Taking a Speculative Position in Victoria's Secret: Betting on Restructuring and Niche Resilience

The retail landscape has been a graveyard for once-revered brands in recent years, yet Victoria's Secret (VSCO) stands out as a survivor—albeit a wounded one—navigating a brutal restructuring process without the benefit of bankruptcy protection. While the company has avoided insolvency, its aggressive store closures, leadership overhauls, and brand reinvention efforts have created a speculative opportunity for investors willing to bet on its long-term equity and niche market potential. Let's dissect whether the risks of this turnaround play are outweighed by the rewards.

The Restructuring Play: Cutting Fat, Building Digital Muscle

Victoria's Secret has been slashing its physical footprint for years, closing 241 stores in 2020 alone, 50 in 2021, and 20 in 2023. By Q1 2025, it had reduced its global store count to 1,378, with plans for further closures to focus on high-traffic locations and urban centers. This austerity isn't just about cost-cutting—it's a strategic pivot to prioritize e-commerce and experiential retail.

The acquisition of Adore Me in 2022—a digitally native, inclusively sized lingerie brand—has been central to this shift. While integration challenges (including $8.1M in 2024 purchase accounting expenses) have tested management, the move has expanded Victoria's Secret's reach into younger, online-first demographics. Meanwhile, the company's partnership with Google Cloud to modernize its digital infrastructure suggests a serious push to compete with Amazon and Walmart's retail prowess.

Brand Revitalization: From Fallen Angel to Cult Favorite

Under CEO Hillary Super (formerly of Savage x Fenty), Victoria's Secret has abandoned its controversial “Angels” aesthetic in favor of inclusivity. New product lines, such as plus-size swimwear, body-positive lingerie, and PINK's casual apparel, have resonated with a generation tired of one-size-fits-all branding. The Beauty division—a cash cow for years—remains a bright spot, with its cult-following fragrances and skincare lines.

Crucially, Super's strategy isn't just about aesthetics; it's about rebuilding customer loyalty. The brand's Q1 2025 adjusted operating income of $32M, despite a 5% comparable sales decline, suggests that core customers are still willing to spend on its premium offerings. This loyalty is a moat in an era where competitors like Aerie (owned by American Eagle) and even Walmart's in-house brands are eating into market share.

Niche Market Resilience: The Power of Brand Equity

Victoria's Secret's most valuable asset isn't its stores or inventory—it's its brand. Even as mall traffic dwindles, the company retains a loyal, discretionary-spending base that views its lingerie as a luxury indulgence. The “cult following” includes both Gen X shoppers nostalgic for the brand's 1990s heyday and Gen Z consumers drawn to its reinvented inclusivity. This duality creates a durable, if niche, demand that could outlast broader retail declines.

Meanwhile, the Beauty division's standalone potential—think a spinoff or licensing deals—remains untapped. Investors should also note that Victoria's Secret's international growth, particularly in China (where store sales rose 9.3% in Q1 2025), hints at untapped global opportunities despite geopolitical risks.

Financial Health: Stable, But Not Sizzling

Victoria's Secret's Q1 2025 results were a mixed bag. Net sales of $1.353B were flat compared to Q1 2024, but adjusted operating income dipped slightly to $32M from $40M, reflecting tariff headwinds ($50M expected impact in 2025) and the lingering effects of a 2024 ransomware attack. However, the company's revised guidance ($6.2–6.3B in annual sales) and its focus on disciplined cost management (including $5.6M in Q1 restructuring charges) suggest a path to profitability.

The key wildcard is the tariff exposure. While management has hedged against some risks, a prolonged trade war with China could derail margins. Still, the company's deleveraging efforts—reducing debt by $1.2B since 2020—are a positive sign of fiscal discipline.

Risks: Tariffs, Tech, and Trust

• Tariffs: The $50M drag on operating income is manageable but underscores vulnerability to global supply chain instability.
• Cybersecurity: The 2024 breach, which temporarily shut down its U.S. website, highlights the risks of digital overreach.
• Leadership: Super's tenure is untested, and any misstep in execution could spook investors.
• Consumer Shifts: If Gen Z's preference for fast fashion (e.g., TikTok-driven brands) permanently eclipses Victoria's Secret's premium model, the brand's revival could stall.

The Investment Case: A High-Risk, High-Reward Speculation

Victoria's Secret is not a buy for the faint-hearted. Its stock has been a rollercoaster, down 40% since mid-2022, and its balance sheet, while stabilized, isn't bulletproof. However, for investors with a 3–5-year horizon, the thesis is compelling:

• Brand Equity: The Victoria's Secret name still commands pricing power in niche markets.
• Digital Turnaround: The Adore Me acquisition and tech investments could unlock $1B+ in e-commerce revenue.
• Beauty Division: A potential spinoff or licensing deal could unlock hidden value.
• Discretionary Recovery: Post-pandemic spending trends favor luxury and specialty retailers, provided the economy avoids a hard landing.

Final Verdict: A Speculative Buy at the Right Price

Victoria's Secret is a “buy” for aggressive investors willing to stomach volatility and geopolitical risks. The stock's current valuation—trading at 6.5x forward EV/EBITDA—reflects deep skepticism about its future, but the brand's resilience in a brutal retail environment suggests it's undervalued. Look for dips below $15/share (a 30% discount to its 52-week high) as entry points.

However, historical performance underscores the risks: buying VSCO on the announcement date of quarterly earnings releases and holding for 20 trading days from 2020 to 2025 resulted in an average return of -81.62%, with a maximum drawdown of -83.34% and a Sharpe ratio of -1.05. This extreme downside risk—driven by heightened volatility around earnings—must be weighed against the brand's potential.

For the risk-averse, this is a pass. But for those betting on the cult of Victoria's Secret enduring long enough for its restructuring to pay off, now is the time to go all in—or at least to take a small speculative position. The lingerie legend isn't dead yet, and its comeback story might still have legs.