Makeover at Victoria’s Secret Is More Than Skin Deep

Victoria’s Secret shares jumped on their debut as a stand-alone company but remain cheap.

By guest author Jinjoo Lee from the Wall Street Journal

All captions and graphics courtesy by the Wall Street Journal

After years of declining sales and proximity to scandals, Victoria’s Secret VSCO is shedding its supermodel wings and hiking solo. Good news for investors: Its shares don’t seem to have reached peak elevation.

Victoria’s Secret officially started trading as a stand-alone company last Tuesday after its spinoff from L Brands. BBWI Its shares have jumped 25 % since their trading debut, giving the company a market capitalisation of roughly USD 5 billion. Still, they fetch a modest eight times forward-12-month earnings. That is a sizable discount compared to Hanesbrands HBI and American Eagle Outfitters, AEO which hold the second- and third-largest market share in women’s underwear in North America, according to Euromonitor International. Victoria’s Secret is No. 1.

The brand made two splashy announcements in June, including an activist-filled slate of brand ambassadors in lieu of its scantily clad angels. It also put in place a new seven-member board of directors, six of whom are women. But it is the behind-the-scenes work that deserves the spotlight. The company has quietly been putting in the work for some time, changing its outdated marketing message, trimming down inventory and holding back on promotions. It also brought back its popular swimwear business and closed less-productive stores. Maternity and shapewear, which were strict no-nos in Victoria’s Secret’s past, are now being sold as well.

For those wondering if these efforts are bringing customers back, the answer is an unequivocal yes. The company sold more in its fiscal first quarter than it did in the same period in pre-pandemic 2019—an impressive reversal of a decline it had been seeing in the years leading up to the pandemic. That was despite permanently closing 241 stores in 2020 and holding back on marketing dollars. Its operating margins, on an adjusted basis, climbed from 1 % in 2019 to 15 % in its fiscal first quarter—a return to profitability levels last seen in 2016, its last growth year. That is only slightly behind Nike NKE and Lululemon’s LULU operating margins in their latest quarters.

Much has been made of a proliferating pool of competitors such as ThirdLove, Lively, Negative and Cupp, all of which embraced comfort and inclusivity much earlier than Victoria’s Secret. While such messaging was new and fresh a decade ago, it is now a prerequisite for brands, not a distinguishing feature. A social media marketing war—a common occurrence between new direct-to-consumer brands—could well lead to some casualties among the so-called anti-Victoria’s Secret brands.

Despite losing market share in women’s underwear every year since 2016 in North America, Victoria’s Secret hasn’t once lost its leading position. It has the name recognition and ad-dollar ammunition to lure back more customers, especially with an executive team that now seems hyper-aware of changing consumer preferences. This year it expects to spend roughly 5 % of revenue, or USD 350 million, on marketing. That budget dwarfs ThirdLove’s estimated pre-pandemic revenue of UUSD 125 million.

Related Video can be had here

Victoria’s Secret became a powerhouse lingerie retailer thanks to the vision of executives at its parent company. But amid changing consumer tastes, sexual harassment accusations and ties to Jeffrey Epstein now under scrutiny, the once iconic brand’s stock has been tumbling and it has signaled it may be looking for a buyer. Photo: Getty Images

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