Two major brokerage houses moved to downgrade Victoria's Secret on Wednesday after the lingerie and apparel retailer experienced a large post-earnings rally that analysts said largely reflects the company's improved operating performance.
UBS analyst Mauricio Serna reduced his rating on the stock to Neutral from Buy while increasing his price target by 11% to $90, up from $81. Jefferies analyst Corey Tarlowe shifted his view to Hold from Buy and raised his price target to $73 from $65.
Both firms highlighted the strength in Victoria's Secret's most recent results. The company reported first-quarter comparable sales growth of 13% year over year, an acceleration of 500 basis points sequentially. Adjusted operating income came in at $80 million, more than double the prior-year figure and notably above guidance. Management also raised full-year adjusted earnings-per-share guidance to a range of $4.35 to $4.60.
UBS said the evidence supporting its thesis has materialized. In Serna's words, "Our view is VSXY's initiatives should drive comp sales growth inflection. VSXY has now delivered four consecutive quarters of robust comps," adding that the stock's 47.4% jump after the Q1 print leaves limited upside to his updated target.
Jefferies made a similar point about valuation. Tarlowe wrote, "With the increased guidance, as well as the robust re-rating, we think the market is more appropriately recognizing this turnaround story." Jefferies also noted that what had been its bullish scenario has effectively become the firm's base case, including an operating margin target of roughly 9% by fiscal 2028. As Tarlowe put it, "Our prior bull case is essentially our current base case, potentially limiting upside from here."
Both analysts acknowledged the operational recovery documented in the results while concluding that the recent rally has narrowed the gap between performance and valuation. The downgrades reflect that reassessment: higher price targets were set in both cases even as the recommended rating was lowered, driven by the view that much of the improvement is already reflected in the share price.
Investors will now weigh the sustainability of the comps gains, the trajectory of margins toward the multi-year target cited by Jefferies, and whether additional upside catalysts remain that are not already priced into the stock.
Readings to note
- Post-earnings share jump: nearly 50%, cited specifically as a 47.4% increase after the Q1 results.
- Q1 comparable sales growth: 13% year over year, accelerating 500 basis points sequentially.
- Adjusted operating income: $80 million, more than double the prior year and above guidance.
- Full-year adjusted EPS guidance: raised to $4.35 to $4.60.