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Victoria’s Secret Inks China JV

Victoria’s Secret & Co. (VS) has entered into a joint venture agreement (JV) for its China operations with an existing merchandise supplier.

The partnership is with Regina Miracle International (Holdings) Limited, which will pay the American intimates retailer $45 million for its 49 percent minority stake in the JV. Regina Miracle is a publicly-listed company on the Hong Kong Stock Exchange that is considered a global leader in the intimates manufacturing sector. The JV provides VS with a majority ownership stake at 51 percent. The agreement is subject to regulatory approval, which is expected in the first quarter of fiscal 2022.

“I am delighted to announce this partnership with Regina Miracle, who has been a valued merchandise supplier partner for more than twenty years. Together with Regina Miracle, we aim to grow the China business through joint investment in product development, distribution, and marketing. We expect the partnership will positively impact the speed and agility of the business to benefit consumers and provide us with a platform for a strong future in this important market,” said Martin Waters, Victoria’s Secret CEO.

“This JV with Regina Miracle in China JV with Regina Miracle in Chinas of the company and we believe establishes a platform for accelerated sales and earnings growth in the market over the next several years,” he added.

“We are confident that our highly complementary strengths—Regina Miracle’s industry-leading innovation capabilities and market foresights as an innovative design manufacturer, and Victoria’s Secret’s undisputed brand leadership, retailing and marketing expertise—will perfectly position this partnership in capturing the growth opportunities in China,” YY Hung, Regina Miracle’s chairman, CEO and executive director, said.

The American intimates retailer was part of L Brands until its formal separation as an independent public company in August 2021, after which it was renamed Victoria’s Secret & Co. L Brands itself has been renamed Bath & Body Works. The intimates spin-off includes VS-branded lingerie and beauty, and its Pink divisions.

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The new JV comes at a time when VS still remains a “show me” story for investors. The brand lost some of its mojo over the years, mostly because consumer preferences shifted from overtly sexy merchandising–think padded, push-up bras and the brand’s runway shows featuring its Angels—to looks that are more comfortable and inclusive of fuller figures.

The U.K. arm in June 2020 fell into administration following the height of the Covid pandemic. While still in bankruptcy proceedings, the company joined forces with Next PLC via a joint venture to operate VS stores in the U.K. and Ireland. That JV has Next owning the majority stake at 51 percent.

The new JV with Regina Miracle represents an effort to rebuild VS’s international foothold. It’s a move that makes sense as VS looks at growth options, given the background of the company’s CEO. Waters was CEO of L Brands International when VS was still part of the L Brands umbrella, and the person behind the deal with Next PLC.

Although VS saw Covid-19-related disruption to its inventory and related supply chain issues in the third and fourth quarters, particularly with 50 percent of merchandise in transit over the holiday selling season, Jefferies analyst Corey Tarlowe has a “Buy” rating on shares of VS stock, with a target price of $75 versus the current trading range of $54.00.

Tarlowe said in a research note on Tuesday that VS is “on a path to recovery, with sales momentum gaining and brand sentiment improving. While the company’s initiatives are working, near-term top-line trends are partly pressured by supply chain headwinds, which may obscure underlying brand recovery efforts.”

The analyst looked favorably on the JV in terms of the overall VS business. “We believe this agreement should help to drive better sales and earnings growth in the market over time,” Tarlowe said, describing the restructuring the international businesses in China and the U.K. as “prudent, given the business will become more capital-light in nature with opportunity to further improve profitability, in our view.”