Victoria's Secret & Co (VSCO.US) shares fell sharply on Thursday, closing down 12.16% at $52.70, despite the company reporting robust overall quarterly results. Concerns over rising tariff costs, expenses related to the acquisition of Adore Me, and increased operating expenditures were the primary factors dragging down the stock price.
The company's fourth-quarter results for fiscal year 2025 showed revenue and profit exceeding Wall Street expectations. During the reporting period, Victoria's Secret achieved sales of $2.27 billion, an 8% increase year-over-year, surpassing analyst estimates of $2.23 billion. Adjusted earnings per share were $2.77, also higher than the market expectation of $2.52. However, quarterly net profit was $184 million, down from $193 million in the same period last year.
Operational performance showed improvement across several core businesses. CEO Hillary Super stated that Victoria's Secret's core bra business returned to growth for the first time in four years, while its PINK brand delivered its strongest growth performance in a decade. The company's overall market share also increased. Comparable store sales grew by 8% during the quarter, significantly higher than the market's prior expectation of 5.6%.
The company also issued guidance above market expectations. Victoria's Secret forecasts full-year fiscal 2026 sales to be between $6.85 billion and $6.95 billion, representing growth of approximately 5% to 6%, which is higher than the $6.77 billion analysts had anticipated. For the current quarter, the company expects sales of $1.49 billion to $1.53 billion, a year-over-year increase of 10% to 13%, also exceeding market forecasts.
Despite the strong performance, multiple cost pressures are keeping investors cautious. The company anticipates approximately $160 million in additional tariff costs for 2026. Although it plans to mitigate this through price increases, promotions, and negotiations with suppliers, a net impact of around $40 million is still expected. Furthermore, the company faces financial pressure from its 2022 acquisition of the online lingerie brand Adore Me. In the latest quarter, the company recorded a $119.6 million goodwill impairment loss related to the acquisition, along with $36.3 million in fulfillment center restructuring expenses. The company is also conducting a strategic review of the DailyLook clothing subscription service obtained through the Adore Me deal to sharpen its focus on core brand operations.
Operating costs are also rising. The company expects the selling, general, and administrative expense rate for the first fiscal quarter to increase to 33%, slightly higher than the same period last year, primarily due to increased investment in store staffing. Additionally, the company plans to boost marketing spending this year, following a record-breaking Valentine's Day marketing campaign featuring the South Korean K-pop group TWICE.
Victoria's Secret CFO Scott Sekella stated on the earnings call that the company is entering fiscal 2026 with growth momentum, but macroeconomic uncertainties remain. The company will continue to invest in product innovation and brand building while managing costs.
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