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L Brands halves dividend, appoints new CEO for Victoria's Secret

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L Brands halves dividend, appoints new CEO for Victoria's Secret
A customer passes by an L Brands Inc., Victoria's Secret retail store in Manhattan, New York, U.S., May 13, 2016. REUTERS/Brendan McDermid   -   Copyright  Brendan McDermid(Reuters)
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By Nivedita Balu

(Reuters) – L Brands Inc <LB.N> on Monday slashed its full-year dividend and replaced the chief executive of its struggling Victoria’s Secret lingerie brand.

The company’s shares fell 5 percent in extended trading and were set to add to their 43 percent drop this year, as its Victoria’s Secret and Pink brands face stiff competition to connect with shoppers opting for cheaper bralettes and sports bras.

Sales at Victoria’s Secret, L Brands’ biggest division by revenue, have fallen in seven out of the last eight quarters, mainly due to weakness in Pink, the brand launched in 2002 aimed at college-going clientele.

“In Pink, fashion errors in loungewear have driven a recent deceleration in performance,” the company said.

L Brands said on Monday it hired John Mehas from lifestyle brand Tory Burch as CEO of Victoria’s Secret to replace Jan Singer, effective early 2019.

Mehas is a retail industry and merchandising veteran who has previous stints at Polo Ralph Lauren’s Club Monaco, Gap <GPS.N> and Macy’s <M.N> Bloomingdales.

“For us, it means management sees no turnaround in the immediate future, which most investors probably would have guessed, but it still hurts to see it in a dividend cut by half,” Wedbush analyst Jen Redding said.

Monday’s appointment comes a few months after the company named a new head for its Pink brand.

“Our new leaders are coming in with a fresh perspective and looking at everything … our marketing, brand positioning, internal talent, real estate portfolio and cost structure,” Chief Executive Officer Leslie Wexner said in a statement.

L Brands has said it would pursue options for its money-losing La Senza brand and shut down Henri Bendel retail stores and website, as it focuses on its core brands.

The company said third-quarter sales at its established stores rose 4 percent, easily topping analysts’ average estimate of 1.53 percent, according to IBES data from Refinitiv.

Sales at Victoria’s Secret stores that have been open for at least a year fell 2 percent, compared with estimates of a 4 percent decline.

Excluding items, L Brands earned 16 cents per share, 1 cent above Wall Street estimates. Net sales rose 6 percent to $2.77 billion, also topping estimates.

However, some analysts were not impressed.

“We remain very disappointed not only with the sales numbers but by the inertia within the business,” said Neil Saunders, managing director of GlobalData Retail.

The company said it would cut its annual ordinary dividend to $1.20 from $2.40 and use the savings of $325 million to pay down debt.

(Reporting by Nivedita Balu in Bengaluru; Editing by Sriraj Kalluvila and Maju Samuel)

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