VSCO's Strategic Shift Under New Leadership: Can Brand Investments Spark Growth?

The Victoria's Secret & Co. (VSCO) brand has long been synonymous with lingerie, but under new leadership and shifting strategies, the company is now betting on a broader vision—one that blends beauty, lifestyle apparel, and even digital-first acquisitions to reignite growth. Yet, with flat sales in early 2025 and lingering macroeconomic headwinds, investors must ask: Can these investments and leadership changes create lasting value, or are they a costly gamble?

Leadership Transitions: A New Chapter for VSCO

In 2024, Hillary Super took the helm as CEO, succeeding Martin Waters, and brought fresh urgency to the brand's turnaround. Under her leadership, the company has emphasized brand revitalization, focusing on high-margin categories like beauty and PINK apparel, while also integrating its $320 million acquisition of Adore Me—a digital-first intimates brand—to appeal to younger, online-centric consumers. Meanwhile, the photography platform VSCO (a separate entity but under the same ticker) has shifted toward monetizing creator communities through tools like VSCO Pro.

These moves reflect a dual strategy: reposition Victoria's Secret as a full-lifestyle brand and expand the photography platform's role in the creator economy. But execution remains critical.

Brand Investments: Costly but Necessary?

The company's financials reveal both progress and challenges. In Q1 2025, net sales of $1.353 billion were flat compared to the prior year, but adjusted operating income rose to $32 million, exceeding guidance. This improvement hints at cost discipline, particularly in reducing overhead and streamlining operations—a key focus under Super's leadership.

However, strategic investments come with trade-offs. The Adore Me acquisition, for instance, added $14.1 million in pre-tax expenses through 2024 due to purchase accounting and amortization. Meanwhile, international expansion, especially in China, is paying off: International sales grew 9.3% in Q1 2025, driven by joint ventures and franchising. This geographic diversification could insulate VSCO from U.S. consumer weakness.

Risks and Headwinds: Tariffs, Trade, and Consumer Sentiment

Despite these positives, risks loom large. The company's full-year 2025 adjusted operating income guidance was cut by $30 million to $270–320 million, primarily due to $50 million in tariff-related costs—a stark reminder of global trade uncertainties. Additionally, U.S. store sales remain sluggish, with North American sales down 1.1% in Q1, reflecting ongoing competition from fast-fashion rivals and a cautious consumer.

The photography platform's pivot to creator monetization also faces hurdles. While VSCO Pro subscriptions and brand partnerships offer long-term potential, scaling these services requires sustained investment in tech and marketing—expenses that could strain margins in the short term.

Investment Thesis: Hold for Long-Term Value, but Watch for Catalysts

For investors, VSCO presents a high-risk, high-reward scenario. The stock's valuation—trading at just 2.5x 2025E EV/EBITDA—suggests the market discounts these risks. However, if the company can:
1. Sustain international growth (China's joint ventures alone contributed 5% of Q1 sales),
2. Leverage Adore Me to capture younger demographics,
3. Stabilize U.S. sales through beauty and PINK apparel,

then shares could rebound sharply. The $25.56 average analyst price target (as of 2024) implies 30% upside from current levels, but execution is key.

The Bottom Line

VSCO's leadership changes and strategic bets are necessary gambles in a crowded retail landscape. While flat sales and macro risks warrant caution, the company's focus on high-margin categories, geographic diversification, and digital innovation positions it for a comeback—if it can navigate its fiscal and operational challenges. For now, long-term investors with a tolerance for volatility may find value here, but short-term traders should wait for clearer signs of stabilization.

Final Note: Monitor Q2 2025 results for progress on cost savings and international momentum. A beat on the $15–35 million adjusted operating income target could shift sentiment decisively.