Victoria's Secret Rally Masks Turnaround Risks Amid Progress

What happened

Victoria's Secret stock has surged from around $18 to nearly $65 since August 2025, superficially signaling a robust recovery. This rally coincides with the company's turnaround efforts, as detailed in the DeepValue report, which highlights stabilization in net sales, gross profit growth, and an 11% increase in international sales in 2024. Under new leadership, initiatives like revitalizing PINK, innovating in bras, remodeling stores, and deploying AI for merchandising aim to deepen customer connections and drive value. However, the rally obscures persistent headwinds, including margin compression from tariffs, intense competition, and the impact of a recent cybersecurity incident that temporarily shut down e-commerce. With the stock trading at a discount to peers, upside depends on successful execution to sustain comparable sales and recapture margins, while downside risks remain significant.

Implication

The rally suggests market optimism about VSCO's turnaround, but investors must verify that comparable sales and gross margins improve as projected to avoid overvaluation. Positive execution on store remodels and PINK momentum could drive earnings growth and multiple expansion, offering potential upside from current discounted levels. Conversely, failure to mitigate tariff impacts or sustain digital recovery post-cyber incident could lead to downgrades and sharp stock price declines. The current valuation discount provides a margin of safety, but it is contingent on management delivering on strategic priorities like international scaling and cost management. Therefore, a risk-aware approach is warranted, with position sizing adjusted for volatility and key performance indicators such as traffic, conversion, and inventory metrics.

Thesis delta

The recent stock rally has accelerated valuation gains, potentially front-running the turnaround execution and increasing sensitivity to near-term results. This elevates the importance of monitoring comps and margin trends, as any disappointment could trigger a correction, though the core turnaround thesis based on stabilization and strategic initiatives remains intact. Investors should now focus on immediate proof points, such as holiday performance and tariff mitigation, to confirm the bullish narrative.