Victoria’s Secret’s Updated Q3 View Justifies Recent Surge In Its Stock

Victoria’s Secret’s Updated Q3 View Justifies Recent Surge In Its Stock

Last night, Victoria’s Secret

SCRT
(VSCO)
unveiled a new strategic growth plan designed to strengthen the company’s core, ignite growth and transform its foundation. The elements of this plan, which VSCO communicated at its Investor Day held earlier today, include increasing market share in its key categories (bras, intimates and beauty) through actions that position its brand to be more inclusive and attract a broader, more loyal customer base via better story telling in stores and on its digital platforms; expanding its global presence through its international partners; adding new brands to its portfolio (both organically or through investments) focused on underrepresented categories and customer groups; and building a more nimble, efficient and productive organizational structure. Combined with its solid financial platform, this has the company optimistic in its ability to deliver on its long-term targets for sustainable sales growth and an operating margin in the mid-teens over time.

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However, I believe the bigger reason why VSCO’s shares were up 10% today and added nicely to their already strong performance month-to-date is the company’s simultaneous announcement that based on quarter-to-date trends and expectations for the balance of the period, it now estimates Q3 operating income and earnings to come in towards the high end of its previously communicated guidance ranges of $10-40 million and 0-25 cents per share. That’s much better than the $29.3 million and 14 cents analysts had been projecting and likely helps ease growing fears of weaker profits driven by the persistence of high inflation and weakening consumer spending trends. And if guidance for the all-important fourth quarter (which begins next month) when the company officially reports these earnings in November shows a continuation of these improving trends, I think the stock—which continues to trade at less than 8 times this year’s earnings expectations even after today’s bounce—can further add to it recent recovery in the months ahead.

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