Victoria's Secret & Company Q2 FY2026 earnings call

• Strategic Progress: The 'Path to Potential' strategy is delivering results with five consecutive quarters of positive comps, market share gains, and broad-based growth across brands and channels.
• Bra Authority: Bras are the primary growth driver, growing in the mid-teens. Innovation (e.g., Flex Factor Balcony) and fashion updates (e.g., Very Sexy NV) are driving both new and existing customer acquisition, particularly among 18-24-year-olds.
• Pink Identity: Pink is sharpening its identity as a distinct lifestyle brand, growing in the high single digits. Key initiatives include the Marshmello bra launch and the immersive Pink Friday event, which shifted focus from promotion to experience.
• Beauty Momentum: Beauty continues strong growth driven by core fragrances and innovation (e.g., Strawberry Bisou). Management is leveraging nostalgia through archive drops and integrating beauty into broader brand moments like Mother’s Day.
• Customer Growth: The customer file grew mid-single digits for the fourth consecutive quarter, with new customer acquisition outpacing total file growth. Retention and spending per customer are improving.
• Operational Efficiency: Regular price selling increased in the low double digits, reducing reliance on promotions. AUR accelerated to high single-digit growth. SG&A rate improved by 70 basis points despite investments in marketing and store experience.
• International Expansion: International growth is led by China (digital and retail) and European digital channels. New flagship openings and localized marketing are supporting global expansion.

Net sales reached $1.611 billion, a 10% year-over-year increase. Victoria's Secret brand sales grew in the mid-teens, contributing approximately half of its growth from bras. Pink brand sales grew in the high single digits (mid-teens excluding timing shifts). Beauty sales grew in the mid-single digits for its 12th consecutive quarter. North America showed strength with VS Intimates up mid-teens and Pink Intimates up high single digits. International net sales grew 20% (10% adjusted for reporting shifts), led by China and European digital channels.

• FY 2026 Net Sales: Raised to $7.10–$7.18 billion (from $7.03–$7.13 billion), representing 8–10% YoY growth.
• FY 2026 Adjusted Operating Income: Raised to $560–$590 million.
• FY 2026 Adjusted EPS: Raised to $4.45–$4.70 (from $4.35–$4.60).
• Q3 2026 Net Sales: Forecasted at $1.57–$1.60 billion, implying 7–9% YoY growth (16–18% two-year basis).
• Q3 2026 Operating Income: Forecasted at $10–$20 million, a significant improvement from break-even in Q3 2025.
• Tariff Assumptions: Q3 assumes ~10–12.5% tariffs; Q4 assumes a return to ~20%. Full-year guidance includes mitigation benefits.

• Promotional Dependency: Reduced inventory during the semi-annual sale pressured June top lines, highlighting risks in balancing inventory levels with promotional events.
• Tariff Volatility: Uncertainty around future tariff rates (assumed 10–12.5% in Q3, 20% in Q4) poses ongoing margin pressure, though mitigation efforts are partially offsetting this.
• Marketing Investment ROI: Increased marketing spend (targeting high single-digit % of sales) carries execution risk if customer acquisition efficiency does not sustain.
• Inventory Management: While inventories are healthy, maintaining optimal stock levels amidst shifting demand patterns (e.g., semi-annual sale dynamics) requires precise execution.

Q: Analyst asked about Pink's promotion usage and new customer cohort quality (AUR, retention).

A: Scott Sekella stated Pink is pulling back on promotions, with regular price selling driving all growth, especially in icon apparel styles. Elizabeth Preis noted that new customers are being retained better via integrated digital/own-channel engagement, returning faster and spending more than previous cohorts.

Q: Analyst asked about bra innovation cadence, SoHo store potential, and marketing spend trajectory.

A: Hillary Super highlighted successful innovations like Flex Factor Balcony and Marshmello, calling them incremental. She described the SoHo store as a 'laboratory' for potential standalone expansion. Sekella confirmed current marketing spend is ~7% of sales, with plans to rise to high single digits, supported by strong ROI from recent channel shifts.

Q: Analyst questioned the drivers behind Q3 profitability after years of losses and new customer long-term value.

A: Sekella attributed Q3 profit to strong regular price unit growth and mix shift. Preis emphasized that new customers are not 'one-and-done,' citing app growth (+30%) and rich social data enabling efficient remarketing and higher repeat purchase rates.

Q: Analyst asked about back-half margin expansion vs. front-half and the role of stores.

A: Sekella explained Q3/Q4 margin expansion will be less aggressive due to tougher comps and flatter promos in Q4. Super affirmed stores are critical for fitting service and Gen Z engagement, with 'Store of the Future' tweaks focusing on beauty square footage and Pink-specific layouts based on Soho learnings.

Q: Analyst inquired about semi-annual sale strategy and international deceleration causes.

A: Sekella said the sale will remain key for inventory clearance but with less revenue focus and added newness. He attributed international deceleration to timing shifts in low-margin franchise partner shipments, noting China remains the top growth area with accelerating retail comps.