Analysis: Victoria’s Secret & Co. navigates market volatility with strategic pivot and focus on core strengths

Victoria's Secret & Co., the US-based specialty retailer, operates primarily in the apparel sector, focusing on intimate apparel, loungewear, and beauty products. Its core activities revolve around the design, marketing, and sale of its merchandise under the Victoria's Secret and PINK brand names. The recent analysis of the company's financial health is prompted by the release of its latest quarterly figures for the second quarter of fiscal year 2025, which surpassed sales expectations, and its ongoing 'Path to Potential' strategic reset. The company currently finds itself navigating a challenging retail environment, with its stock price reflecting volatility driven by both macroeconomic uncertainty and the execution of its brand transformation efforts.

Company profile and history

Victoria’s Secret was founded in 1977 in California by Roy Raymond. A significant turning point occurred in 1982 when Les Wexner, the founder of L Brands, acquired the company and transformed it from a niche retailer into a high-profile, mass-market brand, expanding its presence significantly across US shopping malls. The business model evolved from a traditional lingerie retailer to a global fashion and beauty powerhouse, notably through its annual, high-profile televised fashion shows from 1995 to 2018.

Important developments include the 2002 launch of PINK, a sub-brand targeting younger consumers with loungewear and casual apparel. The most significant structural change came in August 2021 when the Victoria's Secret business was spun off from L Brands (now Bath & Body Works, Inc.) into an independent, publicly traded entity, Victoria's Secret & Co.

The current chief executive officer is Hillary Super. The company’s products are retailed through a substantial global footprint, with over one thousand points of sale globally, including company-owned stores in the US, Canada, and China, as well as partner-operated international stores. The brand positions itself in the accessible luxury or premium mid-market price range. Examples of mainstream items include the Body by Victoria lightly lined bra, which typically sells for around fifty dollars; a pair of Very Sexy lace-trim panties for approximately sixteen dollars; and a bottle of Bombshell fragrance for around seventy-nine dollars. Production for the merchandise primarily occurs through a network of third-party suppliers, with the company’s supply chain requiring strict adherence to its Supplier Code of Conduct.

The most noteworthy news over the last two years centres on the company's accelerated brand transformation, which has involved pivoting away from the past’s singular, 'fantasy' image to one focused on inclusivity, modern comfort, and a diverse range of women's experiences. The acquisition of the direct-to-consumer (D2C) online intimates brand Adore Me in early 2023 was a key move to accelerate digital capabilities and target a new customer demographic. Share price changes over the last period have been largely attributed to mixed quarterly financial results, macroeconomic pressures affecting consumer discretionary spending, and investor sentiment regarding the success and speed of the brand's turnaround plan, including volatility from restructuring charges and tariff impacts.

Performance and financial outlook

The company’s initial public listing occurred on August 3, 2021, when it was spun off from L Brands. The share price at the close of its first day of trading was approximately 58 dollars per share.

The stock has experienced significant volatility since its IPO. Its all-time high closing price was $74 in August 2021, shortly after the spin-off. Conversely, its all-time low price is near $13, its recent fifty-two week low. The price at the start of fiscal year 2025 was approximately twenty dollars. As of the end of the second quarter 2025, the stock price was approximately $26. The past year’s performance reflects a struggle to maintain consistent momentum against sector volatility, with the price fluctuating dramatically. Long-term share price data is limited given the company's recent independent listing.

Revenue and growth

Victoria's Secret & Co. has recently been facing revenue headwinds. Net sales for the full fiscal year 2023 were $6.34 billion, declining to $6.23 billion for fiscal year 2024. For the trailing twelve months leading up to the end of the second quarter 2025, total revenue was approximately $6.27 billion.

The company's raised outlook guidance for the full fiscal year 2025 projects net sales between $6.3 billion and $6.4 billion, indicating a slightly up trajectory. Primary drivers of potential growth include its international expansion, the growth of the PINK brand, and a renewed focus on core categories with product innovation, such as the reimagined Very Sexy collection. Inhibitors include high inflation and a challenging global macroeconomic environment, which compress consumer discretionary spending, as well as a significant estimated tariff impact of approximately fifty million dollars in fiscal year 2025.

Profitability

Profitability metrics show a period of stabilisation but remain challenged compared to historical peaks. The gross profit margin for the trailing twelve months is around 36.33%. Net income for the trailing twelve months leading up to the end of the second quarter 2025 was approximately $151 million, resulting in a net profit margin of approximately 2.41%.

Adjusted operating income for fiscal year 2025 is expected to be in the range of $270 million to $320 million. Factors influencing profitability include the successful management of promotional activities, disciplined inventory management, and cost-saving initiatives related to operational efficiency. However, the gross margin is pressured by the aforementioned tariff headwinds and the cost associated with restructuring charges.

Dividend and cash flow

The company’s current focus on its turnaround strategy and investing in growth has resulted in a non-dividend policy. It does not currently pay a regular dividend, so the dividend yield is zero percent. The development of free cash flow is critical for a company undergoing a transformation. While exact recent free cash flow figures vary, the enterprise value-to-free cash flow (EV/FCF) ratio stands at approximately 20.82, suggesting that the market is valuing its cash generation. The company is prioritising liquidity and operational efficiency to maximise free cash flow for reinvestment and debt management.

Competitor comparison

Comparing Victoria’s Secret & Co. with key competitors provides perspective on its market position. Two significant competitors are American Eagle Outfitters (AEO), which owns the Aerie intimates brand, and The Gap, Inc. (GAP), a broad apparel retailer.

Victoria’s Secret & Co. is competitively sized against American Eagle Outfitters but has lower profitability as measured by both gross and net profit margins. Its P/E ratio is lower than American Eagle Outfitters, potentially indicating that the market has a more conservative outlook on its future earnings growth compared to the Aerie-driven competitor, which has seen strong growth momentum. Compared to the larger and more diversified The Gap, Inc., Victoria’s Secret & Co. has higher valuation multiples (P/E and EV/EBITDA), suggesting investors are perhaps pricing in greater expected future improvement from the turnaround than the raw margin data currently supports. The company is evidently still in the early to mid-stages of its financial recovery and transformation.

SWOT analysis

Strengths

1. Unrivalled Brand Recognition: Despite past controversies, the Victoria's Secret name maintains high global brand awareness, offering a strong foundation for rebranding efforts.
2. Dominant Market Share in Intimates: The company retains a significant portion of the North American intimates market, providing substantial scale and negotiating power.
3. Diversified Brand Portfolio: The inclusion of PINK and the D2C brand Adore Me allows the company to reach different age groups and value segments, balancing the premium core Victoria's Secret brand.

Weaknesses

1. Legacy Brand Image Issues: The company's past image of exclusivity and lack of diversity has alienated a substantial segment of modern consumers, making the transformation a challenging public relations exercise.
2. Dependence on Brick and Mortar: Despite e-commerce growth, a significant portion of sales still relies on its physical store footprint, which may be less efficient than digitally native models.
3. Fluctuating Profitability: Recent financial performance has shown volatility, with margins being sensitive to promotional activity, macroeconomic factors, and one-time restructuring costs.

Opportunities

1. International Market Expansion: There is considerable potential for growth in underpenetrated international markets through partner and company-owned stores.
2. Expansion of Adore Me and D2C Model: Leveraging the Adore Me acquisition to accelerate D2C and subscription-based service growth can capture a greater share of the online intimates market.
3. Focus on Athleisure and Loungewear: Further development of the high-growth categories within the PINK and Victoria's Secret labels can diversify revenue away from traditional lingerie.

Threats

1. Intense Competitive Landscape: Competition from digitally native brands, American Eagle’s Aerie, and mass-market retailers offering inclusive, body-positive messaging is high and growing.
2. Supply Chain and Tariff Risks: Dependence on a global supply chain makes the company vulnerable to geopolitical issues, unexpected cost increases, and tariff impacts, which negatively affect gross margin.
3. Economic Slowdown: Consumer spending on non-essential, discretionary items like premium intimate apparel is vulnerable to an economic downturn and persistent high inflation.

Sustainability and ESG

Victoria's Secret & Co. is actively working to integrate environmental, social, and governance (ESG) factors into its business strategy, driven by stakeholder pressure and its brand transformation. The overall ESG strategy is anchored in its commitment to supporting women across its value chain, which aligns with its core customer base. Governance is overseen by the Nominating and Governance Committee of the Board of Directors, which is notably diverse, with nearly 88% of board members being women and 50% being women of colour.

Specific ESG initiatives include its Victoria’s Secret Global Fund for Women's Cancers, which provides grants for female researchers. The company has also focused on ethical supply chain management, enforcing its Supplier Code of Conduct to ensure fair and safe working conditions. Environmental initiatives include assessing fibre impact for transition to lower-impact materials and piloting responsible disposal options for garments, such as converting unused fabric into donated panties.

Controversies and criticisms remain significant. Historically, the company has faced highly publicised allegations of workplace misconduct and a corporate culture of misogyny, leading to a 2021 settlement that included a ninety million dollar investment in diversity, equity, and inclusion initiatives. The company has also faced scrutiny for supply chain practices, specifically regarding transparency and human rights issues, such as forced labour in China. In addition, its beauty division has been listed on a PETA list of companies that test on animals.

The relevance of ESG factors is particularly high for Victoria’s Secret & Co. due to its primarily female customer base and its historic brand image issues. Consumers and investors are closely scrutinising the authenticity of the brand's shift toward empowerment and inclusivity. Success in the 'S' of ESG is critical to rebuilding consumer trust and relevance, while failure in the 'E' or 'G' could rapidly undermine its transformation efforts.

Conclusion and perspective

Victoria's Secret & Co. is a company in the midst of a critical and challenging turnaround. The recent quarterly results indicate that its strategic reset, the 'Path to Potential,' is beginning to gain traction, with comparable sales increasing and performance exceeding guidance. However, the overall financial picture remains one of a company focused on stabilisation and rebuilding rather than robust, high-growth expansion. Profitability is improving but remains low compared to historical figures and certain competitors, with margins vulnerable to external pressures.

The share is likely most suitable for a value investor with a high tolerance for risk. The current valuation, with a P/E ratio around 13.96 and a low overall market capitalization relative to its sales, may suggest the market has not fully priced in the potential success of the turnaround. If the company successfully redefines its brand image, continues to drive D2C growth via Adore Me, and expands internationally while maintaining cost discipline, there is a clear potential for significant share price appreciation.

The specific risks for this share include the failure of the brand transformation to resonate with a new generation of consumers, a prolonged economic downturn that dampens discretionary spending, and further supply chain or ESG-related controversies. The potential lies in its ability to leverage its globally recognised name and strong market position to become the modern, inclusive market leader in intimates and loungewear.

Disclaimer: This article is intended for informational purposes only and does not in any way constitute financial or investment advice. Investors should conduct their own comprehensive research and analysis before making any investment decisions.