MW Two more reasons for Victoria's Secret's troubles? Kim Kardashian and Rihanna, analyst suggests.
By Bill Peters
'Both are rapidly growing and are arguably chipping away at (Victoria's Secret's) market leadership position,' Barclays analysts said
Two months ago, intimates maker Victoria's Secret & Co. warned that demand would be weak in the months ahead, as higher prices for essentials keep more shoppers away from new lingerie. Analysts at Barclays on Wednesday said that forecast checks out.
Those analysts downgraded Victoria's Secret $(VSCO)$ to their version of a sell rating, from hold, saying the company was losing market share - potentially to brands from celebrities like Kim Kardashian and Rihanna - and cutting prices in an effort to spur demand.
The analysts, led by Adrienne Yih, said Victoria's Secret had rolled out "ongoing, and seemingly unplanned" markdowns during the first quarter and expressed doubts that the company could sell product without them.
"We remain cautious on VSCO's ability to drive organic sales without the use of promotions, as we continue to see 'deeper' promos at both Victoria's Secret and PINK over the last six quarters," they said.
Then, there's the company's newer competition.
"Notable new entrants include digitally native brands SKIMS from Kim Kardashian and Savage X Fenty from Rihanna (both private)," the analysts said.
"Both are rapidly growing and are arguably chipping away at VSCO's market leadership position," they continued. "Both celebrities have been highly successful at leveraging massive social media footprints to reach potential customers and fuel engagement for their respective businesses."
Shares of Victoria's Secret fell 1.1% on Wednesday. The stock is down 31.8% over the past 12 months.
The weaker demand had been telegraphed to some degree by Victoria's Secret in March. At that time, executives said they expected first-quarter sales to "decrease mid-single digits," and the company forecast full-year sales that were below expectations.
The Barclays analysts made their assessment as more clothing and beauty-products retailers prepare to report quarterly results in the weeks ahead. In a separate note, Yih and the other analysts doubted the likelihood of a strong quarter.
"Our 1Q24 promo checks show that demand has sequentially softened relative to 4Q23," they said. "This is likely a combination of several factors including: 1) stubborn inflationary pressure on the consumer, 2) a colder than normal spring transition, and 3) holiday and 53rd week calendar shifts that make reading underlying trends difficult."
They said that off-price names like TJX Cos. $(TJX)$, Ross Stores Inc. $(ROST)$ and Burlington Stores $(BURL)$ were safer bets for investors, even if they weren't completely safe.
"While we believe that even off-price (TJX, ROST, BURL) may see comps moderate in 1Q24, we continue to believe that the off-price sector is a defensive play on an uncertain macro backdrop," she said.
-Bill Peters
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(END) Dow Jones Newswires
May 08, 2024 13:46 ET (17:46 GMT)
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