Dive Brief:
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Victoria’s Secret & Co.’s Q1 net sales fell 3.4% year over year to $1.4 billion, with comps down 5%. Comp sales via brick and mortar fell 8%, per a company press release.
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Adjusted gross margin expanded by 40 basis points to 36.9%, per an earnings commentary. Inventory was down 5%. The company swung to a $2.5 million loss from $3.8 million in net income a year ago.
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The company plans 15 new stores in North America, mostly using its “Store of the Future” design in off-mall locations, and about 40 closures, mostly through co-locating Victoria’s Secret and Pink stores.
Dive Insight:
The lingerie giant beat its own expectations in the quarter, with sales and store traffic improving as the quarter wore on, CEO Martin Waters told analysts.
Together, the company’s brands have maintained about 20% market share in intimates, though the Victoria’s Secret beauty business is its best-performing category, per its earnings report. At the namesake brand, Q1 sales of both intimates and beauty were about flat year over year.
The company’s turnaround of its Pink brand is on track, according to Waters. Those sales improved throughout Q1, in April clocking its strongest month in several quarters. The brand has benefited from improving its apparel assortment, which had been under-performing compared to undergarments, Waters said.
The consumer remains particularly challenged in North America, but shoppers have “high curiosity for what we're doing,” Waters said.
“It's really, as you know, all about the merchandise — the customer is there,” he said. “We’ve just got to deliver really compelling merchandise assortments.”
Waters noted that the company is bringing back its once-maligned fashion show, albeit with important changes.
“It's going be all about glamour, it’s going to feature a runway, it's going to be fashion, it's going to be fun, wings, entertainment, but through the modern lens of who we are today,” he said. “It's merchandise-driven, it needs to focus our merchandise, not other people's. It needs to be fun, it needs to be less ethereal than we've been before. It needs to be commercial, mainstream, and a great celebratory kickoff to the holiday season, filled with joy.”
Analysts by and large found the quarter’s results encouraging, reflecting some progress on sales trends, margins and inventory. But GlobalData Managing Director Neil Saunders said that company is leaning on sensible but ultimately incremental moves like product segmentation and innovation, indicating that it’s “not being fully confident in all aspects of the plan and therefore trying to test and learn as it moves forward, when what is really needed are bolder, more decisive initiatives.” Its forecast for the year for a low-single digit sales decline portends more of the same, he said in emailed comments.
“All in all, we see very little in the results to suggest that Victoria’s Secret has turned a corner or that it is on a materially different trajectory to the one it was on last year,” he said. “This should not come as any great surprise as the reinvention plan the company is supposed to be delivering remains confused and muddled. This is not aided by lackluster execution on the ground with many aspects of the proposition showing few signs of change.”
