Victoria's Secret & Co. (NYSE:VSCO): Navigating Challenges with Resilience and Innovation

Victoria's Secret & Co. (NYSE:VSCO) is an iconic global brand of women's intimate and other apparel, personal care, and beauty products. The company operates through three primary brands: Victoria's Secret, PINK, and Adore Me. With a strong presence in the United States, Canada, and China, as well as a growing international footprint, Victoria's Secret & Co. has established itself as a market leader in the intimate apparel industry.

Financials

In the fiscal year 2023, the company reported annual net income of $109 million, annual revenue of $6.182 billion, annual operating cash flow of $389 million, and annual free cash flow of $133 million. These financial metrics demonstrate the company's ability to generate consistent profitability and cash flow, even in the face of a challenging retail environment.

During the first quarter of 2024, the company reported a slight decrease in net sales to $1.359 billion, compared to $1.407 billion in the first quarter of 2023. This decline was primarily driven by a 7% decrease in North American store sales, which was partially offset by a 16% increase in international net sales. The company's direct channel sales also decreased by 3% during the quarter.

Despite the top-line challenges, Victoria's Secret & Co. maintained a strong focus on cost management, with a slight decrease in general, administrative, and store operating expenses compared to the first quarter of 2023. This disciplined approach to expense control, combined with improvements in the company's supply chain initiatives, helped to partially offset the impact of the sales decline on the company's profitability.

The company's gross profit margin increased to 36.9% in the first quarter of 2024, up from 35.7% in the same period last year. This improvement was driven by reductions in costs of goods sold and a decrease in buying and occupancy expenses, which helped to offset the impact of increased promotional activity during the quarter.

Outlook

Looking ahead, Victoria's Secret & Co. has provided guidance for the second quarter of 2024, forecasting sales to decrease in the low-single digit range compared to the second quarter of 2023. This guidance reflects the company's expectation that the broader intimates market in North America will remain promotional and potentially pressured throughout the first half of the year.

For the full fiscal year 2024, the company is reaffirming its forecast, expecting sales to be about $6 billion, or down low-single digits compared to the 52-week period in fiscal 2023. At this forecasted level of sales, the company expects its adjusted operating income in 2024 to be in the range of $250 million to $275 million.

Recent Developments

One of the key drivers of the company's performance in recent quarters has been its international business, which continues to demonstrate strong momentum. In the first quarter of 2024, the company's international net sales increased by 16% compared to the same period last year, driven by significant growth in China and strong performance from the company's franchise and travel retail partners around the world.

The company's Victoria's Secret and PINK brands have also seen improvements in their North American performance, with the Victoria's Secret brand's beauty business and the PINK brand's performance in April being particular bright spots. The company's efforts to relaunch and reinvigorate key product categories, such as the Body by Victoria bra collection and the Featherweight Max sports bra, have also resonated with customers.

In addition to its core business initiatives, Victoria's Secret & Co. has made strategic investments to expand its capabilities and reach. The company's acquisition of Adore Me in 2022 has provided the company with access to new customer segments, technology, and growth opportunities. The integration of Adore Me has been progressing well, with the company realizing synergies in areas such as product distribution and customer data.

The company has also announced the return of the iconic Victoria's Secret Fashion Show in 2024, which is expected to serve as a significant marketing and brand-building event. The company has stated that the show will be designed to celebrate the brand's heritage while also reflecting its modern identity and customer focus.

Conclusion

Despite the challenges faced in the broader retail environment, Victoria's Secret & Co. has demonstrated its ability to navigate these headwinds through a combination of strategic initiatives, operational discipline, and a focus on innovation. The company's strong brand recognition, international growth opportunities, and investments in technology and customer engagement suggest that it is well-positioned to continue delivering value for its shareholders in the years to come.