Victoria's Secret Turnaround: Activist Investors and the Governance Gamble

Victoria's Secret & Co. (VSCO) has become the poster child for corporate governance crises in 2025. After its spin-off from L Brands in 2021, the lingerie giant's stock has plummeted 50% since January, reaching historic lows amid activist investor demands for leadership overhauls, governance reforms, and strategic clarity. For contrarian investors, the question is whether the chaos presents an opportunity or a trap. Let's dissect the risks and rewards of betting on a turnaround fueled by shareholder activism.

The Activist Siege: A Governance Crisis Unveiled

The current turmoil centers on two activist investors: Brett Blundy's BBRC International and hedge fund Barington Capital. Together, they hold nearly 14% of VSCO's shares and have launched a scathing critique of its leadership and governance. Their demands are stark:

• Board Reconstitution: Remove Chair Donna James, who has led the board for over two decades, and replace six of nine directors with experts in brand revitalization.
• CEO Accountability: Question CEO Hillary Super's $18M compensation amid underwhelming results, despite her efforts to revive core bra sales and grow the PINK and Beauty divisions.
• Strategic Reassessment: Reverse “catastrophic” capital decisions, including a $625M stock buyback at inflated prices and a $591M acquisition of Adore Me that has underdelivered.

BBRC has amplified pressure by leveraging its dual role as an activist investor and competitor, having launched Léays, a direct rival to VSCO's lingerie and beauty lines. This conflict of interest has raised eyebrows, but it underscores the high stakes in a fiercely competitive market.

The Governance 'Poison Pill' and Its Implications

In May 2025, VSCO's board adopted a shareholder rights plan (“poison pill”) to deter BBRC from acquiring control without fair compensation. The plan prohibits any stake above 15% (or 20% for passive investors) without triggering severe dilution. While the board claims this protects long-term shareholder interests, critics see it as entrenchment.

The move has backfired, drawing scrutiny from regulators and fueling BBRC's public campaign. A proxy battle looms, with BBRC threatening to nominate its own slate of directors. For investors, this creates a binary outcome:
1. Success for Activists: A board overhaul could unlock value by replacing entrenched leaders with turnaround experts.
2. Failure to Compromise: Continued resistance could prolong operational inefficiencies, cybersecurity risks (like the 2025 breach), and margin pressures from tariffs and promotions.

Strategic Crossroads: Can the Turnaround Work?

Under Super's leadership, VSCO has focused on three pillars:
1. Core Bra Revival: Shifting from “vanity sizing” to inclusive sizing to attract Gen Z and millennials.
2. PINK Brand Growth: Expanding the youth-focused line, which delivered flat but stable sales in Q1 2025.
3. Beauty Division Momentum: The segment grew for the 7th consecutive quarter, now contributing 25% of revenue.

Analysts like JPMorgan see potential in Beauty's scalability, but execution risks remain. The division faces fierce competition from Sephora and Ulta, and VSCO's debt ($1.2B) and elevated leverage could limit reinvestment.

Investment Thesis: Contrarian Opportunity or Value Trap?

The Bull Case (Activist Success):
- Governance Reform: A new board could ax underperforming initiatives, renegotiate debt terms, and focus on Beauty's growth.
- Brand Revival: PINK and Beauty could become profit engines, with Beauty hitting $1.2B in sales by 2026 (per management).
- Catalyst: A post-proxy settlement or CEO replacement could unlock a valuation rerating.

The Bear Case (Activist Failure):
- Leadership Entrenchment: Super's strategy may lack the urgency to adapt to fast-moving competitors.
- Operational Gaps: Cybersecurity vulnerabilities and weak international expansion (e.g., China) could persist.
- Debt Overhang: Rising interest rates could squeeze margins further.

Investment Advice: Proceed with Caution

VSCO's stock trades at just 5x forward EBITDA, a 60% discount to its 2021 spin-off valuation. For contrarians, this could signal a bottom if governance reforms materialize. However, risks are acute:

• Buy Signal: A settlement with BBRC or a Beauty sales beat (above $300M quarterly).
• Sell Signal: A proxy loss for the board or a Beauty margin contraction below 20%.

Recommendation: Consider a 2–3% position in a diversified portfolio, with a trailing stop-loss below $3/share. Monitor governance developments closely—this is a high-risk, high-reward play where activist pressure could be the catalyst for either redemption or ruin.

In conclusion, Victoria's Secret is a microcosm of the corporate governance battles shaping today's markets. For investors, the question isn't just whether the brand can recover, but whether shareholder activism can force the structural changes needed to realize its potential—or become its final curtain call.