Victoria's Secret & Co.

Good morning. My name is Ivy, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Victoria Secrets & Company first quarter 2024 earnings conference call. Please be advised that today's conference is being recorded. All parties will remain in a listen-only mode until the question and answer session of today's call. I would now like to turn the call over to Mr. Kevin Wink, Vice President of External Financial Reporting and Investor Relations at Victoria Secrets & Company. Kevin, you may begin.

Thank you, Ivy. Good morning, and welcome to Victoria's Secret and Company's first quarter earnings conference call for the period ending May 4, 2024. As a matter of formality, I would like to remind you that any forward-looking statements we may make today are subject to our safe harbor statements found in our SEC filings and in our press releases. Joining me on the call today is CEO Martin Waters and CFO Tim Johnson. We are available today for up to 45 minutes to answer any questions. Certain results we discussed on the call today are adjusted results and exclude the impact of certain 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 included in our press release, our SEC filings, and the investor presentation posted on the Investors section of our website. Thanks, and now I'll turn the call over to Martin.

Thanks, Kevin, and good morning, everyone. I am pleased to report that first quarter results exceeded or met our expectations for the quarter on all key financial metrics. We experienced sequential improvement in quarterly sales trends for the third consecutive quarter in North America in both our stores and digital business for both Victoria's Secret and Pink brands. We delivered meaningful newness in merchandise and brand projection during the quarter, and our customers responded, particularly in April, which was our strongest month of the quarter. In North America, the improvement in trend was evident in both our store and digital businesses. From a store's perspective, we experienced significant improvement in traffic in April, meaningfully outperforming the balance of the mark. In terms of our digital business, the investments we've made to improve the customer experience resulted in digital sales performance outperforming stores. Traffic levels in our digital channels improved with April as the strongest month. And our conversion continues to grow. driven by improving customer experience and positive customer receptivity to our improving merchandise assortments. From a market perspective, we are encouraged to see that sales trends in the Intimates market in North America improve quarter to quarter, and we recognize a similar improvement in our Intimates business performance, in particular in March and April timeframe. Our combined Victoria's Secret and Pink market share in the Intimates category remained at about 20%. We were also encouraged to see our digital market share in both bras and panties, along with an increase along with our sports bra market share. From a merchandise category perspective, Victoria's Secret Beauty Business continues to be our best performing category, with year-over-year growth for the third consecutive quarter, and was followed by improving performance in panties and bras. The combined intimates and beauty business for Victoria's Secret was about flat in the quarter compared to last year. Pink experienced improving sales trends throughout the quarter and April was the strongest month for the brand in the last several quarters with bras, sleep and apparel as the best performing categories helping to offset a slow start to the quarter. The retail environment in North America was challenging, and the promotional environment was very competitive. But importantly, our gross margin rate in the quarter was above last year, and we were disciplined with traffic-driving offerings for our customers and managed our inventories well, which were down 5% compared to last year. In addition to improving North American trends, our international business continues to have real momentum, with net sales up 16% in the first quarter compared to last year. International system-wide retail sales increased low double digits in the first quarter, and we continue to deliver profitable growth across stores and digital as compared to last year. International sales in the first quarter were driven by significant year-over-year growth in China and globally with our franchise and travel retail partners. We're optimistic about sales, profit, and growth opportunities for all of our partners around the world and remain on track with the growth plans we discussed at our investor day, in October 2023. Our adjusted SG&A rate in the quarter was better than our guidance, primarily due to disciplined and proactive expense management initiatives to drive incremental efficiency within our operating model. The combination of SG&A and buying and occupancy dollars were down slightly to last year. At our investor day in 2022, committed to transforming the foundation of our company and established a $250 million three-year goal. And we're on track to meet that goal. And we believe we've demonstrated our commitment to continually focusing on efficiencies within our operating model and improving the cost structure of our business. Aside from the financials, over the last 90 days, we've executed several key actions in support of our strategy and brand positioning for the long term. For example, We continue to develop our understanding of the Victoria's Secret and Pink customer through our multi-tender loyalty program, which has now been active for one year. We have 30 million members who drive about 80% of our sales on a weekly basis. Through insights and data, we're focused on turning our understanding of our customer into world-class, seamless customer experiences. We continue to introduce newness in bras with the relaunch of our number one bra collection, Body by Victoria, with all new styles and our latest innovation offering lightweight design that smooths, shapes, and supports without an ounce of padding. In March, we launched a campaign focused on our top-rating sports bra, Featherweight Max, available in a variety of new colorways and also featured our Flex sports bra and Flex leggings with invisible lift technology, as well as our Elevate compression leggings. In April, we launched our Escape to Summer collection, featuring all new swim, intimates, and sun-ready pieces to wear day or night, as well as our iconic archive swim styles that are beloved by our customers. The new swim collection has been designed to celebrate our heritage in a fresh and modern way. As part of our commitment to expand our categories, we continue to introduce new swim products under the collaborative label Pink Times Frankie's Bikinis that celebrates the iconic pink brand reimagined through the lens of founder and creative director of Frankie's, Francesca Aiello. In May, we announced the Victoria's Secret Fashion Show is coming back in 2024. The show will deliver precisely what our customers have been asking for, the glamour, runway, fashion, fun, wings, entertainment, all through a powerful modern lens reflecting who we are today. We're thrilled to share this iconic property later this year. As we look forward, albeit with some caution, around the broader retail environment in North America, we're planning the business in an appropriately conservative way in the near term, but are encouraged by April and the month of May was a solid start to the second quarter. We're optimistic about the positive signs we're seeing and remain focused on accelerating our core by leveraging our market leadership position and delivering on multiple initiatives to drive growth in our business, including product innovations to enhance Victoria's Secret brand, the reimagined merchandise strategy for Pink, new customer experience enhancements in our digital business, and of course, a multi-terminal loyalty program. For the second quarter of 2024, we're forecasting sales to decrease in the low single-digit range compared to the second quarter of 2023. This forecast reflects performance to start the quarter and tracks in line with the trajectory we've discussed for 2024, which assumes the broader intimates market in North America will remain promotional and could remain pressured throughout the first half. At this level of sales, we're forecasting second quarter adjusted operating income to be in the range of $30 to $45 million. For fiscal year 2024, we're reaffirming our forecast and expect sales to be about $6 billion or down low single digits to comparative 52 weeks from fiscal 2023. Our forecast assumes that trends improve throughout the back half of 2024. At this forecasted level of sales, we expect our adjusted operating income in 2024 to be about $250 to $275 million. Lastly, as we've shared consistently inside and outside the business with the long-term health of the business in mind, we remain committed to our strategic priorities. Firstly, to accelerate our core. Second, to ignite growth. And thirdly, to transform the foundation of our company. As we look into the balance of the year, we're committed to the initiatives designed to leverage our market leadership position and unlock our opportunity to convert our significant cultural influence into long-term financial growth. Thank you, and that concludes our prepared comments. At this time, we'd be more than happy to take any questions you might have. Over to you, Ivy.