Victoria's Secret: Can The New CEO Deliver?

Core Viewpoint - Victoria's Secret (VSCO) is currently recommended as a hold due to a negative macro outlook and elevated valuation multiples despite the appointment of a new CEO, Hillary Super, who brings relevant industry experience and expertise [2][6]. Financial Performance - VSCO reported a total sales decline of 0.7% year-over-year to approximately $1.42 billion, with North America store sales declining 2.1$800 million and same-store sales growth (SSSG) declining 5% year-over-year [3]. - Direct sales fell 0.9% year-over-year to $430.2 million, while international sales grew 6.4$187 million [3]. - Adjusted gross margin expanded by 80 basis points year-over-year to 35.4%, and adjusted EBIT margin expanded by 100 basis points to 4.4%, exceeding consensus estimates of 4.3% [3]. Management Changes - Hillary Super was appointed as the new CEO effective September 9, which is seen as a crucial change for VSCO, instilling confidence in a potential turnaround [3][4]. - Super's background includes experience at Savage X Fenty, a major competitor, and expertise in fashion retail merchandising from companies like Guess and Anthropologie [4]. Market Trends - Despite a negative sales performance in Q2 2024, there are signs of improving sales trends in North America for both Victoria's Secret and PINK brands, with management noting a strong exit from Q2 2024 and positive customer reactions to new products [4]. - Inventory levels have stabilized at approximately 16% of total revenue, allowing for increased production of new products in response to current demand [4]. Valuation Concerns - The current macroeconomic environment is challenging, with consumers remaining value-conscious, which has led to a loss of market share to value competitors [5]. - The stock has surged approximately 20% following the new CEO's appointment, trading at 11x forward PE, above the historical average of 8x over the past five years, indicating potential for downward re-rating if macro conditions do not improve [5]. Final Recommendation - The recommendation remains a hold for VSCO, as recent demand trends and the new CEO are positive, but the uncertain macroeconomic outlook warrants caution before making investment decisions [6].