L Brands : 1Q 2021 Earnings Commentary

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LB FIRST QUARTER 2021 EARNINGS COMMENTARY

MAY 19, 2021

Introduction

• L Brands is providing this first quarter commentary ahead of its live earnings call scheduled for May 20th at 9:00 a.m.
• We remind you that any forward-looking statements made in this commentary are subject to our safe harbor statement found in our SEC filings and in our press releases.
• Our first quarter earnings release and related financial information are available on our website, www.LB.com. Also available on our website is an investor presentation.
• All of the results included in this commentary are adjusted results, and exclude the significant items as described in our press release.

First Quarter Results

• We delivered record results in the first quarter, and we could not have done so without the hard work and dedication of our team of associates and partners. We'd like to express our deep appreciation for their dedication and efforts.

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• Turning to a review of our first quarter performance, we reported record adjusted first quarter earnings of $1.25 per share compared to a loss of $0.99 last year.
• These bottom-line results were driven by better than expected sales and margin rates at both Bath & Body Works and Victoria's Secret.
• Improved merchandising and effective selling execution, along with more disciplined inventory management at Victoria's Secret, enabled us to pull back on promotional activity, resulting in significant increases in our average unit retails and merchandise margin rate.
• Net sales for the quarter were $3.024 billion. First quarter 2020 sales were negatively impacted by the COVID-19 related store closures for roughly half the quarter. Net sales for the first quarter of 2021 increased 15% compared to sales of $2.629 billion in the first quarter of 2019.
• Sales were strong throughout the quarter, which benefitted from government stimulus payments and the relaxation of pandemic-related restrictions. The quarter ended with strong Mother's Day holiday performance at both businesses.
• While it is difficult to quantify the benefit of stimulus payments, we estimate that sales were positively impacted by approximately $125 million ($50 million at Bath & Body Works and $75 million at Victoria's Secret), with a

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positive impact to operating income of approximately $80 million ($30 million at Bath & Body Works and $50 million at Victoria's Secret).

• The gross margin rate increased by 2,350 basis points to 46.8% compared to 2020. The merchandise margin rate increased by nearly 800 basis points, driven by the reduction in promotional activity mentioned above. The remaining gross margin rate improvement was driven by buying and occupancy expense leverage on the significant increase in sales. Compared to 2019, the gross margin rate increased by 1,130 basis points.
• The SG&A rate leveraged by 890 basis points on the significant increase in sales. Compared to 2019, SG&A dollars increased by about 8%, and leveraged by 190 basis points on the 15% sales increase.
• L Brands has a long history of giving back to its communities. Since the establishment of the L Brands Foundation in 1993, we have donated more than $300 million … supporting thousands of organizations with a focus on health and empowerment of women, nurturing and mentoring children, improving education and enriching the cultural arts. Embedded in our efforts is a commitment to diversity, equity and inclusion.
• As we work to complete the separation of Bath & Body Works and Victoria's Secret, each business is committed to continuing to make a positive impact in the world and our communities and are establishing separate philanthropic funds. In the first quarter we contributed $35 million, included in SG&A

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expense, to these funds because we believe it's important to do good when we are doing well. The $35 million expense consists of $10 million in the Bath & Body Works segment, $10 million in the Victoria's Secret segment and $15 million in the Other segment.

• Operating income increased by $792.9 million to $572.1 million and the operating income rate was 18.9%. First quarter operating income increased by $304.2 million to $379.9 million, a 25.9% rate, at Bath & Body Works and increased by $501.5 million to $244.5 million, a 15.7% rate, at Victoria's Secret.
• Turning to the balance sheet, total inventories ended the quarter down 6% compared to last year, in line with expectations. Inventories are up at Bath & Body Works, supporting their sales trend, and remain down compared to last year at Victoria's Secret.
• We repurchased 2.6 million shares during the first quarter for $165.1 million. We have $334.9 million remaining under our $500 million share repurchase program.

Bath & Body Works

• Turning to Bath & Body Works, we delivered record sales and profitability in the first quarter. Throughout the quarter, we achieved sales that were above our expectations at continued record high first quarter margin rates. Similar to the fourth quarter, we were able to pull back on promotional activity as overall demand was stronger than anticipated.

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• First quarter sales for the Bath & Body Works segment were $1.469 billion, an increase of $708.9 million, or 93%, compared to last year and an increase of $551 million, or 60%, compared to 2019.
• Growth in the quarter compared to 2019 was driven by both an increase in transactions and strength in the average dollar sale for both Stores and Direct.
• Performance was strong across all months as we saw good customer response to our Spring merchandise, beginning with our Tropical Paradise launch. Sunshine Mimosa, our single-fragrance launch leading into the Mother's Day gifting timeframe, led the way as a cross-category fragrance and produced a strong front-of-shop (in stores and online) presence with bright, eye-catching marketing. Our Mother's Day messaging and product assortment resonated with our customers.
• We achieved strong balanced growth in all merchandise categories. Fragrant body care, home fragrance and soaps and sanitizers experienced significant growth versus last year and all categories grew at least 45% compared to 2019.
• In U.S. and Canada stores, first quarter sales were $1.050 billion, an increase of $626.7 million or 148% compared to last year and $336.2 million or 47% compared to 2019. Dollars per footstep (the combination of conversion and average dollar sale) in stores increased 71% compared to 2019.

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