Q1 2022 Victoria's Secret & Co Earnings Call
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 a 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 one I would now like to turn the call over to Mr. Jason Weird, Vice President Investor Relations at Victoria's Secret and company, Jason You may begin.
Thanks Madison.
Good morning, and welcome to Victoria's Secret and Coast first quarter earnings conference call for the period ending April 32022.
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 discussed 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 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 am 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 strong.
Other than expected adjusted earnings per diluted share.
And that's even as we navigated significant supply chain headwinds.
The federal stimulus benefits from prior year.
This was our third consecutive quarter since the separation that we have delivered adjusted operating income results in line or above our guidance, which reflects our work to stabilize the business as.
As a reminder, for the trailing 12 months period, we delivered over $1 billion in EBITDA.
Turning to the first quarter performance sales declined four 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 our beauty business.
So 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 per diluted share and thats, primarily driven by disciplined expense management we.
We made progress against our profit improvement plan goals.
Offset the macroeconomic pressures that we all know that.
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 mid point about flat and in line with where the first quarter results suggested for stimulus turned out.
We expect second quarter operating income to be in the range of 125 million to $165 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 up.
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 direction really 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 pink and Victoria's secret we have size.
<unk> and we have beauty, we have new initiatives, including our store of the future. We have expanded beauty distribution. The launch of the <unk> and co lab and our planned loyalty program is nicely on track and I'm happy to say, we're also seeing recovery in international from Covid related restrictions last year.
Additionally, we have been developing appropriate improvement plan to increase margin dollars and lowered the expense run rate of the business and we expect these initiatives will begin.
More meaningful will become more meaningful throughout the year and will help offset headwinds in short we've proactively anticipated and are managing supply chain and deflationary pressures.
However, we obviously understand that there could be volatility in our results this year.
So it's the first quarter sales trends adjusted for stimulus, which continue for the balance of year. It could challenge our ability to deliver full year operating income that's in line with last year.
Importantly, we do believe we could maintain an operating income rate in the low double digits as a percentage of sales I remain on track to achieve our mid teens operating income rate target overtime.
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 et cetera et cetera.
We remain steadfast in our vision to become the worlds, 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 is 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 cat craft engineered and skill to deliver beauty performance comes.
And value in all products, 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 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.
Okay.
Okay.
We can take questions now Madison.
Our first question comes from Ike <unk> from Wells Fargo. Your line is open.
Hey, Thanks, guys.
Kind of hoping you could talk about the inventory levels ending the quarter.
Activity you saw during the quarter was the volatility in the sales trend did you have to kind of pull the promotional lever so kind of trying to understand what happened in Q1, how you're feeling about exiting into <unk> and what we should be expecting to see from you guys, maybe semiannual sale plan and pricing initiatives in the second quarter and beyond thanks.
Great. Thanks, I will go to Brad for that question.
Good morning, I'll start with the inventory part and then we can try to unpack the sales after that so total inventory ended the quarter up 37% to last year about two thirds of that increase is driven by longer transit times.
We've shifted modal mix back to ocean and higher costs from our transportation rate inflationary pressures.
The next largest driver of that year over year change is related to strategic assortment decisions that the business is making to drive future growth things like supporting happy nation, and Amazon things like size expansion and sustainability.
A very small portion is related to carryover inventory that doesn't represent a significant impact on a year over year basis less than 10%.
Overall, I'd say, we're confident with our ability to manage the inventory levels throughout the year. It's a topic, we're paying close attention to and we have adjusted plans for the back half of the year to better reflect the recent run rates, we expect growth rates from an inventory perspective to moderate in the back end of the year as well, we should see more normalized inventory levels.
In the fourth quarter.
And I think I'll jump in here I think also an underlying on the inventory perspective, I think coming out of the first quarter and as we move through the spring season. We believe the teams did a very good job of managing flow. We believe the teams did a very good job of positioning us for fall from the perspective of our <unk>.
Mix of Ocean versus air is very favorable compared to the prior year. So it gives us more flexibility. Additionally, the teams are also focused on I'll say prioritizing east coast ports. So that we feel a little more comfortable on delivery and timing of delivery and assuredness of deliveries so from an inventory perspective.
I think the teams have done a very good job managing difficult situations, how that relates to Q1 in terms of sales and I think the other parts of your question.
On the last call. We mentioned February was probably the more difficult months.
Our a difficult start to the quarter I should say as.
As we got closer to Valentine's day, and the love cloud launch our business picked up.
<unk> improved in March was actually the best month of the quarter.
April was a challenge for us and across most of retail I don't think we were unique in that aspect whether its macro challenges I think one of the stats. We read was the most challenging weather month in the last 20 plus years across the country.
Clearly there was some shift going on at retail as to where the customer was focused on her spending.
So we were not going to be immune from that so April was it was a challenging month, but overall across the quarter to be able to be relatively flat to last year with all the choppiness.
On an adjusted basis for stimulus, we felt very good about that.
Promotional standpoint.
Notice we came in roughly in line with our margin forecast so.
Things were Directionally in line with what we anticipated.
We did run in the middle part of first quarter, a little bit of sale activity around the mid season sale, but that was really to make sure that we maintained our inventory glide paths more than anything else. So we were able to manage the margin for the quarter pretty much in line with our expectations.
Great. Thank you.
Great.
Thanks, Mike next question please.
Our next question comes from Lorraine Hutchinson from Bank of America Leerink. Your line is open.
Good morning, I wanted to focus on the EBIT margin outlook for low double digits. This year, how much of that is dependent on a decline in freight expense in the back half. What's included for the promotional environment and then can you expand a bit on the specific initiatives under your profit improvement program. Thank you.
Yes, Lorraine I'll start there and then maybe Brad will kick in on some of the profit improvement initiatives in the back half of your question I think what we're trying to communicate in our guidance Lorraine was that.
First off we're not we're not stepping back from our goal from the year.
Our goal to match last year's operating income.
Do understand that that means there is an expectation for the back half of the year that sales trends improved in the operating income.
Performance improves more meaningfully than in spring I think what we're looking at is really a couple of things Lorraine first off from a margin perspective.
Would you expect that the back half of the year, the margin, where it would be slightly better than the prior year versus spring, where it's down for all the challenges that we've mentioned so as we move into the back half of the year. We would expect some relief from a freight perspective, but we're also aware that from a raw materials perspective.
What we're trying to focus on from a sustainability.
Aspect in our product those are going to put some pressures on the margin, but on balance we would expect the <unk>.
Margins to be improved in the back half of the year.
Additionally, as Brad I'll touch on some of our profit improvement initiatives touch on margin from an expense standpoint, we would expect the back half of the year.
And rate to be flat or down to the prior year.
I think we talked about on our prior calls some of the good work that's going on in the business. If you think about your cost in kind of three big buckets.
What we do in stores and store related payroll.
Our investment in people and organization and then our investment in the indirect cost in our business, we have initiatives going on in each of those three areas to try to.
Control costs or take costs lower so I feel very good after three quarters as a public company delivering on our expense plans.
At rates at similar or below the prior year at similar or below the prior year that the business is very focused on the cost side of the equation.
I wanted to touch on the profit improvement plan, a little bit yeah, Lorraine the business.
Kind of middle of last year began to execute profit improvement actions to help offset some of the inflationary headwinds that we were experiencing.
These actions initially kind of in the middle of last year were focused on very targeted price actions and price ups to look to try to extract more AUR in those areas, where we had newness and innovation. We had a lot of testing that was done late last year to try to find those pockets of opportunity from a price elasticity perspective.
At the end of last year with complement of those actions by putting additional plans in place to go after the expense side of the business and in late 'twenty. One that we put more focus on those initiatives that T J referenced that indirect sourcing.
Co brand launch of the credit card program as well as looking at human capital and our stores efficiency opportunities. We're pleased with the progress we've made against that profit improvement plan and the.
The impact of those actions, we would anticipate builds and meaningfully throughout the year and we are expecting more opportunity in the back half of the year from that profit improvement plan.
Thanks, a lot.
Thanks Martin next question please.
Our next question comes from Matthew Boss from J P. Morgan that Matthew Your line is open great.
Great. Thanks, So Martin on the product assortment in these consumer shifts that you cited what categories are you seeing best resonate with your with your consumer today can you elaborate on some of the softer areas in April and May and maybe just rank the drivers of improvement as the year progresses, and then just quick for.
T J what inning overall would you say that your SG&A efficiencies in today and how much flexibility do you have on this line item in the back half of the year, if sales improvement does not play out.
Okay.
Okay, great Yeah. Thanks, Matt Thanks for the question so we.
We're in the we're in the merchandise business so.
Our results are fundamentally based on how good we are generating new product that resonates well with the consumer.
We have done a very good job in the category that is most important to us and that has brought us. So we say around here just about everyday we're best at bras and I'm delighted to say that that's showing up.
The latest market share data.
Consistent periods of decline, we have arrested the decline in market share and actually built market share within the last period NPD data. So that's really good.
Good strength and broad strong panty business less strength and.
Apparel business sleep has been softer and to some extent I think categories like lounge and sleep.
Lapping good performance during Covid times and are now competing with outerwear and went to work on.
Celebration, we are in that kind of stuff so less strength in those categories.
Swim has been mixed.
Very strong swim performance in pink with near 20% comps, but less strong in Victoria is where we feel less good about fit and fashion year over year. So it's a mixed bag and as always.
A reflection of our ability to listen to the consumer and give them what exactly what it is that she wants and beauty we've seen some terrific responses to our best fragrance and Bombshell, we had an incredible.
On time with Bombshell in some of our other launches had been very strong as well so overall more positives than negatives and about in line with what we would expect from an industry perspective.
P. J I think the second part of your question Matt.
I'd characterize our profit improvement initiatives, our expense initiatives as being early innings.
Clearly with three quarters under our belt as a public company and as Brad mentioned many of those initiatives starting.
Late in the fall season, we're still very early in the process.
I don't think it's a stretch to say that the initiatives that we've identified currently probably have runway at least through the early parts of next year. If not 2023. So I think the work where the work is to continue to identify new ones. So that we can extend that tail, even further but I do want to make sure that.
<unk>.
We acknowledge that the expense.
Or margin initiatives to improve the flexibility of the business.
There is a portion of that that certainly will go to the bottom line and I think youre seeing that in our results, but I also believe that over time. There is a portion of that that will be reinvested back into the business and Martin and I are aligned that we will continue to reinvest in the business.
To continue to improve the health of the brand and improve the brand.
Positioning and improve the experience in our stores is very critical we don't want to take a step back on that so there is a balancing act here that we'll be working on but we do see a runway.
Through at least the better part of next year with current initiatives.
Great. Thanks, Matt next question.
Our next question comes from Simeon Siegel from BMO capital markets Simeon Your line is open.
Thanks, Hi, everyone. Good morning.
Did you guys say what inventory dollars were up X in transit and then maybe what inventories were up in units and then T. J. If we could just take a longer term view on the gross margin, maybe isolating supply chain markdowns et cetera, how are you thinking about the longer term opportunity there. Thanks guys.
Yes, Hi, Simeon from a unit perspective on the inventory in the North America business across stores and digital units were up low single digits to Oi.
And then from an in transit perspective, there was about a 20 percentage point impact from in transit in the quarter.
Yeah, and I think building on your question Simeon when we think of when you think about margins kind of longer term I guess, it's with great. If we break it up into the seasons that might be more helpful. Because we are up against some some seasonal challenges. So as we move into fall I think we would expect that the margin.
Margin profile improves a little bit.
It's a little bit because we do believe that some of the activity.
From the prior year from the supply chain.
Based on all of our forecasts, we will continue to stick and some of it will come back to us in terms of favorability I think alongside of that.
Underscoring that we are investing.
And in the margin from a sustainability perspective in other raw material costs.
Where there are pressures, but on balance we would expect the margins to get slightly better as we move into fall as we move into 2023, obviously will be up against the supply chain headwinds that we're.
We're facing today and our expectation would be.
Hopefully those supply chain costs start to abate, a little bit, but I think overall from our perspective continuing to focus on the things that we can control from a cost perspective.
Class a product from a cost perspective in terms of price ups and the opportunities there something.
That we're doing kind of blocking and tackling that would help from a margin perspective.
Been looking at a return policies things like that that.
We've already accident candidly with very little.
Very little noise or very little pushback from the customers. So I think we're continuing to look at all aspects of margins I mean not just.
Being wholly dependent on supply chain, but looking at overall cost price and then some blocking and tackling initiatives. Additionally, I think the other item that we've mentioned already.
Co branded credit card that benefits from co brand credit card likely show up in margin as well. So I think we've got a number of different levers that we're working on.
Great. Thanks, so much best of luck for the rest of the year guys.
Next question please.
Our next question comes from Dana Telsey with Telsey Group Dana Your line is open.
Good morning, everyone can you talk a little bit about the store of the future how it's performing and what you saw this quarter in digital in store sales and how you're planning going forward. Thank you.
Thanks, Dana will go to Martin Yeah, Thanks, Dan and good to hear from you. So store of the future is very early doors. As you know we have three stores open we plan to have 15. This year plus 15 renovations that will be in the style of store of the future. So the main learnings from sort of the future in front of us.
Other than already in our possession.
There are some elements so sort of the future that are really resonating well with consumers, particularly around our use of technology in the fitting room.
<unk> has been very strong and our introduction to the extended assortment that we have on digital.
Being more visible and more evident in store of the future are two of the wins.
Overall, we feel really good about where that program is in terms of getting to a lower <unk>.
Cost operating model for us and getting to a solution that we can scale quickly and efficiently around the world. So the first international versions of store of the future will be online.
Later this season, so all in all store of the future, we're very happy with but it's very early days and we won't be making any decisions about how and how it impacts capital for 'twenty three.
24 until much later.
In the year.
Your broader question on sales and digital we continue to see stores.
The way I'd say it is roaring back stores are roaring back, meaning that the customer is getting back into stores and that is good news for us because we have over 800 points of distribution. We have the best fitting model in the industry, we have superior service.
So we were delighted to see that stores are roaring back in.
And that's helping our business considerably digital has declined.
Not entirely unexpected given that stores have rebounded in the way that they have are most productive customer as the customer who shops, both channels that customers three times more productive for us than our single channel customers. So the focus is on the customer primarily rather than with channel. She wants to shop and I think you should expect to hear us.
Less about channels in the future and more about customer.
I also want to add anything.
Okay, we'll take the next question. Thank you Dana.
You.
Our next question comes from Omar Saad from Evercore Partners Omar Your line is open.
Thanks. Good morning, Thanks for taking my question I wanted to ask about some of your comments on lounge and sleep.
Kind of benefiting during COVID-19 for obvious reasons.
If you could give us some idea of how big of a business that became during COVID-19 and how much of a right sizing you think needs to happen or could need to happen.
And also with interested by your comment around stores Roaring back are.
Are you seeing mall traffic getting anywhere near 2019 levels at this point and do you expect it to get back.
The mall traffic to pre pandemic levels.
Omar I will go to Brad to dimension the size of the business, but let me just answer the right sizing the relative sizing of those categories is not is not huge it's not a major shift for us.
It's an important part of the business, but it's not the business. We're in the intimates business Thats. The most important categories NOLA has been some.
Some degradation some deterioration some lowering of the participation of those categories, it's not a material and meaningful shift.
While Thats 12 breads, just looking at the specifics for you I'll tell you on mall traffic no. We're not seeing more traffic back to 2019 levels, yet it's significantly up on where it was in 2020, one, but not yet back to pre pandemic levels.
Brett Yeah, so from a overall sleep lounge, and then the apparel business within pink.
Within the Victoria businesses sleep lounge business kind of at peak represented.
About 20% to 25% of the volume we've lost some.
Some share of that in the recent trend and then from a pink perspective, the total apparel business in pink represents.
40% of the overall paint business.
And instruments and pink continues to grow and be the most important category, which is the strategic change for us. It wasn't always that way, we're leaning into intimates and paint can we think it makes more sense for the health of the brand overall.
Thanks Omar.
Very helpful. Thanks.
Thank you next question. Our next question comes from Kimberly Greenberger from Morgan Stanley Kimberly Your line is open.
Great. Thank you. This is Alex straighten on for Kimberly Greenberger I just wanted to follow up quickly on the price up opportunities.
We're discussing can you just talk to me about kind of how you SaaS, where there's opportunity and where you've taken price.
And then a quick follow up is just I was wondering if you could give us any color on sales trends quarter to date compared to kind of the challenges in April . Thank you.
So we will go to T. J on the latter part of the question, but I think the key thing to know about pricing.
That is a test and learn situations.
We're blessed to be able to have agility in our systems to enable us to test consumer reaction before we go full out on it. So we have multiple cells in place that are testing different prices and different categories and what we find is the market is incredibly dynamic and that shouldnt be a surprise to anybody.
While it feels relatively straightforward to simply.
<unk> hundred $3 to the bundled price or <unk>, we see real impact when we do that and it's different by different geographies around the country. So it's a very sophisticated.
Problem.
Problem that we're solving for them, we do it as carefully and diligently as we can to protect our margin dollars, but also to give the customer the value that she needs.
Upon us up to undo competition elsewhere, we're also super conscious that with gas prices, 42% higher this year than they were last year. There is competition for share of wallet.
And we have to be relevant and we have to give hope compelling offers and if that means leaning into promotion I'll, let a little bit more in order to make sure we get our fair share of spend that's what we will do so.
So I can't give you a specific because we're not in a commodity business. We have thousands of items. We have many hundreds of them that are on test at different prices at different times.
And you've got to trust us.
We're managing to the best of our ability to meet the needs of the customer and meet the needs of the profitability of the business T. J and I think the second part of your question Alex on around second quarter expectations.
From.
From an early start to the quarter may looks a little bit more like April although slightly better than April or.
<unk> has always been that June would be the best month of the quarter.
Based on the strength of our expected strength around semiannual sale, our current inventory position and our ability to run semiannual sale for the full period of time this year compared to last year.
This year is to semiannual sale will look much more like historic semiannual sales. The business was executed so we see upside opportunity in the month of June and then July as newness. It starts to come in for the new season, we expect to be in much better in stock inventory position you may recall July .
And early third quarters, where we starting to see inventory dislocation last year with all the supply chain challenges. So we would think that July should be.
A fairly good months for the business as well and probably in line with the midpoint to our to our guidance. So.
Again to summarize may was always going to be the most challenging month June was always going to be the best month of the quarter for the reasons mentioned in July we probably saw somewhere in the middle or somewhere in the midpoint of our range. Those are our expectations. Obviously, we're going to be working diligently to not just deliver them hopefully do better.
Great. Thanks, Alex next question.
Our next question comes from Adrian <unk> from Barclays. Adrian Your line is open.
Good morning, it's very nice to see the stores back where they should be the product looks great.
Martin.
To ask you on the comments about promotions <unk>, how much of that is baked into the fiscal year guide, but more at large for the sector historically when the apparel industry at large because very promotional because I'm sure you've seen a number of apparel online.
Retailer does that impact the intimate business does it still fraud the wallet just overall from the consumer.
And then T J what percent of product is sourced from the far east in particular, China and can you give us an update I know, it's a small number on the China impact your stores. Thank you very much.
Okay, I will try to.
So is the level of promotion LLC that we expect to be in the business baked into our guidance, yes. It is.
So we feel comfortable about the amount of promotional activity that we have and what we see were modestly more promotional during the quarter, we were modestly more promotional than last year, but it's about flat and we have a reasonable line of sight to what it would be through.
The balance of the year on China, China is a single digit percentage of our total inflow of merchandise, we're not particularly dependent on China. So we have not we're happy to say being impacted by the tough situation in China other than in our joint venture business.
The stores, obviously closed.
Businesses, all online so there's impact to us at the retail level in China, but very little impact to us on the.
Production.
I think there was another aspect to your question. Thank you.
Okay. Thanks.
Thanks, Andrew No I know what it was it was the impact of other categories.
So yeah, we don't have data on this headwind to say when outerwear categories promoted intimates.
Seth.
I kind of track that.
From a mathematical point of view, but from an intuitive point of view it feels to be so and we know from being in the malls and knowing our customer as well as we do in listening to us.
Stores leaders teams that yes.
Customers go out with a notional idea of how much money they want to spend on a given day when they make a trip.
And it's.
It's a contest went in the venue call at a mall or other venue. It's a contest to see who gets that churn it could be a pair of jeans or it could be a lipstick or it could be some instruments from Victoria's and that's the wonderful thing about the retail market. We're all competing for share of wallet, it's not just a category by category approach and probably.
That feels intuitive to people listening on the call that we don't always divide up the money we have to spend by category. We just we just have an amount of money that we're comfortable spending and then we go play.
And it's always been that way and I think it always will be.
Yeah.
Welcome. Thanks, Adrianne next question.
Our next question comes from Jay sole from UBS J. Your line is open.
Great. Thank you. So much I was just wondering if you can give us.
An update on the international business outside of China, particularly UK some of the other key markets. What you see there and then secondly can you also just talk about if there's any hesitation to return to a little bit more promotion given that the company and the brand has worked so hard just trained the consumer to pay it all priced at a higher price are you worried that sort of a little bit of a slippery slope.
Hard to stop once you start promoting again thank you.
Yeah. Thanks for the question Jay let's take it in reverse order definitely yes.
We anxious about being overly promotional in the business for sure.
Know that we can track, we and other retailers can train consumers to wait for sale periods, we get it.
Is not healthy for the long term positioning of the brand to be permanently discounting the best retailers that are the best fashion forward retailers are less promotional not more promotional so we get it we understand and at the same time, we balance the fact that the.
The customer responds well to promotional honestly, we get it that cheese.
We are battling for share of wallet and so it's a balance.
Yeah, I'd say every day 100 times a day, it's a balance it's not one thing or another it's a little bit of everything. So we're very very focused on it we're very conscious of it is less about the mathematical calculation of more about the overall health of the brand and we feel good about the health of the brand based on the repositioning work that we continue to do with one.
We are into that transformation of the brand, which for us in the business feels like a long time, we're kind of like.
We used to it but we know from our research that most consumers are only just beginning to notice the transformation of this brand. So we have a lot more to do we have.
We have to get a voice louder, we have to amplify our message of diversity equity and inclusion of being a brand for all women of being on a mission to improve the lives.
People around the world that is significantly more important and we want more promotional or less promotional as it relates to international reminder of five parts to the business and international the most important is the franchise business.
These are franchise partners around the world, who operate Victoria's secret stores for us in a magnificent way those stores are fantastically well run and performance has been Super strong, we're seeing very strong comps.
Against a relatively soft period last year, but regardless of that we're seeing very very strong health and the franchise business. The second part would be travel retail.
Not surprisingly that business is booming back as well as people start traveling more airports are busier than they were most of those stores have reopened not all but most of those stores have reopened so we're seeing good growth in that part of the business. The U K is in a joint venture with next and we feel thrilled to be in partnership with Nextera Fantast.
Operator, they have improved.
Capability in that market in terms of our ability to offer an integrated omnichannel experience. So we're very pleased with the way that business is going.
It's making money rather than losing money, which is a good thing.
The fourth part of the business would be our direct to consumer business that we operate from here in Columbus.
That business is also going well I see that there will be some structural change to that business as we move as we get our partners around the world more involved with our holistic omni channel experience, we should be less dependent on shipping from the United States and more dependent on having a seamless omni experience for customers.
And whatever country. She visitors visits is in the 77 countries. We are around the world and finally as part of the business is China, which which is tough you know we thought several months ago. We thought we were out of the woods and it was all back to normal and then everything locked down and we really feel for our associates, who are in that market who are experiencing extreme.
So that.
That very much on my mind and are focused on them.
Wishing them all the best.
I Didnt mentioned, Russia, I, probably should for completeness, we closed.
In consultation with our partner, our Cheyenne who operates the.
Victoria's secret stores business in Russia, we made the decision to close those stores earlier in the season those stores will not be reopening we don't believe that we will have a material impact to this quarter.
We expect that there'll be no more business from that part of the world.
Great. Thanks, Jamie.
Question.
Our next question comes from Susan Anderson from B Riley Susan Your line is open.
Hi, good morning, Thanks for taking my question.
I was wondering if you could give a little bit more color on the pink business and the driver or the categories of strength and weakness there it sounded like instruments with strong, but maybe apparel a little bit lighter and then also are there any early thoughts on how automation or any early reads on how the consumers responding just curious also how your market.
The new brand new customers.
Hello, I'm. So happy you asked about happy nation. Thank you for that.
You answered your own question on paint.
It is it is what you said our intimates business is strong we've seen less strength in the apparel part of the business not much else to add.
Other than that it's an incredibly dynamic business and there's a tremendous amount of newness and change coming in so.
What you see at any given point in time is only what you see in the quarter. We've got lots of great merchandise coming for the fall season that we feel super excited about Amy and the team continues to do an amazing job.
We're really pleased with our pink business overall.
<unk> Super early as you know it is really a test market for us, but the response has been overwhelmingly positive.
That fits in the fabrication and the quality and the wash it all coming out very well, we're getting great customer feedback.
We're learning a lot we are deliberately not putting kerosene on the fire of marketing that brand yet because its brand new we need to understand how the consumer interacts with it so.
Pretty much a slow start in a deliberate start to test and learn but I'm also delighted to say that we've had significant interest from.
Potential partners around the world, who are really really interested in.
And what we're doing in that space and so that's very encouraging when the market at large notices goodwill.
And notices.
So just as you've seen us partner with Amazon.
<unk> extended distribution in our beauty business.
You should expect to see us partnering with other people be it through our <unk> initiative, where we're partnering with other third parties.
It makes sense for us to join forces with strong businesses, who can add to our overall customer experience. We will we will absolutely look to do that and happy nation as potential potentially.
A good example of that.
Thank you Brett.
Thank you Susan.
Next question.
Our next question comes from Marni Shapiro from retail tracker Marni. Your line is open.
Hey, guys.
Les happy nation, as well, but I'm going to ask you a little bit just about Frank is and it's such a great brand I'm just curious your thoughts behind investing here and is this something that you guys was you know as a company and look to do in either categories, you're already in or adjacent categories.
It's behind you there.
It accelerates the growth of these small brands and participate in that upside or somebody they even want to bring in house altogether.
Yes. Thank you for the question Mani.
<unk>.
We love <unk> brand.
Fabulous Fabulous brand and we've been admiring it for several years I was fortunate to meet with Francesca.
Last week last week last week, we had a.
An amazing meeting with her she is a real dynamic creative force.
Think it.
Brilliant for us to have a partnership with her.
The partnership that we have with the lemon lemons.
Also female founded business.
Very strong customer affinity and both of those brands and we have a minority stake in the boat. It enables us to participate in the upside but more important it rounds out our customer experience. So there are three reasons why we would partner with third party brands one is.
<unk> get two customer groups, where we're currently underweight the sector.
If it helps us to get two categories of merchandise where were currently underway and the third is if an affinity with that brand overall brings a halo to the house of Victoria and <unk> and both of those cases, frankly is 11 lemons, it's a check check check they do all of those things in.
We are very proud to partner with them, we think they bring a lot to family overall and I think there is potential for Victoria's secret and code to do more of that style of investing in third party brands and it's a really good note to the BS and co lab.
Initiatives that we announced last week.
Yes building on the foundation that you just talked about the three reasons from a partnering we would anticipate building a pretty significant business Matt.
I'm glad you asked and I'm glad you liked the brand money.
<unk> Congratulations best of luck for the summer season.
Thanks, Marni next question.
Our next question comes from Cory <unk> from Jefferies. Corey Your line is open.
Hi, Good morning, and thank you for taking my questions. You mentioned Amazon can you just provide a little bit more color as it relates to the strategy around selling.
Yes, and pink beauty products on Amazon and what that could mean for your business and then can you just briefly highlight the co brand credit card launch and how that's enhancing our offering and attracting new customers.
Yes happy to so on Amazon Just reminder, we have an incredible beauty business, we have a $1 billion.
Beauty business and Victoria, we have I think I'm right in saying three of the top 10 fragrances in America, we have the number one fragrance in America.
And that's from only distributing that product those products through 800 plus points of distribution on a single website, how much more business could we do if we partnered with other people who are in the category and is that business. If we were to access it going to cannibalize, what we already have but that's the <unk>.
<unk>.
We think it makes sense to test the proposition we do.
Delighted to be working with Amazon, who has been an amazing partner for us.
Initial results indicate that gets us to a new consumer who is not currently shopping with us that is additive to our mix that is not cannibalizing our existing business, but we will continue to test online. We haven't gone full bore on that initiative by any stretch of imagination, we're testing our way into it but I think it's really interesting.
It offers a model for how we might be able to partner with other people where it makes sense to do so so early days, we will update more at our Investor meeting in October later in the game and we'll have more data points, but we.
We're delighted with the partnership Brad you want to pick up the second part of that question, Yes, Hi, Cory with respect to the loyalty programs. Today, we have two large loyalty programs that are in place and very dominant run at scale, we have a pink nation loyalty.
Our loyalty program, we have a credit based.
The program with Brad who is our financial credit provider both of those programs. They provide high customer engagement and we see very accretive results from the members of those two programs.
I referenced that Martin made earlier is that we are on a pathway to modernize both programs. This year. The first step of that modernization was a launch in a co branded mastercard product with red that occurred in the first quarter.
And early results of that are very successful and we're optimistic that that will build and become more accretive throughout the year and then the second part of the modernization of roadmap relates to a non credit loyalty program that will begin piloting later this year and very excited about adding an overlay of a non credit based program to the <unk>.
That we have not had historically and again would expect that that is a more meaningful impact to fiscal 2023.
Great.
Thanks, Laurie. Thank you very much. Thank you we have time for one more question.
Our last question comes from Janet Kloppenburg from J J K research Associate Janet Your line is open.
Hi, everybody I'm glad I have an.
Martin Nice to hear your voice.
Wanted to see if you could talk just a little bit more about king from me.
A lot of concern around that allowing the power business and I Wonder if you see it sounds like you plan on having a smaller part of the business. Maybe you could give me a picture of what you would call as they are and if that if the whole fleet component of the business.
It is looking to shrink.
And in intimates as that builds where should we see the uptick in category development.
And just.
On prior launches I know cloud was very successful and we should expect at least one more is there a possibility that there will be more than one additional fire launch this year. Thank you so much.
Thank you Janet.
Don't be concerned about pink pink is alive and well that is a great business with a incredibly strong followership really clear positioning around people purpose and planet.
Great merchandise the stores are busy.
Business is performing well there is absolutely no structural issue with pink whatsoever. It makes enormous sense Victoria's secret and co to have Victorias secret and pink side by side. It gives us an unfair advantage in getting too young women early in the lifecycle.
It has incredible strategic sense for us the most strategic sense is that that is the dominant player in intimates for young women, that's the real rationale for us owning and operating it and having the middle.
A little assistance, Victoria, So thats our primary focus.
If we could grow any single category.
If we could wave a magic wand, and say, which category do we want to grow it would be the bra and panty business and paint that is the lifeblood of bringing new young customers into the business. So.
If we have a lower participation as a consequence of that from apparel.
And sleep, absolutely fine with that we're not deliberately planning those businesses down and thats not the intent.
Our deliberately planning to have a higher participation of intimates swim because those are the those are the core of the offer and those are the parts of the business that make most sense relative to Victoria's secret. So.
Hope that all makes sense to you I definitely don't want anyone to be concerned about.
Plastic business.
And it resonates incredibly well with customers in all of our research.
Very carefully track this shows that the health of the brand is very strong very strong we've seen very positive momentum.
Look cloud has been excellent for us really strong launch we are committed to at least two bra launches per year. So yes, there will be more activity in the back half of the year you wouldn't expect me to tell you what that is Janet.
Jonathan reasons and commercial reasons, but we.
We spend more time talking about <unk> more time developing brush than anything else that we do it's the most important category that we're in and I am delighted to say we have incredible talent.
Working on our bra business in both of our big brands.
Great. Thank you and good luck.
Welcome. Thank you. Thanks, Janet that concludes our call. This morning. Thank you for your continuing interest in Victoria's Secret and company.
Thanks, everybody.
That concludes today's conference. Thank you for participating you may disconnect at this time.
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