Victoria’s Secret & Co. (NYSE:VSCO), the renowned lingerie retailer, has undergone significant transformation in recent years in its attempt to revive the legendary brand. The return of the company’s iconic fashion show after a six-year hiatus signals this change. Although impacted by the challenging North American retail climate, the firm has exhibited resilience through effective inventory management and a gradual improvement in sales and earnings.
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The company’s focus on expansion and transformation hints at promising prospects for growth, and the shares trade at a discount, but investors may want to wait for further confirmation of progress before taking action.
Victoria’s Secret Leads a Growing Market
Victoria’s Secret is a leading specialty retailer offering a wide range of fashion-forward lingerie collections. The enterprise sports renowned brands such as Victoria’s Secret, Victoria’s Secret PINK, and Adore Me, a tech-driven, digitally focused, innovative intimates brand catering to women of all ages, sizes, and budgets.
A key aspect of Victoria’s Secret and PINK’s business model is their multi-tender loyalty program, which enables customers to get rewards for every purchase and reduce costs. The new program has been operational for a year and boasts approximately 30 million members. These members contribute approximately 80% of weekly sales to the company’s revenue.
The lingerie market is estimated to be roughly $95 billion and is expected to grow to $142.4 billion by 2029, growing at a CAGR of 8.49%. The company’s brands have maintained about 20% market share.
Recent Financial Results & Outlook for Victoria’s Secret
The company recently announced its Q1 results for 2024. The reported revenue of $1.36 billion reflected a 3.5% year-over-year decrease and was in line with expectations. The adjusted net income and adjusted operating income for Q1 2024 were $9 million and $40 million, respectively, falling within the high end of the estimated range. Non-GAAP earnings per share (EPS) of $0.12 aligned with analysts’ expectations.
Management has given guidance to expect a decrease in the low-single-digit range for net sales in Q2 2024 compared to Q2 2023’s net sales of $1.427 billion. An estimated EPS of $0.05 to $0.20 per diluted share is also projected for Q2 2024, compared to the consensus of $0.08. For the Fiscal year 2024, Victoria’s Secret is forecasting net sales to be around $6.0 billion, which aligns with consensus predictions. Still, it marks a low-single-digit decrease compared to the previous 52-week Fiscal year. The expected adjusted operating income for 2024 is projected to be $250 million to $275 million.
What Is the Price Target for VSCO Stock?
Analysts following the company have taken a cautious to slightly optimistic stance on the stock. For instance, analyst Dana Telsey at Telsey Advisory recently raised the price target for shares from $20 to $24 while maintaining a Market Perform rating. She noted that the company is off to a solid start for FY24, though it will still face a challenging North American intimates market in the near term.
Victoria’s Secret is rated a Moderate Sell overall, based on nine analysts’ recommendations and price targets over the past three months. The average price target for VSCO stock is $18.89, representing a potential downside of 5.47% from current levels.
The stock has been trending upwards recently, climbing roughly 6% in the past 90 days. Shares trade in the middle of the 52-week price range of $13.62 – $30.80, though it appears to be undervalued. The current P/E ratio of 15.52x is well below the Apparel Retail industry average of 24.91. Lastly, technical indicators, including price momentum, are neutral to negative.
VSCO Stock in Summary
Victoria’s Secret is at an interesting juncture in its business trajectory. As a leading player in the fast-growing lingerie market, the company has made substantial strides in transforming its business model and brand image, including re-igniting its iconic fashion show and initiating a multi-tender loyalty program. However, the challenging retail climate continues to impact the company’s financial performance, with the company forecasting a slight decrease in net sales for Fiscal year 2024.
Although the stock trades at a discount, investors may want to hold off and closely monitor the company’s progress and confirm signs of positive revenue and earnings growth before making an investment decision.
