Victoria’s Secret says even bad press is good press.
In the case of the lingerie giant, the less-than-stellar pieces of media floating around this summer include the “Victoria’s Secret” song by TikTok artist Jax and July’s Victoria’s Secret Hulu documentary.
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But Martin Waters, chief executive officer of Victoria’s Secret, told analysts during Thursday morning’s conference call, that the added exposure isn’t all bad.
“It keeps us top of mind. And that’s a good thing,” he said.
“The Jax video is super interesting because, I mean, look, it’s very clever. It’s very catchy. It’s lighthearted. I find myself humming it around the house,” the CEO continued on the call. “It raises an important subject. And we agree. We agree wholeheartedly with what Jax is raising and that’s why 18 months ago, we talked about the revolution in our brand and going in a different direction.”
The CEO also pointed out that Victoria’s Secret reached out to Jax by way of an open letter on Instagram, where Pink CEO Amy Hauk addressed the issue.
“We’re on the same page [as Jax],” he said. “We agree with her. We’re grateful to her for raising the subject. I don’t think it reflects negatively on us. I think it’s an adequate and appropriate reflection of the industry at large as it has been represented consistently over the last decade or so. So we want to be at the forefront of the change rather than representative of the past and we’re grateful for that opportunity.”
Waters went on to describe Hulu’s “Victoria’s Secret: Angels and Demons” docuseries, which premiered July 14 on the streaming service, as a “non event.”
“It actually had very, very low viewing figures [and] even lower completion of the series,” Waters said on the call. “And the relatively few people who did actually make it all the way through to the end of the series had a stronger perception of the brand coming out of it and they’re going in.” (Hulu and the docuseries director Matt Tyrnauer did not respond to requests for comment.)
“We’re really pleased with the progress that we’ve made and the repositioning of the brand,” Waters said. “It takes time to reposition a brand. We’re 12, 14, 15 months into it. After years and years and years of tarnishing the brand, I’d say 99 percent of what we’ve done in the last period has polished the brand.
“That said, I’ve mentioned previously that when we do our research, there’s a significant number of people that just haven’t noticed,” he continued. “They haven’t come across the change. When they do come across the change, they like it. But a lot of people still haven’t noticed. And there were a couple of things that have helped us significantly in that endeavor in the last six months or so, more recently in the last quarter…one of them was the Jax video.”
While many consumers may just be starting to catch on to the transformation — top-line revenues fell 5.7 percent in the most recent quarter — investors seem mixed. Shares of Victoria’s Secret swung back and forth, between positive and negative, during Thursday’s session, ultimately closing down 2.11 percent to $37.54 apiece. The company’s stock is down more than 46 percent, year-over-year.
Analysts pointed out that some of the losses in the most recent quarter can be attributed to macroeconomic pressures as consumers pull back on spending on discretionary items amid continued inflation.
“Victoria’s Secret’s earnings release contained few surprises,” Ike Boruchow, senior retail analyst at Wells Fargo, wrote in a note. “In line with most softlines retailers this [earnings per share] season, Victoria’s Secret reported a soft second quarter and is lowering its [second half] outlook, which now calls for a similar, slightly worse top-line run-rate into [second half], with much more aggressive [general merchandise] declines now baked in, mainly due to carry-over inventory and softness in apparel.
“Trends [are] clearly disappointing, but [the] story remains undervalued; turnaround can continue to unfold,” he continued, rating the stock “overweight,” but slashing the price target to $55, versus previous estimates of $60 a share.
Simeon Siegel, managing director at BMO Capital Markets agreed. His firm rated the stock “outperform,” setting a $45 price target.
“We continue to believe that at these low [general merchandise] levels and newly expected sales declines, the company could be better suited to focus on profitability on lower sales, rather than chasing weak traffic with discounts,” Siegel wrote in a note. “The company is underearning and at these levels, shares remain inexpensive.”
Apparel and the bifurcation of shoppers by income levels continues to be soft spots across the retail industry. It’s no different at the lingerie firm, where apparel — which Victoria’s Secret defines as sleep, lounge and Pink’s ready-to-wear category — represents about 25 percent of total company revenues and was hit the hardest in the most recent quarter.
“Our consumer is fundamentally a mid- to low-end consumer. And so we are very much impacted by the economic times,” Waters told analysts.
As a result, Victoria’s Secret ended the quarter with more than $1.08 billion in excess inventory.
“We’re not particularly longer on inventory in that [apparel] category than elsewhere, but we will be very prudent on our purchases for the back half of the year,” Waters said. “So we’ve taken some money out of our open-to-buy [apparel areas], as that category is more difficult.”
The CEO added that the company used about 90 percent airfreight and 10 percent sea freight last year, but has since shifted to about 25 percent airfreight and 75 percent sea freight, which will help drive down costs.
“We all hope that the macroeconomic trends recede somewhat, then we can convert some of that planned merchandise plan for sea [freight] to air and get goods in more quickly, which gives us opportunity to chase,” Waters said. “So that’s the good news about the agility that we have in the supply chain and the good news of the supply chain returning to more normalized levels.”
Meanwhile, the bra business remains the bestselling category, which Waters said “bodes well for holiday.” The panty business, by contrast, was down low-single digits for the quarter, year-over-year, while the beauty business was down mid- to high-single digits.
Waters added that the swimwear business — which Victoria’s Secret has been pursuing hard in the last year with its minority investment in Frankies Bikinis — was “incredibly mixed” in the most recent quarter.
“Victoria had a disappointing season in swim and Pink had a very, very strong season in swim. So overall, we were down a bit from where we expected to be,” the CEO explained. “On reflection, the first season of Victoria back in the swim business, we were probably a little basic. And in the second season back in the swim business, we swung the pendulum a little too hard and we’re a little too fashion forward and a little light on basic. So we live and learn, and we continue to get better.
“All of that said, we’re on a journey. We’ve still got more to do,” Waters continued. “You will find us chanting louder and louder about the transformation rather than backing away from it. We are on the right track and we need to stick with it and show up in the way that our customer wants us to show up.”