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Fitch affirms L Brands' ratings, changes outlook to negative

Fitch Ratings on May 30 affirmed L Brands Inc.'s long-term issuer default rating at BB+ and revised its outlook to negative from stable.

Fitch also affirmed the company's secured bank credit facility at BBB-/RR1, senior guaranteed unsecured notes at BB+/RR4 and senior unsecured notes at BB/RR5.

The agency said the ratings reflect the company's dominant position in intimate apparel through its Victoria's Secret brand, as well as in personal care and home products through its Bath & Body Works brand.

However, Fitch said the negative outlook reflects its concern that negative store traffic trends at Victoria's Secret could be indicative of brand challenges that extend beyond the company's recent strategic changes. It is also concerned that these challenges will continue to persist and result in weakening EBITDA and increasing leverage above 4x.

According to the agency, it can revise L Brands' outlook to stable if its confidence in the company's ability to stabilize operations, such that leverage improves to under 4x, increases. The company would need to improve EBITDA by around 20% from projected 2018 levels of about $2.2 billion to sustain leverage below 4x.

Fitch now expects total comparable sales to be in the low-single digits annually, assuming negative low-single-digit comparable sales at Victoria's Secret offset by low-to-mid-single digit positive comparable sales at Bath & Body Works. The prolonged weakness in comparable sales suggests that there could be some longer-term issues with the brand that needs to be addressed in order to stabilize operations, the agency said.

Fitch noted that it expects L Brands' omnichannel platform to be a continued driver of growth.