Needham makes case for obesity drugs as long-term catalyst for Victoria’s Secret

Needham has recommended buying shares of Victoria’s Secret as it initiated coverage on the lingerie retailer, pointing to the popularity of weight-loss drugs as a long-term catalyst. Consumers who lose weight may need smaller lingerie sizes, while a desire to feel sexier could support demand for Victoria’s Secret products.

Investment bank Needham initiated on Victoria’s Secret with a “buy” rating, Barron’s reported. Its target price of $106 per share implies more than 21% upside from the stock’s Friday close. That day, Victoria’s Secret shares fell 3.5% in the regular session to $87.30 apiece. As of this writing, the stock had risen around 1.6% in early trading in New York on Monday.

Needham analyst Tom Nikic sees growing sales of weight-loss drugs as a source of long-term growth for Victoria’s Secret, Barron’s writes. As consumers’ body types change, they may need smaller clothing sizes and want clothes that make them feel “sexier,” potentially drawing them to Victoria’s Secret, Nikic wrote.

So far, adoption of GLP-1 drugs has had a “minimal impact” on the retailer’s sales, CEO Hillary Super said on an earnings call in January. She noted that the company had seen only modest shifts toward smaller sizes. Among new customers, those shifts could also reflect the age of its target audience, 18- to 24-year-olds. The company continues to monitor the trend, Super mentioned.

For the second quarter, Victoria’s Secret reported revenue growth of 10% year over year to $1.61 billion, while adjusted earnings almost tripled to $0.95 per share. The results allowed the management to raise its full-year revenue guidance to $7.1-7.18 billion. That would put Victoria’s Secret on track for its highest annual sales in seven years, Bloomberg noted.

Nikic sees room for further guidance increases. He believes the retailer is in the early stages of a “compelling” multiyear turnaround that began when Super became CEO two years ago.

The Needham analyst notes that the company once held more than 30% of the North American intimate apparel market, but its share subsequently fell to 20%. Nikic believes that regaining lost market share and expanding PINK, swimwear, and activewear could drive annual sales growth in the mid- to high-single-digit percentage range over the next several years. He forecasts earnings per share could reach $9.50 in five years, double the 2026 guidance of $4.45-4.70.

Victoria’s Secret stock has surged 61% year to date, with most of the gains coming in early June. The company then reported revenue for its fiscal first quarter, ended May 2, up 15% year over year to $1.56 billion, beating analysts’ expectations. Following the earnings release on June 2, the stock jumped 47.5%.

Those results followed a shift in brand positioning that Super announced in May. Victoria’s Secret was returning to the idea that “sex sells” as it sought to restore the brand’s cachet and win back customers, Bloomberg reported at the time.

Wall Street is broadly upbeat on the stock, with eight “buy” calls, six “hold” ratings, and one “sell” recommendation, according to MarketWatch data. The average target price is $93.60 per share, implying 7.2% upside from the close on Friday.