High expectations let Victoria's Secret down as stock sinks almost 20% on 2Q earnings

Victoria’s Secret shares plunged 19% in premarket trading on Thursday after the lingerie retailer released its latest quarterly results. Investors were disappointed by slowing growth at the company, which is recovering from a prolonged slump. The stock had rallied 57% this year, raising the bar for investors, Bloomberg explains.

Comparable sales rose 9% year over year in the company's fiscal second quarter, ended August 1, in line with the consensus estimate compiled by Bloomberg and slightly above the FactSet consensus, Barron’s notes. In the previous reporting period, however, sales growth came in at 13%. Revenue was up 10% in the quarter at $1.61 billion, versus the $1.62 billion analysts expected. Adjusted earnings, meanwhile, nearly tripled from a year earlier to $0.95 per share, 20% above Wall Street’s expectations.

The results allowed the management to raise its full-year guidance, with the top line now expected to be $7.10-7.18 billion. The upper end of the previous range was $7.13 billion. Victoria’s Secret is thus poised to report its best annual sales in seven years, Bloomberg notes.

Over the last several years, Victoria’s Secret, originally known for its bras, has lost its dominant position in the category amid competition from other retailers. The brand became “watered down” because it was trying too hard to appeal to everyone, the Wall Street Journal wrote last year.

In response, CEO Hillary Super, who took over in autumn 2024, focused on restoring the retailer’s core identity as a sexy lingerie brand that does not sacrifice comfort but offers products that are more emotional than utilitarian. As part of the business relaunch, the company improved its bra designs, including a revamped “Very Sexy” line featuring double push-up styles, and expanded the product assortment of Pink, its brand aimed at younger consumers.

The strategy’s success has helped the company to reverse a prolonged slump and withstand pressure from investors, including billionaire Brett Blundy’s investment firm BBRC International Pte, Bloomberg notes. On a call with analysts Thursday, Super said Victoria’s Secret has now recorded customer growth for four consecutive quarters across all age and income groups. Shoppers are also spending more and returning to stores at a higher rate.

“Our brands are stronger and more relevant, our customer file is growing, and we are gaining market share as product, brand identity, storytelling and execution are all working together,” the CEO said.

Victoria’s Secret plans to double down on the parts of its strategy that are working, the WSJ notes. In particular, the retailer is investing more in marketing and plans to launch a docuseries and stage a larger version of its signature Victoria’s Secret Fashion Show.

“The fact that growth is broad-based, with success across channels and regions, demonstrates that there is genuine traction behind the numbers,” GlobalData analyst Neil Saunders wrote in a note, as quoted by Bloomberg. “And, from our data, this is underpinned by the fact that Victoria’s Secret isn’t just expanding spend among existing shoppers, but it’s also now attracting new ones, which reverses a long period of continuous erosion of the customer file.”

Guggenheim analyst Simeon Siegel, meanwhile, noted that Victoria’s Secret posted a “strong bottom-line beat” even as sales came in just below expectations. However, implied fiscal fourth-quarter earnings are below Wall Street’s consensus view, Siegel added, as quoted by Barron’s.

Wall Street remains broadly upbeat on the stock. Of the 12 analysts covering Victoria’s Secret, seven have “buy” calls, while five have “hold” ratings. The average target price of $94.60 per share implies 11% upside from the last close.