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Investing.com -- Moody’s (NYSE:MCO) Ratings has updated the outlook for Victoria’s Secret & Co. (VS) from negative to stable, while affirming all ratings including the Ba3 corporate family rating (CFR), the Ba3-PD probability of default rating, the Ba2 senior secured bank credit facility rating, and the B1 senior unsecured notes rating. The speculative grade liquidity rating (SGL) for the company remains at SGL-2.
The decision to change the outlook to stable is a reflection of Victoria’s Secret’s improved operating performance, with all merchandise categories showing positive trends in recent quarters. Moody’s Ratings Vice President Mickey Chadha stated that they expect this upward trend to continue into the fourth quarter, despite a challenging consumer environment. Chadha also stated that the company is expected to maintain its lease adjusted leverage at approximately 2.7x over the next 12 months.
Victoria’s Secret’s Ba3 corporate family rating is backed by its strong market position as a leading retailer of intimate apparel through its Victoria’s Secret and PINK brands, its robust beauty business, and its good liquidity. The company is implementing strategic initiatives to enhance its operational performance, which includes the rationalization of its fleet, addressing its assortments and imagery, remodeling stores, reducing costs, and expanding its third-party product assortment.
The company’s rating is also bolstered by its conservative capital structure and good liquidity. Victoria’s Secret has grown its e-commerce business rapidly and acquired an intimate apparel company, Adore Me, in December 2022. Adore Me, which primarily sells its products online using a proprietary technology platform, has over a million active customers.
Victoria’s Secret’s operating performance has improved with positive trends across all merchandise categories, successful new product launches, and an improved assortment at its PINK brand. The company anticipates net sales growth of 3%-4% in the fourth quarter, an improvement from the previous expectation of 2%-3% growth. Credit metrics are expected to improve in 2025 with debt/EBITDA and EBIT/Interest predicted to be around 2.7x and 2.4x respectively over the next 12 months.
The stable outlook reflects Moody’s expectation that Victoria’s Secret’s operating performance and credit metrics will continue to improve and its liquidity will remain very good. However, the company’s rating is limited by its narrow product focus, which includes a significant fashion element and can lead to earnings volatility.
Ratings could be upgraded if the company continues to post consistent sales and operating earnings growth while maintaining good liquidity. An upgrade would require a conservative and clearly articulated financial strategy. In contrast, ratings could be downgraded if liquidity deteriorates, financial strategies become more aggressive, or if revenue and operating profit do not improve.
Victoria’s Secret & Co., headquartered in Reynoldsburg, Ohio, is a specialty retailer of women’s lingerie, other apparel, personal care, and beauty products through its global retail stores. The company operates 813 stores in North America and 492 stores outside North America, in addition to 69 stores in a joint venture in China and 6 Adore Me stores. Its beauty products business comprises about 20% of its net sales. The company reported revenue of about $6.2 billion for the twelve months ended November 2, 2024.
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