Victoria’s Secret & Co. has once again defied expectations with its first-quarter fiscal 2024 results, outshining the Zacks Consensus Estimate for both earnings and revenues. This marks the second consecutive quarter where the company has surpassed projections, showcasing resilience and adaptability in a challenging retail landscape.
The first quarter unveiled a glimmer of hope as Victoria’s Secret experienced a noticeable uptick in sales across its brick-and-mortar stores and online platforms in North America. Both the Victoria’s Secret and PINK brands displayed promising growth. Despite fierce competition and promotional pressures, the company managed to enhance its gross margin rate compared to the previous year, through prudent inventory management and strategic initiatives to attract customers.
Strong Q1 Performance
Victoria’s Secret reported adjusted earnings of 12 cents per share, exceeding the Zacks Consensus Estimate of 11 cents. Although lower than the year-ago quarter’s 28 cents, this performance demonstrates the company’s ability to navigate challenges effectively.
Net sales dipped by 3.4% year over year to $1,359.4 million but surpassed the Zacks Consensus Estimate of $1,346 million. Comparable sales saw a decline of 5% compared to the previous year.
VSCO’s net sales in the North American stores segment reached $729.1 million, reflecting a 7.2% decrease year over year. Direct channel sales decreased by 3.4% to $448.8 million, while international channel sales surged by 15.6% to $181.5 million.
Profitability & Efficiency
While gross profit saw a marginal 0.2% decline to $501.3 million, the gross margin improved by 120 basis points to 36.9% in the reviewed quarter. Cost of sales decreased by 5.2% year over year to $858.1 million.
General, administrative, and store operating expenses rose by 0.2% to $475.1 million. Interest expenses decreased to $21.7 million from $22.5 million in the prior-year quarter.
Looking Ahead
For the second quarter of fiscal 2024, Victoria’s Secret foresees a slight decline in net sales. The company expects adjusted operating income to range between $30-$45 million, with adjusted net income projected at 5 cents to 20 cents per share.
The company aims to achieve net sales of approximately $6 billion in fiscal 2024, predicting a slight decrease compared to the previous year. Adaptability and strategic planning will be crucial as Victoria’s Secret targets adjusted operating income between $250 million and $275 million for the fiscal year.
Despite macroeconomic challenges, Victoria’s Secret (VSCO) is a Zacks Rank #3 (Hold) stock that has surged 26.2% in the last month, outpacing industry growth of 5.9%.
Brighter Prospects in the Consumer Discretionary Sector
Among other promising stocks in the sector is Strategic Education, Inc. (STRA), holding a Zacks Rank #1 (Strong Buy). STRA has seen a remarkable earnings surprise and stock appreciation, indicating strong potential for growth. Meanwhile, Netflix, Inc. (NFLX) and AMC Entertainment Holdings, Inc. (AMC) are also showing positive momentum, with favorable estimates for sales and earnings.
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