Victoria’s Secret has recorded a second-quarter loss of $1 million in what one analyst described as “dismal results” reflecting a “muddled and confused” brand reinvention.
The worst-performing business segment was its North American physical stores, where sales fell by 15.6 per cent, the primary contributor to an 11.6 per cent overall decline over the past two years. Sales for the three months to June 30 were $1.427 billion.
“Although the numbers from Victoria’s Secret were broadly aligned with guidance, these are nonetheless dismal results,” observed Neil Saunders, MD of GlobalData.
“Management bemoans the softness in the wider market, particularly for stores. This is presumably to justify the 15.6 per cent erosion in sales at the company’s North American physical shops. However, we do not buy this. Footfall in malls and other locations where Victoria’s Secret is located is coming back, and other retailers are seeing store sales hold up well. There certainly hasn’t been a decline of anything near the 15 per cent level in terms of physical spending on apparel or intimate products.”
The fashion label’s loss follows a healthy profit last year of $70 million. Operating income plunged from $98 million in the second quarter of 2022 to $26 million in the latest quarter.
“Basically, all the metrics are going firmly in the wrong direction – and the core business is performing even worse than the headlines suggest as the figures include the acquired and growing Adore Me business, as well as beauty sales which remain strong,” said Saunders.
Despite the bleak second-quarter figures, CEO Martin Waters said the company has entered the third quarter with “relatively lean inventory levels” and sales from August were encouraging.
“The teams have been working tirelessly on multiple growth initiatives designed to change our sales trends in the third quarter and the all-important holiday season.”
Falling footfall
Analysing the results, Saunders said Victoria’s Secret’s problem is not that people are failing to shop physically. “The problem is that fewer consumers are coming into Victoria’s Secret stores and buying. It is certainly true that some of this is because spending power is a little more constrained which is resulting in pressure on the number of intimate products bought. However, much is also to do with the weak nature of the Victoria’s Secret position and proposition. In our view, the brand reinvention – which is both sensible and needed – has become muddled and confused.
“Victoria’s Secret seems to jump back and forth between trying to become a more genuine and authentic brand and going back to its roots of selling with sultry images and marketing. We attribute this schizophrenia to a lack of confidence in staying the course in reinventing the brand, especially as management reverts to past form in a bid to boost sales and results, even if temporarily. In short, we think Victoria’s Secret has a partially formed view of what it does not want to be, but it does not yet have anywhere near a full view of what it wants to become,” Saunders said.
“As such, it is stuck in some kind of blurry netherworld.”
While the brand might continue to promote its market share leadership in intimates – it boasts 1350 retail stores in nearly 70 countries – this does very little to offset the problem that the brand continues to lose a lot of share to competitors like Aerie and even to mainstream retailers like Target, said Saunders.
“If Victoria’s Secret does not arrest this trend, then, one day, it will lose its crown.
“Changing a brand with an embedded position is a journey of a thousand steps, and Victoria’s Secret is still early in its trek. However, when we compare the clarity of thinking and direction to the efforts made by a brand like Abercrombie & Fitch, we find Victoria’s Secret wanting.
“To be fair, the current market is a challenging one in which to be making changes, but Victoria’s Secret needs a much better sense of direction,” concluded Saunders.
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