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Victoria's Secret (VSCO) Q2 Earnings & Sales Improve Y/Y

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Victoria’s Secret & Co. (VSCO - Free Report) posted impressive second-quarter fiscal 2021 results, with the top and the bottom line increasing year on year. Earnings surpassed the Zacks Consensus Estimate. Quarterly performance benefited from strong business momentum across categories.

Management informed that the company’s second-quarter results are on a carve-out basis, including Victoria’s Secret segment and a portion of the unallocated overhead costs as part of L Brands

This is the first time that Victoria’s Secret is reporting results as a standalone company. Victoria’s Secret and Bath & Body Works were formerly parts of L Brands Inc., which split itself into two separate publicly-traded companies to thrive better in an evolving retail landscape. The spin off was completed on Aug 3, subsequent to exit from the second quarter.

Prudent initiatives undertaken to turnaround the Victoria’s Secret’s business in the past year have strengthened operations and has positioned it well as a standalone entity. Management is impressed with growth in sales and margin witnessed during the second quarter. It continues to execute its brand repositioning efforts and strategies to attract customers. The company also provided its view for the third quarter.

Quarterly Discussion

For second-quarter fiscal 2021, earnings per share amounted to $1.71, which surpassed the Zacks Consensus Estimate of $1.62. During second-quarter fiscal 2020, the company incurred a loss of $2.26 per share, while adjusted loss amounted to 97 cents per share.

Net sales surged 51.3% year on year to $1,613.8 million. Sales were solid throughout the quarter. Management is impressed with growth witnessed across Lingerie, Pink and Beauty business lines. Customers have been responding positively toward the company’s assortmenta.

Sales declined 9.6% from second-quarter fiscal 2019’s level, due to the closures of 240 stores.

Victoria’s Secret comparable sales fell 9% year on year, while comparable store sales improved 16%.  Sales in the direct channel amounted to $468.8 million, down 24% year on year. Compared with second-quarter fiscal 2019 levels, comparable sales went up 5%. Comparable store sales declined 3%, while direct sales increased 26%. Sales at Victoria’s Secret International were $108 million, down 40% from the figure reported for the same period in fiscal 2019.

Gross profit amounted to $669.6 million during the quarter, up from $152.6 million in the year-ago quarter. Gross margin came in at 41.5% that expanded 2,000 basis points (bps) year on year. Gross margin improved 1,200 bps from second-quarter fiscal 2019 levels, driven by growth in the merchandise margin rate as well as buying and occupancy expense leverage.

Second-quarter operating income amounted to $202.7 million. In the year-ago quarter, the company delivered operating loss of $243.3 million, while adjusted operating loss amounted to $111.3 million.

Store Update

As of Jul 31, 2021, total Victoria's Secret stores were 926, including 695 Victoria’s Secret, 143 PINK, 24 Victoria’s Secret Canada, two PINK Canada, 36 Victoria’s Secret Beauty and Accessories as well as 26 Victoria’s Secret China stores. Region wise, the company had 838 stores in the United States and 26 stores in Canada. In Greater China, the company had 36 Beauty & Accessories stores and 26 Full Assortment stores. Total partner-operated stores were 462, including 339 Beauty & Accessories and 123 Full Assortment stores.

The company is closely evaluating its store fleet and expects 30-40 store closures during fiscal 2021.

Key Financial Metrics

This Zacks Rank #3 (Hold) company ended second-quarter fiscal 2021 with cash and cash equivalents of $292.9 million, inventories of $744.5 million and long-term debt of $591.2 million.

The company expects capital expenditures of nearly $170 million during fiscal 2021.


Victoria’s Secret expects third-quarter fiscal 2021 sales to rise in the mid- to high-single digits from sales of $1.35 billion in the prior-year quarter. Compared with third-quarter fiscal 2019 levels, sales are expected to fall in the high-single digits.

Management highlighted that the company is continuing to witness favorable response from customers toward its newly-launched assortments. However, it is cautious regarding adverse impacts stemming from the pandemic.  It anticipates COVID-19 related disruptions in its supply base, which could raise freight and production costs as well as hamper the company’s ability to accelerate sales.

The company expects third-quarter earnings in the range of 60-70 cents per share. The Zacks Consensus Estimate for third-quarter sales and earnings is currently pegged at $1.51 billion and 84 cents per share, respectively.

Third-quarter gross margin is expected in the high 30’s range, driven by B&O leverage from store sales growth and lapping of temporary closures last year.

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