Victoria’s Secret Shares Sink 8.6% After-Hours Despite Strong Q2 Results

Global intimates specialty retailer Victoria’s Secret & Co. (VSCO) reported its first public quarterly results since its spin-off from L Brands and its listing on August 3, 2021. Shares sank 8.6% in the extended trading session on August 18.

The company delivered solid quarterly results backed by continued momentum and strong fundamentals. However, its third-quarter guidance lagged analysts’ expectations. Shares have gained 23% since its IPO. (See Victoria’s Secret stock charts on TipRanks)

The company reported adjusted earnings of $1.71 per share, outpacing the Street’s estimated earnings of $1.62 per share. VSCO reported an adjusted loss of $0.97 per share in the year-ago period.

Moreover, net sales for the quarter grew 51.3% year-over-year to $1.61 billion. Sales in the prior-year quarter were significantly impacted by COVID-19-related store closures for a major portion of the quarter.

Commenting on the company’s performance, CEO Martin Waters said, “With tighter inventory management and more emotionally appealing product, we are less promotional, resulting in significant margin increases… Our vital signs are strong and, with our exceptional leadership and associate teams, I continue to be confident in our long-term growth in all channels.”

Owing to the uncertainty surrounding the COVID-19 situation, VSCO only provided guidance for its third-quarter revenue and earnings.

Victoria’s Secret expects third-quarter revenue to grow by mid-to-high-single digits compared to the year-ago period, and earnings are forecast to be in the range of $0.60 – $0.70 per share.

Consensus estimates for third-quarter revenue and earnings are pegged at $1.52 billion and $0.84 per share, respectively.

Recently, Jefferies analyst Janie Stichter reiterated a Buy rating on the stock while lifting the price target to $85 (18.6% upside potential) from $78.

Stichter said, “We have confidence in new management’s commitment to making significant, yet necessary, changes to marketing and product to win back lapsed consumers and connect with new ones.”

The analyst notes that the company is progressing well with increased sales, improving brand sentiment, and stabilized market share declines. Although she believes VS has a lot of work ahead to prove its worthiness as a standalone entity, its valuation justifies the risks involved in the turnaround execution.

Based on 9 Buys and 1 Hold, the stock commands a Strong Buy consensus rating. The average Victoria’s Secret price target of $87.60 implies 22.2% upside potential to current levels.