Q2 2022 Victoria's Secret & Co Earnings Call
Yes.
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 second 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 todays call at that time, you May press Star and then the number wanted to join the queue. Please.
Please make sure to Amit your phone and record your name at the problem.
I'd now like to turn the call over to Mr. Timothy Johnson, Chief financial and administrative officer at Victoria's Secret and company T. J you may begin.
Thanks, Madison and good morning, everyone welcome to Victoria's Secret and goes second quarter earnings Conference call for the period ended July 32022.
As a matter of formality I would like to remind you that any forward looking statements. We 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, and EVP of finance spread Cramer also with me today is Kevin VP of external financial reporting.
Kevin will be working with me to lead our investor relation efforts go forward. We're available today for up to 45 minutes to answer any questions. After our prepared remarks 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.
Reconciliation of these and other non-GAAP measures to the most comparable GAAP measures are also included in our press release, our SEC filings and the Investor presentation posted on the investors section of our website, thanks, and I'll now turn it over to Martin.
Thanks, T J and good morning, everyone.
Before we dive right into the quarter as we celebrate our first year as an independent public company I want to thank all of our associates and partners around the world for their hard work and dedication.
After several years of missteps, we collectively undertook and committed to a revolution of our brand and our strategy aspiring to become the Victorias secret our customers deserve at Victoria's secret, where everyone feels steam respected and valued.
We've made meaningful progress in a short period of time and I'm proud of the company we are today.
We continue to enjoy a leading market share position of top of the domestic intimates category.
Energized by our customers response to our brand repositioning in fact, we've seen growth in our domestic market share to the intimates category for the past two quarters.
Now of course, we recognize this transformation is a journey and there's still much more to do.
When we last talked with you three months ago, we were all aware of the challenging macroeconomic environment and.
And we expected to face significant headwinds in the second quarter, we were not wrong. However, as a result of our relentless focus on execution and cost we were able to deliver second quarter adjusted operating income and adjusted earnings per share within our guidance range.
This was our fourth consecutive quarter since the separation that we delivered adjusted operating income and adjusted earnings per share results within or above our guidance.
For the trailing 12 month period, we delivered nearly $1 billion in adjusted EBITDA.
We believe this type of performance demonstrates the strength of our brand repositioning our domestic share leadership and growth in our share of the instruments category and our team's relentless focus on execution in a difficult supply chain inflation rate and consumer spending environment.
We have stabilized our business model to weather difficult times and are positioned for significant operating leverage and more normal economic times.
Turning to our second quarter performance, our adjusted operating income of $127 million.
Was within our previously communicated guidance range.
Sales declined 6% in the quarter compared to last year, which was below our expectation as customer traffic slowed noticeably in all stores across the Liza and across the retail landscape as the quarter progressed.
So in our digital channel performed generally as expected.
From a merchandise category perspective for US was our best performing business followed by other instruments.
Beauty business was solid despite headwinds in the quarter related to lower semiannual sales driven by materially lower redline inventory this year versus last year.
Our most challenged category continues to be the apparel business, which represents about 25% of ourselves and it was down in the high teens for the quarter.
Our international business continues to be a bright spot with sales up nearly 30% compared to last year and we returned the business to profitability in the last two quarters.
We continue to be optimistic about growth for all of our partners around the world.
We delivered second quarter adjusted earnings of $1 nine per diluted share, which was near the midpoint of our guidance range of 95 to $1 25 per diluted share.
Aside from the financials over the last 90 days, we've executed several key actions in support of our strategy and positioning for the long term, including we.
We simplified our corporate leadership structure to unite all brands to better align our teams with the shifting consumer landscape to become more efficient as an organization to enable more nimble and agile execution of our strategy in support of long term growth.
We've continued to deliver newness and innovation for example, with the launch of our still obsessed broken pain evidence of our commitment to continued quality and fashion and our best that broad category.
We elevated our commitment to diversity and inclusivity with our launch of the latest pink wear everywhere bra franchise in collaboration with Tic Toc Remy beta.
Newness and innovation were also evident in the quarter as we launched our largest fragrance launch in five years beds at a new there's a new scent designed to complement and adapt to each person's unique body chemistry.
Also we improved our customer experience expanding channels of distribution, we launched our Amazon storefront at the end of April featuring a portion of our beauty assortment for both Victorias and paint and recently expanded that partnership to include happy nation.
We anticipate increasing our Amazon exposure as we move through the fall season.
We expanded Rps and co lab platform and commitment to size inclusivity with a new partnership with allow me that.
Partnership with allow me lingerie will now expand the overall size offering available on Victoria's secret dotcom to over 100 sizes.
And we published our first ESG report earlier this spring documenting our progress and commitment to conduct our business in a more environmentally socially and ethically responsible way and we plan to release, our ESG materiality assessment and strategy. This fall.
Looking to the balance of the year, we anticipate inflationary headwinds and pressure on the consumer will persist and our business will continue to experience sales and margin volatility.
We are confident in our ability to navigate this shifting consumer landscape by aggressively pursuing our share of traffic and being extremely diligent on cost and inventory management.
With this in mind for the full year, we expect sales to decrease in the mid to high single digit range and forecasted adjusted operating income to be in the range of five five to $5 $75 million or approximately 8% to 9% of retail sales.
Given today's challenging macroeconomic environment and cost inflation, we believe an adjusted operated income rate in the high single digits demonstrate stabilization of our business Ah represents a solid base to generate leverage from when no more and more normal macro trends return.
We remain committed to our long term range of mid teens operating income rate.
The third quarter, we are forecasting sales to decrease in the high single digit range compared to last year, which assumes second quarter trends and the challenging broader retail environment will continue.
We expect operating income for the third quarter to be in the range of 10 million to $40 million.
We're committed to optimizing our performance in the current challenging environment by focusing on what's within our control.
<unk> transformation being best abroad, and housing the customer experience and a relentless focus on cost and inventory management.
We also continue to monitor.
And better meet the needs of existing customers, including developing new brands as well as pursuing partnerships with other brands.
I will focus as leaders and as a company is on ensuring we are future facing business that becomes more and more culturally relevant and shifting consumer environment.
We are confident in our opportunities and we remain committed to delivering long term sustainable value for our shareholders and we're looking forward to our Investor day in Chicago on October 13th where we plan to provide an update on our longer term strategy.
Thank you that concludes our prepared remarks. So at this time, we'd be more than happy to take any questions you might have.
Thank you.
Thank you.
If you would like to ask a question. Please dial star one and meet your phone and record your name clearly if you need to withdraw your question. Please dial star to again to ask a question. Please dial star one.
Our first question comes from Lorraine Hutchinson from Bank of America Laurene. Your line is open.
Thank you good morning.
I wanted to.
Just dive in a little bit on the long term margin target it sounds like you're still comfortable with that mid teens level can you talk a little bit about what factors. This year you view as transitory and then maybe paint us a path on how to return back up into the double digits. Thank you.
Martin and I can tag team. This one Lorraine I appreciate the question and I think I'll take a big step back and say when we think about the progression of the business and the improvement in the stabilization in the operating income base over the last handful of quarters or a couple of years.
Pre pandemic operating income was around about $100 million im going to around for you.
During the pandemic and now with the repositioning of the brand.
There has been meaningful improvement in both the.
The leverage and efficiency in the model through the profit improvement plan.
And the gross margin rate improvement around inventory management.
And in more normal times, something more like last year, our base operating income was around about nine.
<unk> $900 million or ever so close to that mid teens operating income rate very early in the revolution of our strategy and the evolution of our brand.
This year as Martin just mentioned as we put in some of our prepared remarks at the midpoint of our operating income is more like $550 million.
Or eight or 9% again in a very difficult environment.
Key headwinds there being sales and supply chain over the last 12 months. So I just think it's important to kind of understand the base from which were coming from <unk>.
Last year in <unk>.
Round, 13% and a more difficult time, 8% to 9% what is the path forward look like I think clearly we're going to go into a lot more detail at our Investor day in October So I don't want to steal everyones Thunder, but I think as we understand the business better as we spend more time on the long term strategy.
We see an opportunity in the core business as we unite the brands under Amy's leadership.
To grow in line with the market in our key categories. I think clearly, we're getting traction in bras and intimates as key categories beauty continues to perform quite well.
We see opportunity for growth in both international and in the new business areas are emerging business areas now under Greg's leadership. So I think when we think about more normal times, we see a path to mid single digit growth in terms of top line performance and I think if you consider the <unk>.
Good work, that's been done on cost structure and inventory management from where we are today to those numbers.
From a sales perspective, obviously, there's significant leverage opportunity as sales ramp I think Additionally, we look forward to going into more detail around some of the profit improvement initiatives at the Investor Day, and I'll just remind you that if we look at how we've performed so far this year.
<unk> arguably very very early in our profit improvement plan cycle expense dollars were down down year over year.
$20 million in the first quarter another $45 million here in the second quarter. If you do the math in the third quarter down another $40 million year over year. So clearly early on we're seeing traction from our profit improvement plan initiatives. So.
Hopefully that gives you two or three items to kind of think about as you think about the forward model and the path to get there. Obviously again, we're going to go into a lot more detail when we get to October .
Thank you.
Our next question comes from Ike <unk> from Wells Fargo. Your line is open.
Hey, good morning, everyone I guess, maybe TJ can you talk about.
Winston performance by category, it sounds like Youre seeing broadly different.
Reaction to the intimates in the bra business and even beauty versus apparel maybe.
Maybe just talk about the weakness youre seeing in apparel, maybe pinks versus the us how do we kind of like tie that to the inventory go forward. We're just kind of look to know a little bit more about the category dynamics. Thank you.
Yes, I'm going to ask Martin to take that one sure happy.
Good morning, good to hear from you. So yes, we still quite a range of performance within the categories. So the best news of the day is that browse is our most important category, where our bra business was our best performing category overall with a flat performance year over year. So we're very happy about that we're also happy that when.
We just read the market share data earlier this week that we saw growth in our market share in instruments, and particularly we saw even stronger growth in our market share in bras. So we're pleased with the bra business. The panty business was close to flat down low single digits beauty business was down in the mid to high single digits.
This is sort of a tale of two cities there and the.
Through the quarter performance was pretty strong, but we were impacted by the good news of having less.
Redline inventory and our semiannual sales so it's a bit of a tale of two halves. There overall, we feel good about momentum in the beauty business and Thats really continued into the third quarter with the launch of the <unk> fragrance, so lots of newness and lots of energy in beauty, which is great.
Swim business has been incredibly mixed Victoria had a disappointing season in swim pink had a very very strong season in swim. So overall, we were down a bit from where we expected to bake on reflection. The first season of Victoria back in the swim business, we were probably a little basic.
In the second season back in the swim business, we swung the pendulum a little too hard and were little too fashion forward in a little light on basic so we live and learn and we continue to get better we've continued to get closer to the consumer you rightly suggest that the apparel category as the most difficult.
That's most impacted in paint rather than Victoria overall system wide.
Close to 25% above.
Our overall sales mix, we're not particularly long longer on inventory in that category than elsewhere, but we will be very prudent on our purchases for the back half of the year. So we've taken some money out of our open to buy.
Category is more difficult and will just lead is much harder on intimates.
Sleep, so hopefully that gives you some color Mike thanks.
Thanks for the question.
Thanks Martin.
Our next question comes from Matthew Boss from J P. Morgan Matthew Your line is open.
Great. Thanks.
Martin could you expand on the actions that you've taken to adjust fall inventory receipts also how best to think about AUR for this year, and then T J and what inning would you call the expense efficiencies and savings that you've implemented to date as we think about the multiyear opportunity on this front.
Yeah, great. Thanks for the questions Matt.
As it relates to full we have definitely taken down.
Inventory.
No question as we saw a softening through the quarter through quarter. Two we felt it prudent to take down our sales forecast and with our sales forecast coming down comes down all buys so across the board we're being more prudent.
The really good news is that we have moved our model mix for the full season very significantly year over year. So I think last year, we were at that Brad keep me honest here, we were at 90% and 10% fee, which gave us very little opportunity to react this year with more like 75% 25%.
What that enables us to do is if we see momentum in the business and we all hope that the macroeconomic trends received somewhat then we can convert some of that that's planned some of that merchandise plan foresee to add and get goods and more quickly which gives us opportunity to chase. So that's the good news about the agility that we have in the supply chain and the good news.
Supply chain returning to more normalized levels, so while we.
<unk> inventories at the start of the fall season is up in the <unk>. We expect by the end of the season come the end of January to be at a much more normalized state and we can say more about that if people have appetite for it I wanted to just hit the AUR point, because there's a lot to unpack so.
We have been successfully able to pass on price in some areas I think last time, we spoke I joked about patentees moving up from five to 30 to $5 32 slightly up to 7% increase in our midst business, we've been able to pass on the price of overall, we've been able to increase prices by something in the range of low <unk>.
To mid single digits.
On a year over year basis.
However, we have seen more promotion analogy within the quarter and we also saw more inventory in.
That dialed back the AUR to something closer to down high single digits for the quarter, but up very materially to 2019. So there's kind of a lot to unpack in I could unpack it even further by category. So.
Trust does that this is a very complex area is one that we manage with a laser focus.
We think we're particularly good at it so.
Yes.
To say that Matt and I hope it gives you enough color TJ and I think the second part to your question Matt.
Again, first or second inning, and a nine inning game I think on the last call. We indicated that we had visibility out through 2023 out through the end of 2023 and Thats, mostly focused on expense type of initiatives also although some of the benefit doesn't include margin.
I think we're continuing to look for opportunities in both expense and margin to get us out past 2023 again, we'll go through those in more detail.
In October , but first or second inning.
Okay.
Our next question comes from Simeon Siegel from BMO Simeon Your line is open.
Thanks, Hi, everyone. Good morning Hope you had a nice end to the summer. So I was wondering sorry, if I missed this did you say how AUR is versus pre pandemic levels and then curious if you have any read on changes in your average customer purchase frequency. So just anything you're seeing differently in terms of their frequency of shop pre pandemic during COVID-19 and then now thank you.
Yes.
Should we go to Brad.
Hi, Simeon just in respect to the AUR question AUR is continue to remain up significantly versus 2019.
Have been trending Directionally in line with RP, which we would consider around the 2015 timeframe.
They were down modestly in the second quarter versus last year as we are up against higher promotional rationality in the business as Martin referenced and then from an outlook perspective.
In the back half of our planned flat to down low single digits.
And on purchase frequency purchase frequency, we haven't seen anything from a frequency perspective, new meaningfully and the customer file we have seen penetration in the category shift meaningfully from the pre pandemic into the pandemic and then into the post pandemic, but in terms of the number of trips per year in total.
I'd say results.
Trended in line with the pre pandemic patterns. There obviously has been a channel shifts that occurred meaningfully within that timeframe or penetrated higher into digital and we're seeing that migration back from trips into the stores currently.
Yeah, and if I could take that take a moment just real quick Simeon and tight bread and Martin's comments on AUR into what does that mean for margins. If we think about second quarter margins being down a little over 500 basis points and we are guiding to a similar outcome in third quarter I would suggest to you that from a margin.
The endpoint.
Promotion Ality from second quarter to third quarter, we expect to be relatively similar.
As we look at margin rate promotion.
B approximately half of the gross margin rate declined with the other half being a combination of depending on the quarter Youre looking at being a combination of either supply chain pressure, we experienced in second quarter.
Or in the third quarter, where supply chain kind of moderates clearly theres a deleveraging impact on D&O that comes from a negative high single digit expectation from a sales perspective. So I think it's important for our investors and everybody who follows the company to understand the promotional holiday quarter to quarter, we <unk>.
Spec to be relatively similar it's a portion of the gross margin rate decline.
But again to the comment I made with Lorraine as sales return to more normal levels. Obviously, we would expect to start to see an even playing field on D&O or maybe some actual leverage as we move into the future.
Great. Thank you and then Martin I was just wondering if you'd be willing to flesh out the mining for new growth vehicles comment anymore from the prepared remarks.
Yes sure.
It does.
A lot going on in growth.
Regs leadership, we have the international Division, which as I mentioned in my prepared remarks.
Close to 30% year over year, we see an enormous opportunity that our international our partners have a line of sight to over 100, new stores and a three year period plus growth in digital that we didn't have previously so psyched about that.
We see growth in new brands Happy Nation was inorganic brand, but also the investments we've made in full of elevens and <unk>.
And frankly as bikinis and there's other opportunities that are coming our way in that regard.
The launch of the allow me.
Which is a larger sized brand thats added significantly to our size has had an instant impact I mean day, one impact on our sales.
Last week, so excited about that and then the broader <unk> and Colette the curation of certain third party brands that get us to categories, where we've been underrepresented or customer groups, where we've been underrepresented continues to look quite good good news as does the new channels with Amazon.
The ship with Amazon, we were up there in Seattle.
Earlier this week, just a terrific partnership and there's loads of opportunity that and then probably finally on to growth I might talk about the store of the future.
We've got I think six stores opened we're opening $16 $15 16 in total this year and that looks really interesting we're trending towards a mid single digit growth.
It's control group and so too early to declare victory on what that means in terms of capital for future years, but it's certainly encouraging and energizing. So so yeah, there's a lot in the SME. Thanks.
Thanks for your question Frank.
Thanks, So much best of luck for the rest of the year.
Thanks.
Our next question comes from Dana Telsey from.
The Telsey group Dana Your line is open.
Hi, Good morning, everyone. As you think about the upcoming holiday season, and marketing and product initiatives.
This year be different from last year, any new timing any new marketing is how you are positioning it and then with the store of the future. The learnings from the store of the future how does that apply to other stores. What's working what are you going to shift go forward as you do more of them. Thank you.
Yes, good morning, Dana Thanks for the question. So when it comes to thinking about newness for holiday, we Wouldnt typically talk about the launches that we've got coming because that puts us at a competitive disadvantage.
And I'll just recap.
The exciting newness that we've had recently.
As a demonstration of our commitment to.
Pipeline of innovation, so the so obsessed.
Just a fantastic launch I said when I came into this role that we would return to having at least two big bra launches per year, and we've done that love cloud was a terrific success and so obsessed is a super exciting addition to the assortment because through innovation, we've been able to give the customer the comfort.
And all day comfort of a wireless brought above with fit and smoothing and glamour of a constructed bra and the consumers really responding itself.
<unk> style, so a new bra launch from two weeks talked BSL sell and it will offer us a considerable beat year over year against the bad launch that we had last year. So in the most important engine of the company, we are winning and Thats.
Boy that bodes well for holiday the second thing I would say is within paint. The wear everywhere franchise was just a fantastic example of newness not just in the product, but in the way we marketed it and the way we speak to consumers both in the channels and then the representation that we have so excited about that and I already spoke a little bit about bed by the way.
Just at the risk of showing up a little bit I'll bet. There are a couple of really differentiating points that demonstrate how good we are a beauty back.
<unk> contains.
A blend of masks and other fragrances adapt to each one individually.
Making the smell it comes up each individual unique to them and that's a very important differentiator. The other theres not consumer facing but I'll share with you anyway is that it contains industry, leading technology to prevent the fragrance formula from being copied and Thats the first.
That's happened in the fragrance industry as a whole so we're leading on newness, we are leading on innovation and we'll continue to do so through the balance of the year.
More about that when we come to report.
In January <unk>.
It relates to store of the future I will just be consistent with what I've said previously and that is that while setting the table for a new style of store is important because we see up.
<unk> to a 100 new locations of stores over the coming three or four years, particularly in off mall locations, where we're currently underrepresented that's a thing in and of itself, but more important to me is the clues that it gives us to back into the 850 existing locations that we have and that might be around using some of the technology that's being tech.
In store of the future we have an excellent fitting room experience that we're super excited about that.
It has potential to be to be launched there are other elements of.
The way that we communicate pricing promotion that may end up being rolled out. So we haven't got anything specific at this point with only six stores under our belt.
But I'm pretty confident that there will be components of store of the future that will go more broadly through the chain that will help us with.
With our relevance.
Sometimes when I think about store of the future I wish we had a call that something else because it sort of implies that it's from atha space and it definitely is not promoted space. It's a cleaned up version of what we had been doing for years and in some ways. It's about what is not as much as what it is and what it has no it has not intimidating.
Not overwhelming it's no dominating the product, it's allowing the product to be the hero, it's allowing the customer to feel welcome and included.
That's a key driver of the change in and of course that runs chain wide Dana. Thank you for your question.
Thank you.
Our next question comes from Alex Straightened from Morgan Stanley Alex Your line is open.
Great. Thanks for taking my question and good morning can you just give us a little bit more color on the sequential deceleration you saw in the quarter on the top line as well as what the exit rate wise.
Perhaps how the business is trending month to date.
And then you also mentioned less bright lines have an impact on the semiannual sales. So if you could just talk about broader learnings from the semiannual sale. This year that that would be super helpful. Thank you.
Yes, I think Lorraine. This is TJ I'll take the first part and then ask Martin and Brad to speak to the second part I think from our observation.
As we move through the quarter I think in the last call we mentioned.
May was off to a difficult start we expected June to be the best month of the quarter due to the lengthening of semiannual sale year over year and that July would exit kind of more in line with the quarter.
What we experienced was really the month of May.
Down mid to high single digits.
June relatively flat. So June was the best month of the quarter as expected and then the exit rate to your question was more like high single digit declines in the month of July .
Which is.
Continued on into the early first couple of weeks of August so exit rate coming out of second quarter helped inform our guide.
Trends within the second quarter outside of semiannual sale helped inform our guide. So we think it's prudent to listen to those trends, Alex and make sure we're <unk>.
Setting our inventory expectations, our cost expectations in line with with current trends doesn't mean, we're sitting back and letting it happen, but we're doing everything we can to try to improve that trend.
Within reason.
But recognizing that sometimes the broader macro trend specifically at store level or at mall level are difficult to kind of fight uphill I do think it's important to note that our traffic change or deceleration month to month in terms of store traffic trends.
Line generally with what the mall was seeing.
From our perspective.
Line generally with what you would likely seen from other retailers or I guess, the credit card data or however, you monitor that.
So again I think from our perspective appropriate reflection of trend is important obviously as Martin mentioned from a category perspective, where there's a lot of encouraging notes within that but just the overall traffic trends are something that we want to make sure. We get our share of that is it's a little difficult to fight.
Kind of going uphill so from a semiannual sale.
Yes, Alex in terms of some annual sale as T. J mentioned June was the best performing sales month of the year as a reminder, the timing of duration of SaaS. This year was different than last year, but it was in line with our historical treatment. So we had additional days and higher inventory levels on a year over year basis, but very normalized versus our history.
Sales during semiannual sale were up to last year. However, it was predominantly driven by our regular price selling one of the learnings coming out of this as the penetration and the newness in Reg price was higher than it wasn't into our clearance business. We eventually got the sell through on track from a clearance perspective I had to go deeper from a markdown.
Perspective, the other call out is that the penetration into intimates are similar to the total box within the quarter was higher it's up more success in our core than some of the adjacent apparel categories. And then we did have some traffic headwinds during the middle of June that we believe affected some of the performance within semiannual sale.
So there's a lot we're selling hacking from that momentum will have insights to try to adjust the January timeframe as well.
Great. Thank you.
Our next question comes from Omar Saad from Evercore partners.
Omar Your line is open.
Could you remind us whats included within apparel the top performance there isn't that all loungewear sleepwear athleisure type in.
Were those categories going up against difficult comparisons last year during.
During Covid and then Martin could you also address if you've seen any impact from the viral social media thought Victoria's secret.
Thanks.
Oh, Hey, great.
Great question Omar.
And I expect that last question about social media, Yeah, I'm happy to take that.
Maybe you could unpack the three elements of apparel, but broadly speaking, yes, you are right in your diagnosis, but I'll go to Brad in a minute.
Yes.
As it relates to <unk>, we've had some just fantastic PR over the course of the last 12 months.
Particularly in the last quarter, we continue to see really really favorable PR across the board.
Couple of things headwinds that we had to face one was the Hulu documentary.
We were extremely well prepared for when we expect it to be.
Difficult period for us actually it wasn't had very very low viewing figures, even lower completion of the series.
The very relatively few people that did actually make it all the way through to the end of the.
The series had a stronger perception of the brand coming out of it and that going in so Hulu is a kind of a non event. The jacks video is super interesting because I mean look it's very clever it's very catchy.
It's lighthearted it raises an important subject and we agree we agree wholeheartedly with what Jack is raising and Thats why 18 months ago, we talked about the revolution in our brand and going in a different direction. So as I think you know we reached out to jacks with an open letter from Amy that was very well received.
We're on the same page, we agree with power we're grateful too.
We are raising the subject I don't think it reflects negatively on us I think it's an adequate appropriate reflection of the industry at large as it has been represented consistently.
Over the last decade, or so so we want to be at the forefront of the change rather than representative of the past and we're grateful for that opportunity Brad Yes, Hi, Omar in terms of your question on the definition of apparel.
It includes for the Victoria business, the sleep and lounge component of that business and for the Pink business includes apparel and sleep. So those businesses combined in Q3 or in Q2 represented about 20% of sales.
And on a full year business apparel represents in the 20% to 30% of our business range.
And the comparisons versus last year with a difficult.
I'd say there were some pivot in the business to its casuals nation in the LOI that maybe provided some form of a small tailwind to those businesses, but nothing substantial that was abnormal.
Thanks Martin.
Welcome.
Our next question comes from Paul Kearney from Barclays. Paul Your line is open.
Hi, everybody. Good morning, Thanks for taking my question.
Can you just remind us on the mobile mix from air to Ocean and when it was at its highest last year, assuming it was it was Q4 and how much.
On <unk> this year versus last year and how much is it.
Are you expecting a reversal and freight.
Cost slide thank you.
I think I covered this earlier Paul maybe you joined late so at the beginning of the full season last year, we were at 90%, 10% at the beginning of the fall season. This year, we're 75% 25%.
So very significant change year over year.
Anything else you addressed in Q3, and Q4 last year, where both in the 90% range. So very similar okay.
Okay. Thank you.
Sure.
Our next question comes from Cory <unk> from Jefferies. Your line is open.
Hi, good morning, and thank you for taking my questions, but one of the things that we've heard is that there is certain companies have seen a bifurcation between higher income customers and lower income consumers is that something that you are seeing as you look at vs and Pink and then can you just remind us what beauty.
As a percentage of sales how that's trended over the last.
Several years and then how you see that progressing with the launch of a new air.
Product.
Yes. Thanks for the question Cory I'll take the beauty prestige beauty is about 15% of our total sales mix and thats been pretty consistent over the years and we'd like it to be to remain pretty consistent with first and foremost and intimates business. So.
While it has a higher profitability than the other elements of the business I am very comfortable with it being in the mid teens as a go forward part of our strategy.
I saw accordingly to that kind of mix so no big change there, although the bifurcation. It's an interesting question. No question no question that luxury across the board has been good and the high income consumers have.
<unk> not missed a beat in terms of the change in the macroeconomic environment. That's well documented. It's also well documented that low income consumers are the ones that are most precious.
They have to fight for every dollar in half to distort the dollars that they do have to food and to gas into essentials and there is less room in the pocket book for spending on non essential. So clearly there is a very different impacts of these economic times, whether you are a high income low income just to remind you that our business.
Has the highest.
Crossover of competitors for US is most evident with Walmart target Amazon all consumer is fundamentally a mid to low income consumer.
So we are very much impacted by by the economic times in the.
We enjoy some.
High income consumers is insufficient to offset the negative impact of ordinary consumers should we call everyday consumers.
That helps.
Very helpful. Thank you very much and best of luck.
Thanks Corey.
Our next question comes from John Mackinnon from Cowen Your line is open.
Thank you. Good morning. Thank you for taking our question, maybe if you can delve a bit deeper into the international quality was very impressive this quarter, which region outperformed and what are you seeing quarter to date.
Nationally and then just on the marketing strategy as you rolled out different new launches throughout the year, how has that changed at all and how you're thinking about marketing strategy in the back half. Thank you very much.
Yes happy to take that question. So as it relates to marketing strategy sort of no change really the Super dynamic marketing forgive me. This is captain obvious step, but the business Super dynamic is the medium that we use and how we use the creative assets that we created and we can be incredibly agile how those assets get deployed.
So in the <unk>.
<unk> going into a season you'd be pretty clear about what you are producing in where you'll spend was going to go we don't do that anymore with Super agile based on the receptivity, we get two assets that we create and thats across the kind of asset. This generated in the medium. This deployed so very very dynamic based on what works and what doesn't work that's the overarching.
So at a headline that as it relates to international we've seen growth in all five areas of the business.
In terms of getting traction in international the biggest and the most important part of the business as the franchise network, which is represented in all continents around the world. The Middle East has bounced back very strongly but all areas have shown good performance and as I mentioned earlier, our partners in the franchise network see opportunity for over 100 stores in.
In the three years that are coming all of which will be built in the store of the future.
Likeness. So that's good in the UK our partnership with <unk> continues to go from strength to strength, we leverage next capability and real estate.
<unk> digital as well as.
Logistics capability to get goods to consumers within the next day of order. If you order before midnight you have your items delivered to home through the next networks Thats terrific in China, we have a fantastic partnership with YY.
<unk> and Regina Miracle.
Showing real signs of improvement the big benefits that will be later in the year, where we start to deliver more China for China merchandise, but China has been extremely challenging because of the lockdowns et cetera, but that last year was challenging too. So the important thing is that we're moving forward travel retail is the fourth part of international that's probably the area that scene.
The biggest growth for obvious reasons.
The business is not fully back to 100% pre pandemic, but it's close to.
We're very pleased with the traction.
Traction, we have there and that.
Finally, the direct to consumer business that ships to over 200 countries and territories around the world continues to be in good shape.
With just delighted that we're able to service customers from all over the globe.
A testament to the strength that there isn't the Victoria's secret and pink brands.
So hope that helps lots of opportunity for growth that do we have time for.
One more question.
Two more questions I'm reliably informed.
Our next question comes from Jay sole from UBS. Your line is open.
Great. Thank you so much Mark I'm, just wondering if you could take a step back you can elaborate a little bit on sort of the big picture.
<unk> transformation and the progress that you see some of the anecdotal things that you noticed in the quarter that gives you confidence the brand is moving the right direction that consumers are noticing in there they're starting to realize that Victoria's secret is a much different brand today than it was three five years ago.
Yes, thanks for the question.
The overarching headline would be that we're really pleased with the progress that we've made and the repositioning of the brand. It takes time to reposition O'brien with 12, 14 15 months into it.
I always say.
Things that we're doing we are producing merchandise so producing asset so to speak to speak anything anything we do the way we show up does it Polish photonics, the brand and after years and years and years of tarnishing the brand I'd.
Say, 99% of what we've done in the last.
Period.
The brand, we're seeing significant increases in our relevance indicators as we benchmark our research we're seeing improvements in social commentary most like post in the last quarter was the Instagram posts.
Repositioning video about brand transformation very high receptivity to that we're seeing market share gains.
Key categories.
Associated opinion survey showed incredible affinity for our brand of pride and employment. So it's kind of wherever I look around the system things going well on the repositioning is being understood and appreciated that said.
I've mentioned previously that when we do our research.
A significant number of people that just have noticed they havent come across the change when they do go with grocery chains, they like it but a lot of people still haven't noticed.
A couple of things that have helped us significantly in that endeavor in the last six months or so.
More recent in the last quarter, one was the Wall Street Journal article, which got a lot of pickup in a lot of people to take a look and say Oh, I think there's something going on what's happening here.
And the other was the jacks video, where a significant number of people said, Oh I haven't heard that from Victoria's secret for a while let's have a look and actually said Wow. This is real diversity of Israel inclusivity, youre going to our stores and you see <unk> that looked like the human race. So all around the system has been positive change and it's been well received all of that said we're on.
Johnny We've still got more to do you will find us charging louder and louder about the transformation.
Rather than backing away from it we are on the right track and we need to stick with it and show up in the way that our customer wants us to show up so thanks for asking.
And last question.
Our last question comes from Marni Shapiro from retail tracker Marni. Your line is open.
Hey, guys you know what if you don't mind I would love to follow up on that question actually.
Could you talk a little bit as you look back over the last year or is that separate company independent company could you talk about the pace of new customer acquisition and has it been mostly lapsed customers coming back or are you getting gen Z in the door and if she comes in state or pink, which would be I guess more tradition.
Past AC now moving over to.
Victoria's secret.
And then just on a side note I actually think in a backhanded way that song has been a good thing for you because the number of girls ICR humming that song in your store while shopping go thanks Neely.
Okay.
Thank you Marni.
For me I agree I find myself coming around that as well.
Okay.
Okay.
It's interesting people, who are slower to social media.
Must have been.
Video a thousand times by friends and family that's still out there. It feels I don't know if you've seen that yes, we've seen let's say.
Top of mind, and I think Thats a good thing so.
It relates to the consumer who is coming in.
Our final remains remarkably consistent with our history and it's stable quarter over quarter I would tell you in the last quarter.
About 45% of our customers have been new to the file and that sounds incredibly encouraging actually it's pretty consistent with history. That's about the way in which the file runs in total we're skewing a little bit younger than we have done previously a little bit more female than we have done with <unk>.
Obviously the trends in that transformation.
So it continues to be.
A steady build.
You pointed out <unk> is a good one we have an unfair advantage in getting too young women and that we have the pink brand inside of all folks in physical retail often closely adjacent and inside of our digital books.
And our history has not been intentional.
Marketing the bridge from <unk> to Victoria, we've not been intentional about that.
Amy's leadership going forward, where those brands combined we're going to get seriously after that would be much more purpose Tibet.
Encouraging.
Women, who show up in the Pink brands are coming to the Victoria brand. So you expect to see more cross brand activity will total bulks activities. The way we call it inside the system with total screening activity.
You have done previously, but that's more about the future than it is about in the past to be honest money.
So thank you everybody for your questions and comments and followership of all of our business. We appreciate it very much.
That concludes today's conference. Thank you for participating you may disconnect at this time.