Shares of intimate apparel retailer Victoria's Secret (VSCO 0.28%) rose out of the gate on Dec. 29 and were up around 11% an hour into the trading day. The big news came out before the open of trading with a single news release. Only there were really two important news items contained in the update.
The lead story of today's news release is that Victoria's Secret has initiated a $250 million accelerated share repurchase program. Investors tend to like this type of news because a reduced share count leads to increased per-share earnings. So, as you might expect, stocks often rise when companies announce buybacks. However, despite top billing in the news release, this probably isn't the most important update.
The second bit of news contained in the release was that Victoria's Secret reaffirmed its fourth-quarter guidance. Specifically, sales are expected to be flat to higher by 3% and earnings per share are projected to fall somewhere between $2.35 and $2.65. That's a pretty big range, but Victoria's Secret was only recently spun off as its own company, and management has been working to stabilize a business that has struggled in recent years. That the company believes it will hit its guidance hints strongly that management has a fairly good handle on the business, which is clearly positive.
CEO Martin Waters noted in the release that the company's inventory position is good, that there was encouraging sales growth over the Thanksgiving weekend, and that Victoria's Secret experienced a "large rush of business" as Christmas approached. The highlighted sales strength was broad based, as well. These are all good omens for a solid fourth-quarter showing and were likely the real reason investors were so upbeat today.
Shares of Victoria's Secret spiked after it was spun off but have since trended lower. If you were looking at this targeted retailer before, hoping for a business turnaround, but were turned off by the swift stock gain, you might want to take a second look. That remains true even after today's hefty advance. It looks increasingly as if the management team at Victoria's Secret is starting to get a good handle on how it wants to run things now that it is a stand-alone entity.