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.
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.
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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.
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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.