Victoria’s Secret & Co. (VSCO) operates as a specialty retailer of women’s apparel and beauty products worldwide. The company offers intimate apparel, bras, lingerie, sleepwear, loungewear, athletic attire, swimwear, as well as beauty products like fragrances and mists.

Victoria’s Secret delivers its merchandise through retail stores, websites, and other online channels. The company provides its products and accessories under the Victoria’s Secret, PINK, Victoria’s Secret Beauty, and Adore Me brands.

The Zacks Rundown

Victoria’s Secret, a Zacks Rank #5 (Strong Sell), is a component of the Zacks Leisure and Recreation Products industry group, which ranks in the bottom 11% out of more than 250 Zacks Ranked Industries. As such, we expect this industry group as a whole to underperform the market over the next 3 to 6 months, just as it has over the past month:

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Image Source: Zacks Investment Research

Candidates in the bottom tiers of industries can often be solid potential short candidates. While individual stocks have the ability to outperform even when included in a poorly-performing industry group, the inclusion in a weaker group serves as a headwind for any potential rallies and the journey forward is that much more difficult.

Despite a rebound in many retail and consumer discretionary stocks this year, VSCO shares have not been gushing lately. The stock has experienced considerable volatility in 2023. Shares recently hit a 52-week low following a disappointing earnings report and represent a compelling short or hedge opportunity.

Recent Earnings Misses and Deteriorating Outlook

VSCO has fallen short of earnings estimates in two of the last three quarters. The intimate apparel company most recently reported second-quarter earnings last month of $0.24/share, missing the $0.27/share consensus EPS estimate by 11.1%. Earnings plunged 78% from the same quarter in the prior year.

Victoria’s Secret has missed earnings estimates by an average of 17.75% over the past three quarters. Consistently falling short of earnings estimates is a recipe for underperformance, and VSCO is no exception.

The company has been on the receiving end of negative earnings estimate revisions as of late. For the current quarter, analysts have decreased estimates by -710% in the past 60 days. The third-quarter Zacks Consensus EPS Estimate now reflects a loss of -$0.81/share, translating to negative growth of -379.3% relative to the same quarter last year. Revenues are expected to drop -4.6% during Q3. 

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Image Source: Zacks Investment Research

Falling earnings estimates are a huge red flag and need to be respected. Negative growth year-over-year is the type of trend that bears like to see.

Technical Outlook

As illustrated below, VSCO stock is in a sustained downtrend. Notice how shares have plunged below both the 50-day and 200-day moving averages signaled by the blue and red lines, respectively. The stock is making a series of lower lows, with no respite from the selling in sight. Also note how both moving averages have rolled over and are sloping down – another good sign for the bears.

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Image Source: StockCharts

While not the most accurate indicator, VSCO stock has also experienced what is known as a ‘death cross’, wherein the stock’s 50-day moving average crosses below its 200-day moving average. Victoria’s Secret would have to make a serious move to the upside and show increasing earnings estimate revisions to warrant taking any long positions in the stock. VSCO shares have fallen more than 57% in the past 7 months alone. 

Final Thoughts

A deteriorating fundamental and technical backdrop show that this stock is not set to hit new highs anytime soon. The fact that VSCO stock is included in one of the worst-performing industry groups provides yet another headwind to a long list of concerns. A history of earnings misses and falling future earnings estimates will likely serve as a ceiling to any potential rallies, nurturing the stock’s downtrend.

The fact that other retailers and consumer discretionary stocks have done well this year paints a picture of underperformance for Victoria’s Secret. Potential investors may want to consider including this stock as part of a short or hedge strategy. Bulls will want to steer clear of VSCO shares until the situation shows major signs of improvement.

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