8-K: Victoria's Secret & Co. Reports Mixed Q1 Results, Reaffirms Full Year Outlook

Victoria's Secret & Co. reported first quarter results at the high end of preliminary estimates, with a net loss of $4 million, but reaffirmed its full-year outlook.

Summary

• Victoria's Secret & Co. announced its first quarter 2024 results, showing a net loss of $4 million, or $0.05 per diluted share, compared to a net income of $1 million, or $0.01 per diluted share, in the same quarter last year.
• Adjusted net income for the quarter was $9 million, or $0.12 per diluted share, which was at the high end of the previously announced preliminary range.
• The company's net sales for the first quarter were $1.359 billion, a 3% decrease compared to $1.407 billion in the first quarter of 2023, but also at the high end of their preliminary estimates.
• Total comparable sales decreased by 5% in the first quarter.
• The company is forecasting second quarter net sales to decrease in the low-single digit range compared to last year's second quarter net sales of $1.427 billion.
• Adjusted operating income for the second quarter is expected to be between $30 million and $45 million, and adjusted net income is estimated to be between $0.05 and $0.20 per diluted share.
• Victoria's Secret reaffirmed its full-year outlook, forecasting net sales of about $6.0 billion, down low-single digits compared to the prior year, with adjusted operating income expected to be between $250 million and $275 million.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive due to the company meeting the high end of its preliminary guidance and reaffirming its full-year outlook, but there are concerns about the net loss and sales decline.

Positives

• First quarter results met the high end of preliminary expectations for sales and adjusted operating income.
• The company saw sequential improvement in North American sales trends in both stores and digital channels.
• International business continues to show strong growth with mid-teens net sales increase.
• Gross margin rate improved compared to the previous year.
• Digital sales growth outpaced store sales, indicating successful investments in the online customer experience.
• The company is reaffirming its full-year outlook, suggesting confidence in future performance.

Negatives

• The company reported a net loss of $4 million for the first quarter, compared to a net income of $1 million in the same period last year.
• Net sales decreased by 3% compared to the first quarter of 2023.
• Total comparable sales decreased by 5% in the first quarter.
• The company is forecasting a low-single digit decrease in net sales for the second quarter.

Risks

• The company acknowledges caution around the broader retail environment in North America.
• The retail environment is described as challenging and the promotional environment is very competitive.
• The company's future performance and financial results may differ materially from forward-looking statements due to various factors, many of which are beyond their control.
• Risks include general economic conditions, inflation, changes in consumer spending, market disruptions, and the ability to implement strategic plans.

Future Outlook

The company is forecasting a low-single digit decrease in net sales for the second quarter of 2024, with adjusted operating income between $30 million and $45 million and adjusted net income between $0.05 and $0.20 per diluted share. The full year outlook is reaffirmed with net sales expected to be about $6.0 billion and adjusted operating income between $250 million and $275 million.

Management Comments

• Chief Executive Officer Martin Waters stated he was encouraged by the first quarter results, which were at the high-end of preliminary estimates.
• He noted sequential improvement in quarterly sales trends in North America for both stores and digital.
• He highlighted the delivery of meaningful newness in merchandise and brand projection during the quarter.
• He mentioned that the company is planning the business conservatively in the near-term due to caution around the broader retail environment in North America.
• He emphasized the company's focus on accelerating its core and initiatives to leverage market leadership and convert cultural influence into long-term financial growth.

Industry Context

The results reflect a challenging retail environment in North America, with competitive promotional activity. The company's focus on digital growth and international expansion aligns with broader industry trends, as retailers seek to diversify revenue streams and adapt to changing consumer behavior. The company's performance is being compared to a prior period that was impacted by restructuring activities.

Comparison to Industry Standards

• Victoria's Secret's comparable sales decrease of 5% is worse than some competitors who have reported flat or positive growth in the same period, such as Abercrombie & Fitch which reported a 22% increase in net sales.
• The company's focus on digital sales growth is in line with industry trends, but the pace of growth may be slower than some digital-first competitors like ASOS or Boohoo.
• The company's international growth in the mid-teens is a positive sign, but it is important to compare this to the international growth rates of other global apparel brands like H&M or Zara.
• The adjusted operating income of $40 million is lower than the $55 million reported in the same quarter last year, indicating a decline in profitability, which is a concern compared to industry benchmarks.

Stakeholder Impact

• Shareholders are advised to vote on key proposals at the upcoming annual meeting.
• Employees may be impacted by the company's strategic plans and cost management efforts.
• Customers may see changes in product offerings and promotional activities.
• Suppliers may be affected by the company's sourcing and production strategies.

Next Steps

• The company will conduct its first quarter earnings call on June 6, 2024.
• Shareholders are encouraged to vote on the director nominees, executive compensation, and stock plan amendment at the annual meeting on June 13, 2024.

Key Dates

Keywords

Victoria's Secret, VSCO, Retail, Earnings, Financial Results, Net Sales, Operating Income, Comparable Sales, Guidance, Proxy Advisory