Dive Brief:
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With a new CEO at the helm, Victoria’s Secret & Co. said last week Q3 net sales rose 6.5% year over year to $1.3 billion, with comparable sales up 3%, its strongest quarterly sales growth in three years.
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Gross margin was relatively flat, and net loss widened more than 22% to $54.8 million. Inventory was up 7%.
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Given its momentum, the intimates giant raised its forecast for the year, saying it now expects sales to rise 1% to 2%, up from its previous expectation for a 1% decline, and adjusted operating income to be between $315 million and $345 million, compared to prior guidance of between $275 million and $300 million.
Dive Insight:
Speaking with analysts Friday morning, newly arrived CEO Hillary Super said that both of the company’s brands have an opportunity to get noticed, and she expressed particular interest in getting the attention of younger consumers.
“Victoria's Secret and Pink can and should not only be in the cultural conversation, but also creating cultural moments through products and marketing,” she said, pointing to “big events” like the VSX relaunch in September and the return of the Victoria’s Secret fashion show in October, as well as “viral moments” like outfitting Sabrina Carpenter and releasing its satin-bow PJ set.
Super gave special credit to the fashion show, saying it is already helping the company not only reactivate existing customers but also gain new ones.
“We hadn't been in the cultural conversation. And I think we came in and surprised her, and she was like, ‘Oh, I'm going to pay attention to this,’” Super said. “And so we are engaging with an entirely new generation of young women who are saying to us, ‘We want big hair, we want more glamor, we want more shine. We want more of it. We want all of it.’ And that's exciting, because we know how to do that. So for me and what I've seen so far — and I do think we have a lot more work to do on this as we start to read some of the data over the next quarter — it's the new customer. The reactivated customer just is a more millennial, or even Gen X, but we are focused on this Gen Z customer in particular, and it really thrills me that she's noticing this.”
Also to that end, the company is placing renewed focus on its Pink brand, Super said, adding back more apparel to its assortment, differentiating it more clearly from the namesake brand and giving it more floor space, saying “what we know about Gen Z is that she likes an in real life experience sometimes.” The two brands merged in 2022, and a “complete overhaul” of Pink was initiated last year.
“Speaking of Pink, I'm all in, and I see a lot of white space with the brand, an opportunity to reclaim our market share in apparel,” Super said. “I'm impressed with the work the team has done already to improve the Pink business, and I see opportunity for even more brand clarity and elevation, as well as a go-to-market strategy that is mobile-first and culturally connected.”
Super also had some critiques of the company’s remodeled stores more broadly, noting that its beauty merchandising in those locations “could feel a little more elevated.” The company’s shift away from mall locations is paying off, however, as off-mall stores are getting better traffic, according to Chief Finance and Administrative Officer Tim Johnson.
While gross margin improved in the quarter, it’s “still well below peer average,” according to a BMO Capital Markets research note Friday. Overall, though, the quarter’s achievements, including growth in North America, market share gains and apparel growth at Pink, were likely due to structural improvements at the company and therefore could be long-lasting, per BMO.
“[Victoria’s Secret] is finally selling less and charging more,” BMO Managing Director Simeon Siegel said
