Victoria's Secret (VSCO)

Intimatewear and beauty retailer Victoria’s Secret (NYSE:VSCO) reported Q2 CY2025 results exceeding the market’s revenue expectations, with sales up 3% year on year to $1.46 billion. On top of that, next quarter’s revenue guidance ($1.41 billion at the midpoint) was surprisingly good and 3.6% above what analysts were expecting. Its non-GAAP profit of $0.33 per share was significantly above analysts’ consensus estimates.

Company Overview

Spun off from L Brands in 2020, Victoria’s Secret (NYSE:VSCO) is an intimate clothing and beauty retailer that sells its own brands of lingerie, undergarments, and personal fragrances.

Apparel sales are not driven so much by personal needs but by seasons, trends, and innovation, and over the last few decades, the category has shifted meaningfully online. Retailers that once only had brick-and-mortar stores are responding with omnichannel presences. The online shopping experience continues to improve and retail foot traffic in places like shopping malls continues to stall, so the evolution of clothing sellers marches on.

Retailers offering intimates, undergarments, and sleepwear for women include American Eagle’s (NYSE:AEO) Aerie brand and LVMH’s (ENXTPA:MC) La Perla brand as well as private companies ThirdLove and Adore Me.

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but many enduring ones grow for years.

With $6.27 billion in revenue over the past 12 months, Victoria's Secret is a mid-sized retailer, which sometimes brings disadvantages compared to larger competitors benefiting from better economies of scale.

As you can see below, Victoria's Secret struggled to generate demand over the last six years (we compare to 2019 to normalize for COVID-19 impacts). Its sales dropped by 3.4% annually despite opening new stores. This implies its underperformance was driven by lower sales at existing, established locations.

This quarter, Victoria's Secret reported modest year-on-year revenue growth of 3% but beat Wall Street’s estimates by 4%. Company management is currently guiding for a 4.3% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to remain flat over the next 12 months. Although this projection suggests its newer products will spur better top-line performance, it is still below average for the sector.

Number of Stores

Victoria's Secret sported 1,376 locations in the latest quarter. Over the last two years, it has generally opened new stores, averaging 1.1% annual growth. This was faster than the broader consumer retail sector.

When a retailer opens new stores, it usually means it’s investing for growth because demand is greater than supply, especially in areas where consumers may not have a store within reasonable driving distance.

Same-Store Sales

The change in a company's store base only tells one side of the story. The other is the performance of its existing locations and e-commerce sales, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales provides a deeper understanding of this issue because it measures organic growth at brick-and-mortar shops for at least a year.

Victoria's Secret’s demand has been shrinking over the last two years as its same-store sales have averaged 1.3% annual declines. This performance is concerning - it shows Victoria's Secret artificially boosts its revenue by building new stores. We’d like to see a company’s same-store sales rise before it takes on the costly, capital-intensive endeavor of expanding its store base.

In the latest quarter, Victoria's Secret’s same-store sales rose 4% year on year. This growth was a well-appreciated turnaround from its historical levels, showing the business is regaining momentum.

At StockStory, we prefer high gross margin businesses because they indicate pricing power or differentiated products, giving the company a chance to generate higher operating profits.

Victoria's Secret’s unit economics are higher than the typical retailer, giving it the flexibility to invest in areas such as marketing and talent to reach more consumers. As you can see below, it averaged a decent 36.6% gross margin over the last two years. That means for every $100 in revenue, $63.35 went towards paying for inventory, transportation, and distribution.

In Q2, Victoria's Secret produced a 35.6% gross profit margin, in line with the same quarter last year and exceeding analysts’ estimates by 1.5%. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting it strives to keep prices low for customers and has stable input costs (such as labor and freight expenses to transport goods).

Operating margin is an important measure of profitability for retailers as it accounts for all expenses necessary to run a store, including wages, inventory, rent, advertising, and other administrative costs.

Victoria's Secret’s operating margin might fluctuated slightly over the last 12 months but has generally stayed the same, averaging 4.5% over the last two years. This profitability was lousy for a consumer retail business and caused by its suboptimal cost structure.

Looking at the trend in its profitability, Victoria's Secret’s operating margin might fluctuated slightly but has generally stayed the same over the last year, meaning it will take a fundamental shift in the business model to change.

This quarter, Victoria's Secret generated an operating margin profit margin of 2.8%, down 1.6 percentage points year on year. Since Victoria's Secret’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, and administrative overhead increased.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Victoria's Secret has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 3.2% over the last two years, slightly better than the broader consumer retail sector.

Victoria's Secret reported $188.2 million of cash and $2.87 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $612.9 million of EBITDA over the last 12 months, we view Victoria's Secret’s 4.4× net-debt-to-EBITDA ratio as safe. We also see its $76.8 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see Victoria's Secret beat analysts’ EPS expectations this quarter. We were also glad its revenue outperformed Wall Street’s estimates. On the other hand, its EPS guidance for next quarter missed. Overall, we think this was a decent quarter with some key metrics above expectations. The stock traded up 7.6% to $24.50 immediately after reporting.

Updated: December 4, 2025 at 9:37 PM EST

When considering an investment in Victoria's Secret, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

We see the value of companies helping consumers, but in the case of Victoria's Secret, we’re out. To begin with, its revenue has declined over the last three years. And while its solid free cash flow generation gives it reinvestment options, the downside is its declining EPS over the last three years makes it a less attractive asset to the public markets. On top of that, its shrinking same-store sales tell us it will need to change its strategy to succeed.

Victoria's Secret’s P/E ratio based on the next 12 months is 21.6x. This multiple tells us a lot of good news is priced in - we think there are better opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $35.60 on the company (compared to the current share price of $42.28), implying they don’t see much short-term potential in Victoria's Secret.