Victoria's Secret: Can Activist Pressure Ignite a Strategic Turnaround?

Victoria's Secret & Co. (VSCO) has become a battleground for corporate governance reform, as activist investor BBRC International pressures the lingerie giant to overhaul its leadership and strategy. With a 13% stake and demands for board changes, BBRC's activism has thrust VSCO into the spotlight—forcing management to confront governance flaws, financial missteps, and the need to pivot toward high-growth markets like beauty and wellness. For investors, the question is whether VSCO's response to activist demands can unlock value in a shifting retail landscape.

The Activist Playbook: Governance Under Fire

BBRC's June 9 letter to VSCO's board laid bare its frustrations with the company's performance. The firm criticized a “decade of underperformance,” citing dismal stock returns, a $625 million share buyback at inflated prices ($44.53/share), and the ill-fated $591 million acquisition of Adore Me, which has yet to deliver returns. BBRC also highlighted governance failures: Chair Donna James's 20+ year tenure and the board's inability to hold itself accountable for strategic blunders.

The board's defense—a one-year poison pill to block BBRC's potential 49.99% stake accumulation—has drawn mixed reactions. While the poison pill protects against a hostile takeover, it risks alienating shareholders who view BBRC's demands as legitimate. Investors will be watching closely to see if VSCO can strike a balance between fending off activism and addressing governance concerns.

Financial Vulnerabilities: A Mixed Q1 Report

VSCO's Q1 2025 results underscore both challenges and opportunities. Net sales of $1.35 billion were flat year-over-year, with comparable sales down 1%, reflecting weak demand in its core lingerie category. The net loss of $2 million (vs. $4 million in Q1 2024) was offset by an adjusted net income of $7 million, suggesting operational improvements. However, gross margins declined 170 basis points due to tariffs, freight costs, and promotional activity—a red flag given the company's reliance on discounts.

Debt remains a concern: VSCO's leverage ratios are elevated, though manageable, with $1.2 billion in total debt as of early 2025. The cybersecurity incident in May 2025, which disrupted e-commerce and cost $20 million in lost sales, adds to execution risks. Management's focus on optimizing promotions and reducing reliance on percentage-off deals is a step in the right direction, but results will take time.

Strategic Turnaround: Betting on Beauty and PINK

The company's best hope for revival lies in its Beauty and PINK segments, which have shown resilience. Beauty posted its seventh straight quarter of growth, driven by strong product launches and customer engagement. PINK apparel delivered its third consecutive quarter of positive comparable sales, with margin expansion and a renewed focus on its Gen Z audience.

The broader beauty and wellness market offers tailwinds: Global beauty revenue hit $450 billion in 2025, growing at a 5% annual rate, with skincare and online sales driving momentum. VSCO's Beauty business, which now accounts for a significant slice of revenue, could benefit from trends like personalized skincare and e-commerce growth. However, competition is fierce—L'Oréal and Estée Lauder dominate, while startups like Fenty Beauty and Drunk Elephant are eating into market share.

To capitalize, VSCO must double down on Beauty's growth, streamline its store portfolio (planned closures: 30–40 stores in 2025), and invest in omnichannel capabilities. The $50 million tariff headwind for 2025 also underscores the need for cost discipline, including supply chain diversification and pricing strategies.

Investment Thesis: Catalysts and Risks

Upside Case: If VSCO addresses governance issues (e.g., board refreshment), accelerates Beauty's growth, and improves margin discipline, the stock could see a valuation rerating. A 20% upside from current levels ($18/share) is plausible if Beauty sales hit $1.2 billion by 2026 (up from $900 million in 2024) and margins expand.

Downside Risks: Persistent governance disputes, further margin erosion from tariffs, or a misstep in Beauty could push the stock lower. The cybersecurity incident also highlights operational fragility.

Verdict: Activism as a Catalyst for Change

VSCO's path forward hinges on balancing activist demands with strategic execution. A board refresh and clearer focus on high-margin Beauty and PINK segments could unlock value. For investors, the stock's current valuation—trading at ~4x forward EV/EBITDA—offers room for improvement if management delivers.

Investment Call: Buy VSCO if the board adopts governance changes and demonstrates progress in Beauty's growth. Set a price target of $22–$25/share over 12 months, assuming a 6x EV/EBITDA multiple. Avoid if activism devolves into a proxy battle, or Beauty's momentum falters.

In a sector where agility matters, VSCO's ability to turn activist pressure into strategic clarity could make all the difference.