UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 _________________________________

FORM 10-Q

 _________________________________

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 1, 2021

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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)		(IRS Employer Identification No.)
Three Limited Parkway
Columbus,	Ohio	43230
(Address of principal executive offices)		(Zip Code)
(614)	415-7000
(Registrant's Telephone Number, Including Area Code)

    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 and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) 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, 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	☐  (Do not check if a smaller reporting company)	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  ☒

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

As of May 28, 2021, the number of outstanding shares of the Registrant’s common stock, was 276,821,306 shares.

L BRANDS, INC.

TABLE OF CONTENTS

	Page No.
Part I. Financial Information
Item 1. Financial Statements *
Consolidated Statements of Income (Loss) for the Thirteen-Weeks Ended May 1, 2021 and May 2, 2020 (Unaudited)	3
Consolidated Statements of Comprehensive Income (Loss) for the Thirteen-Weeks Ended May 1, 2021 and May 2, 2020 (Unaudited)	3
Consolidated Balance Sheets as of May 1, 2021 (Unaudited), January 30, 2021 and May 2, 2020 (Unaudited)	4
Consolidated Statements of Total Equity (Deficit) for the Thirteen-Weeks Ended May 1, 2021 and May 2, 2020 (Unaudited)	5
Consolidated Statements of Cash Flows for the Thirteen-Weeks Ended May 1, 2021 and May 2, 2020 (Unaudited)	6
Notes to Consolidated Financial Statements (Unaudited)	7
Report of Independent Registered Public Accounting Firm	17
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995	18
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3. Quantitative and Qualitative Disclosures About Market Risk	33
Item 4. Controls and Procedures	34
Part II. Other Information	35
Item 1. Legal Proceedings	35
Item 1A. Risk Factors	35
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3. Defaults Upon Senior Securities	36
Item 4. Mine Safety Disclosures	36
Item 5. Other Information	36
Item 6. Exhibits	37
Signature	38

* The Company's fiscal year ends on the Saturday nearest to January 31. As used herein, “first quarter of 2021” and “first quarter of 2020” refer to the thirteen-week periods ended May 1, 2021 and May 2, 2020 , respectively.

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PART I—FINANCIAL INFORMATION

Item 1.    FINANCIAL STATEMENTS

L BRANDS, INC.

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(in millions except per share amounts)

(Unaudited)

	First Quarter
	2021		2020
Net Sales	$	3,024	$	1,654
Costs of Goods Sold, Buying and Occupancy	(1,610)		(1,366)
Gross Profit	1,414		288
General, Administrative and Store Operating Expenses	(842)		(606)
Operating Income (Loss)	572		(318)
Interest Expense	(114)		(97)
Other Income (Loss)	(105)		3
Income (Loss) Before Income Taxes	353		(412)
Provision (Benefit) for Income Taxes	76		(115)
Net Income (Loss)	$	277	$	(297)
Net Income (Loss) Per Basic Share	$	0.99	$	(1.07)
Net Income (Loss) Per Dilutive Share	$	0.97	$	(1.07)
Dividends Per Share	$	—	$	0.30

L BRANDS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in millions)

(Unaudited)

	First Quarter
	2021		2020
Net Income (Loss)	$	277	$	(297)
Other Comprehensive Income (Loss), Net of Tax:
Foreign Currency Translation	5		(6)
Unrealized Gain (Loss) on Cash Flow Hedges	(3)		5
Reclassification of Cash Flow Hedges to Earnings	1		—
Total Other Comprehensive Income (Loss), Net of Tax	3		(1)
Total Comprehensive Income (Loss)	$	280	$	(298)

The accompanying Notes are an integral part of these Consolidated Financial Statements.

3

L BRANDS, INC.

CONSOLIDATED BALANCE SHEETS

(in millions except par value amounts)

 

	May 1, 2021		January 30, 2021		May 2, 2020
	(Unaudited)				(Unaudited)
ASSETS
Current Assets:
Cash and Cash Equivalents	$	2,807	$	3,903	$	957
Accounts Receivable, Net	221		269		229
Inventories	1,397		1,273		1,491
Other	187		134		172
Total Current Assets	4,612		5,579		2,849
Property and Equipment, Net	2,030		2,095		2,299
Operating Lease Assets	2,596		2,558		2,947
Goodwill	628		628		628
Trade Names	411		411		411
Deferred Income Taxes	72		69		84
Other Assets	197		231		221
Total Assets	$	10,546	$	11,571	$	9,439
LIABILITIES AND EQUITY (DEFICIT)
Current Liabilities:
Accounts Payable	$	735	$	683	$	715
Accrued Expenses and Other	1,292		1,457		826
Current Debt	—		—		468
Current Operating Lease Liabilities	504		594		590
Income Taxes	149		92		84
Total Current Liabilities	2,680		2,826		2,683
Deferred Income Taxes	245		234		198
Long-term Debt	5,344		6,366		5,034
Long-term Operating Lease Liabilities	2,504		2,495		2,945
Other Long-term Liabilities	306		311		437
Shareholders’ Equity (Deficit):
Preferred Stock - $1.00 par value; 10 shares authorized; none issued	—		—		—
Common Stock - $0.50 par value; 1,000 shares authorized; 288, 286 and 286 shares issued; 277, 278 and 278 shares outstanding, respectively	144		143		143
Paid-in Capital	903		891		865
Accumulated Other Comprehensive Income	86		83		51
Retained Earnings (Accumulated Deficit)	(1,144)		(1,421)		(2,562)
Less: Treasury Stock, at Average Cost; 11, 8 and 8 shares, respectively	(523)		(358)		(358)
Total L Brands, Inc. Shareholders’ Equity (Deficit)	(534)		(662)		(1,861)
Noncontrolling Interest	1		1		3
Total Equity (Deficit)	(533)		(661)		(1,858)
Total Liabilities and Equity (Deficit)	$	10,546	$	11,571	$	9,439

The accompanying Notes are an integral part of these Consolidated Financial Statements.

4

L BRANDS, INC.

CONSOLIDATED STATEMENTS OF TOTAL EQUITY (DEFICIT)

(in millions except per share amounts)

(Unaudited)

First Quarter 2021

	Common Stock			Paid-In Capital		Accumulated Other Comprehensive Income		Retained Earnings (Accumulated Deficit)		Treasury Stock, at Average Cost		Noncontrolling Interest		Total Equity (Deficit)
	Shares Outstanding	Par Value
Balance, January 30, 2021	278	$	143	$	891	$	83	$	(1,421)	$	(358)	$	1	$	(661)
Net Income	—	—		—		—		277		—		—		277
Other Comprehensive Income	—	—		—		3		—		—		—		3
Total Comprehensive Income	—	—		—		3		277		—		—		280
Repurchases of Common Stock	(3)	—		—		—		—		(165)		—		(165)
Share-based Compensation and Other	2	1		12		—		—		—		—		13
Balance, May 1, 2021	277	$	144	$	903	$	86	$	(1,144)	$	(523)	$	1	$	(533)

First Quarter 2020

	Common Stock			Paid-In Capital		Accumulated Other Comprehensive Income		Retained Earnings (Accumulated Deficit)		Treasury Stock, at Average Cost		Noncontrolling Interest		Total Equity (Deficit)
	Shares Outstanding	Par Value
Balance, February 1, 2020	277	$	142	$	847	$	52	$	(2,182)	$	(358)	$	4	$	(1,495)
Net Loss	—	—		—		—		(297)		—		—		(297)
Other Comprehensive Loss	—	—		—		(1)		—		—		—		(1)
Total Comprehensive Loss	—	—		—		(1)		(297)		—		—		(298)
Cash Dividends ($0.30 per share)	—	—		—		—		(83)		—		—		(83)
Share-based Compensation and Other	1	1		18		—		—		—		(1)		18
Balance, May 2, 2020	278	$	143	$	865	$	51	$	(2,562)	$	(358)	$	3	$	(1,858)

The accompanying Notes are an integral part of these Consolidated Financial Statements.

5

L BRANDS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(Unaudited)

	Year-to-Date
	2021		2020
Operating Activities:
Net Income (Loss)	$	277	$	(297)
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by (Used for) Operating Activities:
Depreciation of Long-lived Assets	129		139
Loss on Extinguishment of Debt	105		—
Victoria's Secret Asset Impairments	—		97
Share-based Compensation Expense	15		20
Deferred Income Taxes	10		(25)
Changes in Assets and Liabilities:
Accounts Receivable	49		77
Inventories	(123)		(208)
Accounts Payable, Accrued Expenses and Other	(163)		(155)
Income Taxes Payable	57		(56)
Other Assets and Liabilities	(107)		66
Net Cash Provided by (Used for) Operating Activities	249		(342)
Investing Activities:
Capital Expenditures	(65)		(55)
Other Investing Activities	9		(5)
Net Cash Used for Investing Activities	(56)		(60)
Financing Activities:
Payments of Long-term Debt	(1,130)		—
Borrowing from Credit Agreement	—		950
Repayment of Credit Agreement	—		(950)
Borrowings from Foreign Facilities	—		23
Repayments of Foreign Facilities	—		(69)
Repurchases of Common Stock	(155)		—
Dividends Paid	—		(83)
Tax Payments related to Share-based Awards	(33)		(5)
Proceeds from Stock Option Exercises	30		—
Other Financing Activities	(3)		(4)
Net Cash Used for Financing Activities	(1,291)		(138)
Effects of Exchange Rate Changes on Cash and Cash Equivalents and Restricted Cash	2		(2)
Net Decrease in Cash and Cash Equivalents and Restricted Cash	(1,096)		(542)
Cash and Cash Equivalents and Restricted Cash, Beginning of Period	3,933		1,499
Cash and Cash Equivalents and Restricted Cash, End of Period	$	2,837	$	957

The accompanying Notes are an integral part of these Consolidated Financial Statements.

6

L BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Description of Business and Basis of Presentation

Description of Business

L Brands, Inc. (the "Company”) operates in the highly competitive specialty retail business. The Company is a specialty retailer of home fragrance products, body care, soaps and sanitizers, women’s intimate and other apparel, and personal and beauty care products. The Company sells its merchandise through company-operated specialty retail stores in the U.S., Canada and Greater China, and through its websites and other channels. The Company's international operations are primarily through franchise, license, wholesale and joint venture partners. The Company currently operates the following retail brands:

•Bath & Body Works

•Victoria’s Secret

•PINK

On May 11, 2021, the Company announced that its Board of Directors unanimously approved a plan to separate L Brands, Inc. into two independent, public companies: Bath & Body Works and Victoria’s Secret, including PINK. The Company expects to create these companies through a tax-free spin-off of Victoria’s Secret to L Brands’ shareholders. The spin-off is expected to be effected through a pro-rata distribution to L Brands, Inc. shareholders of common stock of a newly-formed entity holding certain assets and liabilities comprising the Victoria’s Secret business. The spin-off is expected to be completed in August 2021, subject to certain customary market, regulatory and other conditions.

Impacts of COVID-19

The coronavirus pandemic ("COVID-19") has created significant public health concerns as well as economic disruption, uncertainty and volatility. The Company's operations and financial performance have been materially impacted by the COVID-19 pandemic. In the first quarter of 2020, all the Company's stores in North America were closed on March 17, 2020 and nearly all stores remained closed throughout the remainder of the first quarter of 2020. Additionally, operations for Victoria’s Secret Direct were temporarily suspended for approximately one week in late March 2020, while Bath & Body Works Direct remained open for the duration of the first quarter of 2020.

During the first quarter of 2020, the Company took prudent actions to manage expenses and to maintain its cash position and financial flexibility. The Company also has adopted new operating models focused on providing a safe environment for its customers and associates, while also delivering an engaging shopping experience. The Company remains focused on the safe operations of its distribution, fulfillment and call centers while maximizing its direct businesses. Government stimulus payments and the relaxation of pandemic-related restrictions have positively impacted demand for the Company's products during the first quarter of 2021. There remains the potential for COVID-related risks of closure or operating restrictions, which could materially impact the Company's operations and financial performance in future periods.

Fiscal Year

The Company’s fiscal year ends on the Saturday nearest to January 31. As used herein, “first quarter of 2021” and “first quarter of 2020” refer to the thirteen-week periods ended May 1, 2021 and May 2, 2020, respectively.

Basis of Consolidation

The Consolidated Financial Statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

The Company accounts for investments in unconsolidated entities where it exercises significant influence, but does not have control, using the equity method. Under the equity method of accounting, the Company recognizes its share of the investee's net income or loss. Losses are only recognized to the extent the Company has positive carrying value related to the investee. Carrying values are only reduced below zero if the Company has an obligation to provide funding to the investee. The Company’s share of net income or loss of unconsolidated entities from which the Company purchases merchandise or merchandise components is included in Costs of Goods Sold, Buying and Occupancy in the Consolidated Statements of Income (Loss). The Company’s share of net income or loss from its investment in the Victoria's Secret U.K. joint venture with Next PLC is included in General, Administrative and Store Operating Expenses in the Consolidated Statements of Income (Loss). The Company’s share of net income or loss of all other unconsolidated entities is included in Other Income (Loss) in the Consolidated Statements of Income (Loss). The Company’s equity method investments are required to be reviewed for impairment when it is determined there may be an other-than-temporary loss in value.

7

Interim Financial Statements

The Consolidated Financial Statements as of and for the periods ended May 1, 2021 and May 2, 2020 are unaudited and are presented pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto contained in the Company’s 2020 Annual Report on Form 10-K.

In the opinion of management, the accompanying Consolidated Financial Statements reflect all adjustments, which are of a normal recurring nature and necessary for a fair presentation of the results for the interim periods.

Seasonality of Business

Due to the seasonal variations in the retail industry, the results of operations for the interim period is not necessarily indicative of the results expected for the full fiscal year.

Restricted Cash

The Company placed cash on deposit with certain financial institutions as collateral for lending commitments. The amount of collateral required was dependent upon the aggregate lending commitments. These deposits, totaling $30 million, are recorded in Other Current Assets on the May 1, 2021 Consolidated Balance Sheet. The Company's total Cash and Cash Equivalents and Restricted Cash totaled $2.837 billion as of May 1, 2021.

Derivative Financial Instruments

The Company uses derivative financial instruments to manage exposure to foreign currency exchange rates. The Company does not use derivative instruments for trading purposes. All derivative instruments are recorded on the Consolidated Balance Sheets at fair value.

The earnings of the Company's wholly owned foreign operations are subject to exchange rate risk as substantially all the merchandise is sourced through U.S. dollar transactions. The Company uses foreign currency forward contracts designated as cash flow hedges to mitigate this foreign currency exposure for its Canadian operations. Amounts are reclassified from accumulated other comprehensive income (loss) upon sale of the hedged merchandise to the customer. These gains and losses are recognized in Costs of Goods Sold, Buying and Occupancy in the Consolidated Statements of Income (Loss). The fair value of designated cash flow hedges is not significant as of May 1, 2021.

Concentration of Credit Risk

The Company maintains cash and cash equivalents, restricted cash and derivative contracts with various major financial institutions. The Company monitors the relative credit standing of financial institutions with whom the Company transacts and limits the amount of credit exposure with any one entity. The Company’s investment portfolio is primarily comprised of U.S. government obligations, U.S. Treasury and AAA-rated money market funds, commercial paper and bank deposits.

The Company also periodically reviews the relative credit standing of franchise, license and wholesale partners and other entities to which the Company grants credit terms in the normal course of business. The Company determines the required allowance for expected credit losses using information such as customer credit history and financial condition. Amounts are recorded to the allowance when it is determined that expected credit losses may occur.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period, as well as the related disclosure of contingent assets and liabilities at the date of the financial statements. Actual results may differ from those estimates, and the Company revises its estimates and assumptions as new information becomes available.

Recently Issued Accounting Pronouncements

The Company did not adopt any new accounting standards during the first quarter of 2021 that had a material impact on the Company's consolidated results of operations, financial position or cash flows. In addition, there are no new accounting standards not yet adopted that are expected to have a material impact on the Company's consolidated results of operations, financial position or cash flows.

2. Revenue Recognition

Accounts receivable, net from revenue-generating activities were $136 million as of May 1, 2021, $125 million as of January 30, 2021 and $142 million as of May 2, 2020. Accounts receivable primarily relate to amounts due from the Company's franchise, license and wholesale partners. Under these arrangements, payment terms are typically 60 to 90 days.

8

The Company records deferred revenue when cash payments are received in advance of transfer of control of goods or services. Deferred revenue primarily relates to gift cards, loyalty and private label credit card programs and direct channel shipments, which are all impacted by seasonal and holiday-related sales patterns. Deferred revenue was $338 million as of May 1, 2021, $371 million as of January 30, 2021 and $348 million as of May 2, 2020. The Company recognized $128 million as revenue in the first quarter of 2021 from amounts recorded as deferred revenue at the beginning of the year. As of May 1, 2021, the Company recorded deferred revenue of $328 million within Accrued Expenses and Other, and $10 million within Other Long-term Liabilities on the Consolidated Balance Sheet.

The following table provides a disaggregation of Net Sales for the first quarter of 2021 and 2020:

	First Quarter
	2021		2020
	(in millions)
Bath & Body Works Stores - U.S. and Canada	$	1,051	$	424
Bath & Body Works Direct	349		289
Bath & Body Works International (a)	70		47
Total Bath & Body Works	1,470		760
Victoria’s Secret Stores - U.S. and Canada	933		514
Victoria’s Secret Direct	521		308
Victoria’s Secret International (b)	100		72
Total Victoria’s Secret	1,554		894
Total Net Sales	$	3,024	$	1,654

 _______________

(a)Results include royalties associated with franchised store and wholesale sales.

(b)Results include company-operated stores in the U.K. (pre-joint venture) and Greater China, and royalties associated with franchised stores and wholesale sales.

3. Restructuring Activities

During the second quarter of 2020, the Company completed a comprehensive review of its home office organizations in order to achieve meaningful reductions in overhead expenses and decentralize significant shared functions and services to support the separation of the Bath & Body Works and Victoria's Secret businesses. This resulted in a reduction of the home office headcount by approximately 15%, or about 850 associates.

During the first quarter of 2021, the Company made payments of $16 million related to severance and related costs associated with these reductions. As of May 1, 2021, a liability of $21 million related to these reductions is included in Accrued Expenses and Other on the Consolidated Balance Sheet.

Victoria's Secret U.K.

Due to challenging business results for Victoria's Secret in the U.K., the Company entered into Administration in June 2020 to restructure store lease agreements and reduce operating losses in the Victoria's Secret U.K. business. In October 2020, the Company entered into a joint venture with Next PLC for the Victoria’s Secret business in the United Kingdom and Ireland. Under this agreement, the Company owns 49% of the joint venture, and Next owns 51% and is responsible for operations. The Company accounts for its investment in the joint venture under the equity method of accounting.

4. Earnings (Loss) Per Share and Shareholders’ Equity (Deficit)

Earnings (Loss) Per Share

Earnings (loss) per basic share is computed based on the weighted-average number of common shares. Earnings (loss) per diluted share include the weighted-average effect of dilutive restricted stock and options on the weighted-average shares outstanding.

9

The following table provides the weighted-average shares utilized for the calculation of basic and diluted earnings (loss) per share for the first quarter of 2021 and 2020:

	First Quarter
	2021	2020
	(in millions)
Common Shares	288	285
Treasury Shares	(9)	(8)
Basic Shares	279	277
Effect of Dilutive Restricted Stock and Options	5	—
Diluted Shares	284	277
Anti-dilutive Options and Awards (a)	1	12

 _______________

(a)These options and awards were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive. For the first quarter of 2020, the dilutive impact of outstanding options and awards were excluded from dilutive shares as a result of the Company's net loss for the period.

Shareholders’ Equity (Deficit)

Common Stock Share Repurchases

In March 2021, the Company's Board of Directors authorized a new $500 million share repurchase plan, which replaced the $79 million remaining under the March 2018 repurchase program. Pursuant to the Board's authorization, the Company entered into a Rule 10b5-1 purchase plan to effectuate share repurchases for the first $250 million. Subsequent to May 1, 2021, the Company initiated a second $250 million Rule 10b5-1 purchase plan to effectuate the remaining share repurchases under the March 2021 repurchase plan.

Under the authority of the Company’s Board of Directors, the Company repurchased the following shares of its common stock during the first quarter of 2021:

Repurchase Program	Amount Authorized		Shares Repurchased	Amount Repurchased		Average Stock Price
	(in millions)		(in thousands)	(in millions)
March 2021	$	500	2,608	$	165	$	63.31

The March 2021 Plan had $335 million remaining as of May 1, 2021. There were $10 million of share repurchases reflected in Accounts Payable on the May 1, 2021 Consolidated Balance Sheet.

Subsequent to May 1, 2021, the Company repurchased an additional 1.6 million shares of its common stock for $106 million under the March 2021 Plan.

Dividends

Under the authority and declaration of the Board of Directors, the Company paid the following dividends during the first quarter of 2021 and 2020:

	Ordinary Dividends		Total Paid
	(per share)		(in millions)
2021
First Quarter	$	—	$	—
2020
First Quarter	$	0.30	$	83

The Board of Directors suspended the quarterly cash dividend beginning in the second quarter of 2020 as a proactive measure to strengthen the Company's financial flexibility and manage through the COVID-19 pandemic. In March 2021, the Company's Board of Directors reinstated the annual dividend at $0.60 per share, beginning with the quarterly dividend to be paid in June 2021. In May 2021, the Company's Board of Directors declared the second quarter of 2021 ordinary dividend of $0.15 per share.

10

5. Inventories

The following table provides details of inventories as of May 1, 2021, January 30, 2021 and May 2, 2020:

	May 1, 2021		January 30, 2021		May 2, 2020
	(in millions)
Finished Goods Merchandise	$	1,224	$	1,073	$	1,347
Raw Materials and Merchandise Components	173		200		144
Total Inventories	$	1,397	$	1,273	$	1,491

Inventories are principally valued at the lower of cost or net realizable value, on an average cost basis.

6. Long-Lived Assets

The following table provides details of property and equipment, net as of May 1, 2021, January 30, 2021 and May 2, 2020:

	May 1, 2021		January 30, 2021		May 2, 2020
	(in millions)
Property and Equipment, at Cost	$	6,189	$	6,204	$	6,177
Accumulated Depreciation and Amortization	(4,159)		(4,109)		(3,878)
Property and Equipment, Net	$	2,030	$	2,095	$	2,299

Depreciation expense was $129 million and $139 million for the first quarter of 2021 and 2020, respectively.

During the first quarter of 2020, the Company recorded pre-tax store asset impairment charges of $97 million as a result of the Victoria's Secret fleet rationalization executed during 2020 and the negative operating results of certain Victoria's Secret stores. These impairment charges are included in the Victoria's Secret segment and in Costs of Goods Sold, Buying and Occupancy in the 2020 Consolidated Statement of Loss.

7. Equity Investments

Easton

The Company has land and other investments in Easton, a planned community in Columbus, Ohio, that integrates office, hotel, retail, residential and recreational space. These investments, totaling $120 million as of May 1, 2021, $119 million as of January 30, 2021 and $120 million as of May 2, 2020, are recorded in Other Assets on the Consolidated Balance Sheets.

Included in the Company’s Easton investments are equity interests in Easton Town Center, LLC (“ETC”) and Easton Gateway, LLC (“EG”), entities that own and develop commercial entertainment and shopping centers. The Company’s investments in ETC and EG are accounted for using the equity method of accounting. The Company has a majority financial interest in ETC and EG, but another unaffiliated member manages them, and certain significant decisions regarding ETC and EG require the consent of unaffiliated members in addition to the Company.

Victoria's Secret U.K.

As of May 1, 2021, the Company accounts for its investment in Victoria's Secret U.K. under the equity method of accounting. For additional information, see Note 3, "Restructuring Activities."

8. Income Taxes

For the first quarter of 2021, the Company calculated the provision for income taxes on the current estimate of the annual effective tax rate and adjusted as necessary for quarterly events. Due to the impacts of the COVID-19 pandemic, the income tax expense for the first quarter of 2020 was computed on a year-to-date effective tax rate.

For the first quarter of 2021, the Company’s effective tax rate was 21.6% compared to 28.0% in the first quarter of 2020. The first quarter of 2021 rate was lower than the Company's combined estimated federal and state statutory rate primarily due to the recognition of excess tax benefits recorded through the Consolidated Statements of Income on share-based awards that vested in the quarter. In the first quarter of 2020, the Company recognized a benefit for income taxes of $115 million on a loss before income taxes of $412 million. The first quarter of 2020 rate was higher than the Company's combined federal and state statutory rate primarily due the resolution of certain tax matters, which resulted in a $50 million tax benefit, offset by losses related to certain foreign subsidiaries, which generated no tax benefit.

Income taxes paid were $10 million and $9 million for the first quarter of 2021 and 2020, respectively.

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9. Long-term Debt and Borrowing Facilities

The following table provides the Company’s outstanding debt balance, net of unamortized debt issuance costs and discounts, as of May 1, 2021, January 30, 2021 and May 2, 2020:

	May 1, 2021		January 30, 2021		May 2, 2020
	(in millions)
Senior Secured Debt with Subsidiary Guarantee
$750 million, 6.875% Fixed Interest Rate Secured Notes due July 2025 ("2025 Secured Notes")	$	—	$	740	$	—
Secured Foreign Facilities	—		—		107
Total Senior Secured Debt with Subsidiary Guarantee	$	—	$	740	$	107
Senior Debt with Subsidiary Guarantee
$1 billion, 6.625% Fixed Interest Rate Notes due April 2021 (“2021 Notes”)	$	—	$	—	$	450
$1 billion, 5.625% Fixed Interest Rate Notes due February 2022 (“2022 Notes”)	—		284		858
$320 million, 5.625% Fixed Interest Rate Notes due October 2023 (“2023 Notes”)	319		319		498
$500 million, 9.375% Fixed Interest Rate Notes due July 2025 ("2025 Notes")	493		493		—
$297 million, 6.694% Fixed Interest Rate Notes due January 2027 (“2027 Notes”)	279		278		276
$500 million, 5.250% Fixed Interest Rate Notes due February 2028 (“2028 Notes”)	497		497		496
$500 million, 7.500% Fixed Interest Rate Notes due June 2029 ("2029 Notes")	488		488		487
$1 billion, 6.625% Fixed Interest Rate Notes due October 2030 ("2030 Notes")	989		988		—
$1 billion, 6.875% Fixed Interest Rate Notes due November 2035 (“2035 Notes”)	991		991		991
$700 million, 6.750% Fixed Interest Rate Notes due July 2036 (“2036 Notes”)	694		694		693
Total Senior Debt with Subsidiary Guarantee	$	4,750	$	5,032	$	4,749
Senior Debt
$350 million, 6.950% Fixed Interest Rate Debentures due March 2033 (“2033 Notes”)	$	348	$	348	$	348
$247 million, 7.600% Fixed Interest Rate Notes due July 2037 (“2037 Notes”)	246		246		298
Total Senior Debt	$	594	$	594	$	646
Total	$	5,344	$	6,366	$	5,502
Current Debt	—		—		(468)
Total Long-term Debt, Net of Current Portion	$	5,344	$	6,366	$	5,034

Repurchases of Notes

In April 2021, the Company completed a make whole call to repurchase the remaining $285 million of outstanding 2022 Notes and the $750 million of outstanding 2025 Secured Notes. The Company recognized a pre-tax loss related to this extinguishment of debt of $105 million (after-tax loss of $80 million), which includes the write-offs of unamortized issuance costs. This loss is included in Other Income (Loss) in the 2021 Consolidated Statement of Income.

Asset-Backed Revolving Credit Facility

The Company and certain of the Company's 100% owned subsidiaries guarantee and pledge collateral to secure a revolving credit facility ("Credit Agreement"). In April 2020, the Company entered into an amendment and restatement (the “Amendment”) of the Credit Agreement to convert the Company’s credit facility into an asset-backed revolving credit facility (“ABL Facility”). The ABL Facility, which allows borrowings and letters of credit in U.S. dollars or Canadian dollars, has aggregate commitments at $1 billion and an expiration date in August 2024.

Availability under the ABL Facility is the lesser of (i) the borrowing base, determined primarily based on the Company's eligible U.S. and Canadian credit card receivables, accounts receivable, inventory and eligible real property, or (ii) the aggregate commitment. If at any time, the outstanding amount under the ABL Facility exceeds the lesser of (i) the borrowing base and (ii) the aggregate commitment, the Company will be required to prepay the outstanding amounts under the ABL Facility to the extent of such excess. In addition, at any time that the Company's consolidated cash balance exceeds $350 million, it will be required to prepay outstanding amounts under the ABL Facility to the extent of such excess. As of May 1,

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2021, the Company's borrowing base was $1.025 billion and it was unable to draw upon the ABL Facility as its consolidated cash balance exceeded $350 million.

The ABL Facility supports the Company’s letter of credit program. The Company had $63 million of outstanding letters of credit as of May 1, 2021 that reduced its availability under the ABL Facility.

As of May 1, 2021, the ABL Facility fees related to committed and unutilized amounts were 0.30% per annum, and the fees related to outstanding letters of credit were 1.75% per annum. In addition, the interest rate on outstanding U.S. dollar borrowings was the London Interbank Offered Rate plus 1.75% per annum. The interest rate on outstanding Canadian dollar-denominated borrowings was the Canadian Dollar Offered Rate plus 1.75% per annum. 

The ABL Facility requires the Company to maintain a fixed charge coverage ratio of not less than 1.00 to 1.00 during an event of default or any period commencing on any day when specified excess availability is less than the greater of (1) $100 million or (2) 15% of the maximum borrowing amount. As of May 1, 2021, the Company was not required to maintain this ratio.

As of May 1, 2021, there were no borrowings outstanding under the ABL Facility.

During the first quarter of 2020, in an abundance of caution and as a proactive measure in response to the COVID-19 pandemic, the Company elected to borrow $950 million from its revolving facility. This borrowing was repaid during the first quarter of 2020 upon the completion of the Amendment.

Foreign Facilities

Certain of the Company's China subsidiaries utilize revolving and term loan bank facilities to support their operations ("Foreign Facilities"). The Foreign Facilities allow borrowings in U.S. dollars and Chinese Yuan, and interest rates on outstanding borrowings are based upon the applicable benchmark rate for the currency of each borrowing. These facilities are guaranteed by the Company and certain of the Company's 100% owned subsidiaries. As of May 1, 2021, the Foreign Facilities allow for borrowings and letters of credit up to $30 million, and there were no borrowings outstanding.

The Company placed cash on deposit with certain financial institutions as collateral for their lending commitments under the Foreign Facilities. The amount of collateral required was dependent upon the aggregate lending commitments. These deposits, totaling $30 million, are recorded in Other Current Assets on the May 1, 2021 Consolidated Balance Sheet.

10. Fair Value Measurements

Cash and Cash Equivalents and restricted cash include cash on hand, deposits with financial institutions and highly liquid investments with original maturities of less than 90 days. The Company's Cash and Cash Equivalents and restricted cash are considered Level 1 fair value measurements as they are valued using unadjusted quoted prices in active markets for identical assets.

The following table provides a summary of the principal value and estimated fair value of outstanding publicly traded debt as of May 1, 2021, January 30, 2021 and May 2, 2020:

	May 1, 2021		January 30, 2021		May 2, 2020
	(in millions)
Principal Value	$	5,414	$	6,449	$	5,458
Fair Value, Estimated (a)	6,389		7,243		4,151

  _______________

(a)The estimated fair value of the Company’s publicly traded debt is based on reported transaction prices, which are considered Level 2 inputs in accordance with ASC 820, Fair Value Measurement. The estimates presented are not necessarily indicative of the amounts that the Company could realize in a current market exchange.

Management believes that the carrying values of accounts receivable, accounts payable and accrued expenses approximate fair value because of their short maturity.

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11. Comprehensive Income

The following table provides the rollforward of accumulated other comprehensive income for the first quarter of 2021:

	Foreign Currency Translation		Cash Flow Hedges		Accumulated Other Comprehensive Income
	(in millions)
Balance as of January 30, 2021	$	85	$	(2)	$	83
Other Comprehensive Income (Loss) Before Reclassifications	5		(4)		1
Amounts Reclassified from Accumulated Other Comprehensive Income	—		1		1
Tax Effect	—		1		1
Current-period Other Comprehensive Income (Loss)	5		(2)		3
Balance as of May 1, 2021	$	90	$	(4)	$	86

The following table provides the rollforward of accumulated other comprehensive income for the first quarter of 2020:

	Foreign Currency Translation		Cash Flow Hedges		Accumulated Other Comprehensive Income
	(in millions)
Balance as of February 1, 2020	$	52	$	—	$	52
Other Comprehensive Income (Loss) Before Reclassifications	(6)		6		—
Tax Effect	—		(1)		(1)
Current-period Other Comprehensive Income (Loss)	(6)		5		(1)
Balance as of May 2, 2020	$	46	$	5	$	51

12. Commitments and Contingencies

The Company is subject to various claims and contingencies related to lawsuits, taxes, insurance, regulatory and other matters arising out of the normal course of business. Actions filed against the Company from time to time include commercial, tort, intellectual property, customer, employment, data privacy, securities and other claims, including purported class action lawsuits. Management believes that the ultimate liability arising from such claims and contingencies, if any, is not likely to have a material adverse effect on the Company’s results of operations, financial condition or cash flows.

On May 19, 2020, a purported shareholder filed a derivative lawsuit on behalf of L Brands, Inc. in the Court of Common Pleas for Franklin County, Ohio. The complaint names as defendants certain current and former directors and officers of L Brands, Inc. and alleges, among other things, that these defendants breached their fiduciary duties by violating law and/or company policies relating to workplace conduct. The Company was named as nominal defendant only, and there are no claims asserted against it. On June 16, 2020, the lawsuit was removed to the United States District Court for the Southern District of Ohio. On July 6, 2020, the court so-ordered a stipulation staying the lawsuit until December 29, 2020. That stay has since been extended until June 29, 2021.

On January 12, 2021, another purported shareholder filed a derivative lawsuit on behalf of L Brands, Inc. in the Delaware Court of Chancery. The complaint names as defendants certain current and former directors and officers of L Brands, Inc. and alleges, among other things, breaches of fiduciary duty through asserted violations of law and failures to monitor workplace conduct. The Company was named as a nominal defendant, and there are no claims asserted against it. The parties have agreed to a response date of June 21, 2021.

La Senza

In connection with the sale of La Senza in the fourth quarter of 2018, certain of the Company's subsidiaries have remaining contingent obligations of $30 million related to lease payments under the current terms of noncancelable leases expiring at various dates through 2028. These obligations include minimum rent and additional payments covering taxes, common area costs and certain other expenses and relate to leases that commenced prior to the disposition of the business. As of May 1, 2021, the Company was fully reserved for these lease-related obligations and for certain other obligations related to the La Senza business.

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13. Retirement Benefits

The Company sponsors a tax-qualified defined contribution retirement plan for substantially all its associates within the U.S. Participation is available to associates who meet certain age and service requirements. The qualified plan permits participating associates to elect contributions up to the maximum limits allowable under the Internal Revenue Code. The Company matches associate contributions according to a predetermined formula and contributes additional amounts based on a percentage of the associates’ eligible annual compensation and years of service. Associate contributions and Company matching contributions vest immediately. Additional Company contributions and the related investment earnings are subject to vesting based on years of service. Total expense recognized related to the qualified plan was $21 million for both the first quarter of 2021 and 2020.

The Company sponsors a non-qualified supplemental retirement plan. The non-qualified plan is an unfunded plan, which provides benefits beyond the Internal Revenue Code limits for qualified defined contribution plans. On June 27, 2020 (the “Termination Date”), the Human Capital and Compensation Committee of the Board of Directors authorized the termination of the non-qualified plan. Subsequent to the Termination Date, no additional employee contributions may be made to the non-qualified plan. The remaining benefits and obligations are expected to be paid out in full approximately one year following the Termination Date. Accordingly, the liability of $146 million related to the non-qualified plan is included within Accrued Expenses and Other on the May 1, 2021 Consolidated Balance Sheet. Total expense recognized related to the non-qualified plan was not significant for the first quarter of 2021 or the first quarter of 2020.

14. Segment Information

In the third quarter of 2020, the Company changed its segment reporting as a result of leadership changes and restructuring actions taken to facilitate the ongoing efforts to separate Bath & Body Works and Victoria’s Secret into separate businesses. The Company has two reportable segments: Bath & Body Works and Victoria's Secret. While this reporting change did not impact the Company's consolidated results, historical segment data has been recast to be consistent for all periods presented.

The Bath & Body Works segment sells body care, home fragrance products, soaps and sanitizers under the Bath & Body Works, White Barn, C.O. Bigelow and other brand names. Bath & Body Works merchandise is sold online and at retail stores located in the U.S. and Canada, and international stores operated by partners under franchise, license and wholesale arrangements. Additionally, this segment includes the Bath & Body Works merchandise sourcing and production function serving the Company and its international partners.

The Victoria’s Secret segment sells women’s intimate and other apparel, personal care and beauty products under the Victoria’s Secret and PINK brand names. Victoria’s Secret and PINK merchandise is sold online and through retail stores located in the U.S., Canada and Greater China, and international stores operated by partners under franchise, license, wholesale and joint venture arrangements. Additionally, this segment includes the Victoria's Secret and PINK merchandise sourcing and production function serving the Company and its international partners.

Other includes corporate infrastructure and governance functions and other non-recurring items that are deemed to be corporate in nature.

The following table provides the Company’s segment information for the first quarter of 2021 and 2020:

	Bath & Body Works		Victoria’s Secret		Other		Total
	(in millions)
2021
First Quarter:
Net Sales	$	1,470	$	1,554	$	—	$	3,024
Operating Income (Loss)	380		245		(53)		572
2020
First Quarter:
Net Sales	$	760	$	894	$	—	$	1,654
Operating Income (Loss) (a)	76		(354)		(40)		(318)

 _______________

(a)Victoria's Secret includes store asset impairment charges of $97 million. For additional information, see Note 6, “Long-Lived Assets."

The Company’s international net sales include sales from company-operated stores, royalty revenue from franchise and license arrangements, wholesale revenues and direct sales shipped internationally. Certain of these sales are subject to the impact of fluctuations in foreign currency. The Company’s international net sales totaled $280 million and $179 million for the first quarter of 2021 and 2020, respectively.

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15. Subsequent Events

Victoria's Secret

On May 11, 2021, the Company announced that its Board of Directors unanimously approved a plan to separate L Brands, Inc. into two independent, public companies: Bath & Body Works and Victoria’s Secret, including PINK. The Company expects to create these companies through a tax-free spin-off of Victoria’s Secret to L Brands’ shareholders. The spin-off is expected to be effected through a pro-rata distribution to L Brands, Inc. shareholders of common stock of a newly-formed entity holding certain assets and liabilities comprising the Victoria’s Secret business. The spin-off is expected to be completed in August 2021, subject to certain customary market, regulatory and other conditions.

Common Stock Share Repurchases

Subsequent to May 1, 2021, the Company initiated a second $250 million Rule 10b5-1 common stock purchase plan to effectuate the remaining share repurchases under the March 2021 repurchase plan. The Company repurchased an additional 1.6 million shares of its common stock for $106 million under the March 2021 Plan subsequent to May 1, 2021.

16

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of L Brands, Inc.

Results of Review of Interim Financial Statements

We have reviewed the accompanying consolidated balance sheets of L Brands, Inc. (the Company) as of May 1, 2021 and May 2, 2020, and the related consolidated statements of income (loss), comprehensive income (loss), total equity (deficit) and cash flows for the thirteen week periods ended May 1, 2021 and May 2, 2020, and the related notes (collectively referred to as the “consolidated interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial statements for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of January 30, 2021, and the related consolidated statements of income (loss), comprehensive income (loss), total equity (deficit), and cash flows for the year then ended, and the related notes (not presented herein); and in our report dated March 19, 2021, we expressed an unqualified audit opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of January 30, 2021, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

These financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

/s/ Ernst & Young LLP

Grandview Heights, Ohio

June 3, 2021

17

SAFE HARBOR STATEMENT UNDER THE PRIVATE

SECURITIES LITIGATION ACT OF 1995

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

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:

•the spin-off may not be consummated within the anticipated time period or at all;

•disruption to our business in connection with the proposed spin-off and that we could lose revenue as a result of such disruption;

•    the spin-off may not be tax-free for U.S. federal income tax purposes;

•    a loss of synergies from separating the businesses that could negatively impact the balance sheet, profit margins or earnings of both businesses or that the companies resulting from the spin-off do not realize all of the expected benefits of the spin-off;

•    the combined value of the common stock of the two publicly-traded companies may not be equal to or greater than the value of our common stock had the spin-off not occurred;

•    general economic conditions, consumer confidence, consumer spending patterns and market disruptions including pandemics or significant health hazards, severe weather conditions, natural disasters, terrorist activities, financial crises, political crises or other major events, or the prospect of these events;

•    the novel coronavirus (COVID-19) global pandemic has had and is expected to continue to have an adverse effect on our business and results of operations;

•    the seasonality of our business;

•    divestitures or other dispositions, including a spin-off of Victoria’s Secret and related operations and contingent liabilities from businesses that we have divested;

•    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;

•    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 operate and 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 maintain, enforce and 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;

18

•    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;

•    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, printing or other order fulfillment logistics;

•    claims arising from our self-insurance;

•    our and our third-party service providers' ability to implement and maintain information technology systems and to protect associated data;

•    our ability to maintain the security of customer, associate, third-party and company information;

•    stock price volatility;

•    our ability to pay dividends and related effects;

•    shareholder activism matters;

•    our ability to maintain our credit rating;

•    our ability to service or refinance our debt and maintain compliance with our restrictive covenants;

•    our ability to comply with laws, regulations and technology platform rules 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. Additional information regarding these and other factors can be found in “Item 1A. Risk Factors” in this Form 10-Q and in our 2020 Annual Report on Form 10-K.

Item 2.    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 GAAP. The following information should be read in conjunction with our financial statements and the related notes included in Item 1. Financial Statements.

In the third quarter of 2020, we changed our segment reporting as a result of leadership changes and restructuring actions taken to facilitate the ongoing efforts to separate Bath & Body Works and Victoria’s Secret into separate businesses. We now have two reportable segments: Bath & Body Works and Victoria’s Secret. Accordingly, we no longer report a Victoria’s Secret and Bath & Body Works International segment as these businesses are now included with their respective brand. Additionally, the Bath & Body Works and Victoria’s Secret segments now include sourcing and production functions (formerly known as Mast) and certain other corporate functions that directly support each brand. These functions were previously included within Other. While this reporting change did not impact our consolidated results, historical segment data has been recast to be consistent for all periods presented.

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Executive Overview

In the first quarter of 2021, our operating income increased to $572 million as compared to a loss of $318 million in 2020, and our operating income (loss) rate increased to 18.9% from (19.2%). These results were driven by increases in sales and margin rates at both Bath & Body Works and Victoria’s Secret. Net sales increased $1.370 billion, or 83%, to $3.024 billion. Sales were strong throughout the first quarter of 2021, which benefited from government stimulus payments and the relaxation of pandemic-related restrictions. First quarter 2020 sales and operating results were negatively impacted by the COVID-19-related store closures for roughly half the quarter.

At Bath & Body Works, net sales increased $710 million, or 93%, to $1.470 billion and operating income increased $304 million, or 402%, to $380 million. We are optimistic about our Spring product assortment and our continued ability to execute against our plans in stores and online. We will continue to focus on maximizing our performance, leveraging the strength of our brand, our close connection to our customers and the speed we have in our supply chain.

At Victoria's Secret, net sales increased $660 million, or 74%, to $1.554 billion and operating income increased to $245 million as compared to a loss of $354 million in the first quarter of 2020. We believe we have the momentum in the business, and we are excited about the work that we are doing to continue to reposition the Victoria's Secret brand. We believe we have opportunities for continued improved performance, driven by the brand repositioning work, improved assortments, more disciplined inventory management and our profit improvement plan.

For additional information related to our first quarter 2021 financial performance, see “Results of Operations.”

Victoria's Secret Spin-Off

On May 11, 2021, we announced that our Board of Directors unanimously approved a plan to separate L Brands, Inc. into two independent, public companies: Bath & Body Works and Victoria’s Secret, including PINK. We expect to create these companies through a tax-free spin-off of Victoria’s Secret to L Brands’ shareholders. The spin-off is expected to be effected through a pro-rata distribution to L Brands, Inc. shareholders of common stock of a newly-formed entity holding certain assets and liabilities comprising the Victoria’s Secret business. The spin-off is expected to be completed in August 2021, subject to certain customary market, regulatory and other conditions.

In connection with the spin-off of Victoria's Secret, we expect to incur certain one-time costs related to professional and deal-related fees totaling approximately $70 million. We expect to recognize the majority of these costs upon completion of the spin-off. Additionally, we expect future capital and expense related to the implementation of new information technology platforms. We expect that these costs will be incurred by both Bath & Body Works and Victoria’s Secret over a period of time following the spin-off. Although our work is in the early stages and our estimates are preliminary, we expect that expenditures could be in the range of $200 million to $300 million. Such estimates are subject to change as our work continues and such changes could be material. After the spin-off, Victoria’s Secret will provide technology services to Bath & Body Works under a Transition Services Agreement until we can create independent systems environments, which we believe will help to minimize dis-synergies.

We expect that on a consolidated L Brands basis, we will incur approximately $80 million of incremental overhead costs annually related to technology expenses and other additional headcount to support two separate public companies. The combination of these costs, plus the allocation of corporate overhead which is currently reported in Other, we expect will result in approximately $100 million of additional post-separation annual cost for each Bath & Body Works and Victoria’s Secret, compared to what is currently reported in their segment results. The above estimates are preliminary in nature, are based solely on information available to us as of the date of this quarterly report and are inherently uncertain and subject to change.

Impacts of COVID-19

The coronavirus pandemic has created significant public health concerns as well as economic disruption, uncertainty and volatility. Our operations and financial performance have been materially impacted by the COVID-19 pandemic. In the first quarter of 2020, all of our stores in North America were closed on March 17, 2020 and nearly all stores remained closed throughout the remainder of the first quarter of 2020. Additionally, operations for Victoria’s Secret Direct were temporarily suspended for approximately one week in late March 2020, while Bath & Body Works Direct remained open for the duration of the first quarter of 2020.

During the first quarter of 2020, we took prudent actions to manage expenses and to maintain our cash position and financial flexibility. We also have adopted new operating models focused on providing a safe environment for our customers and associates, while also delivering an engaging shopping experience. We remain focused on the safe operations of our distribution, fulfillment and call centers while maximizing our direct businesses. Government stimulus payments and the relaxation of pandemic-related restrictions have positively impacted demand for our products during the first quarter of 2021. There remains the potential for COVID-related risks of closure or operating restrictions, which could materially impact our operations and financial performance in future periods.

20

Adjusted Financial Information

In addition to our results provided in accordance with GAAP above and throughout this Form 10-Q, provided below are non-GAAP measurements which present net income (loss) and earnings (loss) per share in 2021 and 2020 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.

	First Quarter
(in millions, except per share amounts)	2021		2020
Detail of Special Items - Income (Expense)
Victoria's Secret Asset Impairment (a)	$	—	$	(97)
Special Items included in Operating Income (Loss)	—		(97)
Loss on Extinguishment of Debt (b)	(105)		—
Special Items included in Other Income (Loss)	(105)		—
Tax Benefit from the Resolution of Certain Tax Matters (c)	—		50
Tax Effect of Special Items included in Operating Income (Loss) and Other Income (Loss)	25		25
Special Items included in Net Income (Loss)	$	(80)	$	(22)
Reconciliation of Reported Operating Income (Loss) to Adjusted Operating Income (Loss)
Reported Operating Income (Loss)	$	572	$	(318)
Special Items included in Operating Income (Loss)	—		97
Adjusted Operating Income (Loss)	$	572	$	(221)
Reconciliation of Reported Net Income (Loss) to Adjusted Net Income (Loss)
Reported Net Income (Loss)	$	277	$	(297)
Special Items included in Net Income (Loss)	80		22
Adjusted Net Income (Loss)	$	357	$	(275)
Reconciliation of Reported Earnings (Loss) Per Diluted Share to Adjusted Earnings (Loss) Per Diluted Share
Reported Earnings (Loss) Per Diluted Share	$	0.97	$	(1.07)
Special Items included in Earnings (Loss) Per Diluted Share	0.28		0.08
Adjusted Earnings (Loss) Per Diluted Share	$	1.25	$	(0.99)

 ________________

(a)In the first quarter of 2020, we recognized pre-tax impairment charges of $97 million ($72 million after tax) related to certain Victoria's Secret store assets. For additional information see Note 6, "Long-Lived Assets" included in Item 1. Financial Statements.

(b)In the first quarter of 2021, we recognized a pre-tax loss of $105 million (after-tax loss of $80 million) due to the early extinguishment of outstanding notes. For additional information see Note 9, "Long-term Debt and Borrowing Facilities" included in Item 1. Financial Statements.

(c)In the first quarter of 2020, we recognized a $50 million tax benefit related to the resolution of certain tax matters. For additional information see Note 8, "Income Taxes" included in Item 1. Financial Statements.

21

Company-Operated Store Data

The following table compares the first quarter of 2021 company-operated store data to the first quarter of 2020:

	First Quarter
	2021		2020		% Change
Sales per Average Selling Square Foot (a)
Bath & Body Works U.S.	$	229	$	93	146	%
Victoria’s Secret U.S.	154		71		117	%
Sales per Average Store (in thousands) (a)
Bath & Body Works U.S.	$	610	$	245	149	%
Victoria’s Secret U.S.	1,064		464		129	%
Average Store Size (selling square feet)
Bath & Body Works U.S.	2,672		2,633		1	%
Victoria’s Secret U.S.	6,885		6,587		5	%
Total Selling Square Feet (in thousands)
Bath & Body Works U.S.	4,406		4,305		2	%
Victoria’s Secret U.S.	5,790		6,804		(15	%)

 ________________

(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 period, of total square footage and store count, respectively. As a result of the COVID-19 pandemic, all our stores in the U.S. were closed on March 17, 2020 and nearly all stores remained closed throughout the remainder of the first quarter of 2020. As a result, comparisons of year-over-year trends are not a meaningful way to discuss our operating results this quarter.

The following table represents company-operated store data for the first quarter of 2021:

	Stores at			Stores at
	January 30, 2021	Opened	Closed	May 1, 2021
Bath & Body Works U.S.	1,633	21	(5)	1,649
Bath & Body Works Canada	103	—	—	103
Total Bath & Body Works	1,736	21	(5)	1,752
Victoria’s Secret U.S.	846	—	(5)	841
Victoria’s Secret Canada	25	1	—	26
Victoria's Secret Beauty and Accessories Greater China	36	1	(1)	36
Victoria's Secret Greater China	26	—	—	26
Total Victoria's Secret	933	2	(6)	929
Total L Brands Stores	2,669	23	(11)	2,681

The following table represents company-operated store data for the first quarter 2020:

	Stores at			Stores at
	February 1, 2020	Opened	Closed	May 2, 2020
Bath & Body Works U.S.	1,637	3	(5)	1,635
Bath & Body Works Canada	102	—	—	102
Total Bath & Body Works	1,739	3	(5)	1,737
Victoria’s Secret U.S.	1,053	1	(21)	1,033
Victoria’s Secret Canada	38	—	(1)	37
Victoria's Secret U.K. / Ireland	26	—	—	26
Victoria's Secret Beauty and Accessories Greater China	41	—	(1)	40
Victoria's Secret Greater China	23	1	—	24
Total Victoria's Secret	1,181	2	(23)	1,160
Total L Brands Stores	2,920	5	(28)	2,897

22

Partner-Operated Store Data

The following table represents partner-operated store data for the first quarter of 2021:

	Stores at			Stores at
	January 30, 2021	Opened	Closed	May 1, 2021
Bath & Body Works	288	14	(3)	299
Victoria’s Secret Beauty & Accessories	338	2	(3)	337
Victoria's Secret	120	1	—	121
Total	746	17	(6)	757

The following table represents partner-operated store data for the first quarter of 2020:

	Stores at			Stores at
	February 1, 2020	Opened	Closed	May 2, 2020
Bath & Body Works	278