Introduction

Victoria's Secret Co, the global leader in women's intimate apparel and beauty, has embarked on a transformative journey to reinvent its iconic brand for the modern era. With a rich heritage spanning over four decades, the company has weathered significant challenges in recent years, but now stands poised to reclaim its position as a premier lifestyle brand catering to the diverse needs and aspirations of today's women.

Company History

Established in 1977 by Roy Raymond, Victoria's Secret has a fascinating origin story. Raymond founded the company after feeling embarrassed when purchasing lingerie for his wife, aiming to create a comfortable and tasteful shopping experience for men buying lingerie. The first Victoria's Secret store opened in the Stanford Shopping Center in Palo Alto, California, marking the beginning of what would become a global powerhouse in women's intimate apparel.

A pivotal moment in the company's history came in 1982 when Raymond sold Victoria's Secret to Leslie Wexner, the founder and chairman of L Brands (formerly Limited Brands). Under Wexner's leadership, Victoria's Secret underwent a remarkable transformation, evolving from a small chain of boutiques into a major, influential brand. The company expanded rapidly, opening stores across the United States and diversifying its product offerings beyond lingerie to include women's clothing, beauty products, and accessories.

The 1990s and 2000s saw Victoria's Secret rise to become a cultural phenomenon. The brand became synonymous with its annual runway fashion show and the marketing of its "Angels" - supermodels who represented the company. This period also marked the beginning of Victoria's Secret's international expansion, with the first international store opening in 1999. By the early 2010s, the company had grown to over 1,000 stores worldwide, cementing its status as a global brand.

Challenges and Restructuring

However, the latter part of the 2010s brought new challenges for Victoria's Secret. The company faced increasing competition from newer, more inclusive and body-positive lingerie brands, as well as a backlash against its narrow definition of beauty. These factors, combined with changing consumer preferences, led to a period of declining sales and brand image issues.

In response to these challenges, Victoria's Secret underwent a significant restructuring in 2021, when it was spun off from L Brands as an independent public company, Victoria's Secret & Co. This separation allowed the company to refocus on its core intimate apparel business and implement necessary changes to better connect with modern consumers. Since then, Victoria's Secret has been working diligently to diversify its product assortment, evolve its marketing strategies, and improve its omnichannel capabilities, all while navigating a challenging retail environment.

Strategic Shift and New Leadership

Recognizing the need for a strategic shift, the company underwent a major restructuring in 2023, which included the departure of long-time CEO Martin Waters and the appointment of industry veteran Hillary Super as the new Chief Executive. Under Super's leadership, Victoria's Secret has embarked on a comprehensive transformation, focusing on enhancing product innovation, improving customer engagement, and cultivating a more inclusive and diverse brand identity.

Product Innovation and Customer Experience

One of the key pillars of Victoria's Secret's reinvention has been a renewed emphasis on product development and innovation. The company has invested heavily in research and development, leveraging consumer insights to create a more diverse and inclusive product assortment that caters to women of all sizes, ages and preferences. This strategic shift has paid dividends, with the successful launch of the Victoria's Secret Dream collection, which combines the brand's signature glamour with a focus on everyday comfort and wearability.

Alongside product innovation, Victoria's Secret has also placed a strong emphasis on improving its customer experience, both in-store and online. The company has revamped its loyalty program, now boasting over 32 million active members who drive approximately 80% of its weekly sales. By better understanding the evolving needs and preferences of its customer base, Victoria's Secret has been able to tailor its marketing and merchandising strategies to deliver more personalized and engaging experiences.

Brand Image Rehabilitation

Furthermore, the company has made significant strides in addressing its past missteps and rebuilding its brand image. The return of the iconic Victoria's Secret Fashion Show in 2024, with a renewed focus on celebrating the diversity and empowerment of women, has been widely praised by both customers and industry observers. This event, coupled with the company's ongoing efforts to promote inclusivity and body positivity, has helped to rehabilitate Victoria's Secret's reputation and reconnect it with a new generation of consumers.

Financials

Financially, Victoria's Secret has demonstrated resilience in the face of challenging market conditions. For the fiscal year 2024, the company reported net sales of $6.18 billion, with a net income of $109 million and operating cash flow of $389 million. While these figures represent a decline from the previous year, the company's ability to maintain profitability and generate positive cash flow during a period of significant disruption underscores the strength of its underlying business model.

In the most recent quarter (Q2 2024), Victoria's Secret reported revenue of $1.42 billion, a 1% decrease compared to Q2 2023. However, net income increased significantly to $32 million, up from $1 million in the same period last year. This improvement was driven by a decrease in costs of goods sold and general/administrative expenses, partially offsetting the decrease in revenue. The company's operating income for Q2 2024 increased 36% to $62 million, with the operating income rate rising to 4.4% from 1.8% in the prior year period.

For the year-to-date period in 2024, net sales decreased 2% to $2.78 billion, while operating income increased 35% to $89 million, and the operating income rate rose to 3.2% from 1.9% in the year-to-date 2023 period.

Liquidity

The company's liquidity position remains strong, allowing it to continue investing in its strategic initiatives while navigating market uncertainties. As of August 3, 2024, Victoria's Secret had $169 million in cash and cash equivalents, with a debt-to-equity ratio of 5.95x. The company also has access to a $750 million senior secured asset-based revolving credit facility, with $483 million available as of the same date. The current ratio stands at 0.99, while the quick ratio is 0.31, indicating a manageable short-term liquidity position.

Geographic Performance and Segment Analysis

Victoria's Secret operates three primary product segments: Victoria's Secret, PINK, and Adore Me. The Victoria's Secret brand is a market-leading global lingerie brand offering a wide range of women's intimate apparel, personal care, and beauty products. PINK is a fashion and lifestyle brand for young women built around a strong intimates core, also selling beauty products. Adore Me, acquired recently, is a technology-led, digital-first innovative intimates brand serving women of all sizes and budgets at all phases of life.

Geographically, the company has a global presence, with international sales making up 17% of total revenue in Q2 2024. International sales grew 6% year-over-year, driven by strength in the company's franchise and travel retail partnerships. The North America segment, which includes the U.S. and Canada, saw a 2% decline in sales compared to Q2 2023. The company's Victoria's Secret and PINK brands sell merchandise through their network of retail stores in the U.S., Canada, and China, as well as through their own e-commerce websites and other digital channels. Internationally, Victoria's Secret and PINK branded merchandise is also sold through franchise, license, and wholesale arrangements.

Guidance and Future Outlook

Looking ahead, Victoria's Secret has provided updated guidance for fiscal year 2024. The company now expects sales to be down approximately 1% compared to fiscal 2023, an improvement from their previous guidance of a low-single digit decline. Victoria's Secret has also raised its fiscal 2024 adjusted operating income guidance to $275 million to $300 million, up from the previous $250 million to $275 million. Additionally, the company increased its fiscal 2024 adjusted free cash flow guidance to $200 million to $225 million, up from the previous $175 million to $200 million.

For the third quarter of 2024, Victoria's Secret is forecasting sales to increase low-single digits compared to the third quarter of the previous year. At this level of sales, the company is projecting a third quarter adjusted operating loss in the range of $40 million to $60 million.

Risks and Future Outlook

Looking ahead, Victoria's Secret faces a number of risks and challenges, including the ongoing effects of the COVID-19 pandemic, increasing competition from both traditional and digital-native brands, and the need to continuously adapt to evolving consumer preferences. However, the company's renewed focus on innovation, customer centricity, and brand positioning, coupled with the leadership of Hillary Super, suggests that Victoria's Secret is well-positioned to navigate these obstacles and reclaim its position as a premier lifestyle brand.

The company is focused on executing its strategic priorities of Accelerating the Core, Igniting Growth, and Transforming the Foundation. Victoria's Secret has seen improving trends in its North America business, with sequential quarterly sales improvements for the past four quarters. The company is seeing good customer response to new product launches and events across its Victoria's Secret and PINK brands. Additionally, Victoria's Secret is investing in its international partnerships and the Adore Me digital-first intimates brand, which saw high-single digit sales growth in Q2 2024.

Conclusion

In conclusion, Victoria's Secret Co's transformation is a testament to the resilience and adaptability of iconic brands. By embracing change, prioritizing customer needs, and reinventing its product and marketing strategies, the company is poised to write a new chapter in its storied history, one that celebrates the diverse experiences and aspirations of women around the world. Despite facing challenges in a competitive retail environment, Victoria's Secret's improving financial performance, strategic initiatives, and focus on cost management indicate a cautiously optimistic outlook for the company's future growth and profitability.