Body Positivity And Digital Shifts Will Open New Global Markets

Key Takeaways

• Revitalized brand image, premium product mix, and digital innovation are set to boost profitability, customer retention, and accelerate global revenue growth.
  
• Enhanced supply chain agility and inclusivity initiatives position Victoria's Secret for deeper market share and structurally higher operating margins.
  
• The brand's need to modernize, shift to digital, and manage rising costs is challenged by legacy strategies and intensified competition, threatening growth and profitability.

Catalysts

Operates as a specialty retailer of women’s intimate, and other apparel and beauty products worldwide.

• Analyst consensus expects net margin improvement from scaling back discounts, but Victoria's Secret's dramatic reduction in promotions, paired with strong customer acceptance and brand revitalization, could drive a step-change in profitability and create sustained expansion in net margins as product mix and pricing power accelerate, especially given outperformance versus the North American intimates market.
  
• While analysts broadly anticipate steady international growth, the company's double-digit international retail gains, rapid country expansion, and the new European distribution center will enable far more aggressive global revenue growth and digital leverage, setting up a multi-year runway of margin-accretive international earnings.
  
• Victoria's Secret is now structurally aligned to capture the growing demand for body positivity and inclusivity, positioning the brand to reclaim lapsed customers and win over Gen Z at scale, leading to higher long-term customer retention, larger basket sizes, and deeper market share gains across categories and geographies – directly fueling both revenue and gross margins.
  
• The rapid acceleration in lane-specific product development tracks and supply chain agility allows Victoria's Secret to shrink lead times dramatically – especially in high-growth categories like PINK apparel and technical swim/sport – leading to faster inventory turns, lower working capital requirements, and superior earnings quality as the business pivots to higher-margin, trend-aligned launches.
  
• Victoria's Secret's leadership in integrating digitally enhanced omnichannel commerce-including best-in-mall experiences and social-first marketing-will let the brand fully exploit the secular shift to digital and premium self-care spending, resulting in both higher revenue growth and structurally enhanced operating income over the next several years.

Victoria's Secret Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Victoria's Secret compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Victoria's Secret's revenue will grow by 1.5% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 2.6% today to 3.0% in 3 years time.
• The bullish analysts expect earnings to reach $197.7 million (and earnings per share of $2.43) by about June 2028, up from $165.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 19.7x on those 2028 earnings, up from 10.3x today. This future PE is greater than the current PE for the US Specialty Retail industry at 15.9x.
• Analysts expect the number of shares outstanding to grow by 0.75% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.6%, as per the Simply Wall St company report.

Victoria's Secret Future Earnings Per Share Growth

Risks

• The company faces continued challenges in repositioning its brands to align with modern consumer tastes, particularly as shifting preferences toward inclusivity and body positivity threaten its heritage positioning; failure to evolve may result in long-term revenue stagnation and loss of market share.
  
• Victoria's Secret's significant reliance on mall-based retail locations exposes it to declining mall traffic and rising rent costs, trends that are likely to negatively impact store productivity and compress EBIT margins over time.
  
• Increased competition from nimble digital-first and direct-to-consumer brands in the intimates, sport, and lifestyle categories means Victoria's Secret must invest heavily in technology and digital enhancements, which could squeeze net margins and require ongoing capital expenditures.
  
• The brand's strategy of reducing promotional activity to protect profit margins risks suppressing top-line growth if product appeal, marketing, or inventory execution missteps lead to lower sales volumes; this could ultimately impair future earnings if not balanced carefully.
  
• Rising labor, transportation, and supply chain costs, as well as exposure to tariffs and potential new regulations around sustainability and labor practices, pose persistent downward pressure on operating margins and profitability, especially given Victoria's Secret's large assortment and international sourcing needs.

Valuation

• The assumed bullish price target for Victoria's Secret is $34.57, which represents two standard deviations above the consensus price target of $23.0. This valuation is based on what can be assumed as the expectations of Victoria's Secret's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $35.0, and the most bearish reporting a price target of just $15.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $6.5 billion, earnings will come to $197.7 million, and it would be trading on a PE ratio of 19.7x, assuming you use a discount rate of 11.6%.
  
• Given the current share price of $21.21, the bullish analyst price target of $34.57 is 38.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.