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New leadership at Victoria’s Secret (NYSE:VSCO) puts a “turnaround in play”, says Morgan Stanley, as the appointment of Hilary Super will give the company the catalyst it needs and reinvigorate market confidence in a potential brand comeback.
This morning, Victoria’s Secret (VSCO) announced the change at the top, with Super taking over for Martin Waters. Super comes from VSCO competitor Savage X Fenty and brings her extensive merchandising experience from Urban Outfitters (URBN), Abercrombie & Fitch (AEO), and Gap (GPS) as well as a female perspective to a company that has endured underwhelming performance despite years of turnaround efforts.
Accordingly, Morgan Stanley analyst Alex Straton upgraded the stock to Equal-weight from Underweight, and boosted his price target by 43% to $20.
“Performance won’t inflect immediately (or maybe ever….),” Straton says, “but this new leadership halo means the market likely waits out any [near-term] shortcomings, driving our upgrade.”
By remaining on the sideline, Straton acknowledges the challenges ahead for VSCO, such as limited retail turnaround precedents, potentially permanent competitive landscape changes, and ongoing brand relevance challenges.
“These dynamics continue to keep us skeptical on VSCO’s longer-term transformation potential,” he says, adding however, that the company will enjoy a temporary “grace period” to give Super time to assess the business and implement changes.
Related to the company’s ability to achieve H2 targets, VSCO’s better Q2 makes for a lower H2 bar embedded in FY guidance than prior, a key driver to the previous Underweight rating.
“Assuming [full year] guidance remains intact, implied H2 guidance feels achievable given sales at EBIT concentration now sit [roughly] in-line with VSCO’s historical levels,” Straton said.
