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The Secret to Victoria's Success


Lingerie brand sheds sexy image, but at what cost?


Roy Raymond founded Victoria's Secret in 1977. Never again would men tiptoe nervously around racks of female intimates while saleswomen snickered. They were now part of the action.

Five years later he sold the company to The Limited (LTD), which ran with the vision and rapidly expanded the store nationwide. Leveraging existing business and booming catalogue sales, Victoria's Secret became the country's largest lingerie retailer by the early 1990s.

A thought leader in marketing sex appeal, the line has recently come under fire for its increasingly provocative image. Critics contend Victoria's Secret has abandoned its more modest roots. Last week Sharen Turney, The Limited's CEO, said, "I feel so strongly about us getting back to our heritage and really thinking in terms of ultra feminine and not just the word sexy, and becoming much more relevant to our customer."

The Limited's stock has performed choppily over the last 18 years, and has recently taken a beating along with other consumer discretionary names. To understand the gyrations, one could pore over earnings reports and cash flow statements, but why bother?

At Minyanville, we've been actively trading the name using a far more reliable strategy: Catalogue Back Issue Cover Analysis, commonly referred to by the acronym CBICA. CBICA is endorsed by 87% of single men who read the Victoria's Secret catalogue to ascertain, ummm, the esoteric difference between boy shorts and thongs.

CBICA reveals that each pivot point in the stock's trajectory over 18 years -- shown below -- is the result of catalogue cover selection, not economic conditions. And CBICA is irrefutable.

Winter 1989

The 1989 holiday catalogue featured a model clad in a dark green bath robe, strategically sliding off her left shoulder. A clear CBICA buy signal. Speculators added fuel to the rally and rumors spread that the robe would slip further in the next quarter. Investors waited with baited breath while the stock moved higher in expectation of more skin.

Winter 1991

Hopes for robe slippage were dashed as a rogue Victoria's Secret executive opted for a conservative holiday offering. The stock spent most of the 90s in a narrow trading range as investors questioned management's ability to successfully mix Santa with sex.

Fall 1999

In the late 90s, CBICA tipped off savvy investors to the influence of French supermodel Laetitia Casta. Casta spent years as the catalogue's centerpiece, and in 1999 her country asked her to pose for the bust of Marianne, an allegorical symbol of the French Republic. The Limited peaked at over $28 per share, up almost 300% from the days of Christmas at your grandmother's.

Summer 2002

The run was short-lived, however, as a major blunder in 2002 sent the stock reeling once again. Wall Street blames the recession for weak results, but CBICA says otherwise. Victoria's Secret brought in model Alessandra Ambrosio, but made the tragic mistake of dressing her in jeans and a puffy white blouse. No skin, no sales.

Spring 2004

The middle of the decade saw a strong run in shares of The Limited, and again analysts attributed the gains to things like a strong economy, earnings growth and unprecedented home equity withdrawals. Wrong again, Wall Street. Bras, not balance sheets, became more transparent.

Winter 2007

But The Limited took it too far. Recession? Credit Crunch? No, consumers took one look at this damsel in hot pink and gave Victoria's Secret the cold shoulder, proving there really can be too much of a good thing.

Back to The Future?

The image overhaul won't come easy, as the migration away from sexy could alienate the brand's newer, younger demographic. Although this reversion towards modesty is commendable, we would urge the company to consider the CBICA's findings, and not to overreact.

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No positions in stocks mentioned.

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