Dive Brief:
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Victoria’s Secret & Co., whose brands include Pink, Adore Me and its namesake intimates and beauty businesses, on Wednesday reported that Q2 net sales dropped just under 1% year over year to $1.4 billion. Total comparable sales fell 3%, and brick-and-mortar comps fell 5%.
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Adjusted gross margin rose 80 basis points to 35.4%, with adjusted merchandise margin also expanding thanks to lower costs from supply chain upgrades. The company swung into the black, reaching $32.1 million in net income, from last year’s $872,000 loss.
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The company, citing third-party data, said that Victoria’s Secret and Pink together maintain about 20% market share in intimates in North America. They enjoyed some share increases online, but decreases in store, “where value or lower price points appear to be gaining share.”
Dive Insight:
When Hillary Super, following her short stint as CEO of Savage x Fenty, takes her post as Victoria’s Secret & Co.’s chief executive in a few days, she will find a company still fighting declines, yet on the upswing in many metrics.
The intimates giant met or exceeded its own and many analysts’ expectations for the second quarter and bumped up its outlook slightly. Based on equalized 52-week year-on-year comparisons, the company now expects full-year net sales to fall about 1%, better than its previous estimate of a low-single digit decline, and adjusted operating income to range between $275 million to $300 million, up from the previous estimate of between $250 million and $275 million.
While still a leader in intimates, the company said its beauty business continues to be its best-performing category, citing four straight quarters of growth. Newer merchandise in bras and panties sold well in the quarter, while “several older, legacy styles” were either discontinued or sold less, per the company’s earnings commentary.
“Most notably, trends continue to improve,” Wells Fargo analysts led by Ike Boruchow said in emailed comments, noting that demand grew in July, sales — fueled by back-to-school sales at Pink — grew in August, and customers are responding well to new merchandising and marketing. “All in, [momentum] is building, [full-year] plan was raised and the story is improving.”
The company noted that in Q3 its Victoria’s Secret Fashion Show will return and teased a “major VSX sport launch.” Perhaps that’s in part why some of the year’s improvement will come in the third quarter: The company is forecasting Q3 net sales to be up by low-single digits over last year’s $1.3 billion.
However, while sales are expanding, Q2’s sales performance “continues a long string of decline which means that since the same period in 2019, Victoria’s Secret’s second quarter sales are down by 20.6%,” GlobalData Managing Director Neil Saunders said in emailed comments.
BMO Capital Markets analysts led by Simeon Siegel, who has long believed that Victoria’s Secret has been “underearning by overselling,” took note of progress with gross margins. Though still below industry averages, that reflects structural improvements in the business, Siegel said in a Wednesday client note.
Victoria’s Secret “is finally selling less and charging more, and we see material and ongoing upside from here,” he said.
