What happened
Victoria's Secret (VSCO -3.25%) shareholders lost ground to the market this week. Shares fell 14% through Thursday trading, compared to a 0.4% increase in the S&P 500. This drop added to a tough year for the retailer, whose stock is down nearly 50% so far in 2023, according to data provided by S&P Global Intelligence.
The weekly decline came after management said the selling environment worsened over the last few months.
So what
Comparable store sales were down 11% in Q1, Victoria's Secret said on Wednesday. While this result met management's sales goals, the company had to ramp up its discounting levels as shoppers became more cautious. This pullback worsened through the period, too. "As the quarter progressed business became more challenging," CEO Martin Waters said in a press release.
The extra promotions contributed to much weaker profits compared to a year ago. Adjusted operating income was $55 million, or less than half the $116 million the company generated in early 2022. Executives said this challenging environment is likely to continue for at least the rest of this fiscal year.
Now what
Victoria's Secret now sees 2023 sales and earnings both coming in lower than originally predicted. Revenue will be flat or will fall slightly, executives forecast, and adjusted profit margin will land between 5% and 6%. The good news is that inventory levels have not expanded, thanks to the company's prudent use of discounting to keep merchandise moving. This strategy reduces the risk of collapsing earnings during any recession.
Still, Victoria's Secret is on pace for weaker operating results this year than originally expected, and it's possible that demand pressures will impact fiscal 2024 as well. It might be a few quarters before shareholders see stability and the start of an operating rebound, and that prospect convinced many investors to step away from the stock this week.
