%
Bath & Body Works
1,191

 
1,077

 
23.0
%
 
23.3
%
Victoria's Secret and Bath & Body Works International
(236
)
 
(37
)
 
(39.3
%)
 
(6.2
%)
Other (a)
(81
)
 
(265
)
 
(23.9
%)
 
(42.5
%)