The lingerie and beauty retailer’s stock closed up 1.30 percent to $35.89 apiece at the start of the week, just days after the firm hosted an investor day, its first as a stand-alone company, and laid out its 2025 financial growth targets.
Still, analysts say the company’s turnaround efforts might still be undervalued by investors on the Street. Victoria’s Secret stock is down more than 36 percent year-to-date, despite the firm’s ambitions to grow revenues to $7.3 billion by 2025, up from $6.6 billion in the second quarter of 2022.
“While the [near-term] upside to numbers is good to see, the bigger story we learned about last week is that VSCO management continues to evolve the brand in the right directions (two years into a five-year journey),” Ike Boruchow, senior retail analyst at Wells Fargo, wrote in a note. “With its 21 percent market share (down from [more than] 30 percent years ago) and a much improved internal culture, the company has a vision on how to fight back on competition, drive international growth, improve the cost base and bring the brand back to its prior successes. Simply put, the story appears to have legs.”
His firm rated the company’s stock “overweight” and set a price target of $55.
Cowen retained its “market perform” rating, with a $35 price target on shares, “as near-term uncertainties remain with weaker consumer demand and ongoing brand transformation,” Jonna Kim, financial analyst at the investment firm, added in a note. “However, we are incrementally more positive on the longer-term growth prospects. Key factors to monitor: brand traction in the U.S. as VSCO focuses on new bra launches and updates the store base, international growth and margins and cost-saving efforts, supply chain optimization.
“Our take is that management’s financial targets — [approximately midsingle-digit percentage] top-line growth and midteens operating margins — appear reasonable, underpinned by improvement in the intimates business — [roughly] 54 percent of the business — with a focus on innovation in bras and its loyalty program, international expansion and store updates,” Kim continued. “Further, we see ample opportunities to optimize and digitize the supply chain, which should drive higher cost leverage over time. However, we note that management’s execution of growth initiatives is pivotal for the stock, and the ongoing brand transformation is a factor to monitor, especially among younger consumers.”
Victoria’s Secret revealed updates on its transformation last week during an investor day in Chicago. The company plans to leverage its brand equity and large retail fleet to continue global growth, add to the assortment, expand the core lingerie business and grow brand awareness around the world.