8-K: Victoria's Secret & Co. Reports Strong Q2 Results, Raises Full-Year Outlook

Victoria's Secret & Co. announced improved second-quarter results, including the first year-over-year quarterly operating income growth since 2021, and raised its full-year 2024 outlook.

Summary

• Victoria's Secret & Co. reported a net income of $32 million, or $0.40 per diluted share, for the second quarter of 2024, a significant improvement from a net loss of $1 million in the same period last year.
• The company's operating income for the second quarter was $62 million, compared to $26 million in the second quarter of 2023, marking the first year-over-year quarterly operating income growth since 2021.
• Net sales for the second quarter were $1.417 billion, a slight decrease of 1% compared to $1.427 billion in the second quarter of 2023, but better than the company's preliminary estimates.
• Total comparable sales for the second quarter decreased by 3%.
• The company has raised its full-year 2024 net sales outlook to a decrease of approximately 1%, compared to prior guidance of a low-single-digit decrease.
• Adjusted operating income for fiscal year 2024 is now expected to be in the range of $275 million to $300 million, up from the previous guidance of $250 million to $275 million.
• For the third quarter of 2024, the company forecasts net sales to increase by low-single digits compared to last year's third quarter net sales of $1.265 billion.
• The adjusted operating loss for the third quarter of 2024 is expected to be in the range of $40 million to $60 million, with an adjusted net loss per share estimated to be between $0.60 and $0.80.

Sentiment

Score: 7

Explanation: The sentiment is positive due to the company's improved financial results, raised outlook, and return to operating income growth. However, the challenging consumer environment and forecasted loss in Q3 temper the overall optimism.

Positives

• The company's sales performance has sequentially improved for the fourth consecutive quarter.
• Gross margin dollar growth and rate expansion were achieved due to improved product acceptance and disciplined inventory management.
• SG&A expenses decreased year-over-year due to a focus on improving cost structure.
• The company saw sales growth in the high-single digits for both its International business and Adore Me.
• Early customer feedback on fall assortments is encouraging for both the Victoria's Secret and PINK brands.
• The beauty business continues to perform well and drive traffic to stores.

Negatives

• Net sales for the second quarter decreased by 1% compared to the same period last year.
• Total comparable sales for the second quarter decreased by 3%.
• The company is forecasting an adjusted operating loss for the third quarter of 2024 in the range of $40 million to $60 million.
• The company is forecasting an adjusted net loss per share for the third quarter of 2024 in the range of $0.60 to $0.80.
• The consumer environment remains challenging and the customer is economically pressured.

Risks

• The company acknowledges the challenging consumer environment and economic pressures on customers.
• The company's future performance and financial results may differ materially from forward-looking statements due to various factors, many of which are beyond their control.
• Risks include general economic conditions, inflation, changes in consumer spending, market disruptions, and the ability to implement strategic plans.
• The company faces risks related to competition, consumer acceptance of products, and the ability to manage brand lifecycles.
• There are risks associated with sourcing materials, production, distribution, and potential disruptions in the supply chain.
• The company is exposed to risks related to information technology systems, data security, and compliance with regulatory requirements.

Future Outlook

The company has raised its full-year 2024 outlook and is forecasting a net sales decrease of approximately 1%. Adjusted operating income for fiscal year 2024 is expected to be in the range of $275 million to $300 million. The company is forecasting third quarter 2024 net sales to increase by low-single digits, with an adjusted operating loss between $40 million and $60 million.

Management Comments

• Our financial results for the second quarter came in at the high end of expectations and we delivered year-over-year quarterly operating income growth for the first time since 2021.
• We were encouraged by the continued sequential improvement in quarterly sales results in North America for the fourth consecutive quarter.
• Improving product acceptance and disciplined inventory management led to gross margin dollar growth and rate expansion.
• We are encouraged our North America business trends have continued to improve as we've moved through August and the start of the third quarter.
• While we are optimistic about the positive signs we're seeing in our business, we recognize the consumer environment remains challenging and our customer is pressured economically.
• We remain focused on what we can control which is leveraging our market position in intimates and delivering on multiple initiatives to drive growth in our business over the longer-term.

Industry Context

The results indicate a positive turnaround for Victoria's Secret & Co., particularly in achieving operating income growth after a period of decline. This is occurring in a challenging retail environment, suggesting the company's strategic initiatives are beginning to yield results. The focus on new product launches and events, along with cost management, is a common strategy in the retail sector to drive growth and improve profitability.

Comparison to Industry Standards

• While Victoria's Secret & Co. saw a slight decrease in net sales, the sequential improvement in sales performance for the fourth consecutive quarter is a positive sign, especially when compared to other retailers who may be experiencing more significant declines.
• The company's return to operating income growth is notable, as many retailers are struggling with profitability due to inflation and changing consumer behavior.
• The company's focus on cost management and inventory control aligns with best practices in the retail industry, which are crucial for maintaining profitability in a competitive market.
• The growth in the international business and Adore Me is a positive indicator of the company's ability to expand its reach and diversify its revenue streams, which is a key strategy for long-term success.
• Comparable companies such as Aerie (American Eagle Outfitters) and ThirdLove are also focusing on product innovation and customer engagement, making Victoria's Secret's efforts in these areas crucial for maintaining its market position.

Stakeholder Impact

• Shareholders will likely react positively to the improved financial results and raised outlook.
• Employees may be encouraged by the company's positive performance and future plans.
• Customers may benefit from new product launches and events.
• Suppliers may see increased demand due to the company's growth initiatives.

Next Steps

• The company plans a major VSX sport launch and the return of the Victoria's Secret Fashion Show in the third quarter.
• The company will continue to focus on leveraging its market position in intimates and delivering on multiple initiatives to drive growth over the longer-term.

Key Dates

Keywords

Victoria's Secret, VSCO, Retail, Apparel, Lingerie, Intimates, Financial Results, Earnings, Guidance, Sales, Operating Income, Net Income, Adore Me, Fashion Show