After several years in the making, the lingerie and beauty retailer — once seen by many as the epitome of exclusive — has rebranded itself as an inclusive advocate for women, and, judging from the figures, it seems to be working.
“All customers are welcome,” Martin Waters, chief executive officer of Victoria’s Secret Lingerie, told analysts during Thursday morning’s conference call. “Our customer file has been growing, too, in 2021. So after years of decline, we added to the file. We’re seeing a younger customer with a higher average spend, a higher margin. And we’re also seeing third parties wanting to work with us. We didn’t get many third parties knocking on our door during 2016 [to] 2019. Now some of the best brands in the world are coming to us and talking to us about collaborations. And we know that when we have successful third parties in our business that we get incredibly high frequency of shopping and we also get high crossover with the core business. So there are proof points everywhere, not least people [who] we know and love are proud of us again.”
The transformation dates back to 2018, a year after revenues in the lingerie brand (then part of L Brands) began declining, thanks to changing consumer preferences and the #MeToo Movement, which sparked backlash over Victoria’s Secret’s unattainable beauty standards.
But these days, Victoria’s Secret is a completely different company — quite literally after separating from L Brands’ Bath & Body Works to become its own stand-alone firm on the public market last August. The hyper-skinny models have been replaced with a more inclusive cast; stores have been updated; the fashion show is gone: the board has been overhauled (now with a majority of women); former chief and founder Les Wexner has retired, and the product assortment includes things like mastectomy bras, maternity, sportswear and larger sizes. A tween line is coming this spring.
Shoppers and investors alike seem pleased. Victoria’s Secret — parent company to the Victoria’s Secret Lingerie, Beauty and Pink brands — revealed fourth-quarter earnings results Wednesday after the market closed, improving on top-line revenues. Investors were also satisfied: company shares rose more than 4 percent at the start of Thursday’s session, ultimately closing up 1.77 percent to $55.29 apiece.
“The haters have gone away,” Waters said on the call. “That initial noise of the [brand] repositioning being a dangerous thing to do has gone away. We don’t hear about it now. Social media posts are overwhelmingly positively received. When we first announced our positioning, we got a significant amount of mail from people who said, ‘This is terrible. You’re scorching the earth. You’re spoiling our brand. We love the way it was before, why are you changing it?’ And when we looked closely, all of those people…it was principally from men and from people who don’t subscribe to the values that we subscribe to.
“Are there women who were shopping with us, who no longer find the brand attractive?” Waters continued. “I don’t think so. We still sell provocative merchandise. We still embrace very sexy. Some of our bestselling items are in the collections that are most provocative. Valentine’s Day is a holiday that we celebrate and we own and we’re unashamedly sexy at that time of the year.
“But we can do other things as well,” the CEO added. “And I hope you’ll see that when we launch Mother’s Day in a few weeks’ time, which I think is about one of the best campaigns that we’ve ever launched. So for us, it’s about a balance. Rather than the brand Victoria’s Secret just being one thing, which is sexy, it’s about Victoria’s Secret the brand advocating for women in all aspects of their life — be that maternity, be that date night, being company at home, be it sport. Whatever it is, we want to be there for her in every aspect of a journey through life.”
Growth drivers in the most recent quarter included sleepwear, beauty and bras.
“Victoria’s Secret should have the best bras in the universe. That’s our mission,” Waters said. “That’s what we’re going after. [But] it’s not just about bras. We have great development in the Pink business. We have great development in the Beauty business. And so the lifeblood of the business comes from innovation and from new product development.”
Todd Mick, executive director of fashion apparel at market research firm NPD Group, added: “Victoria’s Secret has always been an innovator. They kind of got a little sleepy. But we’re really counting on them. A lot of good things are happening: In particular, their Pink brand is really committed to size, inclusivity and body positivity. We think they’re going to be the comeback kid.”
This spring, the retailer’s latest creations will include a partnership with plus-size lingerie brand Elomi, a $7 million investment in female-founded businesses and a new, digital tween line called Happy Nation.
Of the latter, Waters said, “We see it as a very optimistic inclusive brand that fills a void in the tween market. It builds on our core capability. In undies and [first] bras and company clothing, real expertise in young people in the Pink business, marketing expertise in that space. So it’s a natural adjacency for us. And we’re also leveraging our knowledge and beauty to create a really young beauty business in Happy Nation that we think could be incredibly exciting.”
Of course, the company is not without challenges.
Waters called out sportswear, which he said remained mostly flat last quarter, and buy online, pick up in store, as areas for improvement.
“We were late to the party with BOPIS, no point saying it any other way,” the CEO said. “We only really got into the business during the latter part of 2021, where I think 450 stores with BOPIS capability. This spring, we will roll out to all stores. So all stores in the fleet will have BOPIS capability. The take-up of it has been relatively light. I don’t know if that’s because people in our category don’t want to buy online and pick up in-store, or if it’s because we only had half of the fleet. I don’t know. We’ll continue to work it. And even if it’s only a relatively small take-up, it’s an important part of our omnichannel, of our multichannel of our go-to-market strategy. So we’re committed to it.”
There are also macro trends at play, including continued supply chain issues, inflationary pressures and the current crisis in Ukraine, all of which have the potential to impact both business expenses and consumer-spending habits.
In terms of raising prices, Waters said, “It’s less about increasing the prices of stuff that we already have and more about developing merchandise that’s better than anybody else’s and therefore, commands a higher price. And with that, will come superior pricing and innovation.”
He added that the company ended the most recent quarter with inventories up 35 percent thanks to “getting in front of the supply chain delays and bringing merchandise forward so that we’re in a good position to enter spring. So we feel good about where we are. It’s not perfect, by any stretch of the imagination, but we’re in a much better inventory position than we were six months ago and I feel like we’re getting on top of the supply chain pressures that have been out there for the last year or so.”
Despite the success, the company guided its current-quarter revenue estimates down on account of continued supply chain disruptions (which the company said will cost them roughly $140 million more in the first half) and the absence of last year’s stimulus check.
But analysts don’t seem fazed.
“We remain buyers of VSCO as we see the fundamentals of the turnaround as on track, particularly as it contends with higher in-transit levels while transitioning back to ocean freight from largely air (90 percent air mix in 4Q),” Ike Boruchow, senior retail analyst at Wells Fargo, wrote in a note. His firm rated the stock “overweight” and set a price target of $75 a share.
Simeon Siegel, managing director and senior retail analyst at BMO Capital Markets, added: “While VSCO doesn’t have a long history of stand-alone operations, sales and [earnings-per-share] beat guidance the past two quarters and sales were ahead in the most recent quarter. We maintain our outperform as VSCO remains cheap.”