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L Brands’ Shares Slide as its CEO’s Ties to Epstein Scrutinized

July 9, 2019, 5:56 PM UTC

Victoria’s Secret, already burdened by weak sales and calls to evolve in the #MeToo era, is facing another controversy: its leader Les Wexner’s name appearing in reports about disgraced financier Jeffrey Epstein.

Wexner, chairman and CEO of the alluring lingerie chain’s parent L Brands, employed Epstein as a money manager for years, building a relationship close enough for Epstein to buy his Manhattan mansion. On Monday, federal prosecutors unsealed new charges claiming Epstein ran a sex-trafficking ring, which included girls as young as 14. These allegations have also triggered a political firestorm in Washington.

Wexner hasn’t been accused of any wrongdoing himself. The executive, who has declined to comment, severed ties with Epstein more than a decade ago.

L Brands Inc., which Wexner founded, hasn’t publicly commented on its chief’s link to Epstein.

‘Saying Nothing’

The company may have to consider a more robust response, including a public effort to distance the lingerie company from its founder’s former fund manager. L Brands shares fell as much as 3.5% Tuesday, the most in about a month, while the S&P 500 index was little changed.

“Wexner needs to immediately and forcefully distance himself from Epstein, personally and professionally, and condemn Epstein’s actions in no uncertain terms,” said Jonathan Bernstein, a crisis-management consultant, noting that the company should proactively come forward with a statement. “You can’t separate the Wexner name from L Brands. He’s the founder of the company. There’s no such thing as saying nothing.”

If Victoria’s Secret is unwilling to take a stand, the company is likely to lose some market share to its competitors that take a hard stance on human rights and female empowerment, Bernstein said. And that’s something Victoria’s Secret can’t afford to do: Its same-store sales, a key retail metric, fell 5% in the latest quarter with management telling investors it was “clearly not satisfied” with the brand’s performance.

Changing Culture

Victoria’s Secret has been challenged by a changing culture—one where consumers are asking for more representation of a wider range of body types and respect for women. For years, its popular catalog took its cues from romance novels and Cosmopolitan magazine—a mix of sexiness, windswept allure, and cleavage-accentuating product lines. Still, change may be afoot: The company recently said it would amend the way it does its annual fashion show, suggesting it’s open to criticism after years of losing market share to upstarts seen as more female-friendly.

Bloomberg Intelligence analyst Poonam Goyal said the bigger thing for investors to watch is not Wexner’s name being dragged into the Epstein reporting, but whether the retailer is successful at rebranding this fall with new products that move Victoria’s Secret further beyond just “sexiness.”

This is “not good for profiling of the company, but the question is how long does this stay in the social realm? For any brand, if the negativity continues to be a part of mass following for a long period of time, it’s something that they’ll have to address,” she said. “Whether this affects the success of the new strategy depends on what the sentiment is in the fall.”

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