Is Victoria's Secret's Share Price Rebound Sustainable?

Victoria's Secret & Co. (VSCO) has experienced a dramatic share price rebound in late 2025, surging nearly 30% over the past three months. This resurgence has sparked a debate among investors and analysts about whether the rally is grounded in fundamental improvements or driven by speculative momentum. To assess the sustainability of this rebound, we must dissect the conflicting narratives surrounding the brand-bullish optimism about its transformation and bearish skepticism about its operational challenges-and contrast these with the divergent discounted cash flow (DCF) valuations that underpin its current market price.

Recent Performance and Guidance

Victoria's Secret delivered a mixed bag of results in Q2 2025. The company reported net sales of $1.459 billion, a 3% year-over-year increase, with comparable sales rising 4%. Despite headwinds from tariffs and supply chain disruptions, the company managed to expand gross margins through disciplined inventory management and a shift away from aggressive promotions. These efforts allowed it to exceed earnings and revenue expectations, prompting an upward revision of full-year 2025 guidance to $6.33 billion–$6.41 billion in net sales. However, third-quarter guidance remains cautious, with an adjusted operating loss forecast of $35 million–$55 million, reflecting ongoing challenges in balancing growth with profitability.

Analyst Narratives: Optimism vs. Caution

The consensus analyst rating for VSCO is "Hold," with an average 1-year price target of $29.91. This suggests that while the company has outperformed recent expectations, most analysts remain neutral on its long-term prospects. The current stock price of $33.74 implies a 13% premium to this consensus target, raising questions about whether the market is overbidding on near-term momentum.

Bullish narratives emphasize Victoria's Secret's strategic pivot toward inclusivity, omnichannel retailing, and international expansion-particularly in China-as catalysts for sustainable growth. Analysts highlight the brand's embrace of digital platforms, shorter product lead times, and cultural collaborations as ways to align with Gen Z and millennial consumers while reducing reliance on markdowns. These factors, they argue, could drive margin expansion and revenue diversification.

Conversely, bearish analysts warn that the stock is overvalued by 42.6% relative to a fair value estimate of $25.40. They point to persistent tariff pressures, declining mall traffic, and thinning profit margins as risks that could undermine earnings and operating leverage. Institutional ownership at 90.29% also suggests that large investors may be hesitant to take further positions, given the stock's volatility and uncertain macroeconomic backdrop.

DCF Valuation Divergence: A Tale of Two Models

The most striking aspect of VSCO's valuation landscape is the stark contrast between two DCF models. One widely followed narrative places the fair value at a $22.70, implying the stock is overvalued by 22.7% relative to its closing price. This model assumes conservative growth rates, margin compression, and a higher-than-normal profit multiple. It reflects a bearish outlook that prioritizes risk-adjusted returns over speculative gains.

In contrast, the SWS DCF model estimates a fair value of a $48.49, suggesting the stock is undervalued by 21.6% if its projected cash flows materialize. This bullish model hinges on optimistic assumptions about revenue growth, margin stability, and a lower discount rate. The divergence between these models underscores the uncertainty surrounding VSCO's ability to sustain its recent performance.

Key Assumptions and Risks

The sustainability of VSCO's rebound hinges on three critical factors:
1. Growth Rates: The bearish model assumes slow revenue growth, while the bullish model projects stronger, albeit uncertain, expansion. Victoria's Secret's international push and digital initiatives could bridge this gap, but execution risks remain.
2. Discount Rates: A higher discount rate (reflecting greater risk) would reduce the present value of future cash flows, aligning with the bearish narrative. Conversely, a lower discount rate would support the bullish case.
3. Cash Flow Projections: The company's ability to maintain free cash flow generation-despite third-quarter operating losses-will be pivotal. Tariff pressures and mall traffic declines could erode cash flow visibility.

Conclusion: A Tenuous Balance

Victoria's Secret's share price rebound is a double-edged sword. On one hand, the company's strategic initiatives and improved operational discipline provide a foundation for long-term growth. On the other, macroeconomic headwinds and valuation extremes create a precarious balance. The current price of $33.74 sits between two divergent DCF valuations ($22.70 and $48.49), suggesting that the market is pricing in a middle-ground scenario. However, this scenario is contingent on the company's ability to navigate tariffs, sustain margin expansion, and capitalize on its digital and international opportunities. For now, investors should treat the rebound with cautious optimism, recognizing that the path to sustainability is fraught with both potential and peril.