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Brief description of the dive:
Victoria’s Secret in the second quarter with little gains in its core merchandise but weaker sales in other apparel segments. net sales fell 6% year-on-year to $1.5 billion and prices fell 8%, the lingerie maker said on Wednesday. According to the income statement, inventories increased by 45.8%.
Adjusted gross margin fell 540 basis points to 36.1% due to supply chain and raw material costs, a semi-annual selloff and increased promotions due to slower traffic. Physical store revenue fell 7%, while digital sales dropped to low double digits. Operating income fell 37% to $126.9 million, while net income fell 41% to $89.3 million.
The retailer cut its full-year forecast, estimating that sales will fall in the mid-to-high single digit range from $6.8 billion in 2021, compared to its previous estimate from flat to low single digits. Operating income is expected to be between $525 million and $575 million; the company previously estimated that it would match last year’s total of $870 million.
In the year since the final demise of the 60-year-old L Brands empire, Victoria’s Secret has shed its longtime marketing reliance on angels and, in the process, has regained its formidable power in the lingerie market.
That was true even in a weak second quarter: bras were the highest-grossing product segment in the quarter, and the company said Thursday it has increased its domestic market share in the underwear category over the past two quarters, especially in the bra segment.
“As we celebrate our first year as an independent public company, I want to thank all of our employees and partners around the world for their hard work and dedication. After years of mistakes, we collectively undertook and dedicated ourselves to revolutionizing our brand and our strategy, striving to be the Victoria’s Secret our customers deserve. Victoria’s Secret, where everyone feels seen, respected and valued,” CEO Martin Waters said during a call with analysts on Thursday. “We have made significant progress in a short period of time and I am proud of the company we are today. … Of course, we understand that this transformation is a journey and we still have a lot to do.”
The results were lowered by worsening consumer activity in the second quarter as inflation pushed up fuel and food prices and reduced discretionary spending, and the company said traffic to Victoria’s Secret stores declined during the quarter.
But the weakness is not only related to macroeconomics, according to UBS analysts led by Jay Soule.
“The company is trying to make a major transformation and management is likely to heighten concerns that the transformation will be more difficult than expected,” it said in a note to customers on Wednesday. trends improve in the fourth quarter.
Despite the decline in traffic, the company continues to focus on physical locations, with plans to maintain its North American store footprint at last year’s levels and focus its capex 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 refurbish about 14 stores using its new store concept. More than half of these will involve downsizing the store or co-locating Victoria’s Secret and Pink spaces.