Victoria’s Secret (NYSE: VSCO) reported better-than-expected earnings for the first quarter of 2022, sending its shares up more than 10% in premarket trading. However, the lingerie and beauty retailer warned it expects to continue facing supply chain and sales headwinds until the end of the year.
How Did Victoria’s Secret Perform in Q1?
The company reported Q1 adjusted earnings per share (EPS) of $1.11, topping the consensus estimates of 84 cents per share. Revenue came in at $1.48 billion, down 4.5% from the same period last year, and in line with the analyst consensus. The company said its sales in the same period last year were boosted by roughly $75 million thanks to the federal stimulus benefits.
Net income stood at $76.14 million at the end of the quarter, or 93 cents per share, down from $174 million, or $1.97 per share, in the year-ago period.
“If the first quarter sales trends adjusted for stimulus were to continue for the balance of the year, it could challenge our ability to deliver full-year operating income in line with last year,” Victoria’s Secret said in a statement.
Victoria’s Secret reported an 8% decline in Q1 same-store sales from the same period last year. On an adjusted basis, same-store sales were down 3% in the quarter. The company said its inventory was up 37% from the year-ago quarter, mainly due to transportation delays and mounting costs of goods due to inflation.
For the current quarter, the retailer expects adjusted EPS in the range of 95 cents to $1.25, while analysts were expecting $1.19 per share. Victoria’s Secret expects sales to be down low-single digits to up low-single digits in the second quarter, compared to the consensus estimates of a 0.8% decline.
On a full-year basis, the company expects total sales to be flat to up in the low-single digits from fiscal 2021, compared with the expected year-over-year growth of 1.7%.
“We have proactively anticipated and are managing supply chain and inflationary pressures,” the company said. “However, we understand there could be volatility in our results.”
Earlier this year, Victoria’s secret announced the launch of its first Amazon storefront, where the company plans to sell roughly 120 products from its VS Beauty line, along with products from its Pink business.
The launch marked Victoria’s Secret’s first wholesale partnership, emphasizing the company’s willingness to experiment with its business model following its spin-off from L Brands in 2021.
Research data showed that around 40% of beauty sales are conducted online and many consumers had already been searching for VS Beauty products on Amazon, according to the brand’s CEO, Greg Unis.
Victoria’s Secret remains the best-selling fragrance brand in the US, as per Euromonitor. Fragrance sales account for around 15% of Victoria’s Secret’s total revenue in the U.S. and have contributed about $900 million last year.
Victoria’s Secret Attracts Positive Comments From Analysts
Ike Boruchow, an analyst at Wells Fargo, slashed the price target on VSCO from $70 per share to $60 per share. The analyst said it expects the company will manage to pull off its brand turnaround even despite headwinds in the external environment.
In May, JPMorgan analysts also cut their price target on Victoria’s Secret’s stock from $86 to $71, while Barclays trimmed its price target on VSCO to $61 from $76 in a research note released in April.
BofA analyst Lorrain Hutchinson reiterated a Buy rating on VSCO, setting a price target of $75 per share. The bank said it is “encouraged” by VSCO’s brand revamp and the steps it took to improve sales and margins in the second half of the year, despite a more challenging environment for retailers this year.
Victoria’s Secret stock is trading higher this week after the fashion and lingerie retailer reported better-than-expected earnings. Moreover, Wall Street analysts reflected positively on the company after the results.