Q3 2023 Victoria's Secret & Co Earnings Call
Yeah.
Good morning, My name is Ivy and I'll be your conference operator today at this time I'd like to welcome everybody to the Victoria's Secrets and company third quarter 2023 earnings Conference call. Please be advised that today's conference is being recorded and all parties will remain in a listen only mode until the question and answer session of today's call I would now like to turn the call over to Mr. Kevin.
Vice President of external financial reporting and Investor Relations at Victoria's Secrets and company, Kevin you may begin.
Thank you Ivy good morning, and welcome to Victoria's Secret and company's third quarter earnings Conference call for the period ending October 28, 2023, as a matter of formality I would like to remind you that any forward looking statements. We may make today are subject to our safe Harbor statements found in our SEC filings and in our press.
Joining me on the call today are CEO, Martin waters, and CFO, Tim Johnson, we are available today for up to 45 minutes to answer any questions certainly.
Certain results we discussed on the call today are adjusted results and exclude the impact of certain items described in our press release and our SEC filings.
<unk> these and other non-GAAP measures to the most comparable GAAP measures are included in our press release, our SEC filings and the Investor presentation posted on the investors section of our website.
Thanks, and now I'll turn the call over to Martin.
Thanks, Kevin and good morning, everyone.
Before we dive right Jan I want to first share my appreciation and gratitude for the hard work and dedication of our associates and partners around the world I'm, especially thankful to the team's continued commitment and Peru, we're doing as we move forward throughout the holiday season.
I speak to you today very energized with a holiday season now in full swing and with excitement about our sales performance in November just out in the fourth quarter.
In North America, both in stores and online the November sales and margin result was our best monthly performance in nearly two years, which we believe is evidence our initiatives are working and it is led by strong response to holiday giftable merchandise assortment improving customer experience is a powerful marketing message with Merck.
Gary.
Our international business has great momentum footprint is growing both in stores and online.
Partners are performing very well and we continue to be excited about performance in China.
As I have consistently talked about our teams have been working tirelessly on multiple growth initiatives designed to create momentum as we entered the second half of the year and into the holiday season, and we're delivering on those key initiatives initiatives, such as new multi tender loyalty program new customer experience enhancements.
Digital business product improvements and launches to enhance Victoria's secret brand and accelerates our beauty business, our re imagined merchandize strategy or a pink brand and of course, the return of the iconic fashion show with the Victoria's Secret 2023, well tool.
Now turning to the third quarter for a moment, we delivered results within our guidance range.
Sales trend in North America continued to improve as planned each month throughout the quarter with October being the strongest month of the year now heavily exceeded by November of course.
Outside of North America, our business continues to provide profitable growth across stores and digital with international system wide retail sales up high teens in the quarter driven by growth in China and globally with our franchise partners.
Our teams are doing an excellent job of managing selling margins diligently controlling costs and delivered inventory levels at Victoria's secret and pink down 9% to last year, and we have agility heading into the holiday season and into the new yet.
Overall sales declined 4% in the quarter compared to last year, which was at the midpoint of our guidance.
In North America sales trends improved in the quarter in both stores and digital driven by sequential improvement from last year and average basket size and traffic.
Conversion in our digital channel also improved as compared to the second quarter and it was roughly the same in our stores business.
Adobe sales were up year over year again this quarter represented about five percentage points of total sales growth for <unk> in the quarter.
From a merchandising perspective external market data indicates that sales for the intimate market in North America as a whole decreased mid single digits in the quarter compared to last year.
Importantly, we remain the leader in market share for antibodies category, including both bras and panties.
Sure remained essentially flat with digital share up slightly and stores share down slightly.
From a merchandise category perspective, starting with Victoria's secret.
<unk> business continues to be our best performing category.
We also saw a significant trend improvement and panties.
Ross and sleepwear and the quarter.
We then pink intimates and sleepwear outperformed apparel.
Our new re imagined pink apparel assortment began delivering to our stores and digital customers during the quarter.
We acknowledge that it will take time to turn around that business and believe we're on a path towards improvement with some definite green shoots of recovery.
We estimate that the apparel challenges and negatively impacted the third quarter sales results by approximately three to four points.
Aside from the financials over the last 90 days, we've executed several key actions in support of our strategy and brand positioning for the long term for.
For example.
Our loyalty program now has more than 22 million members, who drive approximately 75% of our sales on a weekly basis.
We kicked off the holiday season, with new product arrivals and a powerful marketing message featuring Mariah.
From a technology perspective, we launched over 50, new releases impacting the overall customer experience on our digital platforms and apps.
And we expanded our store of the future fleet to 71 stores or approximately 8% of the fleet in North America, and we will be at 85 stores by the end of the year.
Looking forward our outlook for the fourth quarter Embeds results from November and overall for the quarter, we expect sales to increase in the range of 2% to 4% compared to last year.
Quarter to date through cyber Monday, we estimate we have generated roughly one third of our fourth quarter sales and obviously, we have many very large days and weeks to come in December.
We are forecasting an adjusted.
Operating income in the range of $245 million to $285 million for the fourth quarter.
And for the full year 2023, we're forecasting sales to decrease in the range of 2% to 3% compared to last year and we expect adjusted operating income to be in the range of $2 $90 million to $330 million.
At our Investor Day in October we discussed three strategic priorities, one accelerate Nicole to ignite growth three transform the foundation and in particular expensive lots of time, all our plans for our key area of focus which is obviously the north American business with.
Our long term health of business in mind, we are energized by the start of the holiday season, and the positive signs in the business and remain committed to our initiatives designed to leverage our market leadership position and unlock our opportunities to convert significant cultural influence into long term financial growth.
And that concludes our prepared remarks at this time, we'd be more than happy to take whatever questions you might have.
Okay.
Thank you we would now like to open the phone lines for questions. If anyone does have a question. Please on mute your phone hit star one and record your name clearly when prompted.
Me again lets start wanted to ask a question. Our first question is coming from Simeon Siegel. Please go ahead.
Thanks, Hey, guys good morning, and congrats on the progress as part of the day.
So Martin the quick growth in the loyalty program is really great to see can you elaborate on what you're seeing in terms of the revenue impact from that multi tender loyalty program, maybe just speaking to any changes our first early learnings youre seeing and then congrats on the ongoing success in beauty just what is the beauty margin versus the other categories. Thanks guys.
So thank you for the questions not much extra that we can give you I'm afraid at this point I'll go to T. J on the margin question, but yeah loyalty as I said, we're over 22 million customers now, it's 75% of our revenue is kind of the bedrock of the business. The most important aspects of that program is the data that it gives us.
And our ability to match data about sales with data about customers, which enables us to personalize experiences and personalized marketing the upside so that will really be in 2024, rather than in December of this year.
But it is laying the foundation for the future and you know that program was a long time and the bill. So we're super excited to have it launched and so well received it also will be the basis for many new customer experiences that will come in 2020 for the first one being.
Leverage from the Adobe acquisition try on at home.
But there will be other member services that will be linked to the loyalty program that will be excited to launch in 2020 for T. J do you want to take the margin question, Yes, I think on the second part Simeon the beauty business tends to be favorable margin rate relative to the company average.
I think it's important to note that as we move through the third quarter and on into the fourth quarter, we expect beauty to be a leading category in the store.
It is one of several contributors to why we believe Q3 was a bit of an inflection point for us and seeing merchandise margin rates go higher year over year. So we're excited about the beauty business, we've got big plans for it for the holiday season margin accretive and.
Based on everything we've seen in red.
Top of mind during the Black Friday week with customers might also say I agree with all that T. J the strength in the beauty business is coming across all areas, it's fragrance and missed it.
It's in.
All areas really pulling.
Pulling forward, so very pleased about that.
Next question please.
Next we will go to the line of Dana Telsey from Telsey Group. Please go ahead.
Nice to see the progress.
Think about pink and apparel any update on progress there timing of some of the newness I think some of it was coming in the third quarter and what you're seeing and then just on the store the future how did those stores perform relative to the base even even during the weekend. Thank you.
Yes, thanks for the call Dana as you know we identified a year ago that the pink business had some challenges had some difficulties and we recommitted to the role of the purpose of the pink brand being the on ramp for Victoria's secret and we talked about that at our Investor Conference. We also clarified the.
The market that we're serving in the market that we're not serving.
Both of those two statements require a significant adjustment and the merchandise that we're offering we identified four chapters that will focus on the play of the code the base.
And we've had some really good hits in a first run at merchandising to that new agenda. You know some of the green shoots that we've seen have been in bras and bras.
And basics in skin tones, and nudes somewhat the spun on whimsical product, we put out for Halloween.
Blew out was gone by the end of September.
Chloe and Holly Merchandised has a very clear hit.
Specifically the fold over cotton slab and has been a very big hit and so that straight away. So we know we're going in the right direction, but as I said at the Investor Conference, We decided to buy pink very cautiously it didn't make sense to me to us as a leadership team to swing for the fences and assumed recovery straight away. So we've been very cautious and all.
Buys and we look forward to chasing into what's working for spring 'twenty four or so don't expect an enormous amount of recovery and the balance of this quarter do I expect us to continue to make progress into 2024.
I hope that helps we also made progress in reducing the size of the inventory and paint which should go away from us a little bit so significantly higher productivity coming out of a smaller number of choice counts TJ you want to take the store of the future yeah on store of the future Dana.
We haven't necessarily broken things out I will say by quarterly performance I would just suggest to us that the <unk>.
Raul trends of store of the future.
That we called out at Investor day at particularly around store Remodels getting a low double digit lift that is holding and actually building as we move through the third quarter. So I would take that as a good early indicator from a holiday perspective, and then the teams have done a very nice job of keeping us on track for 2023.
In terms of both new store openings and store Remodels. So feel very confident by the time, we get to the end of the quarter. We will have about 10% of the fleet or about 85 stores as Martin mentioned in the new store of the future format.
Thanks.
Yes, good point apartments Whispering to me International Oh.
<unk>, if I Didnt mentioned that store of the future has been <unk>.
Well received around the world from our International partners and also our customers.
We continue to grow out the store fleet, there and as you know we have plans for upwards of 100 stores a year over the next two to three years two to build out the international fleet. So.
All signs pointing green on store of the future performance and opportunity.
Okay.
Thank you.
Next we'll go to the line of Alex Stratton from Morgan Stanley. Please go ahead.
Great. Thanks, a lot for taking my question and congrats on the acceleration Youre seeing I wanted to focus in on that like how do you think of it in.
And in aggregate is it a function of just the initiatives flowing through is the category at all improving and did you change your promotional strategy at all I guess I'm just wondering if that's factoring and thanks a lot.
Yeah. Thanks, Alex Good question and of course, a question, we ask ourselves continuously I'll tell you on the I'll repeat what I said on the market size. So for the quarter that we just completed the market declined at a very similar rate to the decline that we saw in Q2 so.
Low to mid single digits decline, we held our share during that period.
The way we see it is that we've seen receptivity to newness that we brought into the business and that shouldnt be a surprise to anybody who's followed the company for a long time this category, where smaller all categories respond well to newness and we've seen that in beauty, we've seen it in P. J. So we've seen it in <unk>, we've seen it enhances restated.
<unk>, so when we get new product that resonates with the consumer that's the biggest single thing. We can do you asked about promotional let's say a promotion allergy in the quarter was about the same as it was year over year our adjusted.
Adjusted product margins were up slightly and I will tell you that in November we had a strong performance in November that our margins were up slightly in November so even though we appear to have been really quite promotional we were more surgical and more targeted and I think the team did a really good job.
Managing the big moments very aggressively.
On preserving margin, we've also seen digital enhancements, helping our position. So our digital business is now 35% of our total system. It was 30% last year, that's coming from growth in our North American business with Pink many of the enhancements that Chris has been working on with her.
<unk>.
So lots and lots of digital enhancements plus of course, the great performance from a dual me weighing into helping out with five points about of our growth and also I'd be remiss, if I Didnt mentioned store traffic store traffic, particularly in November was strong for US and ahead of where mall traffic came in so across the board.
There are lots of things that are coming together to help not momentum.
Most importantly, I should say is the team under Greg's leadership, and Chris's leadership and the entire leadership team things are really starting to gel. We feel like we have the right people at the table and we're making good choices and planning well for 2024.
Hope that helps.
Yeah. Thanks, a lot good luck.
Next we'll go to the line of Matthew Boss from Jpmorgan. Please go ahead.
Great. Thanks.
So Martin what would be your best assessments or maybe just an update on the health of the North America Intimates category.
Maybe what inning would you call your initiatives today, and then T J.
How best to think about the balance between driving topline relative to profitability.
Given the elevated marketing and technology investments.
Alright, I think that's three questions I'll take the first two so.
How do I feel about the country you know it's difficult to know we were very surprised by the decline in the category that we saw in Q1 that we hadn't seen that coming during good times and bad the intimates category has been very stable over the long run so to see a high single digit decline in Q1 in the mid single digits.
In Q2 and Q3.
So unusual.
I've talked a little bit about this at Investor Conference do we think that is structural that somehow.
Women are going to be wearing bras, less often or replacing them less frequently that there is a structural decline in the market I have a hard time, believing that so there is definitely some fashion trend around young women to not web browser all of the time and there's definitely a trend towards more sports bras and more allowance.
Grows less constructed bras, but none of those things I see as being structural threats to our business I think we're in a good.
Good position to take advantage of whatever the trends are in the market and to respond to them accordingly, whether it would be with all of that so with the rebirth of our sport business.
I think innovation is the most important thing that will drive the category and you know us we're the largest player in the category by some distance, it's it's up to us to drive the market as a whole and we used to do that in the old days and we're just having to do that in the new days.
What innings are we in in terms of you know the health of the company and.
The rebuild as the company overall, probably mid innings I would say I think we've made good progress we feel good about the foundational work that we've put in place and transforming the way in which we do business.
I think we feel very good about our growth initiatives. Our international business is on fire. They had Dolby business is fantastic and it bodes incredibly well for the technology, we can borrow from them and leverage from that of the team. There are working incredibly well so feel really good about that but there are so many things ahead of US you know we've only just begun the journey on personalization where.
Only just beginning to look at how AI can dramatically impact the way we go to market. We're only just beginning to look at.
How this new team and the new merchandising initiatives can show up and how the how does the Victoria can come to life and how the store of the future and all the digital enhancements that we're making can make a difference to the customer. So there's a lot more to come for us. So I think my probably my best assessment is mid water.
T J do you want to take the last question yes.
I'm, a topline perspective, Matt I think you know building on Martin's comments, I think in terms of identifying the opportunities and executing against them.
We're probably middle innings as he mentioned I think in terms of seeing the benefits start to flow through the P&L, which I think is where your question was going I'd say.
From our perspective third quarter as some of the early innings of that so we've been working on a number of the initiatives throughout this year and.
And investing in them, particularly around technology and some of the.
The brand repositioning efforts.
And seeing an inflection point in third quarter in terms of growth in merchandise margin rate.
In an inflection point in terms of the trend of the business in North America and seeing that continue on into the early holiday season, I think tells us that we're on the right track.
I think the challenge has been and will continue to be seen the North America business continue to build into the fourth quarter build into spring season.
Think we've demonstrated a willingness and an ability to hold cost.
And we've got new cost initiatives coming online here.
Here just in the fourth quarter around cost of goods.
That Chris.
Chris and Dean and their teams have been working on so I feel like we are right, where we want to be in terms of that inflection point and seeing the flow through happened in the business as we start to see improvements in North America business.
Again some of these initiatives are just now starting to show up in the top line and starting to flow through the P&L, although we've been working on them for months.
Thanks Savi.
Next we'll go to the line of Alex Yao from Bank of America. Please go ahead.
Hi, Thanks for taking my question on your strategic focus in reclaiming the sports Bra category can you talk about how the category did in the quarter versus the market.
There have been other notable launches since the featherweight Max what is your sports bra launch calendar alike compare to your core bra launch calendar and then just lastly in your view what differentiates or is most attractive about a V S sports bra versus a pure offering.
Yeah.
Oh, Thanks for the question Alex You know this is a very sore subject with me.
Because as the team has made in just about every day banging the table on sport, we need to be better at sport you know one of the.
The missteps of the Victoria's business back in 2016 to 17 and beyond was not participating in the sports bra market. We had back in 2015, we had 16% share of the sports bra market today, we have three and half percent share of disposable market. So we're not really you know in the.
Top 10, and we've got a rebuild we have got to be right at the top of that list and that will take that will be a multiyear endeavor. The very first meaningful change that we made was the launch of the.
By the way at Max as you mentioned and it was very successful the next phases to expand that color multipliers line expansions and we'll be facing into that in January and pulling forward as much support as we can for the new year New you.
Momentum there isn't in the market. So some more newness coming in January but honestly the big relaunch of sport for US will be later in the year and that's just because it takes time to make a really good product, we're not looking to compete with tubes.
With unstructured you know sports bra less that's that's not where we were when we will win by leveraging technology with the best vendors in the World. So you asked the question why you know why would we be go to paraphrasing slightly but what gives us confidence that we can be good at that well you know browser is a technical protos.
Particularly technical product when there's excess at movement required and that's what sports bras off pool, we know more about <unk> than anybody else on the planet, we have better and longer relationships with the best manufacturers in the world.
They have the access to the best technology and they will give it to US first we have access to the best Raw materials, you put all of that together with our design capability. It's a category, where we should be the best and we know we can do it because we've done it in our in our history. So for US. It's a full court press to get after sport in the broadest sense.
Starting with sports Bras.
But I wish I could wave a magic wand that happened more quickly it will be through the balance of 2024, and we're taking a long term view of the opportunity rather than just rushing to newness for the sake of newness. So that's probably not the answer to that everybody wants because we'd all like to click our fingers and see us be aggressive in sports boats quickly, but it will take some time to to get back.
To both strengthen that business.
Very helpful. Thank you.
Next we'll go to Irwin Board shall from Wells Fargo. Please go ahead.
Oh, okay.
I guess I had two questions for T J or Boulevard and actually just first when we think about the improvement in comps both digitally and in store and let's take out the extra week for <unk>.
Definitely when you take out a dormie digital comps were down roughly high singles in store to download doubles.
Which of those channels would you expect to improve the fastest to improve the most as you guys continue to work on improving the business and is there a reason why one channel that outperformed the other.
Then the second question would be.
T J on the $250 million of Cogs benefits you I've spoken to you at the analyst day can.
Can you remind us the timing about when will those start to flow in to the P&L. All do those start to benefit you into next year's or anything.
At this point you can talk about next year, our margin as it pertains to those cost savings.
You very much.
Morning, Ike you sounded surprised as the question came to you.
I'm happy to take the first and T. J will take the second so you know as it relates to the difference between the two channels.
Two channels, just kind of an old fashioned way of thinking about it is there are more channels emerging all the time, but let's take it as digital and stores you know historically, we were in a very strong position in digital we got there early however over the last four or five years other people develop capabilities and digital that we didn't have.
When this management team took over one of the first things. We identified is that we were not world class in digital experiences. Other people were further ahead of US we had to catch up also as you know most of the new competition that has come to market in the last five years. The digital there aren't many new store insurance, but there are loads of digital entrants so that focus.
For us has been in the digital arena for those two reasons stronger competition and our offering was substandard underweight.
So in building new capability, our biggest area of focus is that digital channel and we've been adding things like fewer clicks to get to Protos, removing category landing pages visual search shuffle video barcode scanning.
I Dunno Noncallable text.
And hence linking capabilities, you know all that kind of stuff using AI powered personalization those sorts of things, we're getting into and that's some of the stuff. That's been in the 50 releases that we had during the third quarter. So just really accelerating the pace and it's starting to work and that as I mentioned in prepared remarks, or Sharon digital increased.
Slightly joined the courses so I think overall in terms of the market. The forecast industry experts forecast is that the category will move from 31% in digital where it is now to about 41% over a three to five year period, we expect to at least keep pace with that maybe accelerate.
We certainly expect to gain share in digital.
The address stores stores is an area, where we were kind of overweight we feel that we had a better store experience than anybody still do so how come we have lost a little bit of share. That's a surprise to us is a significant area.
Our focus with vacuum Barrington, who leads that business and where.
Leaning into it to be the best that we can possibly be I see no structural reason why we should give an inch of share away in stores, we have a better store fleet than anybody else in the market. We're renovating that fleet as fast as we possibly can we're adding new technology like Crazy now had 181 stores. So both channels are important to us.
And I'm expecting that we will gain share and each of them TJ do you want to take the other question, absolutely and I agree with Mark and his comments on the different channels.
You're referring to transform the foundation goal that we put out at Investor day that was $250 million over a three year period 2023 2020 for 2025.
That was a combination of both expense and cost of goods we.
We did comment that cost of goods would be the majority of it as it relates to 2023, we did say about a third or a little less than a third so think $80 million of benefit in 2023, we.
We did mention that the majority of that would be expense, particularly through the first.
Three quarters of the year and then as we get to the fourth quarter, which is where we are now that's when the cost of goods sold benefits would start to show up and that is happening. So the teams are delivering as expected on an on timeline on target from a dollars perspective and that was one.
One of a couple of different enhancers.
Fourth quarter forecast, so as we move into 2020 for the large majority of the benefit from a transformed a foundation standpoint will be in cost of goods and <unk>.
Again, one of the reasons why we believe the margin inflection point at third quarter will continue through four and on into 2024. So we're on track to feel good about $2 50 over three year period feel good about how it's cadence going through the P&L as expected.
Thanks, so much.
Next we'll go to the line of Marcio Serna from UBS. Please go ahead.
Hi, Thanks, Good morning, and thanks for taking my question I guess just wanted to first if you could talk about what was the underlying sales growth in the army all brand in the quarter.
And then on pink apparel.
The previous quarter the drag on sales was a two to three percentage points and this quarter. It was three to four so I just want to understand what was the driver behind that and then just very lastly on the SG&A front I think if I look at the at the guidance for Q I think it implied SG&A dollars will be up.
Mid teens and <unk>.
And that seems elevated.
Elevated to compared to what the growth rate was in the first half of the year and I know like third quarter with like.
The fashion show up I, just want to understand what is embedded in that.
SG&A dollar growth into queue. Thank you.
Yes, we can be very quick on the first two and then T. J you can take the third if you wouldn't mind. So we're not pulling out the underlying sales growth for Dolby.
We're not giving that level of specificity as a business of that size.
I used to say that Morgan and team are running the business in a very smart and intelligent way, we're seeing growth year over year. We're seeing profitability. We are Morgan I had a conversation about this earlier this week, we're seeing very smart investment in marketing.
If the investment makes sense, if they if the ROE asses that and we'll make it if it's not we won't.
So I feel very good about that management team and the capability that we have in that team and we can learn and enormous amount from them. So super excited about a dual me, but not breaking out any specificity for that business as it relates to pink apparel and the drag there isn't really a material difference between Q2 and Q3.
This may be a point either way, but it's not material the extent of the decay in that business is a significant cause for concern. It was identified a year ago, we've been putting in.
Strong steps in place as I said earlier, we've seen some green shoots that we're focused on the main recovery will come in 2024.
When we can really start to be more aggressive with our buys TJ on SG&A, yeah on SG&A ratio the growth year over year in the fourth quarter is a combination of probably four or five different factors I think the first one is obvious and that Adore me is in our numbers. This year. It was not in our numbers last year I think the second one is also pretty clear that.
We have an extra week of both selling and expense that flows through the fourth quarter this year compared to last year.
Next continuing the trend of the year.
Investments in technology, which are showing up in enhanced digital capabilities and also completing separation efforts. That's an ongoing activity I think the next item of note. It would be based on the improvements and trend in the business in third quarter and in early fourth quarter.
We do believe that incentive compensation expense will be up year over year again last year at lower levels. This year performing closer to our internal budgets and expectations. So those are probably the four or five biggest items for ACO and then some other items down below are smaller in nature would.
The timing between third and fourth quarter or going into next year. So we feel very comfortable that the core operations of the business.
From an expense standpoint, so how we operate stores, how we operate our distribution centers, our managing head count and costs I feel very good about those disciplines.
Throughout this year and as we head into next year.
Yes.
Yep Yep.
Next we'll go to the line of John Kim from TD Cowen. Please go ahead.
Hi, there. Thank you for taking my question. This is Katie on for Joe.
Just first on the holiday season, you know what do you believe will be the key drivers there how much of that is related to your promos at prices newness and just category strength and then my second.
On the beauty category, what do you think is driving the strength in that in that category and how do you see that assortment fitting into the larger.
Secret and pink brands over time, thank you.
Okay.
Thank you for the question Great question about what are the what are the key drivers in the holiday season, you know, it's a really interesting period where in cars.
I don't know if everybody knows that this particular calendar year has the longest number of days between Thanksgiving.
Thanksgiving and Christmas, which is 31 days.
So we have kind of a long season is that a good thing or a bad thing I think it's a good thing.
It gives us opportunity to really tell multiple stories and the truth is between the balance of the two things you mentioned newness and promotions, it's something about it's sum of each you know generally speaking when people are looking for gifts. They go to a tried and tested categories like P. J, but we want to do pay as you use they want different pjs they want some different somebody.
They've not seen before.
So you know carefully adjusting the assortment to bring newness that skillfully done that represents something that's new and different maybe in fabrication or fit or design to a category. That's been established gift, giving category is a good place to be and we feel very strongly about feel very good about the assortments that we have always in store last night looking at.
What we have in seeing the customer reaction I think we're very well positioned we've seen early strength in those giftable categories.
The second part is that you know times are tough we are in a difficult economic environment and when those kind of conditions exist people do lean more into value for money and so being at the kind of in the ring for the fight so to speak is important to us and we're not just competing against other people in our category we were competing against.
Gene's against apparel against future against all sorts of different players. So I'll goal is to balance the mix of storytelling between newness and innovation and hard hitting value for money get it now while its here promotions and we should tell both of those stores equally well during December your question about.
Beauty beauty has always been a big part of the Victoria's secret business, we have over $1 billion.
Business in beauty.
Is it very close fragrance has a very close adjacency to lingerie, we're genuinely really good at it we have the number one selling fragrances in North America. The line extend and Bombshell. The line extensions that we've had of bombshells. The seasonal extensions have been terrific really really strong and the team continue to bring newness because.
To the category, particularly in mid motion. So we have a great team with great capability at a really good strong brands and by the way that's a global business the strongest part of our international business as a beauty business. It was the foundation of the stock of International business was beauty and we know that the brand competes against the best.
<unk> in the low when we put Victoria's secret beauty.
Now rune and his team are responsible for this when we put Victoria's secret beauty into department stores worldwide against the best brands in the World. We're right up there in the top one two or three brands. So beauty is in any way out after two or is it is absolutely central to what we do and I'm very proud of the team is leading that.
T J very helpful. Thank you.
Welcome.
Okay next question Ivy.
Next we'll go to the line of Janet Kloppenburg from J J K Research Associates. Please go ahead.
Good morning, everyone and congrats on the progress.
I was encouraged at the analyst day, or the Investor day that you.
<unk> seen some green shoots in pink apparel, but maybe your inventory levels went to light Martin and I was just wondering if thats a constraint like now or if you're still working through some of the merchandising challenges and if you are pushing out the China, Inc. Parallel to later.
And 'twenty four as opposed to early in 'twenty four and then I think are calling for comps in December to moderate versus where they are right now and I'm wondering if that's because you think that if you have tougher comparisons.
If you think that you'll have AUR pressure because of.
Promotions picking up thank you so much.
Thank you Janet good good to hear from you.
Second part and then T J and maybe ask you to take out some of the second part.
In terms of our plan for the year, it's not unusual after a very strong black Friday, and cyber Monday to see a kind of a low during the early part of December and things to slow down as we look at historical patterns. We've seen that before so you know when we're not being overly optimistic about what we see.
For December but equally there's opportunity in that so that's probably all I can tell you about the outlook for December T. J P O free to add it in a minute as it relates to paint you. Two observations are yes, and yes, I mean, both right are we constrained on inventory on the best product yes.
Best stuff that we put out blew out really quickly and we wish we had more than we can all get anymore.
And always still working through what the Assortments should be yes, we are it's not 100% right it's better.
You know as I as I look at the assortment.
It was significantly more proud of the way we show up now I think it's more relevant to the Gen Z consumer I think is a better fit with Victoria, but there's still significant areas for opportunity and the team that are responsible for it see that completely and we're all aligned on where it is that we need to go to get after it I don't think we're pushing back the timeline to late 'twenty book.
Our expectation is that all through 'twenty, four we should be making continuous improvement you know.
Some of the things that have worked well are actually relatively short lead time like penalties. So we should expect to be quickly into those businesses and spring. Other items are longer lead time as you know it may take may take a bit longer. So it's a work in progress I am pleased with the progress that we've made it's kind of a no regrets decision that we didn't go.
<unk> fallen by too aggressively for the full season, I think that would have been a mistake.
So we let alone and thank you for your encouragement to Jay anything else to add on December yes, absolutely tenants. So after a slightly positive November in North America. We do expect that December will be down year over year as Martin mentioned, we come off of cyber Monday, and typically the customer takes a bit of a break.
And we do have a longer period between Thanksgiving and Christmas. This year. So we do expect the customer to come back.
<unk> as we get closer to Christmas so from a planning perspective.
We think it's prudent to set our expectations accordingly with that in mind I think Additionally, just studying our operational expense plans at that lower level of sales also.
<unk> helps us and you know what if we were a little bit off and the customer comes back sooner and stronger than we think in December then the flow through will be very high and we'll be very happy with that I think Additionally, what you might also be seeing in the guidance is we do have a.
Expectations that the month of January we will also be down to last year and part of that Janet is because semiannual sale is such a large part of what happens in the month of January and coming into the quarter with inventory levels, and rvs and pink businesses down high single digits.
Sets us up well to have a very profitable semiannual sale and not have to move as many units and maybe have some opportunities to be a little less promotional and semiannual sale. So that does have an impact on the top line. So I feel as if we've set our expectations.
Very diligently for the balance of quarter and positioned the business that.
In the event that things are more robust than we think the flow through would be very high and that's a good position to be and do you have the opportunity that we have Janet as is.
As T. J said, if our inventories or we're expecting our inventories to be clean is to pull forward spring fashion. So we're actively looking at ways in which we can pull forward newness to help that January period with full price selling I think we have time for one more Kevin. Thank you Janet and Ivy I think let's go with one more question. Please.
Thank you and our final question comes from Marni Shapiro from retail tracker. Please go ahead.
Thanks, guys and congrats stores it was a pleasure having to wait in line to get in on Black Friday I have to say.
You have made some big investments in the third quarter marketing moments I would call them, yeah from the show Netflix et cetera, I'm curious if you could just talk a little bit about the Halo effect did you see a bump in traffic around those events did you see the sell through that you were expecting and you know.
Curiously millennials grew up with Victoria's secret it was where they win it was there be all end all pink was their baby brands, but.
Gen Z less so as they were growing up Victoria's secret was sort of.
You know hitting a lot of speed bumps I guess is the way to put it. So I'm curious if you're now when starting to win over a gen Z now and its pink the vehicle to do that if you could just talk about that under the guise of marketing.
Yeah, great questions and thank you for asking.
We did it we did a lot of resetting of the marketing agenda. During Q3, particularly in October September October with the world to our objectives on the World Tour as I said at Investor Day, what create the media frenzy mission accomplished.
B part of the conversation of what's popular culture looks like now where we are outside of that conversation previously.
And thirdly to create assets marketing assets that we could use over a consistent period of time, we've been able to do all of that we then followed that moment quickly with my wings by weight campaign, which was kind of a different articulation and then Maria pop type with a very big.
Moments and so a lot of attention to the Victoria brand. The key metric that we look at is brand sentiment.
We're sitting at about 80% positive and brand sentiment, which is good we look at and we track independent research on all of the other metrics like relevance like intent to purchase like.
Gets me you know, there's a whole series of.
Ways in which we measure those and we're much more focused on how those are moving over time than we are about did you get did you see a lift in traffic you know did you see a lift in traffic is really more about promotional marketing and about performance marketing in the digital arena and in social channels. The moments I just spoke about a more tent pole moments, where we're looking.
To grow.
You know the Halo that there is around the brands for the long term.
The.
Decision about whether those have been good investments so bad investments will take time to reveal themselves went out the point of deciding what do we want to do for 2020 volt. So we're actively thinking about what the anniversary moment for the world tool will be in 2024 and will make some choices about that in the coming weeks and months.
You asked about Gen Z and millennials I'm delighted to say that we are over indexing with Gen Z.
So we were strong with Gen Z as Jens he's like Victoria's secret.
Under indexing with pink.
The reasons that we've spoken about so that just brings even more opportunity when we get paid back on X game I'm Super confident that we'll get at <unk>.
And Jen wise to come in strong the area of opportunity for US has been millennials, where we've been underweight with young millennials and we continue to look very hard at that cohort and.
<unk> marketing capability will enable us to market differently, not just by generation, but also by Psychographic behavior and as we talked about at Investor Day, We've identified specific target customers that we want to reach and we'll be marketing to them differently depending on their preferences.
I think we'll call that a wrap and thank you for that question Bonnie. Thank you all for your interest in our brands wish you all a very happy holidays.
Thanks, everyone participate.
You all for participating in today's third quarter 2023 earnings Conference call that concludes today's conference. Please disconnect at this time and enjoy the rest of your day.