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Victoria’s Secret Reveals 3 Growth Goals for Post-Split Future

L Brands is another step closer to officially splitting Victoria’s Secret off from its Bath & Body Works business.

In a Form 10 registration statement with the U.S. Securities and Exchange Commission (SEC), the soon-to-be separate companies revealed that Victoria’s Secret and its banners will officially be known as Victoria’s Secret & Co.

Victoria’s Secret & Co. will include the Victoria’s Secret Lingerie, Pink and Victoria’s Secret Beauty banners. The entity has applied to have its shares of common stock listed on the New York Stock Exchange under the ticker symbol “VSCO.”

Over the next three-to-five years, Victoria’s Secret targets mid-single digit revenue growth and a “mid-teens” operating income rate. Most recently, the retailer generated $1.55 billion in first-quarter sales, a 74 percent jump over the $660 million taken in during the prior year when the company was hampered by Covid-driven store closures, but saw a 7 percent decline from what the brand generated two-years ago.​            ​

The company reported more than $200 million in total first-quarter operating income increase on a two-year basis, L Brands revealed in an investor presentation. Adjusted operating income in the quarter totaled $226 million, or 15 percent of the quarter’s sales.

The long-awaited split comes as Victoria’s Secret has underwent wholesale changes from product to marketing to leadership, including the exit of longtime CEO and chair Les Wexner last year. In the week ahead of the filing, the retailer, still spotlighting its intimates category, officially closed the book on the “Angels” that had represented the brand for so long in favor of more inclusive group of influencers, models and athletes called the VS Collective.

In the U.S. and Canada, the lingerie business currently captures 50 percent of the company’s retail sales, whereas the Pink brand brings in 35 percent and Victoria’s Secret Beauty drives the remaining 15 percent.

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The specialty retailer operates 867 stores across the U.S. and Canada and 520 international franchise locations. Across all markets, digital now marks 43 percent of all sales. Nearly 15 million consumers, or approximately 60 percent of Victoria’s Secret’s customer base, purchased online in the 12 months prior to May 1, 2021.

Alongside its public-facing rebrand, Victoria’s Secret is moving ahead with three major goals to position itself for growth as an independent company: continue to drive penetration and growth in digital, expand its international business and continue optimizing the customer experience through “elevated and profitable” company-operated stores.

For the first goal, Victoria’s Secret is increasing its focus on omnichannel initiatives such as buy online, pick-up in store, and augmenting its mobile capabilities via digital selling guides, virtual try-on solutions and more alternative payment options.

The international goals are geared to both channels as well, with the company planning to increase its international store count again with newer store designs and more flexible formats. These stores will have offer product and adjusted assortments to better reflect local preferences, the company said in the filing. Online, Victoria’s Secret is building country-specific web platforms tailored to local languages and preferences. The company believes its joint venture with U.K. retailer Next is a key component to leveraging growth in the market.

Victoria's Secret officially closed the book on the “Angels” that had represented the brand for so long in favor of more inclusive group of influencers, models and athletes called the VS Collective.
Bella Hadid on the runway during the 2017 Victoria’s Secret Fashion Show held on November 20, 2017 in Shanghai, China. Victoria’s Secret officially closed the book on the “Angels” that had represented the brand for so long in favor of more inclusive group of influencers, models and athletes called the VS Collective. zz/ESBP/STAR MAX/IPx

Due to the pandemic, international sales declined by 44 percent in 2020 to $395 million compared to 2019. To start 2021, the retailer saw a 39 percent first-quarter rebound this year to approximately $100 million in sales.

For the third goal, the company says it is refreshing existing stores and working toward a “store of the future” that will include smaller, more flexible spaces with a unique dual-brand layout including both Victoria’s Secret and Pink merchandise to better accommodate shifting consumer preferences.

“We also continue to focus on appropriate space allocation within the store and right-sizing the overall size of the North American stores which we believe will lead to sales transference to other stores and our digital channel,” the filing said.

Victoria’s Secret also intends to invest in store talent and labor optimization in an effort to increase store productivity, particularly in metrics such as sales per selling square foot and overall store profitability.

“This is an exciting time for all of us at Victoria’s Secret,” Victoria’s Secret CEO Martin Waters said in a statement. “The progress we have made over the last year underscores our commitment to driving profitable growth, creating new opportunities for our talented associates, and evolving our brand and products to reflect the diverse experiences, passions and perspectives of our customers. We look forward to building on our momentum as an independent, public company.”

As previously announced, the separation is currently expected to be completed in August 2021, subject to certain customary conditions, including final approval by the L Brands board of directors and the effectiveness of the Form 10 filing.

“Today’s filing is an important step toward creating two independent, public companies designed to thrive in an evolving retail environment,” said Andrew Meslow, CEO of L Brands. “We believe Victoria’s Secret and Bath & Body Works will achieve new levels of success and unlock significant value for all stakeholders by pursuing growth strategies best suited to each company’s customer base and strategic objectives. I look forward to working with our exceptional Bath & Body Works team to continue to deliver category-leading product, engaging customer experiences and consistent results as we embark on our next chapter of growth.”

Last week, L Brands composed the new board of directors for Victoria’s Secret, which will include seven directors, six of whom are independent and six of whom are women, including the chair. Two directors currently serving on the L Brands board will step down in connection with the separation to serve on the Victoria’s Secret board.

In connection with the separation, Victoria’s Secret expects to incur up to $1 billion of new debt, the proceeds of which the company intends to use to make a payment to L Brands as part of the restructuring and to pay related fees and expenses. The retailer also expects to establish a $750 million asset-based revolving facility, which is expected to be undrawn at the separation.