Intimatewear and beauty retailer Victoria’s Secret (NYSE:VSCO) announced better-than-expected revenue in Q4 CY2024, with sales up 1.1% year on year to $2.11 billion. On the other hand, next quarter’s revenue guidance of $1.32 billion was less impressive, coming in 5.3% below analysts’ estimates. Its non-GAAP profit of $2.60 per share was 13.2% above analysts’ consensus estimates.
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Victoria's Secret (VSCO) Q4 CY2024 Highlights:
- Revenue: $2.11 billion vs analyst estimates of $2.08 billion (1.1% year-on-year growth, 1% beat)
- Adjusted EPS: $2.60 vs analyst estimates of $2.30 (13.2% beat)
- Adjusted Operating Income: $299.3 million vs analyst estimates of $268.4 million (14.2% margin, 11.5% beat)
- Management’s revenue guidance for the upcoming financial year 2025 is $6.25 billion at the midpoint, missing analyst estimates by 1.3% and implying 0.3% growth (vs 0.9% in FY2024)
- Operating Margin: 12.7%, in line with the same quarter last year
- Locations: 1,387 at quarter end, up from 1,370 in the same quarter last year
- Same-Store Sales rose 5% year on year (-6% in the same quarter last year)
- Market Capitalization: $1.84 billion
“I am pleased with the strength of our fourth quarter holiday results, which saw sales up in both our Victoria’s Secret and PINK brands and our powerhouse Beauty business. Sales increased across most major merchandise categories, in our stores and digital channels, and in both our North America and International businesses. We won in the big moments of the quarter and gained more than our fair share of the traffic in the mall and online. The teams focused on execution and drove healthy margins, controlled costs, and managed inventory levels extremely well in a highly competitive and promotional holiday environment,” said VS&Co CEO Hillary Super.
Company Overview
Spun off from L Brands in 2020, Victoria’s Secret (NYSE:VSCO) is an intimate clothing and beauty retailer that sells its own brands of lingerie, undergarments, and personal fragrances.
Apparel Retailer
Apparel sales are not driven so much by personal needs but by seasons, trends, and innovation, and over the last few decades, the category has shifted meaningfully online. Retailers that once only had brick-and-mortar stores are responding with omnichannel presences. The online shopping experience continues to improve and retail foot traffic in places like shopping malls continues to stall, so the evolution of clothing sellers marches on.
Sales Growth
A company’s long-term sales performance can indicate its overall quality. Any business can have short-term success, but a top-tier one grows for years.
With $6.23 billion in revenue over the past 12 months, Victoria's Secret is a mid-sized retailer, which sometimes brings disadvantages compared to larger competitors benefiting from better economies of scale.
As you can see below, Victoria's Secret’s demand was weak over the last five years (we compare to 2019 to normalize for COVID-19 impacts). Its sales fell by 3.7% annually despite opening new stores. This implies its underperformance was driven by lower sales at existing, established locations.
This quarter, Victoria's Secret reported modest year-on-year revenue growth of 1.1% but beat Wall Street’s estimates by 1%. Company management is currently guiding for a 3.3% year-on-year decline in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 1.8% over the next 12 months. Although this projection indicates its newer products will spur better top-line performance, it is still below average for the sector.
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Store Performance
Number of Stores
A retailer’s store count often determines how much revenue it can generate.
Victoria's Secret operated 1,387 locations in the latest quarter. It has generally opened new stores over the last two years and averaged 1% annual growth, faster than the broader consumer retail sector.
When a retailer opens new stores, it usually means it’s investing for growth because demand is greater than supply, especially in areas where consumers may not have a store within reasonable driving distance.
Same-Store Sales
The change in a company's store base only tells one side of the story. The other is the performance of its existing locations and e-commerce sales, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales provides a deeper understanding of this issue because it measures organic growth at brick-and-mortar shops for at least a year.
Victoria's Secret’s demand has been shrinking over the last two years as its same-store sales have averaged 4.4% annual declines. This performance is concerning - it shows Victoria's Secret artificially boosts its revenue by building new stores. We’d like to see a company’s same-store sales rise before it takes on the costly, capital-intensive endeavor of expanding its store base.
In the latest quarter, Victoria's Secret’s same-store sales rose 5% year on year. This growth was a well-appreciated turnaround from its historical levels, showing the business is regaining momentum.
Key Takeaways from Victoria's Secret’s Q4 Results
It was encouraging to see Victoria's Secret beat analysts’ revenue, EPS, and adjusted operating income expectations this quarter. On the other hand, its gross margin and full-year revenue guidance fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded down 5.4% to $21 immediately following the results.
The latest quarter from Victoria's Secret’s wasn’t that good. One earnings report doesn’t define a company’s quality, though, so let’s explore whether the stock is a buy at the current price. We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
