Victoria's Secret & Co. (NYSE:VSCO)'s upcoming third quarter results present a balanced risk-to-reward ratio for investors, analysts at UBS believe.
The intimate apparel retailer is set to report its 3Q earnings after the stock market closes on Wednesday, November 29.
The UBS analysts highlighted in a note to clients that the options market was pricing in a plus/minus 9.5% jump in Victoria’s Secret’s shares following its 3Q report, compared to the historical average earnings day move of 5.6%.
“We expect less volatility than 9.5%,” they wrote.
They added that sentiment towards the stock was leaning bearish but has modestly improved compared to previous months.
“However, we think a disappointing 4Q guide could cause sentiment to soften once again,” they wrote.
“We believe the ‘bar’ for the event is Victoria’s Secret delivers a modest 3Q earnings per share (EPS) beat and provides 4Q guidance supportive of consensus’ $2.45 forecast. We expect the company to meet those expectations.”
Wall Street analysts, on average, expect Victoria’s Secret to report a loss per share of $0.80 on revenue of $1.26 billion for 3Q, which would represent a 4.4% year-over-year decline in sales.
This is in line with the retailer’s guidance for a decrease in sales in the low- to mid-single-digit range compared to last year’s 3Q sales of $1.318 billion and an adjusted loss per share between $0.70 to $0.90.
The UBS analysts also expect Victoria’s Secret to repeat its full-year guidance of a decrease in sales in the low-single-digit range when compared to the previous fiscal year and adjusted operating income in the range of 5% to 6% of sales.
They have a ‘Sell’ rating on the stock and expect its share price to decline from about US$21 currently to US$15.
“While we see a balanced upside/downside skew over the event, we expect Victoria’s Secret to underperform over the next 12 months and thus rate it Sell,” they wrote.
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