Does The Future Look Bright For Victoria’s Secret?
Even after all the upheavals that it went through in the last year on account of its ongoing streamlining and transition efforts, according to a recent research by Goldman Sachs and Conde Nast, Victoria’s Secret is still considered to be one of the top favorites among millennial shoppers along with brands such as Nike. Though, one of the biggest reasons for this is Victoria’s Secret’s strong presence in the online domain, we believe that as a brand Victoria’s Secret still carries a strong appeal and its products are definitely in high demand. Let us find out where does the brand stand now and where is it likely to go.
Where Does Victoria’s Secret Stand Now And How Does The Future Look?
Victoria’s Secret, the L Brands owned company that had once been a favorite among both consumers and industry analysts, is going through a rough patch. Even a couple of years back, when apparel demand witnessed a slowdown, Victoria’s Secret continued drawing customers with the aspirational value and strong appeal attached to its brand name. However, lately the popular lingerie brand has been struggling under the weight of its transformation efforts. In order to streamline the business and get rid of its weak performing segments, last year Victoria’s Secret excluded shoes, swimwear, accessories, and apparel from its core business and since these items offered annualized sales of ~$525 million in 2015, hence it had to sacrifice those gains in 2016. Additionally, in the Beauty segment, it is trying to shift its focus from the fantasy beauty products to fine fragrance and high-end body care products. The VS business has been recently segregated into 3 segments: Victoria’s Secret Lingerie, PINK, and Victoria’s Secret Beauty, with each segment led by a different executive reporting to the CEO.
The turmoils faced by Victoria’s Secret was one of the main reasons for L Brands’ weak performance both in the stock market and in financial terms in recent times. L Brands’ stock price has declined by around 35% over the last one year and its revenues declined by 3% to reach ~$12.5 billion in fiscal 2016 (fiscal year ends in January). During the same period, Victoria’s Secret’s sales grew by 1% y-o-y to reach ~$7.8 billion and its comparable sales remained flat. Currently, it has sold off almost all of the excess inventory from the exited categories. The exit of several categories will continue putting pressure on the performance in FY 2017 and the comparable sales are expected to be dampened by high-single digits in the first half of 2017.
However, we believe that these restructuring initiatives will lead to the long term growth in sales and profitability for the company and the setbacks it is facing currently are temporary roadblocks. Victoria’s Secret Stores is the biggest contributor to L Brands’ sales. Currently, it contributes to around 50% of L Brands’ revenues and ~ 61% of our stock price valuation for the company. We expect revenues from Victoria’s Secret Stores to grow with a CAGR of around 5% between 2017 to 2023.
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