Telsey Advisory Group analyst Dana Telsey reiterated a Market Perform rating on the shares of Victoria's Secret & Co. (NYSE: VSCO), with a price target of $21.
The analyst remains remarkably upbeat about VSCO's "store-of-the-future" concept.
The store is smaller (6K-8K sq. ft. vs. 10K-12K sq. ft.) than its prior standard prototype and equipped with more technology on the selling floor and fitting rooms.
By the end of FY23, around 10% of the fleet will be in the new format; there are approximately 30 locations currently in some type of store-of-the-future format.
Given the favorable response to the increased technologies, the company is expanding to its top 100 locations despite being legacy stores.
VSCO's international partners are also excited by this new concept as the smaller footprint is more productive than the prior layout, and it is less expensive to build out ($350-$400 per sq. ft. vs. the previous prototype's $600-700per sq. ft.), resulting in more robust returns.
Telsey also applauds VSCO's partnership with Amazon.Com, Inc. (NASDAQ: AMZN). Victoria's Secret had been the most searched specialty apparel brand on Amazon, which it could not satisfy before its launch on the site.
VSCO noted AMZN had been a productive partner and that there are ways to strengthen the partnership going forward, notes the analyst.
The analyst believes that management is taking the proper steps to drive growth in the business through the implementation of a loyalty program, investing in a more efficient "store-of-the-future" format, increasing newness across the offering, and taking advantage of a normalized supply chain to chase demand across a revamped PINK apparel offering.
However, the analyst notes that the current macro backdrop and category weakness make visibility to nearer-term profitability potential more challenging.
Price Action: VSCO shares are trading higher by 2.33% to $17.68 on the last check Thursday.