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30 Dec

Victoria’s Secret CEO Says It Will Be ‘A Tough

Victoria’s Secret is gearing up within the race to draw consumers this holiday shopping season. 

“We’re in for a tricky December throughout across retail and we have to be prepared to sharpen our elbows and fight as hard as we are able to,” Martin Waters, chief executive officer of Victoria’s Secret & Co., told analysts during Thursday morning’s conference call. 

Looks from Victoria’s Secret’s holiday campaign. Courtesy Photo

The lingerie and beauty retailer’s game plan includes increased promotions, an expanded assortment, more Stores of the Future and the recent addition of Adore Me to the corporate’s portfolio, all with an emphasis that shoppers can have less money to spend this 12 months. 

“We remain mindful of the continued economic headwinds and pressure on our customer that can likely drive a highly promotional retail environment,” Waters explained. “As such, we expect continued sales and margin volatility. We made the choice that it was appropriate to be more promotional than we had been within the previous 12 months, to be more promotional than we’ve got been within the balance of Q3 with a view to ensure that that we were fighting as hard as we possibly could. And we be ok with that selection.

“In these difficult times, she is in search of a deal and she or he’s in search of help; she’s taking a look at the very best brands available in the market to acknowledge that times are difficult and to present her a helping hand,” he continued. “[But] since Black Friday, our customers have responded positively and we’ve been very happy with an uptick within the trend and our level of performance. Customers were out over Black Friday weekend and so they’re stocking up, trying to buy Christmas gifts.” 

Sleepwear is a robust category around the vacations. Courtesy Photo

The CEO spoke with analysts just someday after releasing quarterly earnings results that fell short on each top and bottom lines because of consistent inflation and price-conscious shoppers. 

Waters was quick to indicate additional obstacles, too, comparable to inventory challenges and a more rigid-than-normal future purchasing budget. 

“But where [pressure] really bites is in our ability to enter a recent season open,” Waters said, referring to the firm’s ability to buy inventory prematurely. “When the business is at its best, we might start the autumn season about 60 percent bought and about 40 percent open. We didn’t get quite back to that level this fall. We were more like 70 percent bought, 30 percent open. But we don’t get to spend. That 30 percent is open because with the economic outlook, the best way that it’s, and sales being pressured, it will be unwise to spend those open dollars. So we’re more like 80-20, 80 percent committed, 20 percent open.”

Bras and lingerie in Victoria’s Secret’s 2022 holiday campaign. Courtesy Photo

The corporate guided its current quarter and full-year outlook down because of this. Victoria’s Secret is now anticipating fourth-quarter net sales to be down within the high-single digit range, compared with 2021’s fourth-quarter net sales of $2.1 billion, while the firm expects full-year net sales will decline 6 percent to 7 percent, compared with 2021’s full-year net sales of $6.78 billion. 

“Our guidance for the quarter reflects our results so far and the expectations that we’ll have to be aggressive in December to get our justifiable share and more of consumer spending this holiday season,” Waters said. “Because as I said before, it’s not nearly winning inside our category, it’s about taking dollars to our category somewhat than to anyone else’s. We’re committed to optimizing our performance in the present difficult environment by specializing in what’s inside our control: our brand transformation being best at bras, enhancing the shopper experience and a relentless deal with costs and inventory management.”

But Waters also pointed to several potential tailwinds on the horizon, comparable to the likelihood of lowered freight costs next spring, fewer supply chain bottlenecks, the firm’s beauty business and the international segment. 

Camila Cabello for Victoria’s Secret Beauty. The wonder business remained a growth driver throughout the most up-to-date quarter. Courtesy Photo

“I feel we’re holding our own,” he said. “December is an important month of the 12 months. We feel thoroughly arrange by way of inventory, by way of promotions, by way of the activity we’ve got within the pipe. So it’s all focused on execution immediately. That’s what we receives a commission to do and that’s what we’re focused on.” 

With reference to the Adore Me acquisition, Waters said: “It’s a terrific company. [Internally], we speak about [the acquisition] as being a 2-for-1 deal. It’s a stand-alone business that’s incredibly successful and growing. And [it is] pointing at the worth sector of the market that we don’t currently compete in and that offers us an ideal source of growth. And secondly, it’s a technology company where we are able to leverage a few of their great capability and skill set within our larger base of shoppers. And so there are two superb reasons for us to be a great owner for that brand.”

The transaction is anticipated to shut in January. 

Despite Waters’ bullishness, investors weren’t convinced. Shares of Victoria’s Secret closed down 6.28 percent Thursday to $43.11 apiece. The corporate’s stock is down greater than 20 percent, year-over-year.

Analysts, nevertheless, were just a little bit more optimistic. 

“[Third-quarter earnings-per-share] beat on better-than-consensus [gross margins], with management flagging improving traffic [and] conversion over the Black Friday-Cyber Monday period, while still suggesting willingness ‘to be aggressive in getting our justifiable share of consumer spending’ across what they expect will prove a competitive remainder of 4Q,” Simeon Siegel, managing director at BMO Capital Markets, wrote in a note. “Bottom line: we proceed to see self-help opportunity on [gross margins] and imagine shares are low-cost.” 

His firm rated the stock “outperform” and set a $53 price goal. 

Ike Boruchow, senior retail analyst at Wells Fargo, rated Victoria’s Secret’s stock “obese” and set a price goal of $55. 

“With management indicating that momentum into holiday was picking up (and 70 percent of 4Q sales to still be booked), inventory still headed in the best direction (guiding +MSDs exiting the 12 months), we proceed to see value out of VSCO,” Boruchow wrote in a note. “Following 3Q’s [negative] 11 percent comp trend, business continued at that level ahead of Black Friday week, with the trend accelerating (traffic and conversion) in stores and online over that key holiday kickoff, giving VSCO more confidence of their 4Q plan as the patron responded to Black Friday/Cyber Monday promotions (i.e., 4Q [average unit retail] planned down [year-over-year]). While there’s a variety of business yet to come back (70 percent of quarter yet to be booked), we’re encouraged on the constructing momentum, especially with higher in-stocks in key holiday categories [year-over-year], boding higher for conversion and basket constructing.”

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