Victoria’s Secret Faces Persistent Challenges Despite EPS Beat: Underperform Rating Reiterated

Victoria’s Secret (VSCO – Research Report), the Consumer Cyclical sector company, was revisited by a Wall Street analyst today. Analyst Lorraine Hutchinson from Bank of America Securities reiterated a Sell rating on the stock and has a $20.00 price target.

Lorraine Hutchinson’s rating is based on several factors impacting Victoria’s Secret’s financial outlook. Despite an earnings per share (EPS) beat in the fourth quarter, this was largely due to a one-time accounting benefit, and underlying sales and gross margin were merely in line with expectations. The company faces challenges such as shifting consumer confidence, a volatile economy, and adverse weather conditions, which are expected to persist into the spring of 2025. Consequently, the financial estimates for fiscal years 2025 and 2026 have been lowered, reflecting a more cautious sales outlook.
Furthermore, while management has outlined a plan to reaccelerate growth, including strategies to enhance brand positioning and expand product offerings, the category remains difficult, and consistent sales growth is necessary for margin expansion. The gross margin has been pressured by higher transport costs and other factors, with future savings expected to be reinvested rather than contributing to margin improvement. Given these challenges, Hutchinson reiterates an Underperform rating, with a price objective of $20, indicating limited upside potential from the current stock price.