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Dive Brief:

  • With some strength in its core merchandise but weaker sales in other apparel, Victoria’s Secret Q2 net sales fell 6% year over year to $1.5 billion, as comps fell 8%, the lingerie maker said Wednesday. Inventory rose 45.8%, according to an earnings presentation.

  • Adjusted gross margin fell 540 basis points to 36.1% due to supply chain and raw material costs, the semi-annual sale and an uptick in promotions due to slowing footfall. Physical store comps fell 7%, while digital sales fell in the low double digits. Operating income fell 37% to $126.9 million, as net income fell 41% to $89.3 million.

  • The retailer lowered its full-year outlook, estimating sales will fall in the mid- to high-single digit range, versus 2021’s $6.8 billion, down from its previous estimate of flat to up low-single digits. Operating income is expected to be $525 million to $575 million; previously the company estimated it would match last year’s $870 million.

Dive Insight:

In the year since going it alone after the final breakup of the 60-year-old L Brands empire, Victoria’s Secret has turned away from its longstanding angels-dependent marketing, rebuilding its formidable strength in the lingerie market in the process.

That was true even in a weak Q2: Bras were the best performing merchandise segment in the quarter, and the company said Thursday that it’s grown its domestic market share in the intimates category for the past two quarters, with particular strength in bras.

“As we celebrate our first year as an independent public company, I want to thank all of our associates and partners around the world for their hard work and dedication. After several years of missteps, we collectively undertook and committed to a revolution of our brand and our strategy, aspiring to become the Victoria’s Secret our customers deserve. A Victoria’s Secret where everyone feels seen, respected and valued,” CEO Martin Waters said during a call with analysts Thursday. “We made meaningful progress in a short period of time and I’m proud of the company we are today. … Of course we recognize this transformation is a journey and there’s still much more to do.”

Results were bogged down by deteriorating consumer strength in the second quarter as inflation pushed up fuel and food prices and pushed down discretionary spending, and the company said that traffic to Victoria’s Secret stores ebbed throughout the quarter.

But the weakness isn’t just about macroeconomics, according to UBS analysts led by Jay Sole.

“The company is attempting a major transformation and the guidedown is likely to amplify concerns the transformation will be more challenging than expected,” they said in a Wednesday client note, adding that the company may struggle to achieve even its lowered expectations because they depend on trends improving in the fourth quarter.

Despite the traffic declines, the company continues to bet on physical locations, with plans to keep the square footage of its North American store fleet consistent to last year and to focus its capital investment on store technology, distribution and logistics capabilities. This year in North America, the retailer will close 10 to 20 stores, open 16 new ones (mostly away from malls) and renovate about 14, using its new store concept. More than half of those will entail reducing store size or co-locating Victoria’s Secret and Pink spaces.


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