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Victoria's Secret Stock Up 37% in a Month: Is it Too Late to Invest?

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Victoria's Secret & Co. (VSCO - Free Report) stock recently made a comeback despite registering a 10.5% decline in the past six months. VSCO has rallied 37.4% compared with the industry’s 12.8% rise and the S&P 500’s 8.7% increase in the past month. The upside signals a potential turnaround, capturing investors' attention and positioning VSCO as a stock to watch closely.

As of Friday, the stock closed at $23.46, below its 52-week high of $30.80 but above its 52-week low of $13.62. It also underperformed other industry players like American Eagle Outfitters, Inc. (AEO - Free Report) , up 4%, Nordstrom, Inc. (JWN - Free Report) , up 5.5%, and Capri Holdings Limited (CPRI - Free Report) , up 10.6%, in the past month.

Stock Price Performance

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Technical indicators suggest continued strong performance for VSCO. The stock is trading above its 50-day moving averages, signaling robust upward momentum and price stability. This technical strength underscores positive market sentiment and confidence in VSCO's financial health and prospects.

50-Day Moving Averages

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Factors Favoring VSCO Stock Surge

In mid-August, Victoria’s Secret’s shares surged after it announced the appointment of a new CEO, Hillary Super, who previously led Savage X Fenty and served as Global CEO of Anthropologie Group. Super will take over as CEO starting Sep. 9. She will succeed Martin Waters, with current CFO Timothy Johnson stepping in as interim CEO until Super assumes her role. This leadership change is seen as a strategic move to rejuvenate the brand amid challenges in the competitive retail market.

Looking ahead, the company is optimistic about its North American business, as it has seen continued improvement in trends through August and into the beginning of the third quarter. Encouraging early feedback on fall assortments for Victoria’s Secret and PINK brands bodes well. The beauty segment performed well, driving customer traffic to stores. It emphasized key events that included a major VSX sports launch and the return of the Victoria’s Secret Fashion Show to drive growth.

While optimistic about the positive signs, the company acknowledges that the broader consumer environment remains challenging. Despite the hurdles, VSCO is focused on controlling what it can — leveraging its market position in the intimates category and executing multiple growth initiatives to drive long-term growth.

An increase in store and digital traffic, with store traffic outperforming mall averages and strong customer response to new merchandise, is also contributing to the company’s performance. In second-quarter fiscal 2024, the digital market share increased in bras and panties, and overall sports bra market share improved for the second consecutive quarter. High-single-digit sales growth in International business and Adore Me, driven by franchise and travel retail partners, and strong performance in the UK in the recently concluded quarter.

Effective cost control measures, including reductions in adjusted SG&A dollars and occupancy costs, are driving margin improvement. The company is also benefiting from the robust loyalty program, which increased to 32 million.

VSCO 2024 Outlook Boosts Confidence

For the fiscal 2024, Victoria's Secret raised its financial forecast, taking into account stronger-than-expected performance in second-quarter fiscal 2024. It anticipates a sales decline of nearly 1% for the year, based on a comparable 52-week period from the fiscal 2023, which is better than the previously expected low-single-digit decline. This updated outlook reflects ongoing progress in North America and sustained strength in the International segment, aligning with the positive momentum seen throughout the year.

With the revised sales forecast, Victoria's Secret now expects adjusted operating income for 2024 to be between $275 million and $300 million, up from the prior estimate of $250-$275 million. The company projects adjusted free cash flow to reach $200-$225 million, an increase from the earlier guidance of $175 million to $200 million. For the third quarter of 2024, sales are expected to rise by low-single digits compared to the same period last year.

Estimate Revision Favoring the VSCO Stock

Reflecting the positive sentiment around VSCO, the Zacks Consensus Estimate for earnings per share has seen upward revisions. Over the past 7 days, analysts have raised their estimates for the current and next fiscal by 3% to $2.03 and 4.3% to $2.16 per share, respectively.

VSCO Trading at a Discount

The company is currently valued at a premium compared with the industry on a forward 12-month P/E basis. VSCO’s forward 12-month price-to-earnings ratio stands at 11.16, significantly lower than the industry’s ratio of 27.54 and the S&P 500's ratio of 21.69.

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Conclusion

The combination of strong recent stock performance, strategic leadership changes, an improved financial outlook, and attractive valuation makes Victoria’s Secret a compelling buy for investors looking to capitalize on its potential turnaround and growth opportunities. The Zacks Rank #1 (Strong Buy) company is likely to benefit from improvement in the North America business and an increase in customer traffic.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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