Victoria’s Secret sets high expectations for Adore Me as deal closes

Dive Brief:

Victoria’s Secret on Tuesday said that its Adore Me acquisition “creates meaningful sales and profit upside opportunities” for the company. The intimates giant in November said it would purchase the DTC lingerie brand for $400 million.
Adore Me is expected to generate some $250 million in profitable sales in its most recently completed fiscal year, according to a company press release announcing the deal’s closing.
The company expects Adore Me to boost earnings and cash flow and provide "the opportunity to leverage Adore Me’s expertise and technology to continue to improve the Victoria’s Secret and PINK customer shopping experience and accelerate the modernization” of its digital platform.

Dive Insight:

Adore Me is destined to boost Victoria’s Secret to some extent, but how meaningful that will be remains to be seen.

“From the beginning, we evaluated Adore Me as a two for one opportunity – a technology-led, digital-first innovator in the intimates category and a highly efficient, growing and profitable standalone business model,” CEO Martin Waters said in a statement. “I am thrilled with the swift completion of the acquisition and excited to welcome the entire Adore Me team into the VS&Co family.”

Wells Fargo analysts last month adjusted their expectations for the company in light of the acquisition, estimating that the digitally native brand could bring in $210 million this fiscal year. The analysts led by Ike Boruchow now expect Victoria’s Secret to notch $6.8 billion in revenues, up from $6.5 billion, assuming that contribution from Adore Me along with $100 million thanks to a 53rd week in this fiscal year.

Victoria’s Secret is two years into a five-year turnaround, and is aiming for as much as $7.4 billion in sales, with operating margin in the mid teens, according to an October presentation to shareholders. Victoria’s Secret notched $6.8 billion in net sales in 2021.

But UBS analysts are somewhat skeptical about the company’s turnaround, citing discussion with an industry “expert who has deep insight into Victoria's Secret's strengths, weaknesses, opportunities, and threats.” They didn’t mention the Adore Me acquisition in a Dec. 27 research note, but did acknowledge improvements in sizing, merchandising and store formats.

“Our main takeaway is Victoria's Secret has made good progress is some areas and has further opportunities in other areas,” the UBS team led by Jay Sole said in emailed comments. “Yet, there are also important ways the company needs to improve. This keeps us from getting bullish on the stock.”

Above all the company needs to be more bold with its new marketing approach, according to Sole. Victoria’s Secret has spun its marketing 180 degrees in the last couple of years, moving toward a more inclusive and empowering message from its previous dependence on sexy angels. That shift may be too subtle to alter consumer perceptions of the brand, however.

“We don't believe Victoria's Secret is on a path to establish a clear, differentiated, and relevant brand positioning that will enable it to achieve durable [earnings] growth,” Sole said.