Victoria’s Secret (VCSO) trades up on ASR agreement and 4Q update

January 31, 2023 2:03 PM EST
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Shares of Victoria’s Secret (NYSE: VCSO) are up 7.38% in mid-day trading on Tuesday after announcing that the company plans to enter into an accelerated share repurchase agreement (ASR) with Goldman Sachs & Co. LLC to repurchase $125 million of the Company’s common stock.

Under the terms of the ASR, the Company will make an initial payment of $125 million to Goldman Sachs and will receive an initial delivery of approximately 2.5 million shares of the Company’s common stock on February 3, 2023. The deal is included as a component of VCSO’s $250MM share repurchase authorization announced earlier this month.

Concurrent with the announcement of the planned ASR, the Company is increasing its fourth quarter 2022 sales, operating income, and earnings per share guidance.

Wells Fargo reiterated an Overweight rating and $55.00 price target on VCSO after the retail company raised their 4Q outlook to include sales down 7-8% (vs the Street at -7.7%), EBIT of $265-$275MM (Street $263MM), and EPS of $2.25-$2.35 (Street $2.24).

CEO Martin Waters commented, “Our teams executed our strategies very well against a challenging economic environment for our customer during the holiday quarter. Our sales performance was at the better end of our guidance with margins solidly in line with our expectations despite our response to a very promotional environment during the holiday season. With diligent focus, we accomplished this outcome and will end the year with inventory levels down low double digits when accounting for modal mix shifts, and expect an expense outcome at the better end of our range. Our teams are clearly controlling what we can control and I am proud of their efforts during these difficult times.”

Martin continued, “As we turn the page to the new year, we recognize the economic environment is not ideal and may cause 2023 results to look similar to the year we just finished. However, we are evolving and innovating our business and have organic growth strategies and new customer experiences well identified and ready to launch during 2023. We have a recently acquired business in Adore Me with double digit growth plans and with technologies we plan to leverage in our core Victoria’s Secret and Victoria’s Secret PINK brands. We have an International business also growing double digits with partner plans for new stores and new countries planned out through the next two years. And most importantly, we are a market leader in the intimates category and are positioned for future growth, both in our core and with Adore Me now in the family. I could not be more proud of this team and what we have accomplished together in the last 18 months during unprecedented times, and I firmly believe we are positioned for success for many years to come.”

Wells Fargo analyst, Ike Boruchow wrote in a note, “in addition to brand repositioning work, the company has a renewed focus on bra launches (previously launched two new bras/year prior to volatility starting in 2016), as well as other category opportunities across swim, expanded sizes, maternity, shapewear (again, a far cry from the prior positioning), bridal, among others. Additionally, the PINK brand appears to have rounded the corner, reaching $2B in TTM sales (vs. prior $3B+ peak) with a healthy 40% digital penetration and market-leading store productivity. The brand has reached 95% brand awareness as a result of its values-driven strategy that connects and engages with its core Gen-Z demographic through digital channels.”

By Michael Elkins | [email protected]

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