Victoria’s Secret shares experienced a downturn on Thursday, dropping by as much as 9.6% during early trading hours, though they managed to recover slightly, showing a 3.4% decline by 2:37 p.m. ET.
Despite surpassing revenue and earnings expectations for the second quarter, the apparel behemoth continues to grapple with widespread declines in various segments of its business. Earlier this month, the stock had surged following the announcement of a new CEO appointment, but today’s trading saw some of those recent gains recede.
A modest positive surprise
In the latest quarter, Victoria’s Secret reported a slight revenue drop of 0.7%, bringing in $1.42 billion, alongside adjusted (non-GAAP) earnings per share of $0.40. These results exceeded analyst predictions, with the earnings showing a significant improvement from the previous year, largely due to the company’s cost-cutting strategies.
However, the market response was less than enthusiastic. The retail sector is notoriously challenging, and it seems that Victoria’s Secret’s brand appeal may be waning in comparison to emerging competitors like Fenty.
The company is experiencing declines in same-store sales across both its physical outlets, which saw a 5% drop, and its online direct-to-consumer channels, which recorded a more modest 3% decrease. Contrary to what one might expect, online sales aren’t compensating for the decline in physical store sales, as both are trending downward. Although the recent results showed an improvement over the previous year’s significant drops of 14% and 11% in same-store sales, the moderation in decline didn’t manage to win over investors.
Challenges ahead for Victoria’s new CEO
On August 14, Victoria’s Secret named Hilary Super as its new CEO. Super brings experience from rival Savage X Fenty and previously served as CEO of retailer Anthropologie. If anyone understands how to counter new competitors in today’s more body-positive market, it’s her.
Nonetheless, Super faces significant challenges as Victoria’s Secret undertakes a brand transformation or adaptation. Although the company’s stock is trading at a relatively low 13.7 times earnings, investors might prefer to adopt a wait-and-see approach, eager to learn more about her turnaround strategy and witness its financial impact before investing in the company.
