Victoria’s Secret stock: Is this fallen angel a buy ahead of earnings?

Victoria’s Secret (NYSE: VSCO) stock price has slumped hard since going publc in 2021 as investors reflect on its slowing sales and market share losses. It has plunged to about $21, down by over 72% from its all-time high. Its market cap has crashed from over $7.10 billion to less than $2 billion, making it a fallen angel.

June 6th will be crucial

Victoria’s Secret has lost its shine and is no longer the popular women’s intimate brand it was a few years ago. Its brand name is no longer popular, has faced numerous public relations challenges, and is going through significant competition. 

As a result, its total annual sales have crashed from over $7.5 billion in 2020 to $6.18 billion in 2023. Its profits have also dropped from over $646 million in 2022 to $116 million in the last financial year. 

There are signs that the management’s turnaround strategy is not working out. Its last financial results showed that its sales dropped from $1.31 billion to $1.26 billion. It also moved from a net profit of $30 million to a net loss of over $93 million.

The next catalyst for the stock will be its upcoming earnings scheduled for June 9th. According to Yahoo Finance, the average revenue estimate for the company will be $1.36 billion, a 3.6% decline from the same period in 2023. Its earnings are expected to come in at $0.09 per share, down from $0.14.

Victoria’s Secret has already released its preliminary results. In a statement, the company estimates that its net sales dropped by between 3% and 4%, which was better than its guided range of between 4% and 6%. It also expects that its final adjusted income will be between $35 million and $40 million, bigger than the previous guidance of $10-$35 million. 

Still, the company is facing major challenges, especially in North America, where the retail environment has been slowing down. I believe that Victoria’s Secret’s best days are behind it because of how its industry has changed. A report by SimilarWeb shows that traffic to its website dropped to 29 million in April from 29.5 million in March.

Another risk for Victoria’s Secret is that it is quite leveraged. It ended last quarter with $270 million in cash against over $1.1 billion in long-term debt and $1.32 billion in leases. It has $359 million in maturities this year followed by $338 million in 2025 and $273 million in 2026. 

Victoria’s Secret stock price analysis

VSCO chart by TradingView

The daily chart shows that the VSCO share price has plummeted from over $70 to about $21 today. It is consolidating at the 50-day and 100-day Exponential Moving Averages (EMA). Also, it has failed to fill the down-gap it formed when it released its financial results in March. 

At the same time, the volume trend has been a bit muted in the past few months. Therefore, I suspect that the company will have a bearish breakot after earnings. If this happens, it could plunge to the key support level at $16.50, its lowest swing on April 18th.

Still, it is always risky to short companies with a high short interest. As we saw with GameStop and AMC, it is easy for these stocks, including VSCO to go through a short squeeze.

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