Victoria’s Secret (VSCO) reports fourth quarter 2021 earnings; gives a weak forecast; quotes Ukraine

Shoppers walk through a mall in Bethesda, Maryland on February 17, 2022.

Mandel Ngan | AFP | Getty Images

Victoria’s Secret faltered in after-hours trading on Wednesday after the lingerie retailer issued a downbeat outlook for the upcoming quarter, warning that it still sees challenges ahead, including inflation and “global unrest”, citing Russia’s war with Ukraine.

It reported fiscal fourth quarter earnings and sales that slightly beat analysts’ expectations after reiterating its December holiday guidance.

However, its performance may be overshadowed by global headwinds in the near future. Victoria’s Secret said the first half of this year could be more challenging given the current supply chain issues, but it should return to rising operating income in the second half. Victoria’s Secret called the third quarter an expected tipping point.

Here are Victoria’s Secret’s fiscal fourth results compared to what Wall Street expected, according to an analyst poll conducted by Refinitiv:

  • Earnings per share: $2.70 vs $2.63 expected.
  • Income: $2.18 billion vs $2.14 billion expected

Net income for the three-month period ending January 29 fell to $246 million from $282 million a year earlier. Revenue rose about 4% to $2.18 billion from $2.1 billion a year earlier.

The company said its beauty products helped bring customers online and in-store, while its international business reported significant growth compared to its North American operations. Victoria’s Secret also said it was pleased with the recent launch of a new collection called Love Cloud, which is all about comfort and inclusion.

To be sure, Victoria’s Secret faces a challenging retail environment in the coming months, with rising inflation and “potential consumer uncertainty due to the recent global turmoil.”

The company expects incremental supply chain and inflation-related costs to be around $140 million in the first half of the year, roughly in line with what it reported in the second half of 2021. Oil prices rose during Russia’s invasion of Ukraine, raising fears that already high inflation would continue and grow even faster.

The retailer forecasts first-quarter sales in the range of $1.43 billion to $1.5 billion, down 4-8% year-over-year. It’s also short of analysts’ estimates of $1.52 billion.

Earnings per share in the first quarter is between 70 and 95 cents. Analysts were looking for $1.32 per share, according to Refinitiv.

In prepared comments, the retailer said it expects to face continued pressure from supply chain costs as well as to receive incentive benefits of approximately $50 million in the first quarter of 2021.

Revenue in 2022 is expected to remain flat, down to low single digits compared to 2021 levels. Analysts had forecast growth of 2.9% year on year.

Victoria’s Secret said it continues to evaluate the size of its real estate footprint as it tests the concept outside of malls and remodels existing stores to make them lighter and more appealing to shoppers. Between 10 and 30 stores are expected to close in 2022.

“We continue to see a positive response to novelty and the ability to maintain a lower level of promotional activity,” management said in prepared comments.

Victoria’s Secret shares are down about 2% this year as of Wednesday’s market close. Thus, the market capitalization of the retailer reaches 4.8 billion dollars.

Read the full earnings report from Victoria’s Secret here. The company is set to hold a live conference call with analysts on Thursday morning.

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