Fitch Affirms L Brands' IDR at 'BB+'; Outlook Stable

  Fitch Affirms L Brands' IDR at 'BB+'; Outlook Stable  Business Wire  NEW YORK -- April 11, 2014  Fitch Ratings has affirmed the ratings for L Brands, Inc. (L Brands, formerly known as Limited Brands, Inc.), including the Long-term Issuer Default Rating (IDR) at 'BB+'. The Rating Outlook is Stable. A full list of rating actions follows at the end of this release.  KEY RATING DRIVERS  The affirmations reflect L Brands' strong brand recognition and dominant market positions in intimate apparel and personal care and beauty products, strong operating results, reasonable credit metrics and solid cash flow generation. The ratings also consider the company's track record of shareholder-friendly activities.  L Brands' strong business profile is anchored by its two flagship brands, Victoria's Secret and Bath & Body Works; a strong direct business; and a growing international footprint. The company's strong comparable store sales (comps) trends since the recession have been driven by relevant and attractive product offerings and a loyal customer base, although comps have normalized to low single digits in 2013 from 6% - 10% in 2011/2012. In addition to positive operating leverage from strong comps growth, the company has driven margin growth through efficient inventory and expense management. EBITDA margins in the 20%-range compare favorably to the broader retail average in the low teens.  Fitch expects that L Brands can sustain comps growth in the 2% -3% range and EBITDA margin to remain in excess of 20% over the next three years. This is underscored by strong comps growth in both the Victoria's Secret brand (approximately 62% of sales and EBITDA including the Victoria's Secret direct business) and Bath & Body Works brand (approximately 27% of sales and 32% of EBITDA). Fitch expects the growth of PINK in the U.S. (which could double over the next few years from nearly $2 billion currently) and international expansion, if executed successfully, could drive top line growth in the mid-single-digit range.  Lease-adjusted leverage stood at 3.5x as of Feb. 1, 2014. Fitch expects the company to maintain a leverage profile in the mid-3x range, and fund dividends and share repurchases with free cash flow (FCF) and potential debt issuances. The company's shareholder-friendly posture is a key constraint to the rating.  Fitch expects the company will continue to generate strong FCF before dividends in the $650 million - $750 million range annually (or $300 million - $350 million after regular dividends) over the next two to three years. Capex is expected to increase to $750 million in 2014 from $690 million in 2013 and $590 million in 2012, reflecting new store constructions and square footage expansion to primarily support PINK and international growth (square footage to grow by approximately 3% - 4% in 2014).  Liquidity is strong, supported by a cash balance of $1.5 billion as of Feb. 1, 2014 and the company's $1 billion revolving credit facility. The company has a comfortable maturity profile, staggered over many years. Fitch considers refinancing risk low given L Brands' strong business profile, favorable operating trends, and reasonable leverage.  RATING SENSITIVITIES  A positive rating action would require both the continuation of positive operating trends and the maintenance of financial leverage in the low 3x on a consistent basis.  A negative rating action could be driven by a trend of negative comps and/or margin compression from fashion misses, execution missteps, or loss of competitive traction. A larger than expected debt-financed share repurchase and/or leverage rising to approximately 4x would be negative for the rating.  Fitch has affirmed L Brands' IDR and issue ratings as follows:  --Long-term IDR at 'BB+';  --Bank credit facility at 'BBB-';  --Senior guaranteed unsecured notes at 'BB+';  --Senior unsecured notes at 'BB'.  The Rating Outlook is Stable.  Additional information is available at 'www.fitchratings.com'.  Applicable Criteria and Related Research:  --'Corporate Rating Methodology' (Aug. 5, 2013).  Applicable Criteria and Related Research:  Corporate Rating Methodology - Effective 12 August 2011 to 8 August 2012  http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229  Additional Disclosure  Solicitation Status  http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=826721  ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.  Contact:  Fitch Ratings Primary Analyst Isabel Hu, CFA Director +1-212-908-0672 Fitch Ratings, Inc. One State Street Plaza New York, NY 10004 or Secondary Analyst Monica Aggarwal, CFA Senior Director +1-212-908-0282 or Committee Chairperson Rolando Larrondo Senior Director +1-212-908-9189 or Media Relations: Brian Bertsch, +1-212-908-0549 (New York) brian.bertsch@fitchratings.com