Shares of Victoria's Secret (VSCO 2.59%) scored a 15.2% gain through 11:30 a.m. ET on Thursday morning despite an earnings miss last night.
Analysts weren't particularly optimistic about the lingerie retailer's performance going into Q3 results, forecasting a $0.78-per-share loss on sales of $1.27 billion. And as it turned out, the news was even worse than that. Although Victoria's Secret met expectations for sales, it missed the earnings forecast, reporting a loss of $0.86 per share.
Victoria's Secret sales and earnings
And that was just the non-GAAP (adjusted) result. Measured according to generally accepted accounting principles (GAAP), Victoria's Secret actually performed a bit worse, with losses totaling $0.92 per share (versus a $0.29-per-share profit one year ago). This number was within the company's guidance range for the quarter, albeit toward the low end, and below Wall Street's forecast as well.
Sales declined 4% year over year and same-store sales slid 7%.
Guidance wins the day
Of course, if the news was as bad as all this, then the question naturally arises: Why are investors bidding Victoria's Secret stock up today instead of down? And the answer may be guidance.
Commenting on the company's performance heading into "the all-important holiday season," CEO Martin Waters opined that sales in North America "continued to improve ... each month throughout the third quarter with October being our strongest month." And transitioning into Q4, Waters noted that "November sales and margin result was our best monthly performance in nearly two years," while the company "also has momentum" internationally, and in China in particular.
Thus, Victoria's Secret now believes it will see sales reverse their decline in Q4, climbing 2%-4% to about $2.08 billion. Coincidentally, that's exactly what Wall Street is forecasting, too. On the other hand, though, Victoria's Secret's forecast for adjusted earnings of $2.20 to $2.60 for the quarter is a bit weaker at the midpoint ($2.40 per share) than Wall Street's forecast of $2.43.
Similarly, the company's forecast for the full year -- $1.85 to $2.25 per share, non-GAAP, with a midpoint of $2.05 per share -- implies an earnings miss for the year, with Wall Street wanting to see $2.16 per share in non-GAAP profit.
Long story short, then, it really looks to me as if Victoria's Secret 1) missed earnings in Q3, 2) is anticipating missing earnings again in Q4, and 3) will consequently miss earnings for the whole year as well. Given this downbeat assessment, I'm at a loss as to why investors are happy with this news and bidding Victoria's Secret stock higher today.
