Victoria Secrets drops 30% in reaction to poor outlook
AInvestThursday, Mar 7, 2024 9:28 am ET
1min read
BMO --
VSCO --

Victoria Secrets (VSCO), a popular fashion retailer, announced its Q4 earnings report after the market close on Wednesday. The report revealed mixed results, with the company beating earnings expectations but falling short on revenue growth. 

VSCO reported Q4 earnings of $2.58 per share, $0.12 better than the consensus of $2.46. However, revenues rose only 3.0% year-over-year to $2.08 billion, compared to the $2.08 billion consensus. 

Total comparable sales for the 14-week fourth quarter of 2023 decreased by 6%. 

VSCO's Board of Directors approved a new share repurchase program, authorizing the repurchase of up to $250 million of the Company's common stock. 

The company's guidance for the upcoming quarters and year has raised concerns among investors. VSCO expects Q1 net sales to decrease in the mid-single digits year-over-year, compared to expectations of a roughly 1% decline. The company also issued downside guidance for FY25, projecting revenue of $6.0 billion, compared to the $6.2 billion consensus. 

The company's Q1 operating income guidance of $10-35 million, based on net sales down in the mid-single digits year-over-year, translates to an EBIT margin of 1.9%, which is 210bps below Street 4.0%. This is expected to result in an EPS loss of -$0.09, compared to the Street's expectation of $0.29. VSCO's guidance suggests that the company expects sequential improvement in its sales throughout the year, with the PINK banner improving sequentially throughout the year. However, this may not be enough to convince investors that the company is on track for a significant turnaround.

BMO lowered its price target for VSCO to $26 after the results beat, but the lowered year-over-year revenue expectations and materially below-Street EBIT in both periods raise concerns about the company's ability to meet its sales growth targets. While BMO expects the GM guidance to prove conservative, the burden of proof rests on management execution, and the catalyst path is difficult. 

In conclusion, VSCO's Q4 earnings report reveals a mixed performance, with the company beating earnings expectations but falling short on revenue growth. The company's weak guidance for the upcoming quarters and year has raised concerns among investors, and it remains to be seen whether the company can execute on its sales growth targets.


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