Stock Analysis & Valuation Victoria's Secret & Co. (VSCO)

• Previous Close: $54.51
• Sector Valuation Confidence Level: Moderate

Valuation method	Value, $	Upside, %
Artificial intelligence (AI)	69.81	28
Intrinsic value (DCF)	6.84	-87
Graham-Dodd Method	13.90	-75
Graham Formula	18.58	-66

Strategic Investment Analysis

Company Overview

Victoria's Secret & Co. (NYSE: VSCO) is a leading global specialty retailer of women's intimate apparel, personal care, and beauty products. Operating under the Victoria's Secret and PINK brands, the company offers a wide range of products, including bras, lingerie, sleepwear, loungewear, athletic attire, swimwear, fragrances, and body care items. With approximately 1,400 retail stores worldwide as of March 2022, Victoria's Secret has established itself as a dominant player in the intimate apparel market. The company, headquartered in Reynoldsburg, Ohio, was incorporated in 2021 and continues to leverage its strong brand recognition and extensive retail footprint to drive growth. Victoria's Secret operates in the highly competitive Apparel - Retail sector, catering to the consumer cyclical market. The company's focus on innovation, brand loyalty, and omnichannel retailing positions it as a key player in the evolving fashion and beauty industry.

Investment Summary

Victoria's Secret & Co. presents a mixed investment profile. On the positive side, the company boasts strong brand equity, a global retail presence, and a diversified product portfolio. With a market cap of approximately $1.78 billion and revenue of $6.23 billion, it remains a significant player in the intimate apparel market. However, investors should be cautious of the company's high beta of 2.353, indicating significant volatility relative to the market. Additionally, the company carries a substantial total debt of $2.7 billion, which could pose risks in a rising interest rate environment. The lack of dividends may also deter income-focused investors. While the company has shown profitability with a net income of $165 million and positive operating cash flow of $425 million, its competitive landscape and shifting consumer preferences in the intimate apparel sector warrant close monitoring.

Competitive Analysis

Victoria's Secret & Co. operates in a highly competitive market, facing challenges from both traditional retailers and emerging digital-first brands. The company's competitive advantage lies in its strong brand recognition, extensive retail footprint, and diversified product offerings under the Victoria's Secret and PINK brands. However, the brand has faced criticism in recent years for its marketing strategies and lack of inclusivity, which has allowed competitors to gain market share. Victoria's Secret has been working to reposition itself by embracing body positivity and expanding its product lines to cater to a broader audience. The company's omnichannel strategy, combining physical stores with e-commerce, provides a competitive edge, but it must continue to innovate to stay ahead. The intimate apparel market is rapidly evolving, with consumers increasingly favoring comfort and sustainability, areas where Victoria's Secret has room for improvement. The company's ability to adapt to these trends while maintaining its core customer base will be critical to its long-term success.

Major Competitors

• L Brands, Inc. (LB): L Brands, the former parent company of Victoria's Secret, operates Bath & Body Works and remains a competitor in the personal care segment. While L Brands has a strong presence in the personal care market, it lacks the extensive intimate apparel offerings of Victoria's Secret. However, its focus on fragrance and body care products poses a direct challenge to Victoria's Secret's beauty division.
• American Eagle Outfitters, Inc. (AEO): American Eagle's Aerie brand has gained significant traction by promoting body positivity and inclusivity, areas where Victoria's Secret has struggled. Aerie's focus on comfort and casual wear has resonated with younger consumers, posing a threat to Victoria's Secret's market share. However, Aerie lacks the global retail footprint and brand recognition of Victoria's Secret.
• PVH Corp. (PVH): PVH Corp. owns Calvin Klein and Tommy Hilfiger, which compete with Victoria's Secret in the lingerie and intimate apparel segments. Calvin Klein's strong brand equity and modern marketing strategies have made it a formidable competitor. However, PVH's focus on a broader apparel market dilutes its specialization in intimate wear compared to Victoria's Secret.
• Hanesbrands Inc. (HBI): Hanesbrands operates popular intimate apparel brands like Hanes and Maidenform. While Hanesbrands has a strong presence in the mass market, it lacks the premium positioning and brand cachet of Victoria's Secret. However, its focus on affordability and comfort appeals to a different segment of the market.
• Tailored Brands, Inc. (TLRD): Tailored Brands primarily focuses on men's apparel, but its ownership of brands like Jos. A. Bank and Men's Wearhouse indirectly competes with Victoria's Secret in the broader apparel market. However, its lack of specialization in women's intimate apparel limits its direct competition with Victoria's Secret.