L Brands CEO Les Wexner's future may be at stake as Epstein ties, falling stock haunt company

Les Wexner, chief executive of Victoria's Secret parent L Brands, has never been under more pressure.

The company, which also owns Bath & Body Works, has seen its shares fall more than 30% this year, hitting a 52-week low of $15.80 Wednesday. Sales have lagged at Victoria's Secret as shoppers increasingly see its products as exclusionary and too provocative in the #MeToo era.

Perhaps most troubling of all the shadows over Wexner, however, is that of late sex criminal Jeffrey Epstein. The retail tycoon earlier this year acknowledged his close ties to Epstein, including that he gave the disgraced financier power of attorney.

But unlike some other wealthy and powerful Epstein associates, Wexner has yet to face consequences for his relationship with the accused child sex trafficker, who died earlier this year. There have been no public cries for Wexner's resignation from board members or notable investors.

L Brands on Wednesday posted mixed results for the most recent quarter. Revenue fell short of expectations as declining Victoria's Secret sales continued to weigh on results. Same-store sales fell 2% compared with Wall Street expectations of a 1% decline. Earnings, however, were in line with analysts' views.

Beyond a few public expressions of regret over Epstein, little has changed for Wexner, who is 82. He remains CEO and chairman of L Brands, as well as one of its largest shareholders, with a nearly 17% stake, according to FactSet.

The company's board remains largely composed of a number of people friendly to Wexner that one industry insider referred to as "the Ohio Mafia." They include his wife, Abigail Wexner, American Electric Power CEO Michael Morris and Huntington Bancshares CEO Stephen Steinour. L Brands, Huntington Bancshares and American Electric Power are all based in Columbus, Ohio.

Wexner said in August he first met Epstein in the mid-1980s through friends who vouched for the financier. Epstein was a trustee of the Wexner Foundation, although Wexner has said Epstein had no executive responsibilities. In a letter to the foundation in August, Wexner said Epstein had misappropriated more than $46 million from Wexner and his family years ago. He only recently provided documents to federal prosecutors about the missing money. He has not explained why he did not pursue charges when he discovered the funds were missing.

"Being taken advantage of by someone who is ... so depraved is something I'm embarrassed I'm even close to," Wexner said at the L Brands' investor day in September.

"We are all betrayed by friends," said Wexner. "At the end of the day, people have secret lives because ... they're so good at hiding those secrets."

Epstein, whose death in a jail cell in August was ruled a suicide by hanging, was arrested in July on federal child sex trafficking charges. He was accused of sexually abusing dozens of underage girls from 2002 through 2005 at his massive townhouse in New York City and his mansion in Palm Beach, Florida. He pleaded guilty in 2008 to soliciting an underage prostitute in Florida. He served 13 months in jail for the charge, though much of that time he was granted work release.

L Brands has said it cut ties with Epstein nearly 12 years ago and called his alleged crimes "abhorrent." The company has been working with legal counsel to review the company's ties to Epstein, even though it has said it does not believe he ever served as an authorized representative of the company. Wexner's wife, Abigail, previously worked at the law firm L Brands hired to conduct the review, Davis Polk.

Epstein had friendships or associations with several of the richest and most powerful men in the world, including Presidents Donald Trump and Bill Clinton. Microsoft founder Bill Gates has said he made a mistake in meeting with Epstein years after the financier pleaded guilty to sex crimes.

Some of Epstein's well-connected associates have faced blowback. Prince Andrew of Britain lost at least one corporate sponsor of his Pitch@Palace initiatives following a disastrous interview with the BBC about Epstein. Prince Andrew said Wednesday he will "step back from public duties for the foreseeable future."

Entrepreneur Joi Ito earlier this year resigned from his role as director of MIT Media Lab and several corporate boards after admitting he took money from Epstein.

While Wexner has yet to face any such consequences, there have been changes on the L Brands board that predate the Epstein revelations.

Activist fund Barington Capital Group in March sent a letter to L Brands criticizing the company's performance. It said the board members' "social and business relationships" with Wexner raised "serious questions as to the true independence" of its directors.

L Brands and Barington reached a truce in April that added the fund as a special advisor to the company. The agreement also added board members Anne Sheehan, chair of the Securities and Exchange Commission's investor advisory committee, and Sarah Nash, CEO of Novagard Solutions.

The deal with Barington allowed Wexner to remain on the board, despite Barington's original contention the dual role of CEO and chairman gave him too much power.

L Brands has explored several options that would keep Wexner in power, a person familiar with the matter said, cautioning those explorations may not result in a deal.

They include a spin-off of the Victoria's Secret brand, which has faced slowing sales as shoppers have shunned its sexy products that some view as exclusionary, an image the retailer is trying to overcome. Bath & Body Works, on the other hand, has continued to perform strongly, boosted in part by its profitable candle business.

L Brands has also explored an investment known as "private investment in public equity" with financial investors, the person said. Such a deal would help L Brands pay down its debt, which stood at $8.6 billion as of July 2019, according to FactSet.

It would also be a vote of confidence in Wexner's leadership, despite the mounting challenges he faces.

L Brands declined to comment.

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