Victoria's Secret Stock Craters 35% In A Week - Upgrading From A Sell

seekingalpha03-11

Victoria's Secret shares have plummeted nearly 60% since November 2022 when we last sell-rated the stock.The company's quarter was decent, but the forward guidance caused the stock to collapse, and we...

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setia100
03-12
setia100
Low costs n high profit margin. Big chunk of cost goes to marketing promotion to enticing ladies ❗❓ Good for long when stock price dust settles 🤔

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(NYSE:VSCO). Shares have never recovered are down nearly 60% since that call. Now, we will point out that shares had been on a tear from the mid-teens to about $30 before dumping off after the just-reported Q4 2023 earnings. You know what is interesting about this collapse in shares is that the quarter was actually decent. In fact, sales were in line with expectations, while EPS was a beat against consensus estimates. The problem really stemmed from the forward guidance, and in this column we will discuss the results, and the outlook. This was a bit of a 'kitchen sink' type guidance that sent shares back to the mid-teens level. At this point, there is value in the stock here, but we do expect relative underperformance over the next few weeks. However, at this juncture we are lifting our sell and moving to neutral. Data by YCharts Make no mistake, while this company has been around for decades, having been repackaged and resold in numerous transactions, the currently publicly-traded company has had a less than stellar two-year history. The company has been working toward and making significant progress in its transformation. Specifically, we see substantial opportunity in international growth potential, but on the domestic side, it has been a struggle. Operational expenses remain high, and the debt continues to weigh on earnings. However, 2024 seems like it will be the true transitional year and while the guidance left investors sour, sales trends during the quarter in North America improved, driven by a sequential gain in traffic and average unit retail in both stores and digital/online sales. Notably, traffic in our stores increased compared to last year, and that is very positive. To bring in traffic there were heavy promotional activities, but because the company had lower inventory levels than last year, they saw stronger margins during the holiday sale period and are entering 2024 with very healthy inventories in our opinion. Look, most know the brand and the products of this specialty retailer, primarily its undergarments and intimate wear. In the specialty retail space, it is those who are best managing their inventory, using smart promotion tactics, and watching costs that are doing best in this environment. While Victoria's Secret has improved inventory, costs continue to be an issue. The quarter overall was decent but there were mixed pieces. The top-line revenue figure in the Q4 report was in line. Sales came in at $2.08 billion and rose 3% from last year. Now, the one key metric that we focus on with retailers is comparable sales. When we last covered the stock, we saw comparable store net sales that were dropping double-digits. However, comparable sales are still on the decline. But the decline is slowing. Comparable sales in Q4 2023 decreased 6%. Gross profit had been under pressure as input costs continued to rise and promotions had been heavy. But with a healthier inventory level, margins were strong. Gross profit hit $825.8 million, rising 11% from $744.2 million a year ago. Overall margins were smashed, as gross margin improved from 36.8% last year to 39.7%. That is a strong improvement. General expenses up to $567 million rising 13% from $500 million. It is worth noting as well that with the debt on the balance sheet, interest expenses ballooned 30% to over $26 million in the quarter. It is worth noting that overall there were 14 weeks in the quarter versus 13 weeks last year. That said, operating income rose to $258 million from $243 million. The strong margins overall led to better-than-expected numbers on the bottom line. Net income was $78.9 million, or $2.29 per share, up from $2.10 a year ago, and beating by $0.12. This was positive. Of course on an annual basis it was less impressive than the Q4 comps. This comes despite a 7% lower float from a year ago. Sales were down just 2.4%, but interest expense was up 50%, while general and admin expenses also rose, combining to hurt operating income, and overall profit. Earnings fell from $4.14 per share in 2022 to $1.39 in 2023. But the stock's reaction is based on forward expectations. Frankly, this is a strong reaction, and we see shares stabilizing again in the mid-teens. It is on this basis we move to neutral. And, if management can deliver on cost savings while advancing internationally, we have the makings for a possible rally later in the year. The company can also reduce the float further as it has authorized another $250 million repurchase program. That does not mean they will purchase the shares, but likely will. And, while we have cited interest expense, the balance sheet has improved. In Q4 the company generated $589 million in operating cash flow and paid down $410 million on its asset-based revolving credit facility. The company entered 2024 with a cash balance of $270 million and an outstanding balance of $145 million on the credit facility, down by 50%. Then we turn to the guidance. It is conservative and is setting a cautious tone. The market punished the stock for this completely resetting the valuation of the stock with the expectations for suppressed growth of the company. Q1 is looking particularly weak, despite entering the year with healthy inventory. Management sees Q1 2024 net sales down mid-single digits compared to last year's first-quarter net sales of $1.407 billion. Combined with margin and expense expectations, it sees an operating income of $10 million to $35 million. The problem? The midpoint of $22.5 million is below the $28 million from a year ago. For the year net sales will also be about $6.0 billion, or down low-single digits versus 2023. Operating income was guided to be about $250 million to $275 million. This is a slight increase from $246 million in 2023.  Now international growth is impressive but it is not enough to make up for the pressure in North America. The sales guidance for the year was $200 million below consensus. Still, with this weak guidance, very conservative in our opinion, there is value here. With the reset in the valuation on conservative growth guidance, but an improving balance sheet, we move to neutral.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[{"id":283320803950592,"gmtCreate":1710198628276,"gmtModify":1710198632504,"author":{"id":"3567852837945728","authorId":"3567852837945728","name":"setia100","avatar":"https://community-static.tradeup.com/news/5d07af59743ad001196b7aca5f1726d7","vip":1,"crmLevel":5,"crmLevelSwitch":0},"htmlText":"Low costs n high profit margin. Big chunk of cost goes to marketing promotion to enticing ladies&nbsp;❗❓ Good for long&nbsp;when stock price dust settles 🤔","listText":"Low costs n high profit margin. Big chunk of cost goes to marketing promotion to enticing ladies&nbsp;❗❓ Good for long&nbsp;when stock price dust settles 🤔","text":"Low costs n high profit margin. Big chunk of cost goes to marketing promotion to enticing ladies ❗❓ Good for long when stock price dust settles 🤔","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/283320803950592","repostId":2418361952,"repostType":2,"repost":{"id":"2418361952","pubTimestamp":1710169341,"share":"https://www.laohu8.com/m/news/2418361952?lang=&edition=full","pubTime":"2024-03-11 23:02","market":"hk","language":"en","title":"Victoria's Secret Stock Craters 35% In A Week - Upgrading From A Sell","url":"https://stock-news.laohu8.com/highlight/detail?id=2418361952","media":"seekingalpha","summary":"Victoria's Secret shares have plummeted nearly 60% since November 2022 when we last sell-rated the stock.The company's quarter was decent, but the forward guidance caused the stock to collapse, and we","content":"<html><body><ul><li>Victoria's Secret shares have plummeted nearly 60% since November 2022 when we last sell-rated the stock.</li><li>The company's quarter was decent, but the forward guidance caused the stock to collapse, and we see it settling out in the mid-teens.</li><li>While there are opportunities for international growth, operational expenses and sales weakness in North America are weighing.</li></ul><p><figure><picture><img loading=\"lazy\" src=\"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1220627489/medium_image_1220627489.jpg\"/></picture><figcaption><p>Pgiam/iStock via Getty Images</p></figcaption></figure></p> <p>In November 2022, we slapped a sell rating on <strong>Victoria's Secret &amp; Co.</strong> (<span>NYSE:VSCO</span>). Shares have never recovered are down nearly 60% since that call. Now, we will point out that shares had been on a<span> tear from the mid-teens to about $30 before dumping off after the </span>just-reported Q4 2023 earnings<span>. You know what is interesting about this collapse in shares is that the quarter was actually decent. In fact, sales were in line with expectations, while EPS was a </span>beat against consensus estimates<span>. The problem really stemmed from the forward guidance, and in this column we will discuss the results, and the outlook. This was a bit of a 'kitchen sink' type guidance that sent shares back to the mid-teens level. At this point, there is value in the stock here, but we do expect relative<span> underperformance over the next few weeks. However, at this juncture we are lifting our sell and moving to neutral.</span></span></p> <p><figure><img height=\"366\" loading=\"lazy\" src=\"https://static.seekingalpha.com/uploads/2024/3/11/saupload_04e7bb25efbd268a3834a850975f1be5.png\" width=\"635\"/><figcaption>Data by YCharts</figcaption></figure></p> <p>Make no mistake, while this company has been around for decades, having been repackaged and resold in numerous transactions, the currently publicly-traded company has had a less than stellar two-year history. The company has been working toward and making significant progress in its transformation. Specifically, we see substantial opportunity in international growth potential, but on the domestic side, it has been a struggle. Operational expenses remain high, and the debt continues to weigh on earnings.</p> <p>However, 2024 seems like it will be the true transitional year and while the guidance left investors sour, sales trends during the quarter in North America improved, driven by a sequential gain in traffic and average unit retail in both stores and digital/online sales. Notably, traffic in our stores increased compared to last year, and that is very positive. To bring in traffic there were heavy promotional activities, but because the company had lower inventory levels than last year, they saw stronger margins during the holiday sale period and are entering 2024 with very healthy inventories in our opinion.</p> <p>Look, most know the brand and the products of this specialty retailer, primarily its undergarments and intimate wear. In the specialty retail space, it is those who are best managing their inventory, using smart promotion tactics, and watching costs that are doing best in this environment. While Victoria's Secret has improved inventory, costs continue to be an issue.</p> <p>The quarter overall was decent but there were mixed pieces. The top-line revenue figure in the Q4 report was in line. Sales came in at $2.08 billion and rose 3% from last year. Now, the one key metric that we focus on with retailers is comparable sales. When we last covered the stock, we saw comparable store net sales that were dropping double-digits. However, comparable sales are still on the decline. But the decline is slowing. Comparable sales in Q4 2023 decreased 6%.</p> <p>Gross profit had been under pressure as input costs continued to rise and promotions had been heavy. But with a healthier inventory level, margins were strong. Gross profit hit $825.8 million, rising 11% from $744.2 million a year ago. Overall margins were smashed, as gross margin improved from 36.8% last year to 39.7%. That is a strong improvement. General expenses up to $567 million rising 13% from $500 million. It is worth noting as well that with the debt on the balance sheet, interest expenses ballooned 30% to over $26 million in the quarter. It is worth noting that overall there were 14 weeks in the quarter versus 13 weeks last year. That said, operating income rose to $258 million from $243 million. The strong margins overall led to better-than-expected numbers on the bottom line. Net income was $78.9 million, or $2.29 per share, up from $2.10 a year ago, and beating by $0.12. This was positive.</p> <p>Of course on an annual basis it was less impressive than the Q4 comps. This comes despite a 7% lower float from a year ago. Sales were down just 2.4%, but interest expense was up 50%, while general and admin expenses also rose, combining to hurt operating income, and overall profit. Earnings fell from $4.14 per share in 2022 to $1.39 in 2023.</p> <p>But the stock's reaction is based on forward expectations. Frankly, this is a strong reaction, and we see shares stabilizing again in the mid-teens. It is on this basis we move to neutral. And, if management can deliver on cost savings while advancing internationally, we have the makings for a possible rally later in the year. The company can also reduce the float further as it has authorized another $250 million repurchase program. That does not mean they will purchase the shares, but likely will. And, while we have cited interest expense, the balance sheet has improved. In Q4 the company generated $589 million in operating cash flow and paid down $410 million on its asset-based revolving credit facility. The company entered 2024 with a cash balance of $270 million and an outstanding balance of $145 million on the credit facility, down by 50%.</p> <p>Then we turn to the guidance. It is conservative and is setting a cautious tone. The market punished the stock for this completely resetting the valuation of the stock with the expectations for suppressed growth of the company. Q1 is looking particularly weak, despite entering the year with healthy inventory. Management sees Q1 2024 net sales down mid-single digits compared to last year's first-quarter net sales of $1.407 billion. Combined with margin and expense expectations, it sees an operating income of $10 million to $35 million. The problem? The midpoint of $22.5 million is below the $28 million from a year ago. For the year net sales will also be about $6.0 billion, or down low-single digits versus 2023. Operating income was guided to be about $250 million to $275 million. This is a slight increase from $246 million in 2023.</p> <div></div> <p>Now international growth is impressive but it is not enough to make up for the pressure in North America. The sales guidance for the year was $200 million below consensus. Still, with this weak guidance, very conservative in our opinion, there is value here. With the reset in the valuation on conservative growth guidance, but an improving balance sheet, we move to neutral.</p></body></html>","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Victoria's Secret Stock Craters 35% In A Week - Upgrading From A Sell</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nVictoria's Secret Stock Craters 35% In A Week - Upgrading From A Sell\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-03-11 23:02 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4677358-victorias-secret-stock-craters-35-percent-in-a-week-upgrading-from-a-sell><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Victoria's Secret shares have plummeted nearly 60% since November 2022 when we last sell-rated the stock.The company's quarter was decent, but the forward guidance caused the stock to collapse, and we...</p>\n\n<a href=\"https://seekingalpha.com/article/4677358-victorias-secret-stock-craters-35-percent-in-a-week-upgrading-from-a-sell\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"BK4094":"服装零售","BK4095":"家庭装饰品","BK4585":"ETF&股票定投概念","VSCO":"维多利亚的秘密","VCCTF":"Victoria"},"source_url":"https://seekingalpha.com/article/4677358-victorias-secret-stock-craters-35-percent-in-a-week-upgrading-from-a-sell","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"2418361952","content_text":"Victoria's Secret shares have plummeted nearly 60% since November 2022 when we last sell-rated the stock.The company's quarter was decent, but the forward guidance caused the stock to collapse, and we see it settling out in the mid-teens.While there are opportunities for international growth, operational expenses and sales weakness in North America are weighing.Pgiam/iStock via Getty Images In November 2022, we slapped a sell rating on Victoria's Secret & Co. (NYSE:VSCO). Shares have never recovered are down nearly 60% since that call. Now, we will point out that shares had been on a tear from the mid-teens to about $30 before dumping off after the just-reported Q4 2023 earnings. You know what is interesting about this collapse in shares is that the quarter was actually decent. In fact, sales were in line with expectations, while EPS was a beat against consensus estimates. The problem really stemmed from the forward guidance, and in this column we will discuss the results, and the outlook. This was a bit of a 'kitchen sink' type guidance that sent shares back to the mid-teens level. At this point, there is value in the stock here, but we do expect relative underperformance over the next few weeks. However, at this juncture we are lifting our sell and moving to neutral. Data by YCharts Make no mistake, while this company has been around for decades, having been repackaged and resold in numerous transactions, the currently publicly-traded company has had a less than stellar two-year history. The company has been working toward and making significant progress in its transformation. Specifically, we see substantial opportunity in international growth potential, but on the domestic side, it has been a struggle. Operational expenses remain high, and the debt continues to weigh on earnings. However, 2024 seems like it will be the true transitional year and while the guidance left investors sour, sales trends during the quarter in North America improved, driven by a sequential gain in traffic and average unit retail in both stores and digital/online sales. Notably, traffic in our stores increased compared to last year, and that is very positive. To bring in traffic there were heavy promotional activities, but because the company had lower inventory levels than last year, they saw stronger margins during the holiday sale period and are entering 2024 with very healthy inventories in our opinion. Look, most know the brand and the products of this specialty retailer, primarily its undergarments and intimate wear. In the specialty retail space, it is those who are best managing their inventory, using smart promotion tactics, and watching costs that are doing best in this environment. While Victoria's Secret has improved inventory, costs continue to be an issue. The quarter overall was decent but there were mixed pieces. The top-line revenue figure in the Q4 report was in line. Sales came in at $2.08 billion and rose 3% from last year. Now, the one key metric that we focus on with retailers is comparable sales. When we last covered the stock, we saw comparable store net sales that were dropping double-digits. However, comparable sales are still on the decline. But the decline is slowing. Comparable sales in Q4 2023 decreased 6%. Gross profit had been under pressure as input costs continued to rise and promotions had been heavy. But with a healthier inventory level, margins were strong. Gross profit hit $825.8 million, rising 11% from $744.2 million a year ago. Overall margins were smashed, as gross margin improved from 36.8% last year to 39.7%. That is a strong improvement. General expenses up to $567 million rising 13% from $500 million. It is worth noting as well that with the debt on the balance sheet, interest expenses ballooned 30% to over $26 million in the quarter. It is worth noting that overall there were 14 weeks in the quarter versus 13 weeks last year. That said, operating income rose to $258 million from $243 million. The strong margins overall led to better-than-expected numbers on the bottom line. Net income was $78.9 million, or $2.29 per share, up from $2.10 a year ago, and beating by $0.12. This was positive. Of course on an annual basis it was less impressive than the Q4 comps. This comes despite a 7% lower float from a year ago. Sales were down just 2.4%, but interest expense was up 50%, while general and admin expenses also rose, combining to hurt operating income, and overall profit. Earnings fell from $4.14 per share in 2022 to $1.39 in 2023. But the stock's reaction is based on forward expectations. Frankly, this is a strong reaction, and we see shares stabilizing again in the mid-teens. It is on this basis we move to neutral. And, if management can deliver on cost savings while advancing internationally, we have the makings for a possible rally later in the year. The company can also reduce the float further as it has authorized another $250 million repurchase program. That does not mean they will purchase the shares, but likely will. And, while we have cited interest expense, the balance sheet has improved. In Q4 the company generated $589 million in operating cash flow and paid down $410 million on its asset-based revolving credit facility. The company entered 2024 with a cash balance of $270 million and an outstanding balance of $145 million on the credit facility, down by 50%. Then we turn to the guidance. It is conservative and is setting a cautious tone. The market punished the stock for this completely resetting the valuation of the stock with the expectations for suppressed growth of the company. Q1 is looking particularly weak, despite entering the year with healthy inventory. Management sees Q1 2024 net sales down mid-single digits compared to last year's first-quarter net sales of $1.407 billion. Combined with margin and expense expectations, it sees an operating income of $10 million to $35 million. The problem? The midpoint of $22.5 million is below the $28 million from a year ago. For the year net sales will also be about $6.0 billion, or down low-single digits versus 2023. Operating income was guided to be about $250 million to $275 million. This is a slight increase from $246 million in 2023.  Now international growth is impressive but it is not enough to make up for the pressure in North America. The sales guidance for the year was $200 million below consensus. Still, with this weak guidance, very conservative in our opinion, there is value here. With the reset in the valuation on conservative growth guidance, but an improving balance sheet, we move to neutral.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":2,"commentSize":0,"repostSize":1,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2418361952"}