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Victoria's Secret Stock Falls After Swing to Profit, Lagging Sales

Victoria’s Secret shares fall after the retailer of women’s intimate wear swung to fiscal-second-quarter profit but sales lagged expectations.
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Shares of Victoria’s Secret  (VSCO) - Get VICTORIA'S SECRET & COMPANY Report declined after the retailer of women’s intimate wear swung to fiscal-second-quarter profit from a year-earlier loss as sales jumped from a pandemic-hit year-earlier period but eased from the prepandemic Q2.

The latest earnings exceeded Wall Street analysts’ expectations, while the sales came up short. The third-quarter earnings outlook was shy of estimates.

For the quarter ended July 31, the Columbus, Ohio, company, which also sells fragrances and body-care products, earned $1.71 a share compared with a loss of $2.26 a share in the year-earlier quarter. 

Revenue reached $1.61 billion from $1.07 billion. During most of the year-earlier quarter, Victoria's Secret stores were closed due to the pandemic.

A survey of analysts by FactSet produced consensus estimates of $1.59 a share on revenue of $1.69 billion.

Sales in the prepandemic second quarter were $1.78 billion, indicating a drop of 9.3% against the latest figure.

“With tighter inventory management and more emotionally appealing product, we are less promotional, resulting in significant margin increases,” Chief Executive Martin Waters said in a statement.

He added: “I continue to be confident in our long-term growth in all channels."

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The company spun out of L Brands and on Aug. 3 began trading as an independent company. The results reflect the Victoria's Secret segment and part of the unallocated overhead costs as part of L Brands, the company said.

At last check Victoria’s Secret shares were trading down nearly 8% at $66. They closed regular Wednesday trading at $71.69, down 0.2%. On Aug. 10 the shares touched $76.

The company forecast fiscal-third-quarter earnings per share of 60 cents to 70 cents a share. Sales should increase in the mid- to high-single-digits percent from the year-earlier $1.35 billion.

FactSet's survey was looking for earnings of 93 cents a share on $1.51 billion of revenue.

Morgan Stanley analyst Kimberly Greenberger on Aug. 3 initiated coverage of Victoria’s Secret stock at overweight with a $76 price target, Barron's reported. 

“As management continues to modernize the brand and return VSCO to prior profitability, we think investors will be positively surprised by the revenue recovery and [earnings before interest and taxes] margin trajectory of the business compared with specialty peers,” she wrote.

On Aug. 12, B. Riley Securities initiated coverage of Victoria's Secret with a buy rating and $87 price target.

On June 17, the company named a seven-member board. Six directors are independent and six are women.