Victoria's Secret & Co.

Good morning. My name is Cedric, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Victoria's Secret and Company's fourth quarter 2021 earnings conference call. Please be advised that today's conference is being recorded. All parties will remain in the listen-only mode until the question-and-answer session of today's call. At that time, if you'd like to ask a question, please press star then 1. I would now like to turn today's call over to Mr. Jason Weir, Vice President, Investor Relations at Victoria's Secret and Company. Jason, you may begin.

Thanks, Cedric. Good morning and welcome to Victoria's Secret & Co's fourth quarter and full year earnings conference call for the period ending January 29, 2022. As a matter of formality, I need to remind you that any forward-looking statements we may make today are subject to our safe harbor statement found in our SEC filings and in our press releases. Joining me on the call today are CEO Martin Waters, CFO Tim Johnson, and EVP Finance, Brad Kramer. We are available today for up to 45 minutes to answer any questions. Certain results we discuss on the call today are adjusted results and exclude the special items described in our press release and our SEC filings. Reconciliations of these and other non-GAAP measures to the most comparable GAAP measures are also included in our press release and our SEC filings. Thanks, and now I'll turn the call over to Martin.

Thanks, Jason. Good morning, everybody. 2021 was certainly a milestone year for BS&Co, and I want to thank all of our associates and partners for their hard work, commitment, and resilience. In our first year as an independent public company, our teams focused on execution throughout, and we delivered on our major objectives, even in a challenging environment for retailers. Turning to the fourth quarter performance, we delivered results across all the major metrics that were either at or above the high end of our previously communicated guidance. We navigated significant supply chain headwinds and successfully lapped the start of federal stimulus benefits in the prior year. For the quarter, sales growth of 4% was led by strong performance in our intimates and beauty categories, along with broad-based strength in our international businesses. Our sales growth combined with solid merchandise margins and disciplined expense management drove operating income of $333 million, which was at the high end of our previously communicated guidance of 295 to 335 million. We reported fourth quarter earnings of 270 per diluted share above the high end of the previous guidance of 235 to 265 per diluted share. And that was driven by operating income gains along with a 4% benefit from our accelerated share repurchase program that we announced in December. As we look forward to 2022, we expect the full year to be broadly comparable to 2021. But there are some key differences between the first and the second half of the year. We expect first-half earnings to be challenged and below last year as a direct reflection of supply chain cost pressures continuing through Q1 and Q2 of this year. And at the same time, we'll be copying the federal stimulus benefits from last year, as you know. In contrast, we expect earnings in the second half of the year to be up to last year and for our operating margin rate to revert back closer to our longer-range target of mid-teens. Our optimism for the second half is based on an expectation of more normal sales and margin growth rates as we anniversary last year's significant supply chain disruptions and costs. And additionally, our team has been intensely focused on several profit improvement initiatives to increase margin dollars and lower our expenses and the run rate of the business. We expect these initiatives will start to deliver during the second half of the year. From a strategic viewpoint, we're focused on delivering every quarter and season, while we're also planning and investing for the long-term sustainability of the business. And we're thinking about sustainability in the broadest sense of the world, which is ensuring that we're a company of loved friends. This links back to our vision, mission, and purpose. It's connected to what we know from our customers, namely, brands they love play an important role, not just in their lives, but in society and in the world at large. Today, our customers expect us to take responsibility for where we've been, for where we are, and for where we're going. They're living in a world that's become increasingly virtual and they demand authenticity and choose brands that are socially and ecologically responsible. Our focus as leaders and as a company is ensuring that we're a future-facing business. That means having a business model, and again, I use that in the broader sense of the term, that increases in relevance and supports and reinforces our purpose. We're investing in women-led businesses using the power of our platform to support, encourage, and partner with brands that promote advocacy for women, like Amplify Her Ventures, which we announced earlier this week. We've made meaningful progress on sustainability and social responsibility, and our ongoing commitments in these areas are foundational to who we are. This year, we will release VS&Co ESG reports first in April and then again later in the fall season, transparently outlining our goals, measures, and our progress. We'll launch a new digital-first brand called Happy Nation. This optimistic, inclusive brand will fill a void in the tween market, bringing undies, first bras, comfy clothing, and body care that parents and tweens can feel good about. You should expect to hear more about that from us during April. And our newly formed emerging businesses team is finding alternative sources of revenue and customer goodwill. For example, later this year, we'll launch a partnership with Elomi, a pioneer in the plus-size intimate space. We continue to focus on maximizing our performance and leveraging the strength of our brand and connection with our customers. And we're confident in our opportunities and remain committed to delivering long-term sustainable value for shareholders. Thank you, and that concludes our prepared remarks, and we'd be more than happy to take any questions that you might have at this time.