Market challenges may lead to Q1 losses, Victoria's Secret (VSCO.US) plunges more than 25% after hours.

After the US stock market closed on Wednesday, Victoria's Secret (VSCO.US) stock price plummeted by more than 25%, as the company warned that ongoing challenges in its lingerie category could lead to a loss next quarter. The company stated: "Looking ahead to the new year, we recognize that the broader North American lingerie market has seen a continuous decline for four consecutive quarters year-over-year, and the macro environment remains challenging, putting pressure on consumers." The company added, "We are cautiously planning our near-term business and remain open to purchases to capitalize on any changes in trends." As a result, Victoria's Secret expects sales for 2024 to decrease by single digits compared to 2023, to $6 billion, which is lower than the expected $6.18 billion. For the first quarter, the company expects adjusted earnings to be between a loss of $0.15 and a profit of $0.10 per share, compared to a profit of $0.28 per share in the first quarter of 2023. The Wall Street consensus forecast is for earnings per share of $0.31. Total sales are expected to decrease by mid-single digits in the first quarter, and the company's adjusted gross margin is expected to be between 36.5% and 37.5%. In the most recent quarter, the clothing company reported adjusted earnings per share of $2.58, a 3% increase in revenue, reaching $2.58 billion. Both of these indicators were at the top end of the company's fourth quarter guidance, exceeding or matching Wall Street expectations. Comparable store sales decreased by 6%, a decrease similar to the same period last year, when comparable store sales decreased by 9% in 2023 and 8% in 2022. Due to lower product costs, the adjusted gross margin was 40%, an increase of 240 basis points, exceeding the company's guidance range of 38.5% to 39.5%. As of the end of 2023, the company had a cash balance of $270 million and debt of $145 million, lower than the previous year's $295 million. Due to the timing of early spring inventory deliveries and related payments, free cash flow of $133 million was lower than the company's guidance. Finally, the company's board also approved a new $250 million share repurchase agreement.