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Victoria’s Secret & Co. stock soared 8% Tuesday after the lingerie company raised its fourth-quarter guidance to reflect a better-than-expected holiday season in the face of a “challenged” consumer.
“Our sales performance was at the better end of our guidance with margins solidly in line with our expectations despite our response to a very promotional environment during the holiday season,” Chief Executive Martin Waters said in a statement.
The company
VSCO,
is now expecting per-share earnings of 2.25 to $2.35, up from prior guidance of $2.05 to $2.25. The FactSet consensus is for EPS of $2.24.
Sales were expected to fall 7% to 8%, better than prior guidance of a high-single-digit decline from the $2.175 billion chalked up in the fourth quarter of 2022. The FactSet consensus is for sales of $2.001 billion, or an 8% decline from a year ago.
The company said it would end the year with inventory levels down in the low double digits and expects its expenses to come at the “better end” of its range. Higher-than-usual inventories have vexed apparel retailers this year as shoppers have shown sensitivity to high inflation, forcing companies to discount heavily or struggle with out-of-date assortments.
Wells Fargo analysts welcomed the news and reiterated an overweight rating on the stock.
“We sense the company saw better full-price and clearance pricing especially in January coinciding with its semiannual sale.,” analysts led by Ike Boruchow wrote in a note to clients. “
“Importantly, inventories are also positioned to end 4Q even cleaner than the original +mid-single-digit outlook, now targeting low double-digits ex-modal shifts.”
The new guidance included the full impact of the company’s recent acquisition of AdoreMe Inc., a direct-to-consumer lingerie and apparel brand that was founded in 2011 as an online startup. That deal closed in early January. The company’s fiscal quarter runs from end October to end January.
See also: Victoria’s Secret says inflation likely to hurt women’s-wear shoppers for rest of the year
Victoria’s Secret announced the fresh guidance as it announced it was entering a $125 million accelerated share repurchase program with Goldman Sachs. Under the terms of that deal, it expects an initial delivery of about 2.5 million shares with the deal expected to be completed the second quarter of 2023.
“As we turn the page to the new year, we recognize the economic environment is not ideal and may cause 2023 results to look similar to the year we just finished,” Waters added.
The company is targeting double-digit growth for AdoreMe and is expecting its international business to grow by double digits with partner plans for new stores and new countries over the next two years, he said.
Wells Fargo said it expects the company is expecting its core business to look like it did in 2022 on a sales and EBIT, or earnings before interest and taxes basis, excluding Adore-me and the 53rd week.
“With multiple growth initiatives under way (Adore Me, Int’l), clean inventories, and now added EPS support from faster buybacks, we continue to see value out of VSCO, with the stock trading at just 8x price/earnings our 2023 estimates (9% free cash flow yield),” they wrote.
Victoria’s Secret stock has traded as a stand-alone since August of 2021, when it was spun out of the former L Brands Inc. The company announced a major overhaul of its business and approach ahead of the separation that moved it away from the ‘Angel’ shows that were widely deemed to be out of step with the times.
It now has a board comprised mostly of women and is highlighting empowerment and diversity, and a brand ambassador panel, VS Collective, that includes U.S. soccer player Megan Rapinoe; actor, producer and author Priyanka Chopra Jonas; and model and body-positive advocate Paloma Elsesser.
The stock has fallen 25% in the last 12 months, while the S&P 500
SPX,
has fallen 10%.
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