Introduction: A New Chapter for Victoria’s Secret
Victoria’s Secret & Co., a well-known specialty retailer focusing on intimate apparel, beauty products, and lifestyle brands, is under the watchful eye of activist investor Barington Capital. With a current market valuation of $1.5 billion and shares trading around $18.83, the company faces significant challenges that Barington believes can be overcome through strategic governance and operational realignment.
Who Is Barington Capital?
Barington Capital, holding just over 1% ownership in Victoria’s Secret, boasts a history of targeted activist campaigns, particularly in retail. Founded by James A. Mitarotonda, the firm evolved from an investment bank into a hedge fund focused on driving value in emerging and small-cap companies. Its track record includes 38 campaigns with an impressive average return of 38.18%, considerably outpacing the Russell 2000’s 14.74% return over the same span.
What Does Barington Propose?
In a recent move, Barington has urged Victoria’s Secret to rethink its leadership and strategy comprehensively. Their key recommendations include:
- Replacing at least a majority of the board with directors who have a proven track record in brand revitalization, operational efficiency, international market expansion, and creating shareholder value.
- Evaluating whether CEO Hillary Super possesses the necessary experience and vision to navigate a successful turnaround.
- Refocusing on the company’s core brand identity.
- Accelerating growth through digital channels and expanding international footprints.
- Streamlining operations by cutting underperforming and distracting initiatives to boost efficiency.
Background: Struggles Since Going Public
Victoria’s Secret debuted on the New York Stock Exchange in 2021, following its spin-off from L Brands. Initially, shares reached highs near $76, but since then, they have plummeted more than 75% to just below $18. The challenging market conditions reflect struggles including declining revenues, shrinking gross margins, inventory buildup, and significant senior management turnover.
Investor Activism – A Tale of Two Approaches
Another activist investor, BBRC International, recently criticized the board for its track record but offered limited constructive guidance beyond calling for confidence-inspiring leadership and positive financial returns. In contrast, Barington’s approach is more structured and constructive, drawing on its past experience advising L Brands, during which it helped boost stock prices by over 221%.
Barington’s History with Victoria’s Secret and Retail
Not new to this arena, Barington actively supported the 2019 L Brands spin-off of Victoria’s Secret, pushing for strategic corrections and separation to unlock shareholder value. Their advisory role contributed to a substantial increase in stock returns.
Moreover, Barington’s broader activism record includes 46 campaigns, with nearly half targeting consumer discretionary sectors, yielding returns surpassing benchmark indices. The firm is known for seeking settlements rather than prolonged proxy fights, although it has demonstrated endurance when necessary, such as in its engagement with Matthews International.
Outlook: Collaborative Change or Continued Challenges?
Given Barington’s prior constructive involvement with Victoria’s Secret and its depth of retail sector expertise, there is cautious optimism that its activism could foster meaningful change. The proposed board overhaul and strategic pivots, if implemented thoughtfully, may pave the way for revitalizing the company’s brand relevance and financial performance, ultimately benefiting shareholders.
Conclusion
Victoria’s Secret finds itself at a crossroads, with valuation significantly below its post-IPO peak and mounting operational headwinds. The activism from Barington Capital, characterized by a balanced critique and clear roadmap, offers a plausible path toward regaining shareholder confidence and unlocking long-term value. Whether the board embraces this collaborative approach will be critical in shaping the retailer’s next chapter.
