Victoria's Secret & Co.

Good morning. My name is Madison, 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 first quarter 2022 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 conference call. At that time, if you would like to ask a question, please dial star 1. I would now like to turn the call over to Mr. Jason Ware, Vice President, Investor Relations at Victoria's Secret & Co. Jason, you may begin.

Thanks, Madison. Good morning and welcome to Victoria's Secret & Co.' 's first quarter earnings conference call for the period ending April 30, 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 filing. Thanks, and now I'll turn the call over to Martin.

Thanks, Jason, and good morning, everyone. When we last talked with you three months ago, we said first quarter was going to be challenging. Notwithstanding the current operating environment, I'm pleased to report that we delivered on our major initiatives during the quarter. Before we dive in, I want to thank all of our associates and partners for their hard work, commitment, and resilience. Our teams have remained focused on execution, enabling us to generate sales at the high end of our guidance and stronger than expected adjusted earnings per diluted share. And that's even as we navigated significant supply chain headwinds and lapped the federal stimulus benefits from prior year. This was our third consecutive quarter since the separation that we've delivered adjusted operating income results in line or above our guidance. which reflects our work to stabilize the business. As a reminder, for the trailing 12-month period, we delivered over $1 billion in EBITDA. Turning to the first quarter performance, sales declined 4.5%. Adjusted for stimulus benefit last year of approximately $75 million, sales were flat to last year. We saw momentum in our bra business and in our beauty business, and also in international as it recovered from prior year COVID-related restrictions. Our adjusted operating income of $116 million was above the high end of our previously communicated guidance range of 80 million to 110 million. We delivered first quarter adjusted earnings of $1.11 per diluted share, which is above our guidance of 70 to 95 cents per diluted share. And that's primarily driven by disciplined expense management. We made progress against our profit improvement plan goals to help offset the macroeconomic pressures that we all know about. As we look to Q2 and the balance of the year, we expect the environment will continue to be challenging and there could be some volatility in our results due to the aforementioned macroeconomic pressures. We're projecting second quarter sales to be up low single digits to down low single digits, with the midpoint about flat and in line with where the first quarter results adjusted for stimulus turned out. We expect second quarter operating income to be in the range of $125 million to $155 million, which is below last year's second quarter results of $203 million, with the high end about flat to last year when adjusted for supply chain costs. For the full year, we remain focused on delivering sales that are flat to up low single digits compared to last year. And we have plans in place that we believe will enable us to manage through this dynamic environment to deliver operating income directionally in line with where it was last year. We see a number of factors and opportunities in the back half of the year that are projected to improve trends, including lapping inventory disruptions that we experienced in the back half of last year, which should result in improved stock levels and inventory positioning. We have new launches, including bras at both Pink and Victoria's Secret. We have size expansions, and we have beauty. We have new initiatives, including our store of the future. We have expanded beauty distribution, the launch of the VS&Co lab, and our planned loyalty program is nicely on track, I'm happy to say. We're also seeing recovery in international from COVID-related restrictions last year. Additionally, we've been developing a profit improvement plan to increase margin dollars and lower the expense run rate of the business. And we expect these initiatives will become more meaningful throughout the year and will help offset headwinds. In short, we've proactively anticipated and are managing supply chain and inflationary pressures. However, we obviously understand that there could be volatility in our results this year. So if the first quarter sales trends adjusted for stimulus were to continue for the balance of year, it could challenge our ability to deliver full-year operating income that's in line with last year. Although, importantly, we do believe we could maintain an operating income rate in the low double digits as a percentage of sales and remain on track to achieve our mid-teens operating income rate target over time. We've stabilized the business and remain committed to optimizing our performance in the current challenging environment by focusing on the things that we control, our brand transformation, being best at bras, enhancing customer experience, etc., etc. We remain steadfast in our vision to become the world's leading advocate for women and create positive change through the power of our products and our platform. It started with putting our associates and customers at the heart of all we do, It's embedded in our culture and our commitment to representing the interests, perspectives, desires, and aspirations of women across every part of our organization. It shows up in how we apply care, craft, ingenuity, and skill to deliver beauty, performance, comfort, and value in our product. It's reflected in every creative decision we make as we push the boundaries of how women are represented and celebrated. And it's in each interaction with our customers and how we listen to and connect with and care for them. We're confident in our opportunities and remain committed to developing long-term sustainable value for shareholders. Thank you for listening, and that concludes our prepared remarks. I think at this time we'd be delighted to take your questions. Jason.