Company Overview - Victoria's Secret & Co. is a specialty retailer offering women's apparel and beauty products under the Victoria's Secret, Pink, and Adore Me brands, including intimate apparel, casual sleepwear, swimwear, and fragrances [1] - The company began trading on the New York Stock Exchange in summer 2021 after spinning off from L Brands, which is now Bath & Body Works [4] Current Challenges - Victoria's Secret shares have fallen over 75% from an all-time high of approximately $76 per share to around $18 per share since its IPO [4] - The company has faced significant underperformance, trailing its peers by 47.4 percentage points since its IPO, with issues such as declining revenue, shrinking gross margins, and high senior management turnover [6][9] Activist Involvement - Barington Capital, an activist investor, holds over 1% of Victoria's Secret and is advocating for substantial changes to the board, including replacing a majority of directors with those experienced in brand revitalization and operational execution [2][3] - Barington has a history of successful activism, having generated a 221.5% return during its advisory role with L Brands, the former parent company of Victoria's Secret [6][8] Recommendations from Activists - Barington Capital has recommended that Victoria's Secret focus on several key areas: 1. Replace at least a majority of the board with experienced directors [3][7] 2. Evaluate the CEO's capability to lead a turnaround [3][7] 3. Increase focus on the core brand [3][7] 4. Accelerate growth in digital and international markets [3][7] 5. Streamline operations by eliminating underperforming initiatives [3][7]

Core Viewpoint - Activist investor Barington Capital Group is urging Victoria's Secret to restructure its board and eliminate its recently adopted shareholder rights plan, citing a significant decline in shareholder value since its separation from L Brands in 2021 [1][2]. Company Performance - Since the separation from L Brands, Victoria's Secret has overseen a loss of $2.4 billion in shareholder value, indicating a failure to realize its potential [2]. - The current leadership, including CEO Hillary Super, is criticized for lacking the necessary experience and strategic clarity for a successful turnaround [2]. Leadership Concerns - Barington Capital highlights that six of the nine current board members were part of the board during the company's decline, and the remaining independent directors have limited experience in scaling global consumer businesses [6]. - The investor calls for a reconstituted board with directors experienced in brand revitalization, operational execution, international expansion, and shareholder value creation [7]. Strategic Focus - Concerns are raised regarding CEO Hillary Super's lack of employee confidence and her focus on relaunching secondary brands and expanding into athleticwear, which detracts from prioritizing the core business and international growth [4]. - Barington Capital emphasizes the need for Victoria's Secret to concentrate on core product categories, such as bras, and to reinvest in digital and international markets while streamlining its operating model [10]. Governance Issues - The activist investor expresses disappointment with the company's recently adopted "poison pill" plan, viewing it as counterproductive and potentially entrenching management and the board at a time when significant changes are needed [9]. - Barington Capital argues that companies with weak governance structures and strong anti-takeover provisions tend to trade at lower valuations [9]. Historical Context - Barington Capital previously worked with L Brands to implement key initiatives, resulting in a 221.5% increase in share price during its advisory tenure [12].

Activist investor Barington Capital Group joins a growing chorus of dissatisfied Victoria's Secret VSCO shareholders.What Happened: The firm now holds more than 1% of the lingerie retailer's stock and plans to increase its position.Its campaign follows a sharp stock decline—more than 50% year-to-date. Victoria's Secret's market value slashed to about $1.5 billion. That's a steep drop from the $6.5 billion valuation it commanded after its 2021 split from Bath & Body Works Inc. BBWI.Also Read: Victoria’s Secr ...

Financial Performance - Net sales for Q1 2025 were $1.353 billion, flat compared to Q1 2024, with a 1% decrease in North America stores and a 3% decrease in the direct channel[92]. - Operating income decreased by $6 million to $20 million in Q1 2025, with an operating income rate of 1.5%, down from 1.9% in Q1 2024[93]. - International channel net sales increased by 9% compared to Q1 2024, reaching $199 million[92]. - Sales per average selling square foot increased by 2% to $128 in Q1 2025, while sales per average store rose by 3% to $880[104]. - Comparable store sales decreased by 1% in Q1 2025 compared to a 5% decrease in Q1 2024[112]. - Gross profit decreased by $27 million to $474 million, with a gross profit rate of 35.1%, down from 36.9%[116]. - Adjusted operating income for Q1 2025 was $32 million, down from $40 million in Q1 2024[100]. - Adjusted net income attributable to Victoria's Secret & Co. was $7 million in Q1 2025, compared to $9 million in Q1 2024[100]. Operational Changes - The company operated 1,378 stores as of May 3, 2025, a net decrease of 24 stores from the previous year[105]. - The strategic priorities include recommitting to PINK, supercharging bras, fueling growth in lifestyle categories, and evolving brand projection and go-to-market strategy[94]. - The company faced near-term headwinds due to newly imposed U.S. tariffs, with uncertain impacts on business operations[97]. - A security incident involving IT systems was detected on May 24, 2025, but has not materially disrupted operations to date[98]. Cash Flow and Expenditures - Net cash used for operating activities was $150 million in Q1 2025, an increase of $34 million compared to Q1 2024[131]. - Capital expenditures for Q1 2025 were $43 million, with an estimated total of approximately $220 million for fiscal year 2025[135]. - Net cash provided by financing activities was $106 million in Q1 2025, primarily from borrowings under the ABL Facility[136]. Debt and Financing - Long-term debt as of May 3, 2025, was $1.078 billion, an increase from $973 million as of February 1, 2025[142]. - The effective tax rate for Q1 2025 was 50.9%, significantly lower than 151.1% in Q1 2024[123]. - The company has a senior secured term loan B credit facility with an original principal amount of $400 million, maturing in August 2028, requiring quarterly principal payments of $1 million[144]. - As of May 3, 2025, the interest rate on the term loan facility was 7.81%, with a margin ranging from 3.36% to 3.68% for Term SOFR loans[145]. - The company has an asset-based revolving credit facility (ABL Facility) with aggregate commitments of $750 million, with $105 million outstanding as of May 3, 2025, and an interest rate of 5.89%[147]. - An amendment to the ABL Facility on May 21, 2025, extended its maturity and reduced the applicable interest rates for borrowings[148]. - The company borrowed $160 million from the ABL Facility in Q1 2025, compared to $90 million in Q1 2024, and made repayments of $55 million in Q1 2025[147]. - As of May 3, 2025, the company had $509 million remaining availability under the ABL Facility after accounting for $17 million in outstanding letters of credit[147]. - The company's long-term debt includes the 2029 Notes and outstanding borrowings under the Term Loan Facility and ABL Facility, with a total principal value of $986 million as of May 3, 2025[163]. - The company is in compliance with all covenants under its long-term debt and borrowing facilities as of May 3, 2025[149]. - The company's credit ratings as of May 3, 2025, are Ba3 from Moody's and BB from S&P for corporate ratings, with a stable outlook[150]. Accounting and Taxation - The company does not expect new accounting standards related to income taxes to have a material impact on its financial position or cash flows[154].

Core Viewpoint - Victoria's Secret & Co. has faced challenges in its financial outlook, leading to lowered earnings guidance and cautious analyst sentiment regarding its performance in a competitive market [1][4]. Financial Performance - The company reported first-quarter adjusted earnings per share of 9 cents, aligning with analyst consensus estimates [1]. - Quarterly sales reached $1.35 billion, remaining flat year over year and also meeting market expectations [1]. Fiscal Year Guidance - Victoria's Secret has revised its fiscal year 2025 adjusted operating income guidance to a range of $270 million to $320 million, down from a previous forecast of $300 million to $350 million [2]. - For the second quarter, the company forecasts sales between $1.38 billion and $1.41 billion, slightly below the $1.42 billion estimate [3]. Profitability Concerns - The analyst noted that profit forecasts for the second quarter lagged behind prior consensus, which had already accounted for a $10 million impact from cybersecurity issues and another $10 million from tariffs [3]. - A gross tariff impact of $120 million is expected for the year, with $70 million already mitigated, resulting in a net hit of $50 million that could reduce gross margin by over 100 basis points [6]. Strategic Adjustments - The company has taken steps to mitigate tariff impacts, including cost-cutting measures, diversifying sourcing, and improving shipping efficiency [7]. - Victoria's Secret is shifting from blanket discounts to more targeted promotions, such as gift-with-purchase events [7]. Earnings Projections - The analyst has lowered the fiscal year 2025 EPS estimate to $2.10 from $2.22, and for fiscal year 2026, the EPS is now projected at $2.25, down from $2.38 [7][8].

Group 1 - The stock of Victoria's Secret & Co. (NYSE: VSCO) is currently rated as a hold due to its challenging position in the market [1] - There are early signs indicating that the turnaround of the core intimates business is gaining traction [1] - The investment approach focuses on understanding the core economics of a business, including competitive moat, unit economics, reinvestment runway, and management quality [1] Group 2 - The analysis emphasizes the importance of long-term free cash flow generation and shareholder value creation [1] - The author aims to provide insights that help readers focus on what drives long-term equity value [1] - The analysis is intended to be both analytical and accessible, adding value to readers seeking high-quality, long-term investment opportunities [1]

Core Insights - Victoria's Secret & Co. reported in-line earnings for Q1 with adjusted earnings per share of 9 cents and quarterly sales of $1.35 billion, remaining flat year over year [1] - CEO Hillary Super expressed satisfaction with the business's performance, highlighting strength in the Beauty segment and PINK apparel, as well as new offerings in sport and swim [2] Financial Guidance - The company has lowered its FY25 adjusted operating income guidance to a range of $270 million to $320 million, down from a previous forecast of $300 million to $350 million, and anticipates a net tariff impact of approximately $50 million for the fiscal year [3] - Victoria's Secret reaffirmed its FY2025 sales guidance of $6.20 billion to $6.30 billion, compared to the $6.24 billion consensus estimate [3] Q2 Expectations - For Q2, Victoria's Secret expects adjusted earnings per share to range between 0 cents and 15 cents, missing the consensus estimate of 30 cents, and forecasts sales between $1.38 billion and $1.41 billion, slightly below the $1.42 billion estimate [4] - Following the earnings announcement, shares fell 5.4% to close at $21.00 [4] Analyst Ratings - B of A Securities analyst Alice Xiao maintained an Underperform rating on Victoria's Secret and lowered the price target from $20 to $18 [6] - Barclays analyst Adrienne Yih maintained an Overweight rating and raised the price target from $22 to $23 [6]

Company Performance - Shares of Victoria's Secret & Co. (NYSE: VSCO) have experienced significant volatility, more than doubling in late 2024 before losing half of their value from the highs [1] - The uneven performance has attracted the attention of activist investors [1] Investment Insights - The article discusses the potential for contrarian bets based on macro views and stock-specific turnaround stories to achieve outsized returns with a favorable risk/reward profile [1]

Financial Performance - Victoria's Secret reported fiscal Q1 2025 net sales of $1.353 billion, approximately flat year over year, with adjusted operating income of $32 million and adjusted EPS of $0.09, exceeding guidance [1] - The company maintained its full-year net sales target of $6.2 billion to $6.3 billion but guided for adjusted EPS of $1.80 to $2.20, down from $2.69 in 2024, due to tariff headwinds and ongoing strategic investments [1] Strategic Leadership Changes - A major leadership overhaul was executed between January and May, establishing a brand president model and hiring new executives with sector expertise [2] - New appointments include Anne Stevenson as president of Victoria's Secret, Ali Dillon as president of Pink, and Amy Kaczurek as president of Beauty, alongside a new chief marketing officer and executive creative director [3] Category Performance - The Pink apparel segment recorded its third consecutive quarter of positive comparable sales, with improvements in margin and average unit retail price, driven by faster fashion cycles and enhanced customer engagement [4] - The beauty segment achieved its seventh consecutive quarter of growth, representing about 25% of the business, with strong international performance indicating opportunities for future expansion [5] Cost Management and Financial Strategy - The company reduced its adjusted SG&A rate by 120 basis points year-over-year to 32.8%, better than the guidance range, through cost-cutting measures and a strategic shift in marketing spending [6][8] - Victoria's Secret renewed its $750 million asset-based lending facility at lower interest rates, enhancing liquidity and financial flexibility [6][8] Future Outlook - Management maintained net sales guidance for fiscal 2025 of $6.2 billion to $6.3 billion, with operating income expected between $270 million and $320 million, and adjusted EPS projected at $1.80 to $2.20 [9] - Plans include opening 16 new North American stores, closing 30 to 40 locations, and renovating 40 locations to the "Store of the Future" model, which will comprise a significant portion of the store base by year-end [9]

Core Viewpoint - Victoria's Secret is planning to reduce promotional deals to mitigate the impact of tariffs on its operating income, which is expected to decrease by $50 million in the 2025 fiscal year due to these tariffs [2][5]. Group 1: Tariff Impact - President Trump's tariffs are projected to significantly affect Victoria's Secret's operating income, with an estimated hit of $50 million during the 2025 fiscal year [2]. - The company is currently facing a 30% tariff on imports from China and a 10% tariff on many goods from other countries, which has prompted a reevaluation of its sourcing and pricing strategies [5]. Group 2: Promotional Strategy Changes - The CFO, Scott Sekella, indicated that the company will optimize its promotions, leading to fewer gift-with-purchase deals and a reduction in traditional discounts [3][4]. - Victoria's Secret will adopt a "strategic, case-by-case" approach to price increases in response to tariffs, rather than applying uniform price hikes across all product categories [4]. Group 3: Sourcing Adjustments - To offset the tariff impact, Victoria's Secret is exploring new suppliers and negotiating with existing ones to minimize costs [5]. - The company has already written off some raw materials sourced from China in the first quarter due to the tariffs [5].