Victoria’s Secret’s New CEO: Can Hillary Super Deliver a Turnaround?

Background and Context

Historical Performance and Challenges

Victoria’s Secret has experienced a tumultuous period marked by declining sales and a significant drop in market capitalization. Under the leadership of Martin Waters, who took over as CEO in late 2020, the company struggled to maintain its market position. During Waters’ tenure, the company’s shares plummeted nearly 75%, and its market cap fell from $5.3 billion to about $2 billion. Despite efforts to revamp the brand, including the acquisition of DTC brand Adore Me and various marketing campaigns, the company continued to face challenges.

Recent Financial Performance

The financial performance of Victoria’s Secret in recent quarters has shown signs of improvement, albeit modest. In Q2 2024, the company reported net sales of $1.417 billion, a slight decrease of 1% from $1.427 billion in Q2 2023. However, the company achieved a net income of $32 million, or $0.40 per diluted share, compared to a net loss of $1 million, or $0.02 per diluted share, in Q2 2023. Operating income for Q2 2024 was $62 million, up from $26 million in Q2 2023. These results indicate a positive trend, driven by successful product launches and disciplined inventory management.

Leadership Transition

Appointment of Hillary Super

Hillary Super’s appointment as CEO is seen as a strategic move to leverage her extensive retail experience and industry expertise. Super previously served as CEO of Savage X Fenty, a brand co-founded by Rihanna that has gained significant market share from Victoria’s Secret. Her leadership at Savage X Fenty and Anthropologie Group has been marked by a focus on inclusivity, innovation, and customer engagement—qualities that are crucial for Victoria’s Secret’s turnaround.

Compensation and Incentives

Super’s compensation package reflects the high expectations placed on her. She will receive a base salary of $1.2 million, a $1 million signing bonus, and an annual cash bonus potential of $2.1 million to $2.4 million. Additionally, she will receive a one-time stock award valued at $5.75 million, with annual equity grants amounting to $7.7 million starting in 2025. This substantial compensation package underscores the board’s confidence in her ability to drive growth and improve the company’s market position.

Strategic Initiatives and Market Position

Focus on Growth and Transformation

Super is expected to drive the next chapter of VS&Co’s business, emphasizing growth in the North American market and leveraging the company’s brand strengths for international expansion. The board has expressed confidence in her merchant leadership skills and operational discipline to enhance shareholder value and capitalize on growth opportunities. Under her leadership, the company aims to build on the inclusive culture established under Waters and improve digital platform capabilities and the customer experience both online and in stores.

Recent Acquisitions and Initiatives

Under Waters, the company acquired DTC brand Adore Me in 2022 and initiated several campaigns to revamp its image, including bringing back former “Angels” for a campaign and launching a gender equality fund. These initiatives have laid the groundwork for Super to build upon. The company’s recent quarterly results indicate a slight improvement, with net sales expected to decline by 1% to 2%, better than prior guidance of a 3% decline. This suggests that the company is on a path to stabilization, which Super can leverage to drive further growth.

Financial Outlook and Market Challenges

Financial Projections

Victoria’s Secret has raised its full-year 2024 sales outlook, now projecting a 1% decline compared to previous guidance of low-single-digit declines. Adjusted operating income for the fiscal year is expected to be between $275 million and $300 million. For Q3 2024, net sales are forecasted to increase by low-single digits compared to $1.265 billion in Q3 2023. These projections indicate cautious optimism, with expectations for continued improvement under Super’s leadership.

Market Challenges

Despite the positive trends, the company continues to navigate a challenging consumer environment and economic pressures affecting customers. The macroeconomic environment remains uncertain, with factors such as inflation and changing consumer spending patterns posing risks to the company’s performance. Additionally, competition from emerging brands like Savage X Fenty and other e-commerce players continues to be a significant challenge.

Expert Opinions and Market Sentiment

Analyst Perspectives

Analysts have expressed confidence in Super’s ability to lead a turnaround for the struggling company. Her relevant industry expertise from companies like Savage X Fenty, Guess, Anthropologie, and American Eagle Outfitters is seen as a valuable asset. However, caution is advised due to the challenging macroeconomic environment that affects consumer spending. The stock surged by about 20% following the CEO announcement, but it trades at an elevated forward P/E ratio of 11x, above its historical average of 8x-10x. Analysts recommend a “hold” rating until there is concrete evidence of a growth recovery.

Market Reaction

The market responded positively to Super’s appointment, with shares rising over 15% following the announcement. This indicates investor optimism about her potential to revive the brand. However, some analysts caution against overly optimistic comparisons to other corporate turnarounds, emphasizing the need for concrete results before making definitive judgments.

Conclusion

Can Hillary Super Deliver?

Based on the available information, Hillary Super’s appointment as CEO of Victoria’s Secret comes at a critical juncture for the company. Her extensive retail experience, particularly her successful tenure at Savage X Fenty, positions her well to lead the company’s turnaround. The initial financial momentum and positive market reaction to her appointment suggest that there is potential for recovery under her leadership.

However, the path to recovery is fraught with challenges, including a tough macroeconomic environment and intense competition. Super’s ability to deliver will depend on her execution of strategic initiatives, focus on growth and transformation, and ability to navigate market challenges. While there are positive indicators, it is essential to monitor the company’s performance closely in the coming quarters to assess the effectiveness of her leadership.

In conclusion, while it is too early to make definitive judgments, the initial signs are promising. Hillary Super has the experience, expertise, and strategic vision to potentially lead Victoria’s Secret to a successful turnaround. The coming months will be crucial in determining whether she can deliver on the high expectations set for her and drive the company towards sustained growth and profitability.