Victoria’s Secret has reported soft sales numbers for the first quarter, which, according to an analyst, show that the retailer is still losing market share.
For the quarter ended May 3, the company achieved net sales of $1.353 billion, compared to $1.359 billion in the year-ago period. Total comparable sales were down 1 per cent.
While management said the results were above their expectations, GlobalData MD Neil Saunders believes they indicate that the company is still losing market share.
“While the 0.5 per cent decline in revenue is not calamitous, it does come off the back of a decline in the prior year, and it has also been delivered against the backdrop of a solid lingerie and intimates market which grew in the quarter,” Saunders elaborated.
The lackluster sales numbers, together with some discounting, reduced productivity, depleted gross margin and pushed down operating profits, the analyst continued.
The company’s operating income fell 23 per cent to $20 million. Net loss was down from $4 million last year to $2 million.
“While Victoria’s Secret remains far from a financial disaster, its weak profits reflect ongoing issues with the brand and its place in the market,” Saunders remarked.
“Carping” statements from BBRC
Saunders said the first-quarter results were “grist to the mill” for BBRC, which recently blasted the company’s strategy.
On the one hand, the analyst agreed with the activist investor that there needs to be a clearer vision from Victoria’s Secret, especially in terms of how it will deal with trends like the push to comfort, the rise of niche brands, and what it intends to do with Adore Me.
On the other hand, he described most of BBRC’s statements as “carping”, as the investor focused more on stressing the need for operational improvements instead of suggesting a clear solution.
The move also came against the context of the poison pill Victoria’s Secret adopted to prevent BBRC from gaining full control, which might have created some frustration for the investor, Saunders stated.
“It is also worth noting that CEO Hillary Super is a good operator and that she has been in post for less than a year. Our view is that she needs to be given more time and support to enact a turnaround,” he added.
“Hard slog”
Victoria’s Secret expects net sales to be down approximately 0.5-2 per cent in the second quarter, which Saunders said signals another soft period.
The company has reduced its full-year operating income guidance, primarily due to increased tariff costs.
“It is imperative that management sets out a pathway to improved performance,” Saunders stressed. “This includes a clearer vision of the brands and their place in the market.”
“Some of this is about jam tomorrow, but if investors can see the path to success, then it will help appease frustrations. Customers also need to see and understand what the Victoria’s Secret of the future looks like.
“All of this will be a hard slog as Victoria’s Secret still carries a lot of baggage from its past,” he concluded.
