On Thursday, BMO Capital adjusted its outlook on Victoria's Secret (NYSE:VSCO), reducing the lingerie retailer's price target to $26 from the previous $29, while keeping an Outperform rating on the stock. The adjustment came after the company's earnings per share (EPS) outperformed expectations, with gross margins (GM) also showing strength.
Despite the positive EPS, Victoria's Secret's shares experienced a decline in post-market trading. The company's revenue guidance for the first quarter and the full year fell short of market predictions, alongside a notably lower forecast for earnings before interest and taxes (EBIT).
The company's management is aiming for an improvement in the second half of the year, although there is recognition that a turnaround in top-line revenue will likely be necessary to win over most investors. BMO Capital noted that the conservative guidance on gross margins might be surpassed, but the path to a catalyst for the stock is challenging. The firm believes that the drop in share price following the after-market movement presents an opportunity for valuation upside.
Victoria's Secret's recent performance indicates a mixed picture for the company. While the EPS beat and satisfactory gross margins suggest some operational strengths, the lower-than-expected revenue and EBIT guidance reflect the challenges that lie ahead. The management's expectation of a better performance in the latter half of the year shows a strategic focus on long-term improvements.
BMO Capital's revised price target of $26, which is approximately 10 times the forecasted FY25 EPS, reflects a cautious yet optimistic view of Victoria's Secret's potential for recovery and growth.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.