Victoria's Secret & Co. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Strong first-quarter results exceeded guidance, with net sales flat and operating income exceeding expectations. Broad-based strength across both brands.
• Update on security incident: Identified on May 24, systems and e-commerce site taken offline, back online May 29. Engaged third-party experts and followed response protocols.
• Progress on strategic priorities: Recommit to Pink, supercharged bras, fuel growth in lifestyle categories, modernize brand projection and go-to-market strategy. Made progress across these initiatives.
• Key hires: Appointed brand presidents for Victoria's Secret, Pink, and Beauty; Chief Marketing Officer; and Executive Creative Director. These leaders bring proven track records to drive strategy.
• Channel performance: Stores outpaced mall traffic in March and April while being less promotional. Digital channels slightly outpaced stores for Victoria's Secret and Pink. International business saw strong growth.

Segment Performance

• Pink Apparel: Delivered third consecutive quarter of positive comps, significant margin and AUR expansion. Drove by improved product, high emotion storytelling, and customer engagement. Contributed to growth in lifestyle categories.
• Beauty: Achieved seventh consecutive quarter of growth, led by Bombshell's fifteenth anniversary and new Body Care launch in Q1. Saw low single-digit growth.
• VSX: Fifth consecutive quarter of double-digit growth, driven by product innovation and advanced fabric technology. Sports bras and BSX bras performed well, with BSX bras up 20% in the quarter.
• International: Registered strong high single-digit growth, with reported first-quarter international sales growing 9% to nearly $200 million. China business saw double-digit growth, primarily via digital channel.

Guidance

• Fiscal year 2025: Expected net sales $6.2 billion to $6.3 billion, adjusted operating income $270 million to $320 million. Adjusted net income per diluted share forecast $1.80 to $2.20. Capital expenditures ~$220 million, adjusted free cash flow ~$150 million to $200 million.
• Second quarter 2025: Forecast net sales $1.38 billion to $1.41 billion, adjusted operating income $15 million to $35 million. Includes ~$20 million net sales impact from security incident.
• Store plans: ~16 new stores in North America, ~30-40 closures, ~40 renovations in North America; international Store of the Future presence at ~40% of fleet by end of 2025.
• Inventory: Expected to continue mid-single-digit growth through the year.

Risks

• Security Incident: Identified on May 24, led to internal systems and e-commerce site going offline. Required response protocols and engagement of third-party experts. Impacted sales and operations temporarily.
• Macro Environment Uncertainty: Tariffs, consumer sentiment fluctuations, and market pressures pose challenges to sales and margin performance.

Question and Answer Q: Brooke Roach asks about marketing strategy for the rest of the year and price increases due to tariffs.

A: Hillary Super discusses evolution of creative content, focus on acquisition via segmented media plan, and strategic promo optimization. Scott Sekella talks about strategic pricing, optimizing promos, and being mindful of price points.

Q: Alex Straton asks about brand evolution progress and gross margin components.

A: Hillary Super highlights progress in Pink apparel, beauty growth, and Versus evolution. Scott Sekella breaks down gross margin components, noting inbound rates, tariffs, and GWP impact as key factors.

Q: Simeon Siegel asks about revenue opportunity at PACE and gross margin by brand.

A: Hillary Super emphasizes significant revenue opportunity in Pink's return to past volume. Scott Sekella notes Beauty has higher gross margin than Versus and Pink, with mix impacting overall margin.

Q: Dana Telsey asks about intimates market performance and tariff mitigation.

A: Hillary Super discusses intimates market pressure, bras vs. panties performance, and shift to sports bras. Scott Sekella explains tariff mitigation measures coming into play in back half, with impact felt in Q2 and beyond.

Q: Matthew Boss asks about team and inventory guidance.

A: Hillary Super praises the team as a 'super squad' positioned to drive strategy. Scott Sekella states inventory expected to continue mid-single-digit growth, with lap of European distribution center in back half.

Q: Corey Tarlowe asks about team and inventory path.

A: Hillary Super affirms confidence in the current team. Scott Sekella confirms inventory growth trend continuing, with back half impacted by tariffs.

Q: Lorraine Hutchinson asks about younger customers' interaction with intimates and AURs.

A: Hillary Super explains younger customers are wearing sports bras and bra tops more, shifting from traditional bras. AURs driven by Pink and Beauty increases.

Q: Mauricio Serna asks about quarter-to-date trend and Q1 gross margin drivers.

A: Hillary Super notes base business strengthened in March and continued into May. Scott Sekella attributes Q1 gross margin miss to raw material write-off, GWP amplification, and inbound headwinds.

Q: Marni Shapiro asks about Pink's shopper base and Pink Active.

A: Hillary Super says Pink's strength is from existing/lapsed customers, with focus on acquisition. Pink Active is shifting to lifestyle and mix of apparel rather than true sport.

Q: Jonah Kim asks about swim performance and beauty business size.

A: Hillary Super reports strong swim performance in Pink and Versus, with learnings for future. Beauty is ~25% of business, with opportunity to innovate and expand.

Q: Janet Kloppenburg asks about pricing structure and GWP impact on gross margin.

A: Hillary Super discusses pricing pressure in intimates, emphasizing storytelling and brand differentiation. Views GWPs as better than traditional promos, driving traffic and basket size but slightly impacting gross margin.