Victoria's Secret is experiencing a major comeback after years of declining sales - and Wall Street is salivating
- Wall Street is optimistic about Victoria's Secret's revival after its parent firm reported Q1 earnings.
- Same-store sales were up 9% for the first three months of 2021 versus 2019 for Victoria's Secret brand.
- Experts cite more inclusive marketing and a management shakeup as key factors.
Victoria's Secret is having somewhat of a comeback, and Wall Street is starting to get excited about it.
In L Brands' earnings call this week, several analysts congratulated the management team on Victoria's Secret's first-quarter results. Same-store sales were up 9% in the first quarter of the year versus 2019 and operating income, a measure of profitability, increased by $213 million or 665%.
"Welcome back," Marni Shapiro, an analyst at The Retail Tracker, triumphantly said on the call. "I am so excited about this...it's brilliant and overdue."
The sentiments of this week's call stood in stark contrast to its earnings a year ago when the management team was navigating store closings and worker-safety issues brought about by the pandemic.
It was also adjusting to the news that a private equity firm that had agreed to buy a majority stake in the company was pulling out of the deal. This left investors wondering whether Victoria's Secret would be able to continue its turnaround effort - addressing sliding sales, former sexual harassment allegations, and moving beyond its connection to the Jeffrey Epstein scandal.
How then, did management swing the pendulum around and come to win back Wall Street?
Overtly sexualized ads, the Epstein connection, and harassment allegations
To understand Victoria's Secret's "comeback", it's necessary to understand its downfall.
Between 2016 and 2020, the brand became the subject of intense scrutiny among investors and the media. After it achieved explosive success between the mid-1990s to mid-2000s with its racy runway shows (which helped to launch the careers of Gisele Bündchen, Tyra Banks, and Heidi Klum), it was increasingly accused of being out of date and oversexualized in its brand image, especially in the wake of the #MeToo movement.
Read more: The rise, fall, and comeback of Victoria's Secret, America's biggest lingerie retailer
In 2019 and 2020, Victoria's Secret's troubles were exacerbated after the company found itself tied up in the Jeffrey Epstein scandal. Epstein managed Wexner's money for several years and was considered a "close friend" of the family. Reports later emerged that Epstein had allegedly used his connection to Victoria's Secret to coerce victims into sexual acts.
In early 2020, the company then faced a fresh wave of scandals after a New York Times investigation found a culture "of misogyny, bullying, and harassment" at the brand, which longtime marketing chief Ed Razek and Wexner were accused of creating.
Former executives, who held longtime positions at Victoria's Secret's corporate offices, told Insider in 2019 that Razek and Wexner had full control over the brand image and made it impossible for any CEO of Victoria's Secret to update this or make a mark.
'We're moving from what men want to what women want'
In the time since these explosive reports, both Razek and Wexner have stepped down from the company. Wexner and his wife, Abigail, are no longer on the board of directors but remain L Brands' biggest shareholders.
And Victoria's Secret's executive team and L Brands board have undergone a major shakeup in the past year, gaining a new CEO, Martin Waters, who previously headed up L Brands' international division.
The lack of diversity on its board, which was criticized by an activist shareholder, has also been addressed. In 2019, out of the 11 board members, nine were men. Today, there are six women on the board, including the chair, Sarah Nash.
Critics say this shake-up has been crucial for Victoria's Secret's comeback by allowing new perspectives and fresh ideas to come through.
"We're moving from what men want to what women want," Waters said on the call on Thursday. "From sexy for a few to sexy for all.
"It's about including most women rather than excluding most women and being grounded in real life rather than mostly unattainable," he said.
Morgan Stanley analyst Kimberly Greenberger said she "applauded" its "long overdue positioning shift," in a note to clients Friday.
The brand imagery of 2021 looks very different from what Victoria's Secret had previously been known for; oversexualized ads have been replaced with more body-positive campaigns.
Waters said that customers are responding well to these changes.
They "are noticing and uploading our efforts to reposition the brand,' he said Thursday. "We heard clearly what they [customers and associates] want from us as a brand, which is all about representing and celebrating all women and being there for every moment of their life, including supporting and advocating the things that matter most to them, and that's exactly what we're doing."
According to, Gabriella Santaniello, analyst and founder of retail research firm A-Line Partners, the company is following through on its marketing by enacting real change in its stores. "They recently brought in plus-sized mannequins which reflect their use of plus-sized models in their advertising," she said in an email to Insider on Friday.
"I think they need to focus on a 360 view of the brand. During the pandemic, they were able to evolve and tie up some loose ends. They need to make sure they do not waiver because it will come across as inauthentic and that's why they haven't really been successful with the turnaround over these past few years," she added.
Neil Saunders, managing director of GlobalData Retail, said that more "appropriate" marketing is pulling shoppers back to the brand. As is, a better product assortment.
Victoria's Secret "has been sensible over the past year and there is a lot of focus on making women feel good whether it be through indulgences or cozy items to wear around the house," he wrote an email to Insider.
But there's still work to be done. Waters said the focus now is bringing more innovation to its products, especially around its bread and butter item - bras.
Santaniello said that the pandemic gave Victoria's Secret time for a moment of pause to address its business.
"This past year was just a culmination of strategies they put into place but never fully implemented," she said. "They were smart in using this past year, which was essentially a reset across all retail, to finally tie up their loose ends."
During this time, Victoria's Secret closed 250 underperforming stores and was able to pull back on inventory and cut the level of promotions. This boosted its margins in the most recent quarter.
Still, Saunders says its comeback shouldn't be overinflated. Some of its performance has been boosted by stimulus spending and a booming consumer economy, he said.
"That rising tide of spending is floating all boats. The real acid test is what performance looks like in the quarters and years ahead," he added.