It has been 10 months since
Victoria’s Secret
VSCO 5.80%
spun off from
L Brands
and revamped its brand to be more women-centric. While the message is starting to resonate with consumers and Wall Street analysts, it is taking longer to reach investors.
Victoria’s Secret said on Tuesday that its total revenue declined 4.5% in the quarter ended April 30, at the high end of its own guidance and better than the 5.2% decline analysts polled by Visible Alpha expected. Chief Executive Officer
Martin Waters
said on a call with analysts on Wednesday that bras and beauty sales gained good momentum, as did international business as countries recovered from Covid-related restrictions.
Lounge and sleepwear, which sold well during the pandemic, is doing less well as consumers shift spending to outerwear and work clothes, the company’s executives said on the call. At its peak, sleep and loungewear accounted for up to a quarter of sales at the Victoria’s Secret brand. Apparel accounts for roughly 40% of sales at PINK, the company’s young women-focused brand.
So far, Victoria’s Secret’s makeover seems to be on track. The company has been actively launching new, more inclusive product lines. Last quarter it made its largest bra collection launch in six years on a product line that focuses on comfort. Victoria’s Secret has beaten consensus profit expectations every quarter reported since its spinoff. Mr. Waters said on the call that the brand has “arrested” market share declines in the bra category after consistent periods of decline.
Yet those changes could take a while to show up in obvious ways. The company said it expects sales in the current quarter to be roughly flat compared with the previous year. At a time when customers are getting selective with their discretionary spending, intimates could take a back seat to lipstick or dresses.
And operating margins, which more than halved last quarter compared with a year earlier, could take time to recover if apparel companies get more promotional on prices. That seems to be a distinct possibility: Many—including Victoria’s Secret—have reported swelling merchandise inventory. The brand’s inclusive sizing rollout is another area to watch with caution after Old Navy’s missteps.
Right now, Victoria’s Secret’s turnaround story seems to be resonating more with the analysts covering the company than investors. All analysts polled by
FactSet
have a target price on Victoria’s Secret above $50. Even after an 8% jump to around $44.60 Wednesday morning, the company’s shares trade well below Wall Street’s average target price of $67.36.
Investors looking for a flashy transformation won’t find it at Victoria’s Secret just yet, but promising changes are happening underneath the surface.
Write to Jinjoo Lee at [email protected]
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