$VSCO Victorias Secret Q4 2024 Earnings Conference Call

Thanks, Scott. Good morning everyone and thank you for joining us. During the last call, I shared insights from my first 90 days as well as my excitement and optimism for our future. I'm happy to be back together today to continue that conversation. First, I want to talk about our Q4 results and outlook for 2025. Then I'll share details on our strategies for growth that we believe will unlock the full potential of our brands. But before I discuss Q4, I want to take a moment to thank TJ for his support during my first several months and for staying on with us to ensure a smooth transition with Scott. Thank you for your partnership, TJ, and the role you played in helping drive the results we'll talk about today. Speaking of results, I'm pleased to say they were strong in Q4, with sales up to last year across VS, Pink, and our powerhouse Beauty business. We won in the big moments and with a focus on execution, our teams drove healthy margins, controlled costs, and managed inventory very well, leading to Q4 operating income and EPS that exceeded our expectations. Sales growth was driven by broad-based strength across our business, with sales up in all three brands, in all channels, and all markets. In North America, VS and Pink both had positive year-over-year sales growth in stores and digital. We were able to achieve this growth with fewer promotional days and offerings than last year, which is especially encouraging as we continue to test and learn our way to lower promotional activity in the business. From a merchandise perspective, for VS, our giftable holiday product assortments driven by sleep and Beauty across both brands were big winners, with casual sleep as our top performing category. We were excited to see that products that are quintessentially VS — heritage stripe and logo — all performed well, which I view as an indication of strong brand health. We also had success with shimmer and shine products. Pink apparel had a significant trend change at the beginning of the fall season and its strong performance continued in Q4. Along with sleep apparel, it drove the business during holiday. As you know, we've been working to evolve Pink's product positioning and we're starting to see some positive signs of customer acceptance. Both our modern reinventions of iconic heritage pieces and our most feminine styles featuring sparkle and shine were top performers this holiday. As I mentioned, our Beauty business was a standout in the fourth quarter as we pushed the boundaries of accessible luxury with higher-tier items that were must-have gifts of the season. With compelling products and strategic promotional activity, our basket sizes and traffic were up to last year, with traffic outperforming them all, supported by our best mall store experience and dozens of digital enhancements. We had solid conversion on those increased traffic levels with strong product acceptance. Third-party data shows that the North American intimates market declined slightly this quarter; however, for the second quarter in a row, we outperformed the market — an encouraging sign of our growing strength and momentum. Our studies again this quarter showed that Gen Z is feeling much more positively about our brands, a testament to our focused efforts to engage her. It's exciting to see that she's not only noticing us but connecting with what we stand for. Outside of North America, our international business continued its strong performance with retail sales up double digits in the quarter, driven by growth with our franchise and travel retail partners, along with strong performance in our joint ventures in China and the UK. Our brand is strong around the world and our global partners and vendors are not only partners but incredible advocates. After my first holiday season with the business, I remain optimistic about what's ahead for VS&Co, including what we're focused on for Q1. Across every brand within our business, spring is anchored by our icons. We're inspiring our loyal customers with modern takes on all of her favorites and introducing them to a new generation of customers. In February, we reimagined our Very Sexy collection, expanding the iconic franchise to connect with more women with a broadened range of lift levels. We're offering a more personalized fit, delivering sexy for everybody. Our teams are always listening and responding to customer feedback, as evidenced by the new lightly lined demi, which was designed for women who love glamour but prefer a more natural lift. And we continue to have momentum in sport and swim, both categories in which our authority and expertise in bra fit and innovation give us a competitive edge in what is a highly competitive market. We have leveraged our "best at bras" positioning to be the authority for on-trend, sexy swim that she feels incredible wearing. We are excited about the newness in swim this spring, which includes styles from Pink by Frankie, one of our strategic collaborations that has over-indexed with the Gen Z customer. In our most recent drop, the collaboration also drove almost triple the average acquisition rate versus the core Pink business — a promising indicator as we build our go-forward collaboration strategy. Doubling down on Pink apparel, we are excited about the ongoing improvement in product execution. We continue to build on the momentum with modern takes on Pink icons, plus we've added a new layer of lifestyle outfitting that is resonating with customers, as we are seeing with early spring. Our fashion content is becoming more compelling with every floor set and I'm looking forward to the continued progress within the Pink business. Turning to Beauty, our icon is Bombshell, America's number one fragrance. In March, we will be celebrating Bombshell's 15th anniversary by unveiling a bottle redesign and delivering activations we know will engage and excite our loyalists. I'm pleased by our movement back into major cultural moments alongside global stars. We are focused on driving relevance with today's consumer by meeting her in the moments and spaces that matter. Victoria's Secret product played a prominent role in Charli XCX's performance that closed out the Grammys. Tate McRae wore our product in her newest music video, and we recently partnered with Teyana Taylor on an exclusive product edit. All of these moments resonated deeply with consumers and drove significant social media engagement. As we transition from holiday season to Spring 2025, we recognize there are challenges: shifting consumer confidence, a volatile economy, and unseasonal weather impacting mall traffic. While we're actively managing today's headwinds, we're also building for the future with a strong foundation and globally recognized brands. We're positioned to navigate the present while unlocking the full potential of VS&Co for the long term. And now I'd like to talk about how we plan to realize that potential. First, I think it's important to acknowledge that we are building from a position of strength as the largest intimate apparel company in the world. In North America, we have approximately 20% market share, 25 million active customers, and 38 million loyalty members. We have the second largest brand following in the world on social media with 88 million followers on Instagram alone. Our growth plan, which we are calling "Path to Potential," will ensure we put the best of who we are back at the center of how we work. We are playing offense, leaning into our core strengths, and unlocking new opportunities. Our objective is clear: drive value for all stakeholders by supercharging our two distinct, compelling growth brands — Victoria's Secret and Pink — complemented by a powerhouse Beauty business and a strong digital-first, direct-to-consumer brand. Our Path to Potential is built around four key strategies that will allow us to accelerate growth, differentiate our brands, and reinforce our authority in the market. First, we are recommitting to Pink and winning the next generation of consumers. Pink has long been a brand with deep emotional connections to young women. Today, we are focused on reestablishing the brand's magic and market position. We will deepen our relationship with the customer, understanding her like never before and meeting her where she is in the ways she wants. We are working to reclaim our position as a full lifestyle brand anchored in intimates but extending into more apparel, accessories, and Beauty. We must clarify and elevate the brand by sharpening our identity, thinking and operating as a social-first brand, and treating Pink as the high-potential growth engine that it is. Our second strategy is supercharging bras and reasserting our authority. We will lean on our industry-leading bra experience to drive innovation-first product development, ensuring we lead the industry in fit, function, and fashion. We will also expand our bra assortment to serve a wider range of customer needs, and we will strengthen our marketing voice and channel experience to serve her better. Our third strategy is fueling growth in lifestyle categories: Beauty, sport, and swim. We have a powerhouse Beauty business and strong lifestyle brands that customers love, and we will accelerate these categories by leaning into our Beauty authority, building on our industry-leading fragrance business, and expanding into new opportunities which include Beauty in Pink. We will reclaim key adjacencies by applying our expertise in bra innovation, quality, and fit to revitalize our sport and swim businesses. Our fourth focus is on evolving our brand projection and go-to-market strategy. As culture, technology, and shopping behaviors shift, so must our go-to-market strategy. By staying true to our brand DNA while adapting how we engage, inspire, and serve, we will deepen connections with existing customers and attract new customers while strengthening loyalty and driving long-term growth. One of the ways we will do that is by creating stronger differentiation between Victoria's Secret and Pink in everything from product to marketing to experience. Today, the lines between the two brands are blurred. Moving forward, we will ensure that each brand is distinct but that they complement one another in a single ecosystem. We will elevate Victoria's Secret as sexy, glamorous, accessible luxury, while modernizing Pink's brand identity and evolving the way we communicate with the customer. By becoming more agile and culturally connected, we will create real-time moments that resonate with our customers and keep us at the center of the conversation. Finally, we will leverage the full funnel and build a brand-centric, best-in-class omnichannel experience to engage with her on her terms. And as I've emphasized, we see significant growth potential internationally, and these strategies transcend our global footprint to ensure that our strategy is not just aspirational — it's actionable, sustainable, and built to drive results. We are focused on three critical enablers. First, a customer-centric performance culture. By deeply understanding our customers — how they shop, what they value, and what inspires their loyalty — we create stronger connections, drive repeat engagement, and fuel sustainable growth. A culture centered on the customer empowers associates to innovate and to deliver experiences that not only meet expectations but exceed them, turning transactions into lasting relationships. To accelerate the customer impact, drive results, and gain share, we are moving to a leadership structure with brand presidents leading product-facing functions for Victoria's Secret, Pink, and Beauty. This change will ensure we have the leadership focus, clarity, and expertise needed to accelerate growth. We are also currently searching for a CMO to evolve our global go-to-market strategy, help build deeper customer connections, elevate storytelling, and drive more data-driven marketing optimized across the full funnel. The second enabler is an evolved product development process. We are moving beyond a brand-centric approach, implementing multiple tracks tailored to each category, making our teams faster, more agile, and more innovative — not just in bra developments but in apparel as well. Our third enabler is an efficient operating model. We are focused on doing fewer things better, investing where it matters most — on our customers — and streamlining costs in non-customer-facing areas. In closing, we face some near-term headwinds and ongoing uncertainty in the macro environment, which we will manage aggressively as we also do the work I just outlined to unlock the full potential of our brands and business. I'm confident and energized because we have clear strategies for growth. We are moving swiftly to a leadership structure to execute with focus and impact, and we are positioning ourselves for long-term sustainable growth. This is our moment to build the future for VS&Co — stronger, more innovative, more connected to the customer than ever. I'm confident in our plan, our team, and the opportunities ahead. Thank you. That concludes our prepared comments, and at this time we'd be happy to take any questions you might have.

Sure thing. I'm not going to speak too specifically about product launches because we want to keep those under the cover, but I would say embedded in our forecast is, number one, first and foremost, getting teams in place and getting leaders in place. So I would say a major driver of the improvement will be through marketing — through the full funnel and the differentiation of the two brands. So I would say that is a major driver. The second is incremental improvement in both Pink and the Victoria's Secret brands as we play our learnings forward. And then third is a number of tentpole moments that we have planned, really beginning in the August time frame. So you will see us pace those out across the back half of the year. In the front half of the year, we are a little more quiet in terms of our marketing, building out that muscle, getting ready for the back half, and you'll start to see those types of moments really accelerate in the back half, as well as product launches and some fun collaborations.

Thank you.

Sure. First question around full imprint — it will be iterative. I don't envision a big curtain reveal moment for each brand. You will see incremental improvement each month. I would say the impact on the first half of the year is really on optimization — narrowing focus, maximizing the big ideas, neutralizing some of the things that we're more worried about, actually focusing a little bit more on the lower funnel in marketing. And then we are buying fall as we speak, so I've had more involvement in that and we'll have more increasing involvement in future seasons after that. But I would say, based on product development timelines, really Spring 2026 would be the season that I would have been here through the entire process. Second question around inventory and production lead times — I would say we're in pretty good shape there. There are places where we have incredible agility, underwear being a big area around that. I would say some of the Pink apparel areas we've been able to make real headway with. And then I would say the new leadership structure is really designed to enable us to pull apart those product development processes so that we can cater to a specific customer and specific categories. So that's a big piece of this work. We actually have a tiger team devoted who have stepped out of their roles for a short period of time to really engineer this new process. So I would say we have a little bit of one foot in the old world and a little bit of one foot in the new world, but we're making progress on the areas where we see we need to be much more agile. And in terms of promotions, we have just started that work and I think it's a delicate balance. The brand, the product, the story has to be very strong in order for us to be able to do that, and we were able to start proving that out in holiday. We were able to forgo a full-box promo in mid-December that we were up against from last year, and we were also able to reduce the amount of days in other events across the quarter. Did we give up a little bit of top line? I think we probably gave up a little, but we're really pleased that we were able to take that out of our base and we're looking for opportunities going forward to do that as well. I would say the most recent traffic and weather patterns have made that a little bit more difficult to do, but we will continue to be relentless in looking for those opportunities as we move through the year.

Thank you.

Okay, there were a lot of questions in there. Let me see if I can take a crack at that. So we are at the beginning of our LRP work, so this is the beginning of the strategy rollout, so I do not have exact numbers. We will plan to share that in the back half of the year. But I will say there is a tremendous amount of opportunity in Pink, and that is where my eyes are set right now. That is where I'm spending a lot of time thinking about how we invest in that business, how we resource that business, how we talk about that business, and pull it apart from VS. So that would be my first. I would say in the intimates category, knowing that it is a category that has been struggling in the overall market, our goal there is really to defend in the short term as we build our innovation pipeline on a longer-term view. And then the lifestyle categories — they're really just very strong for us. And if you look back to history, these categories were a very significant amount of volume in the past, and we feel very confident that we can recapture a lot of that. And I think that will help our customer file, it'll help us with acquisition, it'll help us with attracting younger customers. There's a lot to like about the lifestyle piece of this, and I put a lot of focus on that as we move forward.

Thank you.

Sure. Multiple tracks — I think this is essential. We are currently on a 52-week calendar really anchored in the lead times around bras. We have made progress on having chase calendars to really supplement that in key categories, but I fundamentally believe that apparel should not be on a 52-week calendar. So we're looking to drastically reduce that through a raw materials strategy, partnering with our vendors, different ways of working in our product development process. And the goal would be in things like Pink apparel as an example — we should be going like 26 weeks for that. And that will be a big shift and a big unlock to bring decision making closer to customer. I'm very excited about the potential of what that will add to our business. And you mentioned swim and sport — both very technical, both have nuances in the product development process that are very different from other categories. So separating that out — in swim and sport, maybe a little less about the speed and a little bit more about the technical product engineering piece of it. So having experts dedicated to that on different tracks should enable much better product execution and enable agility in the places where we need it the most. Valentine's Day — I'll take that opportunity to just talk a little bit about January into February in general. So definitely saw a shift in the environment as it relates to traffic sort of mid-January into mid-February. We know what the macro factors are there — we know it was weather, we know it's consumer confidence, we know that in our business we see a big uptick in cash and debit purchases coming from tax returns that were delayed this year. We see in our regional selling that the warm weather climates did considerably better than the cold weather climates. That being said, there's an opportunity to really look in the mirror as well and make sure that we are playing forward every single learning possible. So when I think about that sort of mid-January to mid-February timing, I would say there are a couple things we could have done better. One is that we pulled marketing spend into Q3 for the fashion show, and I think one of the hindsights coming out of the fashion show is that the halo in terms of traffic was about 8 to 10 weeks. So in hindsight, I think we pulled back a little too far on marketing, and we should have had some other event — whether it was around sport or Valentine's Day in January — to really drive that heat and awareness and traffic. So that would be the first. The second is that we didn't buy the Valentine's Day big enough. So we blew through sleep, which was one of the big drivers of holiday — we blew through it in a couple of weeks and basically sold out by the time we got to the beginning of February. So I think that's a big one. And then the third is really thinking about launch strategies in bras, and that's something we've done for many, many years. I think in the new environment, one of the things we're learning is that when we go hard against one thing, it isn't always necessarily lifting everything. So we need to find a way to talk about a launch in a powerful way and also talk about all the other bra offerings that we have at the same time. That'll be a new thing for us that we're working to implement very quickly. So that would be my diagnosis of the three weeks. And I would just add that three weeks doesn't make a quarter and it doesn't make a year, and we're working tirelessly to make that up as we move forward into the balance of the year.

Thank you.

Jonah, can you repeat the first part? We think we heard something about guide, we think we caught the store of the future.

Yeah, Jonah, and if I could just add one additional thought on the guide because I think it's important. We've seen some of the side notes this morning, and just to clarify: if you look at our guide for the year at $6.2 to $6.3 billion, you're looking at really flattish to maybe up $100 million or up one or two points for the year. We gave you the guide for Q1 which was essentially down two to down four. So where I'm going, Jonah, is the balance of the year in our guide we're really saying up low single digits — plus one to plus two or three. So not necessarily the same trend that we saw in fall, but definitely improvement from spring. So we think that's something that's attainable for the business for the reasons that Hillary just mentioned around product and marketing changes that you should expect going forward. And then similarly from an operating income perspective, we're guiding operating income essentially flat to down close to $50 million year over year. The bulk of that decrease is guided to in the first quarter, so you are seeing operating income improvement in Q2 through Q4. So I want to make sure that that's well understood — this is not a significant hockey stick in the back half of the year or anything like that. It's really an expectation that over time we'll return back to that plus one, plus two here in North America, which again clearly we were trending much stronger than that in the fall season.

Sure, I'll take that. I'll just start by saying I wouldn't categorize that I'm much more focused on Pink than VS. I think they're at two different trajectories in their business. So first on the Pink side — when you really dig in and look at the history of Pink, what it used to be, what it is today, there is just enormous opportunity. When you look at the market landscape, there is enormous opportunity. And when you look at some of the decisions independent of themselves that were made over time, it's a little bit of a death by a thousand paper cuts. So when I stand back and look at that, I see opportunity, and I see opportunity in apparel specifically. And you can get at that faster. So there's a lot of work to do with Pink — there's a lot of scrubbing of the total brand position, there's a carving out of this brand that needs to happen, there's a reimagining of it to make it as magical to this generation as it once was to a previous generation. And I think that is within our grasp, so I'm passionate about that. At the same time, I'm so passionate about Victoria's Secret and I believe there is tremendous opportunity there. I think Victoria's Secret is farther along in its product development and product resonance path. I think the work in VS is about supercharging the lifestyle piece of the business that I believe will ultimately buoy the core business. And I think it's about brand voice, how we go to market, how we utilize full funnel a little bit more slanted to marketing, where Pink is work across the entire business. So I hope that clarifies that. In terms of categories, what's working and driving the business right now — it is lifestyle categories that are driving the business right now. Where we're seeing the growth, we're seeing it in sport, we're seeing it in swim, we're seeing it in accessories, we're seeing it in Pink apparel. So that is where we are seeing strength right now. I would say that in bras, as an example, Very Sexy is good, but as I just mentioned in the last question, I think the unlock for us is making sure that when we launch a bra, it lifts all boats, and that's the work that we have to do in that area.

Thank you.

Sure, I'll do that. In marketing, I would say the focus for the two brands is a little bit different. So in VS, we already have very high awareness, so the goal is really consideration. We are doing very well with our existing and reactivated customers — highest retention rates in many years, highest spend, highest margin per customer, higher retention rates. So much good going on there. We're a little slow on acquisition, and so that's about consideration for VS. And as we double down on sexy, glamorous, accessible luxury, that doesn't change. But I think what is sexy in 2025 is something different than what it was a few years ago, and how do we evolve with culture and connect with the consumer and make her see us in a different light to introduce new consumers to this brand? That is the goal in VS. I would say in addition to that, we have an opportunity to rebalance the spend across the funnel, focus more in the mid to lower funnel, and be much more thoughtful about when we're spending in the upper funnel so we can reach more consumers. In Pink, it's different — it's more about awareness. We have not been aggressively marketing Pink. We need to evolve our look and feel there, and when we feel the look and feel is right, when we feel we have the right partnership strategies, when we feel we have the right collaboration strategies — which we're aggressively working towards — we will turn that on. It's just a different tactic for that brand. And then you have to stand back and say, okay, we have an ecosystem of our loyalty program, our store real estate — how do we leverage the two together for the power of the entire enterprise? So you have to have one foot in the brands and the special needs of the brands, and the other foot in how do you optimize the entire file. That's the work that's ahead of us. On product launches, Q4 is not really a time for product launches — it's all about gifting, so we don't typically launch a lot in Q4. I would say that sport is probably the most recent place where we've launched. We relaunched VSX in a big way in October — very successful. We followed up with a relaunch of Knockout in January — also very successful. I think our positioning on "best at bras" in sport is a real competitive differentiator and something that we plan to lean into, and we're having a lot of success there.

Thank you.

And it's Scott, the only thing I would add is beyond the new country growth, the other thing that's exciting is we are comping mid-single digits as well. So it's both the white space new opportunity growth but positive comps as well.

Sure, I will start with sport and swim. Relative to the total VS&Co business, relatively small, still growing quite nicely across all of last year and into this year. So definitely see it as a big growth opportunity. It's a small part of the potential — even if we just look back to what it used to be, it is not even close to what it used to be. So feel like there's a long runway there, and a real expertise that we have in this category that we can draw on. And I think early reads in spring are looking very, very good, so the momentum continues and we plan to build on it.

Thank you.

Are you spying on me, Marne? Obviously I've been talking about those three words quite a bit. The reality is I think we need to go and do a lot of studies about this consumer before we nail those three words. So we're in the process of putting together a research plan to really reconnect with this customer before landing it. And certainly we have ideas around this — we know what has been at the heart of this brand, we have a good idea of where we're going, but I think we need to study this customer very carefully before putting that line in the sand. You asked about the fashion show. Yes, the fashion show — I'm glad you asked about that actually because it's a really great story. I think all in all, the fashion show was a huge success. We know that it improved brand sentiment, especially with our target younger audiences. We saw continued strength in our retained and reactivated customer file. We sustained positive traffic, and it looks like it was about 8 to 10 weeks of tailwinds coming off of the fashion show at the most important time of the year. So I think that's a very important learning. But I think we needed to follow it up with something in that sort of late December into January time period, and that was the opportunity. So to answer your question, yes, we should see marketing be more leveled out. There will be a spike with the fashion show, but it won't be to the same degree. So the show will be back in 2025? Oh, we are still working through that. There will be some activation of some sort that is significant in the back half of the year, and we're working through a number of options around that. So there'll be more to share in future earnings calls.

Thank you.