Victoria’s Secret & Co.’s arrival on the public market is turning out to be a complicated affair.
The lingerie and beauty company revealed quarterly earnings Wednesday after the market closed — the first time reporting as a stand-alone firm — improving on top and bottom lines compared with 2020’s pandemic levels and proving that shoppers are once again interested in returning to physical locations. But investors worried that the numbers did not measure up to pre-pandemic levels. Shares of Victoria’s Secret & Co. plunged more than 10 percent in after-hours trading as a result.
Total revenues for the three-month period ending July 31 were $1.6 billion, up from $1.06 billion a year ago, but down from 2019’s pre-pandemic sales of $1.78 billion. Revenues across all channels — including the North American store fleet, e-commerce and international businesses — increased during the quarter. But comparable sales rose only in stores, up 16 percent, compared with a decline of 12 percent last year when many stores were closed due to lockdowns. Comparable sales in the direct channel fell 9 percent during the quarter, compared with an increase of 24 percent in 2020, as consumers increasingly opt for shopping in real life rather than online.
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Still, the company logged $151 million in profits for the quarter, compared with losses of more than $199 million during the same period last year.
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“Following the finalization of the spin-off from L Brands, our momentum continues, fueled by strong fundamentals: inspiring merchandise she loves, our new brand positioning and disciplined business operations,” Martin Waters, chief executive officer of Victoria’s Secret Lingerie, said in a statement. “With tighter inventory management and more emotionally appealing product, we are less promotional, resulting in significant margin increases. As a result, operating income in the second quarter exceeded expectations, helping us deliver our most profitable spring season in five years. Our vital signs are strong and, with our exceptional leadership and associate teams, I continue to be confident in our long-term growth in all channels.”
Earlier this month the company — consisting of the Victoria’s Secret Lingerie, Victoria’s Secret Beauty and Pink divisions — separated from Bath & Body Works and what was formerly L Brands to become its own firm.
Initial reception on Wall Street was good, with shares closing up nearly 30 percent on the company’s Aug. 3 debut. And with 88.3 million shares of common stock outstanding, Victoria’s Secret’s market cap was worth about $5.2 billion — far above the $525 million price tag that private equity firm Sycamore Partners had planned to pay for the Lingerie, Beauty and Pink divisions in early 2020.
Since then, shares of Victoria’s Secret, which closed down 0.13 percent Wednesday at $71.73 apiece, have increased more than 35 percent.
Now, Victoria’s Secret anticipates current-quarter sales to rise in the mid- to high-single digits, while earnings-per-share will be in the range of $0.60 to $0.70. The company said it is not providing fourth-quarter guidance due to continued uncertainty in the environment.
“With respect to the fourth quarter, we have confidence in our assortments and strategies and still believe it is possible to drive sales at growth rates similar to our third-quarter forecast,” the company said. “We believe the supply chain headwinds may significantly impact merchandise flow and the promotional cadence of the business.”
While still the market share leader in U.S. women’s intimate apparel, Victoria’s Secret’s slice of the pie has fallen from 32 percent in 2015 to about 20 percent today, according to The NPD Group’s consumer tracking service.
But the innerwear giant has gone to great lengths to turn the business around and win back consumers, many of whom have opted for more inclusive and comfortable styles in the era of #MeToo.
Turnaround efforts include hiring a string of senior-level executives; updating the board with six out of seven board members and a new, female chairperson as L Brands founder Leslie H. Wexner departed; using plus-size and transgender models in marketing materials, as well as plus-size mannequins in stores; adding more comfortable styles to the assortment, such as athleisure; reintroducing swimwear into the mix, and canceling the high-profile fashion show. Victoria’s Secret is also in the process of updating its store fleet to reflect a changing image.
Victoria’s Secret & Co. ended the quarter with 933 company-owned stores, or 846 in the U.S., 25 in Canada and 62 in Greater China. The retailer expects to close between 30 and 40 company-owned stores in 2021. Victoria’s Secret also launched a flagship on e-commerce platform JD.com earlier this month.