L Brands Inc (NYSE: LB) hosted an analyst day this week, and much of the focus was on the embattled Victoria's Secret brand.
The company provided a longer-term goal for the brand to achieve 10-15% operating margins.
The margin goal is unrealistic given changes in store productivity and the online mix, Bank of America Merrill Lynch analyst Lorraine Hutchinson said in a Wednesday note.
BofA has a year-end operating margin forecast of 3.6% for Victoria's Secret.
Marketing evolution will determine future growth, with a significant focus on improving Victoria's Secret and Pink's marketing to drive a positive sales inflection, the analyst said.
"It is too early to tell if recent marketing changes will move the needle and we view the brand's strategy to reduce choice count by 50% for holiday as very risky."
Although Hutchinson acknowledged the company is working hard to change course, she maintained a Neutral rating on the stock with a $22 price target.
Victoria's Secret remains a big wildcard, Wells Fargo analyst Ike Boruchow said in a Tuersday note, keeping his near-term bull case somewhat muted given that much of investor focus is on the brand.
The analyst is upbeat about new PINK CEO Amy Hauk and the direction she is taking the brand in, and said Bath & Body Works continues to generate some of the strongest results in retail today.
Yet it was hard to come out the event feeling upbeat about the direction of Victoria's Secret, Boruchow said.
"Management specifically stated that PINK is further ahead in their turnaround plan than VS, while signs of tangible evidence in strategy likely won't be available until early 2020."
Wells Fargo maintained an Outperform rating on the company with a $32 price target.
Credit Suisse analyst Michael Binetti continues to question whether Victoria's Secret should consider sacrificing more top-line volume in the near-term to try to bolster the potential to return to healthy longer-term margins.
The analyst sees risk to any assumption that new products and marketing can pivot trends quickly, and said he wonders if positive changes at PINK can do enough to decouple the brand from Victoria's Secret in the eyes of consumers.
Credit Suisse maintained a Neutral rating with a $22 price target.
MKM: Weaning Customers Off Promotions Takes Time
Victoria's Secret is more focused, but it is still too early to know whether the changes will work, MKM Partners analyst Roxanne Meyer said in a Wednesday note.
"We have mixed views as it relates to the evolving brand direction at VS, and potential customer response," the analyst said.
"Even if the product/vision does take hold, it could take several quarters to wean customers off of the intense promotional activity they expect."
On a positive note, the analyst said L Brands will benefit from greater product clarity after cutting two-thirds of SKUs.
MKM maintained a Neutral rating on the company with a price target lowered from $26 to $21.
L Brands Loses 14% On Dull Showing From Victoria's Secret