Victoria's Secret & Co. Q3 FY2024 earnings call

• Q3 sales growth was well ahead of expectations, driven by broad-based strengths across all regions, channels, merchandise categories, and brands. - Key initiatives included PINK Friday, VSX launch, VS Fashion Show, beauty giftables like the Bombshell Advent Calendar, and a multi-tender loyalty program with ~35 million members driving over 80% of weekly sales. - 90-day insights focused on customer-centric approach, differentiating PINK and Victoria's Secret, and leveraging innovation and cultural moments through products and marketing.

In the third quarter, total sales increased 7%. North America had mid-single digit growth, with Victoria's Secret and PINK in North America experiencing positive year-over-year sales growth across major merchandise categories in both stores and digital. Beauty was the best-performing category, followed by casual sleep and intimates. International business saw system-wide retail sales of mid-teens, driven by growth with franchise and travel retail partners and the joint venture in China. Revenue contribution: North America and international each played significant roles, with international showing strong growth momentum.

• Fourth quarter 2024 net sales forecasted to increase approximately 2% to 4% vs 2023's 13-week period. - Q4 2024 adjusted operating income expected in the range of $240 million to $270 million. - Full-year sales now expected up ~1% to 2% vs last year, with adjusted operating income forecasted to be in the range of $315 million to $345 million.

• Transportation costs, both ocean and air, are up meaningfully year-over-year, impacting gross margin. - Potential tariff impacts on China manufacturing and sourcing. - Promotional environment challenges and the need to balance top-line growth with margin expansion.

Q: From the outside, it feels like a switch has been flipped. How are you thinking about product versus marketing versus promotions as the brands regain perception among consumers? Also, color on store consolidation and productivity.

A: Hillary Super discussed that Victoria's Secret's success is due to sexy, glamorous, accessible luxury, with bra franchises and beauty driving success. For PINK, TikTok and heritage pieces are key. Tim Johnson added on store consolidation, noting downsizing stores that were too big and combining stand-alone stores, seeing productivity improvements.

Q: Talk about the evolution of marketing strategy, where you might spend dollars, and promo plans for fourth quarter.

A: Hillary Super said marketing spend will be consistent, with shifts in PINK's approach to TikTok and collaborations. Tim Johnson mentioned Q3 promotions were stronger than expected, Q4 promotions likely flat year-over-year, but selling margin will be up, with transportation costs and incentive comp impacting gross margin.

Q: Attribute digital business momentum and what percentage of the business it can be over time, and if driven by new or existing customers.

A: Tim Johnson said digital momentum comes from product, investments in people/process/technology, in-house media buying, and traffic from fashion show. Hillary Super added new customer growth seen in October, with over 35 million loyalty members driving 80% of weekly sales, including new customer growth.

Q: Insights on apparel KPIs in PINK and Adore Me payments.

A: Hillary Super talked about apparel in PINK improving, with focus on diversifying assortment. Tim Johnson explained Adore Me payments, with $200 million in Q4 related to synergies and employment, and performance-based payment in Q1 2025.

Q: Driving balance between top-line growth and gross margin expansion, and markdown recapture opportunity.

A: Hillary Super emphasized being less promotional and brand forward. Tim Johnson said there's opportunity in better promotions, with big days being bigger and base business solid, indicating potential margin improvement.

Q: Store opportunities, space allocation, and China manufacturing/sourcing.

A: Hillary Super discussed store space allocation, enhancing store design for sexy luxury, and space for PINK. Tim Johnson noted China manufacturing is a single-digit percentage, with product from Vietnam, Sri Lanka, Indonesia.

Q: Customer reactivations and bra launch cadence.

A: Hillary Super said new customers, especially Gen-Z, are driving growth from the VS Fashion Show. She emphasized doubling down on innovation and bra launches as core to the business.

Q: Beauty business evolution and Adore Me performance.

A: Hillary Super said beauty is strong with long runway, especially in social commerce. Tim Johnson noted Adore Me had mid-to-high single digit top-line growth in Q3, profitable, and well-positioned for holiday.

Q: Sports bra category, intimate market outlook, and China macro environment.

A: Hillary Super said sports bra launch was successful with room to grow, intimate market soft but brand working to create demand. Tim Johnson discussed positive trends in China joint venture, with growth in Q3, especially digital.