L Brands Inc

FPCM Corporate Credit Profile August 2013

L Brands Inc.

Business Profile

Founded in 1963 in Columbus, Ohio, L Brands (formerly called Limited Brands) is a multi-brand company with two business segments: intimates and personal care.

Its brands include: Victoria’s Secret, Bath and Body Works, La Senza (Canada), Henri Bendel and C.O. Bigelow.

FY12 Revenue by Brand

Other Moody’s: Ba1/Stable La Senza 8% 3% S&P: BB+/Stable

Bath and Body Works Victoria's Secret 27% 62%

Source: Company Reports

The company manufactures and distributes its products through retail stores primarily in malls, websites, and catalogues.

The primary focus is in the U.S. (2,600 specialty stores), but it also operates 680 company-owned and franchised stores in international locations (international sales represented 9.8% of total FY12 sales).

L Brand’s founder, Leslie Wexner, is currently the CEO and Chairman of the Board.

The specialty retail sector is highly competitive. L Brands faces competition from individual and chain specialty stores, department stores, and discount retailers. The Victoria’s Secret line is regarded as a dominant brand in the industry with global recognition driven by substantial marketing.

1 • First Principles Capital Management, LLC L Brands Inc. • Credit Profile One significant trend for retailers is the pursuit of international expansion to offset the concentration in the U.S. market. In the past year L Brands opened two stores in the U.K. Innovation and new products will be critical to drive growth domestically --the biggest product launches of the year for Victoria’s Secret will arrive in 3Q13.

Interim Results

FY2012: Revenue was up 1% yoy with +6% comparable sales growth driven by 7% increases at both Victoria’s Secret and Bath and Body Works as new products were well received by consumers. La Senza (72 stores in FY12) continued to experience declining sales.

Revenues [$mm] and EBITDA

2011 2012 LTM 1Q12 1Q13 Victoria’s Secret 6,121 6,574 6,609 1,470 1,505 Bath and Body 2,674 2,902 2,927 505 530 La Senza 0 356 353 75 73 Other 1,569 627 684 104 160 Total Revenue 10,364 10,459 10,573 2,154 2,268 % Growth 0.9% 1.1% 5.3% La Senza 356 353 75 73 EBITDA Growth 8.3% 1.1% 5.9% La Senza 356 353 75 73 Net Income 850 753 771 125 143

Source: Company Reports

2 • First Principles Capital Management, LLC L Brands Inc. • Credit Profile Sales per square foot remained among the highest in the industry at $662 per square foot, only surpassed by LULU at $2,211 per square foot (vs. peer average of $459 per square foot excluding LULU).

Sales per Square Foot

2012

2011

2010

2009

2008

500 520 540 560 580 600 620 640 660 680

Source: Company Reports

EBITDA margin improved 1.3% to 20% in FY12 mainly through management of costs.

1Q13: L Brands had a good quarter in light of softer mall traffic. Revenue was up 5.3% yoy as comparable sales gained 3%. Gains were evenly balanced between Victoria’s Secret and Bath and Body Works.

EBITDA margin (18.1%) was flat yoy, however the company remains one of the most profitable retailers (9.7% average EBITDA margin for peers in 1Q13). The company was able to achieve ~50bps of SG&A leverage that helped offset gross margin pressure as mall traffic during the quarter prompted increased promotions.

Post earnings: LTD announced that June same store sales (SSS) were flat compared to the prior year (Victoria’s Secret -1% due to lower clearance sales, Bath and Body Works +2%, and La Senza flat). June margins increased slightly -- the first merchandise margin increase since Jan’13. LTD forecast July SSS to be in the low single digits.

3 • First Principles Capital Management, LLC L Brands Inc. • Credit Profile Revenue [$bln] and SSS Growth 11 12% Revenue SSS 10 4%

9 -4%

8 -12% 2006 2007 2008 2009 2010 2011 2012

Source: Company Reports

The new Flawless Victoria’s Secret collection was launched in May and according to management has met expectations.

Capital Structure and Liquidity

Strong liquidity of $1.4 billion (including cash of $382 million).

Total leverage remains stable at 2.1x and lease-adjusted leverage is 3.3x which is significantly below the peer average of 5.1x. Capitalization [$mm] 3/30/2013 $1 Bln RCL 7/16 (L+175bp) 0 8.500% 6/19 490 7.000% 5/20 400 6.625% 4/21 1,000 5.625% 2/22 1,000 Sr Unsec w/ Sub Guarantee 2,890 5.250% 11/14 217 6.900% 7/17 719 6.950% 3/33 350 7.600% 7/37 299 Total Debt 4,475 Cash 382 Net Debt 4,093 LTM EBITDA 2,119 Total Leverage 2.1x Net Leverage 1.8x Source: Company Reports

4 • First Principles Capital Management, LLC L Brands Inc. • Credit Profile Strong cash flow generation -- $763 million before dividends and share buybacks -- with FCF/Total Debt of 18.2% in 1Q13. However the Company has historically been aggressively shareholder friendly -- both with dividends and share repurchases.

Manageable near-term debt maturity profile ($217 million due in 2014 and the remaining debt maturing after 2016).

Strengths and Opportunities

Large scale and market leadership position in the intimate apparel segment.

Strong popular brands with solid image globally; brands are transportable internationally.

Strong operating performance and cash flow generation, with higher margins vs. peers (Gap at 11.3%, Kohl’s at 10.6%, and Nordstrom at 9.7%). Modest leverage (2.1x in 1Q13).

Weaknesses and Threats

Highly competitive nature of specialty retail apparel and overall fashion risk. However the Company’s strong brand management expertise has allowed it to maintain a high level of popularity with consumers of its two key brands.

Concentration on two narrow product niches (intimate apparel and personal care), with Victoria’s Secret brand representing 62% of sales and Bath & Body Works 27% of sales.

Domestic U.S. markets showing some saturation for the traditional Victoria’s Secret product line and Bath & Body Works stores. L Brands is diversifying with its PINK sub- brand (targeting college-age women) and international expansion (two stores opened in the U.K.).

Aggressive debt-funded shareholder friendly actions.

5 • First Principles Capital Management, LLC L Brands Inc. • Credit Profile Outlook

The Company expects to achieve low, single-digit sales comparable growth for 2Q’14 and FY2013.

There is growth upside from international expansion through both Company-operated and franchised locations.

Continued cost cutting efforts should improve margins slightly.

Capex is forecast to be $650 million (vs. $588 million in FY12) driven by the additional square footage to accommodate the PINK stores. Free cash flow in FY13 is expected to be in the $650 – $750 million range.

6 • First Principles Capital Management, LLC L Brands Inc. • Credit Profile Data Annex FCF/Liquidity 2011 2012 LTM 1Q12 1Q13 [$mm] CFO 1,266 1,351 1,414 (183) (120) CAPEX (426) (588) (601) (136) (149) Share Repurchase (1,190) (629) (308) (376) (55) Dividends (1,144) (1,449) (1,463) (73) (87)

FCF (1,494) (1,315) (958) (768) (411) Revolver 1,000 Cash 935 773 382 1,286 382 Liquidity 1,382

Metrics 2011 2012 LTM 1Q12 1Q13 CAPEX % Sales 4.1% 5.5% 5.5% 6.3% 6.6% Total Debt 3,481 4,477 4,475 4,537 4,475 Total 1.8x 2.1x 2.1x — Debt/EBITDA Net Debt/EBITDA 1.3x 1.8x 1.9x — 1.9x EV 18,484

EV/LTM EBITDA 8.7x

Stock Performance

L Brands Share Price [$] 60

0 2008 2009 2010 2011 2012 2013

Source: Company Reports ; Bloomberg

7 • First Principles Capital Management, LLC L Brands Inc. • Credit Profile Disclosure

Additional information is available upon request. Information has been obtained from sources believed to be reliable but First Principles Capital Management, LLC or its affiliates (collectively “FPCM”) do not warrant its completeness or accuracy except with respect to any disclosures relative to FPCM and the analyst's involvement with the company that is the subject of the research. All pricing is as of the close of market for the securities discussed, unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipient of this report must make its own independent decisions regarding any securities or financial instruments mentioned herein. Periodic updates may be provided on companies/industries based on company specific developments or announcements, market conditions or any other publicly available information.

8 • First Principles Capital Management, LLC L Brands Inc. • Credit Profile