Q4 2023 Victoria's Secret & Co Earnings Call

Fran: Good morning, my name is Fran, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Victoria's Secreting Company's fourth quarter 2023 earnings conference call. Please be advised that today's conference is being recorded. All parties will remain in a listen-only mode until the question and answer session of today's call.

Good morning, My name is Fran 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 fourth quarter 2023 earnings Conference call.

Be advised that today's conference is being recorded all parties, who will remain in a listen only mode until the question and answer session of today's call I would now like to turn the call over to Mr. Kevin Wink, Vice President of external financial reporting and Investor Relations at Victoria's Secret and company, Kevin You may begin.

Kevin Wynk: I would now like to turn the call over to Mr. Kevin Wynk, Vice President of External Financial Reporting and Investor Relations at Victoria's Secret & Company. Kevin, you may begin. Thanks, Fran. Good morning, and welcome to Victoria's Secret & Company's fourth quarter earnings conference call for the period ending February 3, 2024. As a matter of formality, I would like to remind you that any forward-looking statements we may make today are subject to our safe harbor statements found in our SEC filings and in our press release. 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. Certain results we discuss on the call today are adjusted results and exclude the impact of certain items described in our press release and our SEC filings. Reconciliations of these and other non-GAAP measures to the most comparable GAAP measures are included in our press release, our SEC filings, and the investor presentation posted on the investor section of our website. Thanks, and now I'll turn the call over to Martin. Thanks, Kevin. And good morning, everyone.

Thanks, Ryan Good morning, and welcome to Victoria's Secret and company's fourth quarter earnings conference call for the period ending February three 2024.

As a matter of formality I would like to remind you that any forward looking statements. We may make today are subject to our safe Harbor statements found in our SEC filings and in our press releases Joy.

Joining me on the call today is CEO Martin waters, and CFO, Tim Johnson, we are available today for up to 45 minutes to answer any questions. Certain results. We discussed on the call today are adjusted results and exclude the impact of certain items described in our press release and our SEC filings reckon.

Filiation of these and other non-GAAP measures to the most comparable GAAP measures are included in our press release, our SEC filings and the Investor presentation posted on the investors section of our website.

Thanks, and now I'll turn the call over to Martin.

Thanks, Kevin and good morning, everyone.

Martin P. Waters: I want to first share my appreciation and gratitude for the hard work and dedication of our associates and partners around the world who executed our strategies, delighted our customers, and delivered solid financial results in the all-important holiday quarter. I'm pleased to report that our fourth-quarter adjusted operating income and EPS came in at the high end of our guidance. Sales in the quarter were up 3% compared to last year and were at the midpoint of our guidance.

Want to first share my appreciation and gratitude for the hard work and dedication.

If our associates and partners around the world.

<unk> strategies delights, our customers and delivered solid financial results in the all important holiday quarter.

I am pleased to report that fourth quarter adjusted operating income and EPS came in at the high end of our guidance sales in the quarter were up 3% compared to last year at the midpoint of our guidance.

Martin P. Waters: Our fourth quarter gross margin rate increased significantly compared to last year, exceeding our expectations, driven by disciplined inventory management and cost reductions related to our Transform the Foundation initiative to modernize our supply chain. Sales trends during the quarter were volatile by week, but we were encouraged by the improving quarterly sales trend in North America, driven by a sequential improvement in traffic and average unit retail in both our stores and digital channels, with traffic in our stores increasing in the fourth quarter as compared to last year. We were particularly pleased with our early holiday sales in November and during the peak days and weekends leading up to Christmas, both in stores and through our digital channels, led by a strong response to our giftable merchandise assortment, and improved customer experiences and marketing messages.

Fourth quarter gross margin rate increased significantly compared to last year exceeding our expectations driven by disciplined inventory management and cost reductions related to our transform the foundation initiative to modernize our supply chain.

Sales trends during the quarter were volatile by week, but we were encouraged by the improving quarterly sales trend in North America, driven by a sequential improvement in traffic and average unit retail in both our stores and digital channels with traffic in our stores increasing in the fourth quarter as compared to last year.

We were particularly pleased with our early holiday sales in November and during the peak days and weekends, leading up to Christmas both in stores and through our digital channels led by strong response to our giftable merchandise assortment, improving customer experiences and marketing messages.

Yes.

Martin P. Waters: The team strategically managed promotional activities to amplify key moments through the days and weeks leading up to Christmas, and we entered the semi-annual sale period with lower inventory levels than last year, which allowed us to maximize margins during the sale period and enter the spring season with healthy inventories. Our international business continued its strong performance, with system-wide retail sales up more than 20% in the fourth quarter compared to last year, driven by significant growth in China and globally with our franchise and travel retail partners. We continue to experience profitable growth across stores and digital, and we're excited about our aggressive growth plans to expand our footprint in both stores and digital around the world. From a market perspective, sales for the intimate market in North America as a whole decreased by mid-single digits in the quarter compared to last year, which was the fourth consecutive quarterly year-over-year decline.

The team strategically manage promotional activities to amplify key moments through the days and weeks, leading up to Christmas and we entered the semiannual sale period with lower inventory levels than last year, which allowed us to maximize margins during this period and into the spring season with healthy inventory.

Our international business continued its strong performance with system wide retail sales up more than 20% in the fourth quarter compared to last year, driven by significant growth in China and globally with our franchise and travel retail partners.

We continued to experience profitable growth across stores and digital and we're excited about our aggressive growth plans to expand our footprint in both doors and digital around the world.

From a market perspective sales for the Internet market in North America as a whole decreased mid single digits in the quarter compared to last year, which was the fourth consecutive quarterly year over year decline.

Martin P. Waters: We remain the leader in the market share for the intimates category, including both bras and panties. Our share in the Intimates category remains at about 20%, with our digital share up slightly and our store share down slightly. We were encouraged by our market share gain in digital increase in both bras and panties. From a merchandise category perspective, starting with Victoria's Secret, our beauty business continued to be our best performing category, with year-over-year growth for the second consecutive quarter, followed by performance in casual sleepwear, panties, and bras. William Pink, Sleepwear, Outperformed, Intimates, and Apparel.

We remain the leader in market share to the intimates category, including both bras and panties.

Our share in the intimates category remains at about 20% with our digital share up slightly and our stores shut down slightly.

We were encouraged by our market share gain in digital increased in both bras and panties.

From a merchandise category perspective, starting with Victoria's secret our beauty business continued to be our best performing category with year over year growth for the second consecutive quarter and was followed by performance and casual sleepwear panties and bras.

We then pink sleepwear outperformed intimates and apparel, we continued to rollout our re imagined pink apparel merchandising assortment in the fourth quarter.

Martin P. Waters: We continue to roll out our Reimagined Pink Apparel Merchandising assortment in the fourth quarter. The sales trend improved, and while still down compared to last year, we continue to buy the category cautiously. The impact of the pink apparel challenges in the fourth quarter was approximately one to two points compared to last year.

The sales trend improved and while it's still down compared to last year, we continue to buy the category cautiously.

Impact of the pink apparel challenges in the fourth quarter was approximately one to two points compared to last year.

Martin P. Waters: Over the last 90 days, we've executed several key actions in support of our strategy and brand positioning for the long term. For example, we continue to further develop our understanding of our Victoria's Secret and Pink customers through our multi-tender loyalty program, which now has more than 26 million members who drive more than 75% of our sales on a weekly basis. Through insights and data, we focused on turning our understanding of her into world-class customer experiences. In February, we relaunched our number one bra collection, Body by Victoria, with all new styles and our latest innovations. The popularity of unlined bras continues to increase, and our newest invisible lift technology offers a lightweight design that smooths, shapes, and supports without an ounce of padding.

Over the last 90 days, we've executed several key actions in support of our strategy and brand positioning for the long term for example.

We continue to do to further develop our understanding about Victoria's secret and pink customer through our multi tender loyalty program, which now has more than 26 million members.

Who drive more than 75% of our sales on a weekly basis.

Through insights and data we're focused on turning our understanding of her into world class World class customer experiences.

In February we relaunched our number one bra collection body by Victoria with all new styles and our latest innovation.

Popularity for online brothers continues to increase and our newest invisible lift technology offers lightweight design that smooth shapes and supports without an ounce of padding.

Martin P. Waters: In February, we also released our pink apparel spring campaign, Going Places, featuring Natalia Brand in the new pink styles and comfy fits. As part of our commitment to expanding our categories, we debuted swim products under our new swim collaboration label Pink by Frankie's Bikinis, which celebrates the iconic pink brand reimagined through the lens of founder and creative director of Frankie's Bikinis, Francesca Aiello. From a technology perspective, we entered a multiyear partnership with Google Cloud to embark on BS&Co's AI journey to focus on improving customer experiences online and on our mobile apps, improving the associated experience, and improving operational efficiency across the enterprise. As we expanded our store of the future fleet to 83 stores or approximately 10% of the fleet in North America and continue to expand our footprint internationally.

In February we also released our pink apparel spring campaign going places featuring Natalia brands with the new Pink styles and company peers.

As part of our commitment to expand our categories, We debuted Spain, Sweden products under our new swim collaboration label Pink by <unk>, we celebrate the iconic pink brand, we imagine through the lens of founder and creative director frankly is makena as Francesca I yellow.

From a technology perspective, we entered a multi year partnership with Google cloud to embark on payoffs at COSE AI journey to focus on improving customer experience online and on mobile apps improving associated.

Experience and improving operational efficiency across the enterprise.

As we expanded our store of the future fleet through 83 stores or approximately 10% of the fleet in North America and continue to expand our footprint internationally.

Martin P. Waters: From a liquidity and capital allocation perspective, we ended the year with a strong balance sheet and ample liquidity to execute our strategic plan. We generated significant cash flow in the fourth quarter and ended the year with a cash balance of $270 million and debt down over $150 million year over year. Additionally, our board has approved a new share repurchase program, authorizing the repurchase of up to $250 million of the company's common stock.

From a liquidity and capital allocation perspective, we ended the year with a strong balance sheet and ample liquidity to execute our strategic plans we.

We generated significant cash flow in the fourth quarter and ended the year with a cash balance of $270 million of debt down over $150 million year over year.

Additionally, our board has approved a new share repurchase program authorizing the repurchase of up to $250 million of the company's common stock.

Martin P. Waters: As we look into the new year, we recognize the broader intimates market in North America has been down for four consecutive quarters, and the macro environment remains challenging, putting pressure on the consumer. As such, we are planning the business conservatively in the near term and maintaining an open to buy to capitalize on any changes in trend. At the same time, we remain focused on delivering on multiple initiatives to drive growth in our business over the longer term. For fiscal 2024, our forecast assumes the broader intimates market in North America will remain pressured throughout the first and second quarters, with sales trends improving through the back half of 2024, as we continue to roll out growth strategies and new customer experiences. For the 52-week fiscal year 2024, we're forecasting sales to be about $6 billion, or down low single digits to a comparative 52 weeks from fiscal 2023. At this level of sales, we expect adjusted operating income for the year to be about $250 to $275 million.

As we look into the new year, we recognize the broader intimates market in North America has been down for four consecutive quarters and the macro environment remains challenging putting pressure on the consumer as such we are planning the business conservatively in the near term and maintaining open to buy to capitalize.

On any changes in trend.

At the same time, we remain focused on delivering on multiple initiatives to drive growth in our business over the longer term.

For fiscal 2024, our forecast assumes the broader enterprise market in North America will remain pressured throughout the first and second quarters with sales trends improving through the back half of 2024, as we continue to rollout growth strategies and new customer experiences.

The 52 week fiscal year 2024, we are forecasting sales to be about $6 billion or down low single digits to a comparison of 52 weeks from fiscal 2023.

At this level of sales, we expect adjusted operating income for the year to be about $250 million to $275 million.

Martin P. Waters: For the first quarter of 2024, we're forecasting sales to decrease in the mid single-digit range compared to sales of $1.407 billion in the first quarter of 2023. This forecast reflects our expectation that the domestic intimates market will remain challenged and that our core customers will be cautious in this environment. These challenges will be partially offset by the continued strength in our international business. At this level of sales, we're forecasting first quarter adjusted operating income to be in the range of $10 to $35 million.

For the first quarter of 2024, we are forecasting sales to decrease in the mid single digit range compared to sales of $1 407 billion in the first quarter of 2023.

This forecast reflects our expectation that the domestic insurance market will remain challenged in that our core customer will be cautious in this environment.

These challenges will be partially offset by the continued strength in our international business.

This level of sales we are forecasting first quarter adjusted operating income to be in the range of 10% to $35 million.

Martin P. Waters: The team continues to manage inventories with discipline, and we expect to end the first quarter with inventory levels in our core Victoria's Secret and Pink businesses down mid-single digits compared to last year. At our Investor Day on October 23, we discussed the opportunity to drive operating margin expansion through our initiatives to transform the foundation of the company by modernizing the operating model. We remain on track and committed to a total of $250 million three-year goal that we established at our Investor Day in October 2022. We realized about $90 million of savings in 2023 and expect to realize approximately $120 million of savings in 2024, primarily in gross margin.

The team continues to manage inventories with discipline and we expect to end the first quarter with inventory levels in our core Victoria's secret and pink businesses down mid single digits compared to last year.

At our Investor Day in October 23, we discussed the opportunity to drive operating margin expansion through our initiatives to transform the foundation of the company by modernizing the operating model, we remain on track and committed to a total of $250 million three year ago that we established at our Investor day in October.

But 2022.

We realized about $90 million of savings in 2023, and expect to realize approximately $120 million of savings in 2024, primarily in gross margin.

Martin P. Waters: Lastly, as we have shared consistently inside and outside the business, with the long-term health of the business in mind, we remain committed to our strategic priorities, firstly, to accelerate the core, second, to ignite growth, and thirdly, to transform the foundation. As we look into the new year, we are committed to our initiatives designed to leverage our market leadership position and unlock the opportunity to convert our significant cultural influence into long-term financial growth. We believe our evolving strategies will position our business to deliver the potential of our category-defining brands, and we remain confident and are committed to delivering long-term financial targets and returning value to shareholders. Thank you. That concludes our prepared remarks, and at this time, we'd be more than happy to take whatever questions you might have. Thank you very much.

Lastly, lastly, as we have shared consistently inside and outside the business with the long term health of the business in mind, we remain committed to our strategic priorities, especially to accelerate coal second to ignite growth and thirdly to transform the foundation as.

As we look into the new year, we are committed to our initiatives designed to leverage our market leadership position and unlock the opportunity to convert a significant cultural influence into long term financial growth.

We believe our evolving strategies will position our business to deliver the potential of our category defining brands and we remain confident and are committed to delivering long term financial targets and returning value to shareholders.

That concludes our prepared remarks and at this time, we'd be more than happy to take whatever questions you might have.

Thank you very much we will now begin the question and answer session.

Alexandra Ann Straton: We will now begin the question and answer session. If you would like to ask a question, please press star 1. Your name is required to introduce your question. To withdraw your request, you may press star. Our first question now is from Alex Straton with Morgan Stanley, and your line is open. Great, thanks a lot for taking the question. Just on the full year revenue guidance, it looks like there's an acceleration embedded after the first quarter despite the comparisons getting harder. So can you just talk about what enables that acceleration? It sounds like it's particularly back half-weighted.

I would like to ask a question. Please press star one.

Name is required to introduce your question to withdraw your request you May Press Star two or first question now is from Alex <unk> with Morgan Stanley and your line is open ma'am.

Great. Thanks, a lot for taking the question.

Just on the full year revenue guidance. It looks like there is an acceleration embedded after the first quarter. Despite compares getting harder. So can you just talk about what enabled that acceleration it sounds like it's particularly a back half weighted and then I just have one quick follow up.

Unknown Executive: And then I just have one quick follow-up. Yeah, thanks for the question, Alex. So when we thought about the full year in relation to the first quarter and the trends that we've been seeing in the business, you know, we made some assumptions around kind of where the domestic market share might go or the intimates market domestically might go. But as Martin mentioned in his prepared comments, the market for intimates has been down four quarters in a row now. As we look at the beginning parts of Q1 and 2024, it appears to us that it's going to continue to be a challenge. We've assumed in our guidance that the domestic market for intimates will continue to be down through the spring season and will start to stabilize, not grow, but stabilize as we move into the back half of the year.

Yes. Thanks for the question Alex So when we thought about the full year in relationship to first quarter and the trends that we've been seeing in the business.

We made some assumptions around kind of where the domestic market share FICO or the intimates market domestically might go so as Martin mentioned in his prepared comments the market for intimates has been down four quarters in a row now.

As we look at the beginning parts of <unk>.

Q1 in 2024, it appears to us it's going to continue to be a challenge.

Assumed in our guidance that the domestic market for intimates, we will continue to be down through the spring season, and we will start to stabilize not grow but stabilize as we move into the back half of the year. So we've tried to align our forecast with that we've tried to align our inventory.

Unknown Executive: So we've tried to align our forecast with that. We've tried to align our inventory and cost structure with that in mind. Additionally, as we move through the year, we recognize that many of the merchandising strategies that were articulated at the investor day in October will be in full flight as we move into the fall season. So things like category adjacencies that Greg spoke to, and the relaunch of sport, which Greg spoke to at the investor day.

And cost structure with that in.

In mind. Additionally, as we move through the year, we recognize that many of the merchandising strategies that were articulated at the Investor day in October.

We will be in full flight as we move into the fall season, So things like category Adjacencies that Greg spoke to the relaunch of sport, which Greg spoke to at the Investor day. So those.

Unknown Executive: So those high-level merchandising initiatives that will put out different products and present them differently in the store really are in full flight in the back half of the year. So the combination of an assumption around the stabilizing intimates market and newness in category and presentation and expansion of category, particularly as it relates to intimates, bras, and sports, are part of our assumptions for an improving trend ever so slightly quarter to quarter as we move throughout the year. So down mid-singles, down low singles for the year, you kind of get to flatten the down low singles, the balance of the year. Great, that's super helpful.

High level merchandising initiatives that we'll put out different products and present differently in the store really are in full flight in the back half of the year. So the combination of an assumption around a stabilizing intimates market and newness in category in presentation and expansion of category, particularly.

As it relates to intimates and bras and sport.

Our part of our assumptions.

For an improving trend ever so slightly quarter to quarter as we move throughout the year, So down mid singles down low singles for the year.

Get to flat to down low singles the balance of year.

Great. That's super helpful and maybe just one quick follow up just with the headlines recently on the credit card late fee proposal iron ore ruling going through have you contemplated that in the guidance or how should we think about what that means for Victoria. Thanks a lot.

Unknown Executive: And maybe just one quick follow-up on the headlines recently on the credit card late fee proposal or ruling going through. Have you contemplated that in the guidance? Or how should we think about what that means for Victoria's? Thanks a lot.

Unknown Executive: Yeah, good question. Obviously, that's very topical at the moment, but it's not a new topic. It's been out there for several months and several quarters but does seem to be picking up a little bit of momentum lately. First, I think it's important to understand that, you know, we do not necessarily recognize any revenue on some of the fees that are being discussed or debated. But certainly, our provider does, and that impacts their model. So we've got a long-standing relationship with our partner.

Yes, great question.

Obviously, that's very topical at the moment, but it's not a new topic, it's been out there for several months and several quarters, but does seem to be picking up a little bit of momentum lately.

First I think it's important to understand that we do not necessarily recognize any revenue on some of the fees that are being discussed or debated.

But certainly our provider does and that impacts their model so.

We've got a long standing relationship with our partner and we will continue to try to work with them, but I think it's important to understand that some of the fees that are being discussed do not directly go into our P&L.

Unknown Executive: We'll continue to try to work with them, but I think it's important to understand that some of the fees that are being discussed do not directly go into our P&L. This is certainly something that our partner relationship will need to work on. I think additionally, Alex, or others might recall too, the launch of the non-tender or multi-tender loyalty program in the middle part of last year was obviously a big, big move for the company and a big opportunity to communicate and incentivize customers differently than maybe in the past. So we do have a couple of different ways to be working with our customers to encourage traffic and encourage them to continue to shop in our stores, not just one dimension like in years gone by. Thanks a lot.

Certainly something that our partner relationship we'll need to work on that.

Thanks, a lot. Additionally, Alex you might recall or others might recall too.

The launch of the non tender or multi tender loyalty program in the middle part of last year, obviously was a big big move for the company and a big opportunity to communicate and incent customers differently than maybe in the past. So we do have a couple of different ways to be working with our customers too.

And spent traffic and encourage them to continue to shop in our stores not just one dimension like in years gone by.

Okay.

Great. Thanks, a lot.

Irwin Bernard Boruchow: Yep. Thanks. Our next question is from Ike Boruchow with Wells Fargo. And, sir, your line is open.

Thank you.

Our next question now is from Ike <unk> with Wells Fargo and Sir Your line is open.

Irwin Bernard Boruchow: Hey guys, good morning. I have two questions for me, maybe both for TJ. Just on the guidance, can you talk to us about the flow through on the lower sales outlook? I think when we look at the guidance, it's about Low single digits, 3% below street per revenue for next fiscal year, but it's 20, 25% below EBIT. How should we think about that? Are there things you can look at in the cost structure? It just seems like a lot of lost EBIT on not.

Hey, guys. Good morning, two questions for me, maybe both for T. J just on on the guidance.

Can you talk to us about the flow through on the lower sales outlook.

I think when we look at the guidance it's about <unk>.

Low single digits, 3% below street for revenue for next fiscal year, but 2025% below on EBIT.

How should we think about that or are there things you can look at and the cost structure.

It just seems like a lot of lost EBIT or not is not that much loss revenue honestly and then the second follow up is just on the share buyback how opportunities how opportunistic do you plan to be.

Unknown Executive: Not that much lost revenue, honestly. And then the second follow-up is just on the share buyback. How opportunistic do you plan to be with that as you kind of look out? Yeah, thanks for the question. In terms of the full-year guidance, it's difficult for me to speak to what others might have in the model.

With that as you kind of look out for the rest of the year. Thank you.

Yeah. Thanks for the question.

In terms of the full year guide, it's difficult for me to speak to what others might have in the model. So I'll speak to how we're thinking about it and how it compares back to the Investor day in October So back in October we talked to you about a number of things that needed to happen in our business in order for the operating margin to expand in the flow through.

Unknown Executive: So I'll speak to how we're thinking about it and how it compares back to investor day in October. So back in October, we talked to you about a number of things that needed to happen in our business in order for the operating margin to expand and the flow through to be significant to operating income. We talked about North American sales needing to improve; it needed to move into the low single digits. That has not happened yet. We're not forecasting that to happen in the current year, so that's a bit of a headwind.

To be significant to operating income, we talked about North America sales needed to improve and needed to move into the low single digit range.

That has not happened yet we're not forecasting that to happen in the current year.

So that's a bit of a headwind we talked about the international business needed to continue to grow and it will become a larger part of our business growth in the mid teens or higher clearly, we just came across the fourth quarter of 2023 or that was the case. So I'll put a checkmark next to that for a job well done by the team, we said that the dormie needed to continue.

Unknown Executive: We talked about the international business needing to continue to grow, and it would become a larger part of our business growth in the mid-teens or higher. Clearly, we just came across the fourth quarter of 2023 where that was the case, so I'll put a check mark next to that for a job well done by the team. We said that the Dormy needed to continue to grow both in sales and profitability. They were relatively close to their targets for 2023, and we have plans for growth in 2024, so we feel good about that element of the model. We said the gross margin rate would go up, would increase, both based on sales, but also based on some of the cost work that we're doing around cost of goods sold. You started to see that come through in the fourth quarter, and that's embedded in our first quarter guidance, so that is working as intended. The expense rate, we said we needed about a 1% to 2% increase in sales to leverage on expenses, but that's not our current forecast for the year.

We need to grow both in sales and profitability. They were relatively close to their targets for 2023, and we have plans for growth in 2024. So we feel good about that element of the model. We said the gross margin rate would go up would increase both based on sales, but also based on some of the cost work that we're doing.

Our cost of goods sold you started to see that come through in the fourth quarter and Thats embedded in our first quarter guide. So that is working as intended the expense rate, we said needed we need about a 1% to 2% increase in sales to leverage Unexpendable was.

That's not our current forecast for the year. However, our internal plans that we review on a regular basis with the board. We're comfortable that our expenses are in line. It would be leveraging our sales were up 1% to 2%. We also said that our debt.

Unknown Executive: However, our internal plans that we review on a regular basis with the board, we're comfortable that our expenses are in line and would be leveraging if sales were up 1% to 2%. We also said that our debt-to-EBITDA, or our leverage ratio, should be two times or less, and we just came across a year where that is true as well. The single biggest challenge in the model right now is the North America sales trend, and that's what would be driving the majority of the flow through that you're challenging. But I'm confident that the gross margin, when I look at estimates, actually our gross margin rate was likely above the street for the year, even on lower sales. When we look at expense rate and leverage opportunities, in any given quarter, we're talking about expense dollars that are up minimally year over year, it really comes back to North American sales.

Debt to EBITDA or our leverage ratio should be two times or less and we just came across the year, where that is true as well so.

The single biggest challenge.

<unk> in the model right now is the North American sales trend and Thats, what would be driving the majority of that flow through that that you are challenging so I'm confident that the gross margin when.

When I look at estimates actually our gross margin rate was likely above the street.

For the year, even on the lower sales when.

When we look at expense rate and leverage opportunities in any given quarter.

We're talking about expense dollars that are up minimally year over year. It really comes back to the North American sales element even in the first quarter that we just guided to when you start to work through the model I think youre going to find that we're talking about expense dollars may be being up 10% to $15 million.

Unknown Executive: Even in the first quarter that we just guided to, when you start to work through the model, I think you're going to find that we're talking about expense dollars maybe being up $10 to $15 million year over year. And as a business that continues to invest in technology and continues to want to provide for a good wage and merit, et cetera, I think those numbers are probably pretty minimal relative to what you might see elsewhere. I feel good that my expenses are well under control.

Year over year.

And it is a business that continues to invest in technology and continues to want to.

Provide for a good.

Good wage and merit et cetera, I think those numbers are probably pretty minimal relative to what you might see elsewhere. So I feel good that expenses are well under control and it really comes back to the top line movement that we need to see in North America. The second part of your question around share repurchase I think.

Irwin Bernard Boruchow: It really comes back to the top-line movement that we need to see in North America. The second part of your question around share repurchase, I think we mentioned in our prepared comments that there is no assumption for share repurchase activity in our guidance for 2024. We worked with our board of directors, and we agreed on a share repurchase authorization, candidly based on feedback from shareholders that they wanted to know and feel confident that we could be in the market at any given time. At this time, we're not providing a forecast on how we might go into the market or when. We're very focused on making sure that we're trying to increment the trend of the business, stabilize and improve profitability in a down-intimates market. We're very focused on making sure that we've got sufficient liquidity to execute our strategies, and we know that we do based on our forecast. So, future decisions on capital allocation and share repurchase will be made in concert with the board on a quarterly basis. I hope that helped. Yep, it does.

We mentioned in our prepared comments that there.

There is no assumption for share repurchase activity in our guidance for 2024.

We worked with our board of directors and we align on a share repurchase authorization.

Candidly based on feedback from shareholders that.

They wanted to know and feel confident that we could be in the market at any given time.

But at this time, we're not providing a forecast on how we might go into the market or when we're very focused on making sure that we are.

Trying to increment the trend of the business.

Stabilize and improve the profitability in a down intimates market.

We're very focused on making sure that we've got sufficient liquidity to execute our strategies and when we know that we do based on our forecast.

Future decisions on capital allocation and share repurchase will be made in concert with the board on a quarterly basis.

Hope that helps.

Yes, it does.

Thanks, Paul.

Simeon Avram Siegel: Thanks. Thank you both. Our next question now is from Simeon Siegel with BMO Capital Markets, and sir, your line is: Thanks, everyone. Good morning.

Our next question now is from Simeon Siegel with BMO capital markets. Sir Your line is open.

Thanks, Hi, everyone. Good morning.

Martin P. Waters: Martin, how are you thinking about marketing this year? I guess last year you had Tuer and Mariah; I assume some big investments that were going to be lapping. So any learnings on those spends, how you're planning marketing this year, and then maybe at a higher level, just recognizing the industry's top line pressures are what they are. And then TJ, the point you just made about despite operating profit guy down, the gross margin is showing improvement. Any changes in how you're thinking about the value of promotions and maybe balancing the focus on revenue versus profit? Yeah, thank you, Simeon.

Martin how are you thinking about marketing this year, just I guess last year, you had to or MRI I assume some big investments that we're going to be lapping so any learnings on those spends how youre planning marketing. This year and then just maybe a little higher level just recognizing the industry's top line pressures are what they are at and T. J. The point you just made about despite operating profit guide down.

The gross margin is showing improvement any changes in how youre thinking about the value of promotions and maybe balancing a focus on revenue versus profits. Thank you.

Yeah. Thank you Simeon.

Martin P. Waters: Good questions. Let's start with marketing. We plan to invest marketing dollars at about the same percentage of sales that we did in 2023, so continue to invest in the brand. Essentially, that's across the five areas that we talked about at our investor day. So firstly, in terms of customers, really deeply understanding the customer, segmenting the customer file, building data, and personalizing.

Good questions start with the marketing we plan to invest marketing dollars at about the same percentage of sales that we did in 2023, so continue to invest in the brand.

Essentially that's across the five areas that we talked about at our Investor day. So firstly in terms of customer really deeply understanding the customer segmenting the customer file building data and personalizing, so more and more of our spend is going through personalized marketing, particularly through social.

Martin P. Waters: So more and more of our spend is going on personalized marketing, particularly through social media, but also through curated online experiences through the app and on site. Continued investment in our brand, focusing on relevance and brand heat, positioning it around powerful, confident, sexy on her terms, and then supporting product launches, you know, our broader category appeal beyond intimates, getting back into sport. All of those initiatives will be supported with marketing dollars, and trying to find ways to go to market that are at the intersection of brand, product, and entertainment. And to some extent, the world tour was a sort of a tiptoe back into that last year, you know, as we hindsight it. I would say, we got enormous media coverage, like 17 billion media impressions that were, you know, in excess of 80% positive. So that was good.

Media, but ultra drew curated.

Online experiences through the App and on site.

Continued investment in our brand focusing on relevance and brand heat that positioning around powerful.

Confident 60 on her terms and then supporting product launches a broader category appeal beyond intimates getting back into sport all of those initiatives will be supported with marketing dollars and trying to find ways to go to market that are at the intersection of branded products and entertainment.

To some extent the world tool was sort of a tiptoe back into that.

Last year as we as we hindsight I would say, we got enormous media coverage like 17 billion media impressions.

In excess of 80% positive so that was good.

Martin P. Waters: We were part of the narrative about popular culture, and that was certainly our intent. And it gave us some good assets that we could use in the fourth quarter marketing. So, you know, to a large extent, it met our objectives. However, I think about the way that we went to market during the fourth quarter in more of a sequence. World Tour was the start of it; we then had the My Wings, My Way campaign, which was extremely successful and very popular.

We were part of the narrative about popular culture that was certainly our intent and it gave us some good assets that we could use in the fourth quarter marketing to.

To a large extent.

<unk> met our objectives. However, I think about the way that we went to market during the fourth quarter was more of a sequence.

<unk> was the start of it. We then had my wings My way campaign, which was extremely successful.

Martin P. Waters: And then that led into my Mariah Carey event, which was our best-received of all of the work that we did last year. So as I think forward to what will be the next iteration of our flagship marketing events, I think it will be less fashion and more commercial; it'll be less ethereal and more fun. It'll be more of our own product and less of other people's products. And it will be more focused on holiday commercials and building commercial sales into the all-important time of year. So, you know, I always try to look forward, Simeon, rather than look backwards.

Popular and then that led into Mariah Carey, which was our best received of all of that.

We did last year, so as I think forward to what will be the next iteration of our flagship marketing events I think it will be less fashion and more commercial it'll be lesser theory alone more fun it'll be more of our own products and less of other people's photos and it will be more focused on holiday commercial and building commercial sales into the oil.

Important.

Time of year so.

I always try to look forward Simeon rather than to look backwards. We're excited about what we've got coming forward.

Martin P. Waters: We're excited about what we've got coming forward. The World Tour was a bold and progressive expression of our brand, and it gives us a basis from which to build and continue to move forward. As it relates to your second question on promotions, our level of promotionality in the fourth quarter was slightly up relative to the prior year. We still, as TJ talked about, were able to maintain healthy gross margins, but we did feel the need in a down market in a very competitive environment to lean into promotionality. The first quarter of this year looks about the same, with promotions up slightly. We, on a day-to-day basis, are balancing the art of offering newness at full price with being aggressive in our core categories. And I will tell you that it's very much a balance of art and science, and it's different by category.

Well, it's always a bold and progressive expression of our brand and it gives us a basis from which to build and continue to.

To move forward as it relates to your second question on promotions or level of promotion LLC in the fourth quarter was slightly up relative to prior year.

We still as T. J talked about we were able to maintain healthy gross margins, but we did feel the need in a down market in a very competitive environment to lean into promotional activity. The first quarter of this year looks about the same with promotions up slightly.

On a day to day basis balancing the art of offering newness of full price with being aggressive in our core categories and I will tell you that.

It's very much the balance about the science and its different by category and some areas, where it's more difficult for us to defend share like panties.

Martin P. Waters: In some areas where it's more difficult for us to defend share, like panties, which is a less differentiated merchandise category, we will need to be aggressive, and you will see us leaning into promotions as aggressively as we ever have. In other areas where we've got true differentiation and added value, it's less of a requirement. So, that's the nature of what we do, Simeon, and we manage it very carefully on a day-to-day basis, and I'm very proud of the team that does that work. Thank you for your question.

Which is less less differentiated merchandise category, we will need to be aggressive and you will see us leaning into.

Promotions as aggressively as we ever have and other areas, where we've got true differentiation and added value it's less.

Requirement so that's.

That's the scale of what we do so we manage it very carefully on a day to day basis and are very proud of the team that are doing that work.

Thank you for your question next question Brett Thanks, guys.

Jungwon Kim: Next question from. Thanks, guys. This is Jonah Kim with TD Cowan. Ma'am, your line is open.

Kim with TD Cowen Ma'am your line is open.

Thank you for taking my question just curious what you saw in terms of consumer behavior corporate day in terms of traffic and conversion and then also if you can talk about key chocolate, it's behind international strength and what gives you confidence that momentum will continue throughout the year. Thank you.

Martin P. Waters: Thank you for taking my question. Just curious what you've seen in terms of consumer behavior quarterly in terms of traffic and conversion. And then also, if you can talk about the key drivers behind international strength and what gives you confidence that the momentum will continue throughout the year. Thank you.

Martin P. Waters: Yeah, on consumer behavior, I would say nothing particularly meaningfully different year over year. We did see spikes in traffic, so traffic to stores came back at certain peak weeks, and that put pressure on our selling organization to be ready. We did see an increase in browsing traffic, but conversion was down in stores.

Yes.

<unk> behavior, I would say nothing, particularly meaningfully different year over year, we did see spikes in traffic so traffic to stores came back at certain peak weeks and that put pressure on our selling organization to be ready.

We did see an increase in browsing traffic so conversion was down in stores and some peak times, we saw that.

Martin P. Waters: At some peak times, we saw that our digital business performed slightly better in the quarter than our stores business; we actually picked up some share in digital. That's partly due to us being more efficient with our marketing dollars, partly due to the enhanced digital experiences that we're seeing. So honestly, I think it's more about us than it is about consumer behavior. So I would say, you know, nothing particularly meaningful as we look across the different cohorts of customers. Behaviour was broadly similar at the higher end of the income bracket as it was at the lower end of the income bracket.

Digital business performed slightly better in the quarter than our stores business, we actually picked up some share in digital that's part.

Due to us being more efficient with our marketing dollars, partly due to the enhanced digital experiences that we're seeing so honestly I think it's more about us than it is about the consumer behavior.

So I would say.

Nothing, particularly meaningful as we look across the.

Cohorts of customers' behaviors were broadly similar.

But the higher end of the <unk>.

Income bracket as they were at the lower end of the income bracket as it relates to international the headline Israeli about China, where.

Martin P. Waters: As it relates to international, the headline is really about China, where our partnership with Regina Miracle continues to go from strength to strength. Working closely with that team on digital experiences, direct to consumer experiences that are working extremely well. I think we're marketing the brand very well in China, and we still have a lot of growth still to come. Across the franchise network, we saw health all around the globe.

Our partnership with Virgin America continues to go from strength to strength.

Working closely with that team on digital experiences direct to consumer experiences that are working extremely well.

We are marketing the brand very well in China, and we still have lots of growth still to come across the franchise network. We saw health all around the globe, we're very pleased with.

Martin P. Waters: We're very pleased with our partner operations, getting a store model that enables us to expand. We're going to open 70 to 90 stores this year. So a smaller footprint with a lower capital expense that enables us to get to more customers more quickly. And also, embracing digital in the international space, be it operated by us or operated by our partners, a combination of both. All of those factors are driving growth.

Partner operations getting our store model that enables us to expand we're going to open 70 to 90 stores. This year, so a smaller footprint.

With a lower capital expense that enables us to get to more customers more quickly and also embracing digital and.

In the international space.

Operator by us or operated by our partners a combination of both all of those factors are driving growth. We also see some opportunity in new markets in Scandinavia, Benelux Balkans again, both in digital and in store. So all across the system and I Didnt mentioned travel retail I should mentioned strength in travel retail as well so all across the.

Martin P. Waters: We also see some opportunity in new markets in Scandinavia, Benelux, and the Balkans, again, both in digital and in stores. So all across the system, and I didn't mention travel retail, but I should mention strength in travel retail as well. So all across the system, we see opportunity to continue to grow that business. So well done to the international team.

We see opportunity to continue to grow that business.

So well done to the international team.

Dana Lauren Telsey: Thank you for the question. Thank you. Our next question now is from Dana Telsey with the Telsey Group, and ma'am, your line is open. Hi, good morning, everyone.

Thank you for the question.

Thank you.

Our next question is from Dana Telsey with the Telsey Group Ma'am Ma'am your line is open.

Hi, Good morning, everyone. Martin can you expand on the store of the future.

Martin P. Waters: Martin, can you expand on the store of the future, how it's looking to you and any tweaks since you first introduced it? And on the pink apparel, the path to improvement there, and how you're thinking about directional change along with the marketing message with the Victoria's Secret Collective and how that's progressing and how you're utilizing that tool. Thank you.

Oh, it's looking to you and any tweaks since you first introduced that and on the pink apparel the path to improvement there and how you're thinking about directional change along with the marketing message with the Victoria's secret collectively how that's progressing and how you're utilizing that tool. Thank you.

Martin P. Waters: Yeah, thanks, Dana. Let's go to Pink first, and then I might ask TJ to comment on the retail, on the store of the future question. So in Pink, you know, we identified more, I don't know, about 15 months ago, that the Pink business was under significant pressure. We didn't like the customer that we had developed in the Pink business.

Yes, Thanks, Dana let's go to Pink person and then I might ask Jay to comment on the retail.

Store of the future.

Question so.

In pain we.

<unk> identified.

Well I don't know about 15 months ago, the pink business was under significant pressure, we didn't like the customer that we had developed in the pink business, we needed to get back to pink being an on ramp for Victoria and very clearly targeting a younger consumer collegiate age consumer so we set about rebuilding the brand.

Martin P. Waters: We needed to get back to Pink being an on-ramp for Victoria and very clearly target a younger consumer, a college-age consumer. So we set about rebuilding the brand, the identity of the brand, the categories that we operate in, the way that we go to market, everything about the brand. And because it was such a big rebuild, we decided to buy very, very conservatively and not swing for the fences. And what we found during the fourth quarter was that we had an increase in the number of customers that came into Pink. So that was good.

The identity of the brand the categories that we operate in the way that we go to market everything about the brand.

Because it was such a big rebuild we decided to buy very very conservatively and not swinging for the fences and what we found during the fourth quarter. We had an increase in the number of customers that came into <unk>. So that was good all brand equity improved markedly during the quarter.

Martin P. Waters: Our brand equity improved markedly during the quarter, and the perceived worth of the brand was up a touch as well. But what we didn't see was awareness, top-of-mind awareness. We have lost top-of-mind awareness with that young consumer. How do we get it back?

And the perceived worth if the brand was up a touch as well what we didn't say with awareness top of mind awareness. We have lost top of wide bind awareness with that young consumer how do we get it back well it all comes down to the productivity as you know and so leading with intimates being strong and body suits being strong in NOI.

Martin P. Waters: Well, it all comes down to the product, as you know. Leading with intimates, being strong in body suits, being strong in innerwear, having a really strong and compelling gift assortment, a strong sleepwear assortment, all of those things were positives for the brand. The area that we found toughest is apparel, and I mean sort of outer-faced apparel.

Having a really strong and compelling gift assortment of strong sleepwear assortments all of those things were positive and the brand. The area that we've found toughest is apparel and I mean sort of Azure based apparel.

Martin P. Waters: So we continue to lean into that. We continue to find new ways to go to market. We're particularly pleased with the Going Places campaign with Natalia Bryant.

So we continue to lean into that we continue to find new ways to go to market, we're particularly pleased with the going places campaign with the Italian Brian that looks like.

Martin P. Waters: That looks like it's very positive for us. So the drag of Pink has been reduced, but we still have work to do. And we're taking it steadily and buying cautiously and giving ourselves opportunities to chase. We're in a better open-to-buy position right now than we've been at any time in the last three or four years. So we're almost completely open to buy for fall, which we've not been in that position for a while. So, you know, really giving ourselves the opportunity to test and learn and then buy aggressively into the things that are working. TJ, do you want to take the store of the future? Absolutely.

That is very positive for us. So the drag has pink has reduced but we still have work to do.

Taking it steadily.

Cautiously and giving ourselves opportunity to chase, we have we're in a better open to buy position right now than we've been at any time in the last three or four years. So we're almost completely open to buy for fall.

Which we've not been in that position for a while so.

Really giving ourselves the opportunity to test and learn and then by aggressively into the things that are working T. J do you want to take the store of the future absolutely. So Dana we continue to be very encouraged by store of the future results. Both in this new class of stores from 2023 as well as the class of stores that was it.

TJ: So, Dana, we continue to be very encouraged by the results of the future, both in this new class of stores from 2023, as well as the class of stores that weren't executed in 2022, which are now in their second year. So the stores that have been remodeled the longest continue to see double-digit sales increases. So that's a very strong performance, very good news for us. The stores that have most recently been renovated are more likely in the mid to high single digits and growing. Again, the same narrative as what we experienced in the 2022 stores. They start out at one level, and they continue to build, particularly through traffic, over time.

Executed in 2022, which are now in their second year. So.

The stores that have been.

Remodel the longest continue to see double digit sales increases so thats a very strong performance very good do for us the stores that have most recently been renovated or more likely in the mid to high single digits and growing again same narrative as what we experienced in 2022.

Stores they start out at one level and then continue to build particularly through traffic over time, So we're very happy with.

TJ: So we're very happy with the remodels and renovations. You know, what's changed or what's different? Candidly, we've tested and gotten comfortable that we can do a less disruptive remodel, meaning kind of utilizing or better utilizing some of the walls and fixtures that were in place. So there's less construction that needs to happen. So it's a less disruptive process and lower cost.

The remodels and renovations whats changed or what's different candidly, we tested and gotten comfortable.

That we can do a say a less disruptive.

<unk> model, meaning kind of utilizing or better utilizing <unk>.

Some of the well.

Walls and fixtures that were in place.

So theres less construction that needs to happen. So it's a less disruptive process by the lower cost that's something that we've learned in obviously.

TJ: That's something that we've learned. And obviously, we like the lower cost element of it at the same productivity. So that's a good thing.

We like the lower cost element of it at the same productivity. So that's a good do.

TJ: I think another big win as it relates to the store of the future is our opportunity to consolidate stores. And what I mean by that is bring a freestanding pink store together with a freestanding VS store and have a combined location as the pink business has been challenged. Obviously, that challenges freestanding stores. And additionally, it just gives our team, Becky, and her team, an opportunity to really leverage and be more productive with the teams we have in place. So, bringing stores together, we're seeing footage go down 20 or 30%, and sales maintain. So, sales per square foot are much, much higher.

Another big win as it relates to sort of the future is our opportunity to consolidate stores from what I mean by that is bring a freestanding pink store together with a freestanding eds store to have a combined location.

As the Pink business has been challenged obviously that challenge as freestanding stores and.

And Additionally, it just gives our team Becky and her team an opportunity to really leverage.

And be more productive with the teams we have in place so bringing stores together, we're seeing footage go down 20 or 30% in sales maintained so sales per square foot are much much higher and then the last point that I mentioned.

TJ: And then the last point that I'll mention, just underline from Martin's comments on international shopping, getting to a store of the future format, that is, smaller square footage, easier to navigate, and easier to shop, has really opened up the doors in a big way to expanding and increasing the number of new stores we're adding on an international basis. So, it's a lower cost due for our partners and still as productive. So, a lot of key learnings.

Just underline for Martin's comments on international getting to a store of the future format that is smaller square footage easy.

Easier to navigate and easier to shop.

Has really opened up the doors in a big way to expanding and increasing the number of new stores, we're adding on an international basis. So it's a lower cost do for our partners and ever as productive so.

A lot of key learnings.

TJ: You know, as I think about new stores in the store of the future format, we've had very good success today in off mall, particularly in outlet centers. So, as we work to decrease our mall exposure in certain locations, or in certain markets where malls might be consolidating, we're finding off mall, particularly outlet center, with the new store of the future format is a very, very good fit for us. So, a lot of good learnings and very encouraging results will continue and store for the future. Thanks.

I think as I think about new stores.

In the store of the future format.

We've had very good success to date in off mall, particularly in outlet centers.

So as we work to decrease our mall exposure in certain locations or in certain markets where models might be consolidating.

Finding off mall, particularly outlet center with the new store of the future format is a very very good do for us so.

A lot of good learnings and very encouraging results continue in store of the future.

Thanks.

Matthew Robert Boss: Thank you. Our next question is from Matthew Boss with JP Morgan, and your line is open. Great, thanks.

Thank you.

Our next question now is from Matthew Boss with Jpmorgan. Your line is open.

Great. Thanks.

Martin P. Waters: So Martin, maybe on current initiatives, the initial customer response to Body by Victoria Brawl launch, and just the larger picture, if there is any way to elaborate on customers, early February. And then just for TJ, what supports your... What have you embedded for the promotional outlook? Great. Thanks, Matt.

Martin maybe on current initiatives could you speak to initial customer response to the recent body by Victoria Bra launch and just larger picture.

If any way to elaborate on customer trends like you saw in February early March and then just for T. J what supports your view for back half improvement in the intimates category or what have you embedded for the promotional outlook in the first versus the second half of the year.

Martin P. Waters: Thanks for the question. The Body by Victoria launch was our biggest and most successful bra launch in five years. So, we talked previously about LovePowd being a very big initiative for us. The BBV launch was even bigger and even better.

Great. Thanks, Matt. Thanks for the question, yes, the body by Victoria launch was our biggest and most successful bra launch in five years. So we've talked previously about <unk> being a very big initiative for us the BBB launch was even bigger and even better invisible lift.

Martin P. Waters: Invisible lift technology meets endless comfort and is very much on trend in terms of lighter, thinner memory pads. Plus, we have innovation in the unlined segment of our bra category. We also had a minimizer bra in that assortment, which is very innovative and has proved to be very successful, with a relatively low level of marketing customers finding it. Within BBB, we have expanded sizes and expanded skin tone coverage. And we've also seen success with the new Shimmer Panty that supported that launch. So, kind of across the franchise, we've seen strength, and we're very pleased with the performance of it. To your point about trends, it definitely supports trends for lighter, more comfortable bras. So we feel very pleased with that overall.

<unk>.

Endless conflict.

I'm very much on trend in terms of lighter than a memory.

Memory pads, plus we had innovation in the online segment of our Bra category. We also had a minimized.

Assortment, which is very innovative and has proved to be very successful and with relatively low level of marketing customers finding it.

We then BBB, we have expanded sizes and expanded skin tone coverage. When we are also seeing success with the new shimmy Shimmer penalty that supported that launch so kind of all across the franchise, we've seen strength and we're very pleased with the performance of Ed to your point about trends definitely supports trends for.

Light.

More comfort for us so we feel very pleased with that overall the challenge that we have is that while that bra launch has been very successful overall, we haven't been able to lift the overall bra business.

Martin P. Waters: The challenge that we have is that while that bra launch has been very successful overall, we haven't been able to lift the overall bra business. So finding a way to unlock great launches and, at the same time, maintain the level of sales across the rest of the bra franchise is where we're really, really focused. To your broader question about consumer trends, I think as we look at, say, the Valentine's Day period, what we would observe there is that we had more success with casual, flirty, comfort-driven merchandise than we did with the sort of traditionally overt, more sophisticated, overtly sexy, provocative merchandise. Whether that's a long-term permanent trend or just a short-term one remains to be seen. We feel appropriately covered on both of those dimensions.

So finding a way to unlock great launches and at the same time, maintaining the level of sale across the rest of the bra franchises, where we're really really focused on.

To your broader question about consumer trends I think as we look at say the Valentine's day period, what we would observe there is that we had more success with casual flaherty comfort.

Driven merchandise than we did with sort of traditionally over more sophisticated overtly sexy and provocative merchandise, whether that's a long term permanent trend or just a short term remains to be seen we feel appropriately covered on both of those dimensions as we've talked about before an important thing for the victory.

Martin P. Waters: As we talked about before, an important thing for the Victoria's brand is that we don't just show up as one way of being sexy, that we're sexy on her terms. And that means that we embrace all aspects of a woman's journey through life and provide better comfort and sports bras than anybody else in the market. So that's how I would respond to customer trends. TJ?

<unk> brand is that we don't just show up as one way of being sexy sexy on her terms and that means that we embrace all aspects of our women's journey through life provide better comfort and support for us than anybody else in the market.

So that's how I would respond to the customer trends T. J, Yeah, I think Additionally, Matt your question on February and early March.

TJ: Yeah, additionally, Matt, your question about February and early March in the first quarter: the basis for our guidance was really based on early results here in the first five weeks of the quarter. And what we really saw were characteristics that were very similar to the fourth quarter. We'll put aside the extra week for a moment. But characteristics that were very similar to the fourth quarter on the top line, but we were getting there a little bit differently. So in the fourth quarter, where traffic in our stores and mall traffic was much better than earlier in the year, and conversion was a little bit lighter, we move into the first quarter, and really, mall traffic and our store traffic are more challenged than it was last year, and conversion is relatively flat.

In the first quarter, what the basis for our guidance was really based on early.

Results here in the first five weeks of the quarter and what we really saw was.

Characteristics that were very similar to the fourth quarter.

Aside the extra week for a moment the characteristics that were very similar to the fourth quarter on the top line, but we're getting there a little bit differently. So in the fourth quarter, where traffic in our stores and mall traffic.

Was much better than earlier in the year.

And conversion was a little bit lighter, we move into first quarter and really mall traffic in our store traffic is more challenged and is down to last year and conversion.

As relatively flat so it's producing a similar outcome on the topline.

TJ: So it's producing a similar outcome on the top line. Certainly, the key metrics are behaving a little bit differently here in the early part of Q1 relative to the holiday. The holiday is just a much different proposition for us and for our customers. The second part or maybe third part of your question around assumptions on going forward, we did make an assumption that the intimates market would continue to be difficult in spring. We made the assumption that it would stabilize, not improve, but stabilize as we move into fall.

Certain of the key metrics are behaving a little bit differently here in the early part of Q1 relative to holiday holidays, just a much different proposition for us and for our customers.

The second part maybe third part of your question around assumption on on go forward.

We did make an assumption that the intimates market will continue to be difficult in spring.

We made an assumption that it would stabilize not improve but stabilize as we move into fall.

TJ: So that's a market assumption inside the box in terms of what we're doing differently to try to get a different outcome. As we mentioned in earlier remarks, some of the new merchandising strategies that Greg spoke about at the investor day will be more in full flight in the fall season. And that includes sport, and that includes sport bras.

So that's the market assumption inside the box in terms of what we're doing differently to try to get a different outcome. As we mentioned in earlier remarks, some of the new merchandising strategies that that Greg spoke to at the Investor day will be more in full flight in the fall season and that includes <unk>.

That includes sport bras.

TJ: As we've talked about on a number of occasions, the market is growing for sport, and we're under penetrated. The market for sport as it relates to overall bra sales is in the range of about 30%, and it's not 30% in our stores. So as we move towards a similar market representation of products and go after the sport business, we think that ought to help in the intimates category as well. And that's, again, newness in the back half of the year.

As we've talked about on a number of occasions.

Market.

<unk> is growing and sport and we're underpenetrated.

The market for sport as it relates to overall <unk> is in the range of about 30% and it's not 30% in our stores so as we move towards.

<unk>.

Similar market representation of product and go after the sport business.

We think that ought to help in the instruments category as well and Thats.

Again newness in the back half of the year so.

TJ: So there are things we're doing that hopefully will change the trend in the intimates performance, and we are assuming at some point a stabilization, and we picked fall for that stabilization in our guidance assumption. So when you work through the overall model, what you kind of get from a top line perspective, you got down mid singles here in the first quarter, and you've got down low singles for the year. So it's not as if we have a significant hockey stick, but we are assuming some level of stabilization in the back half of the year. Thank you. Now, our next question is from Marni Shapiro with Retail Tracker. And your line is open, ma'am. Hey, everybody.

There are things, we're doing that hopefully change the trend.

In the intimates performance and we are assuming at some point of stabilization and we picked fall.

For that stabilization in our guidance assumptions so.

When you work through the overall model, what you kind of get from a topline perspective, you got down mid singles here in the first quarter and you've got down low singles for the year. So it's not as if we.

We have a significant hockey stick, but we are assuming some level of stabilization in the back half of the year.

Great color best of luck.

Yes.

Thank you and our next question is from Marni Shapiro with retail tracker and your line is open ma'am.

Marni Shapiro: You know, just touching on this whole notion of sales, because it sounds like the goal here for 24 is to drive sales. Martin, can you touch on a little bit some of the new products like Fun and Flirty, like Wynk, like Body by Victoria? I know they're newer this year, but are they driving traffic to the stores?

Body.

Just touching on this whole sales now since it sounds like the goal here for 'twenty four is to drive sales.

Can you touch on a little bit some of the new products like funding clarity like wink like body by Victoria.

No they're new we're this year, but are they driving traffic to the stores and are they driving sales.

Martin P. Waters: And are they driving sales? And it sounds a little bit like even as some of the new stuff is selling, it's not driving the rest of the store. Did we hear that right?

And it sounds a little bit like even if some of the new stuff is selling its not driving the rest of the store did we hear that right and then I noticed in a couple of stores that you have a door mi in the Victoria's secret stores could you talk a little bit about the strategy there as well.

Martin P. Waters: And then I noticed in a couple of stores that you have Dormy in the Victoria's Secret stores. Could you talk a little bit about the strategy there as well? Hi Marni, thank you for the question and thank you for noticing the newness that there is in store. You know, when our brand is at its best, we have abundant newness. We have newness across every category. That's what drives the business, and so over the last few years, we've been putting in place an innovation pipeline to get back to having multiple bra launches per year. The BBV bra launch was probably the most important because it's our biggest bra franchise and it was overdue for an overhaul. In fact, all of our bra franchises need an overhaul.

Hi, Martin Thank you for the question and thank you for noticing the newness that there isn't.

When the Outback brand is at our best we have abundant newness, we have newness across every category, that's what drives the business and so over the last few years, we've been putting in place an innovation pipeline to get back to having multiple bra launches per year BBB bra launch was probably the most important because it's our biggest bra.

And it was overdue and overhaul all of our bra franchises need an overhaul.

Martin P. Waters: You know, we have to be continually renewing and refreshing. The good news is, and you hinted at it, that when we do that, the customer notices. So BBV, the biggest and best launch we've had in over five years. The Wynk bra, customers notice, you know, immediate impact. The pink seamless there, they notice.

Have to be continually renewing and refreshing. The good news is and you hinted at it but when we do that the customer notices so BBB biggest and best launch we've had in over five years, the wink bra customers notice.

Immediate impact the pink seamless and noticed the featherweight Maxx sports bra notice. So yes, the customer finds the new product tend to appreciate as the new product in our stores feedback channel tells us straightaway when she sees it.

Martin P. Waters: The Featherweight Max sports bra, notice. So yes, the customer finds the new product and appreciates the new product, and our store's feedback channel tells us straight away when she sees it. The challenge is we've got to get more people into the franchise overall, so that means more relevant marketing. It means targeting our spend to get new people into the file, and the good news for us is one of the key ways that we have to do that is the loyalty program. Our loyalty program is now up to 26 million people, more than 26 million people. That enables us to be much more surgical in the way that we target so that we can point the appropriate products at the appropriate people.

The challenge is we've got to get more people into the franchise overall, so that means more relevant marketing it means targeting our spend to get new people into the file and the good news for US is one of the key ways that we have to do that as the loyalty program. Although two programs now up to 26 million people over 26 million people.

That enables us to be much more surgical in the way that we target. So that we can point the appropriate products that the appropriate people.

Martin P. Waters: And that means just, you know, a more structured marketing investment, a more targeted marketing investment. So I think there are significant reasons to be cheerful that when we develop the new products that you've referenced and others, and we have lots more in the pipeline, we can market them to the right audience in an effective way. You have a real eagle eye for spotting what's going on in stores because we have Adore Me in just five stores out of 850. And we have about three cabinets in those stores. As the owner of the Adore Me brand, and we're very, very proud to be the owner of that brand, it's important that we test every aspect of how the consumer responds to the brand.

And that means just a more structured marketing investment and more targeted marketing investments. So I think there is significant reasons to be careful when we develop the new products that you've referenced and others. We have lots more in the pipeline that we can market them to the right audience and an effective way.

You have a real eagleye for supporting what's going on in stores, because we have a domain just five stores of eight.

850.

Sorry.

We have about three cabinets.

And those stores as the owner of the <unk> brand and we're very very proud to be the owner of that Brian. It's important that we test every aspect of how the consumer responds to the brand.

Martin P. Waters: You know, the brand is growing. It grew in the fourth quarter. It grew for the full year.

The brand is being growth it grew in the fourth quarter. It grows in the full year, it's well positioned for 2020 for that and Pete marketing right now building that file for the balance of year, both across the demand daily load and Adobe continues to expand into new channels of distribution through wholesale and license and so on.

Martin P. Waters: It's well positioned for 2024. They're in peak marketing right now, building their file for the balance of the year, both across Adore Me and Daily Look. And Adore Me continues to expand into new channels of distribution through wholesale and license, and so on. And they're doing, you know, really, really cool work. I don't know if you saw their fashion show, which was a great success, embracing inclusivity and diversity. It was the only fashion show event in New York Fashion Week that had shoppable online content.

And they're doing really really cool work I don't know if you saw that fashion show.

Which was a great success, embracing inclusivity and diversity, whereas they only fashion show event in New York fashion week that had shopped online content. So doing some really cool stuff supported by Gen AI and that brand being part of our stores business is not the main thing at all that is a digital business, but as the owner of the business It makes sense.

Martin P. Waters: So, you know, doing some really cool stuff supported by Gen AI in that brand. Being part of our stores business is not the main thing at all. That is a digital business. But as the owner of the business, it makes sense that we test every possible way in which our customers will interact with it. So don't expect to see an enormous amount more of Adore Me in stores, but do expect us to continue to mine for opportunity to work that brand as hard as we possibly can to embrace it as part of our family of brands going forward. And can I ask one more follow-up question on bras? There's a broad trend bubbling up that, you know, bras are actually coming back in style. Push-up bras are actually coming back in style, not the way they were, you know, back in the day.

We test debris.

Very possible way in which our customer will interact with it so don't expect to see an enormous amount more of a domain and stores, but do expect us to continue to mine for opportunity to work that Brian as hard as we possibly can to embrace that as part of our family of brands going forward.

I ask one more follow up on Baas.

There is a broad trend bubbling up that.

<unk> are actually coming back in style push up bras are actually coming back in style not the way they were.

Back in the day.

Martin P. Waters: But what could this mean for your brand? Because it feels like if this trend continues to bubble up, it could be pretty significant for you guys, because bras have been out of style for a couple of years now. Yeah, I mean, look, if you think about what the different trends for bras have been over the years, the one that we would like to see come back the most and the strongest would be the push-up bra because we dominate that part of the market. Our share of the push-up bra is significantly higher than it is in unlined or in sport or in any other aspect of bras.

But what could this mean for your brand because it feels like if this trend continues to pop a lot that can be pretty significant for you guys. Because Pos have been out of style for a couple of years now.

Yeah, I mean look if you think about what the different trends that <unk> been over the years. The one that we would like to come back.

And the strongest would be the push up bra, because we dominate that part of the market our share and push up is significantly higher than it is an online or in store or any other aspects of <unk>. So yes that would be great I don't see that as a structural change right now in the data that I'm looking at but from your lips to God's ears, if that is a trend we will be.

Martin P. Waters: So yes, that would be great. I don't see that as a structural change right now in the data that I'm looking at. But from your lips to God's ears, if that is a trend, we'll be very, very well positioned to take advantage of it, Marnie. Okay, great.

Very very well positioned to take advantage of that money, okay. Great. Thanks, guys.

Warren Chang: Thanks, guys. Thank you. Our next question is from Warren Chang with Evercore ISI. Sir, your line is open. Hey, good morning.

Thank you. Our next question now is from Warren Cheng with Evercore ISI, Sir Your line is open.

Hey, good morning, I just wanted to see you guys can walk us through the shaping of the gross margin through the year.

TJ: I was wondering if you guys could walk us through the shaping of the gross margin through the year a little bit in a little more detail. It sounds like leverage picks up a little bit in the second half. I think you said promotions will be higher in the first quarter. I know there's some moving pieces with cost savings, but maybe if you could contextualize for us the drivers this year and any call outs on shaping. Yeah, Oren, this is TJ.

A little more detail it sounds like leverage ticks up a little bit in the second half I think you said promotions will be higher in the first quarter.

There are some moving pieces with cost savings, but maybe if you can contextualize for us the drivers this year and any thoughts on shaping.

Yes.

This is T J F.

TJ: I'll do my best there. So, I think at a very high level, you know, we would expect the margin rate to be up for the year, largely driven by the cost, and the initiatives that we have in place as far as transforming the foundation. Additionally, here in the early part of the year, we continue to see favorability from a transportation standpoint, so transportation rates that are embedded in our inventory are lower year over year, so that's a net positive. On the flip side, as Martin mentioned, we are seeing slightly more promotional activity here in the early part of the year. So those are the key elements from a margin perspective, and then the last one would be B&OD leverage, which is really going to follow sales.

I will do my best there so I think that is.

At a very high level.

We would expect the margin rate to be up for the year largely driven by the cost of goods sold initiatives that we have in place as part of the transform the foundation.

Additionally, here in the early part of the year, we continue to see favorability.

Favorability from a transportation standpoint, so transportation rates that are embedded in our inventory are lower year over year. So that's a net positive.

On the flip side as Martin mentioned, we are seeing slightly more promotional activity here in the front part of the year. So those are the I would say the key elements from a margin perspective, and then the last one would be.

Deleverage, which is really going to kind of follow sales. So if you think about how we just talked about the sales trend or what's the embedded sales trend is for the year.

TJ: So if you think about how we just talked about the sales trend or what the embedded sales trend is for the year, I would expect us to have a cost of goods sold initiative benefit throughout the majority of the year, especially the first three quarters. When we get to the fourth quarter, we start the anniversary of what just happened in this most recent fourth quarter, so it's more present in the first three quarters of the year.

I would expect us to have cost of goods sold initiative benefit throughout the majority of the year, especially the first three quarters when we get to the fourth quarter, we start to anniversary what just happened in this most recent fourth quarter. So.

It's more more present in the first three quarters of the year that transportation opportunity. We still think is available to us in first quarter and potentially second.

TJ: The transportation opportunity, we still think, is available to us in the first quarter and potentially the second. We don't necessarily have a crystal ball on where transportation rates will go in the back half of the year, so that benefit likely impacts spring in a positive way. From a promotional standpoint, Martin mentioned, we do expect to be a little more promotional than last year here in the first quarter. As we move through the year, if our assumptions are correct and the intimates market stabilizes, hopefully, that promotional need will abate a little bit. And then, as I mentioned, B&O will track where sales are going and what sales trends look like. So, down mid-single digits here in the first quarter, down low single digits for the year or slightly better as we move through Q2, Q3, and Q4. So that's kind of how I would think about the key drivers.

We don't necessarily have a crystal ball on where transportation rates will go in the back half of the year, so that benefit likely impacts spring in a positive way from a promotional standpoint.

Martin mentioned, we do expect to be a little more promotional than last year here in the first quarter as we move through the year, if our assumptions are correct.

The intimates market stabilizes, hopefully that promotional needs abates, a little bit.

And then as I mentioned, P&L track, where sales are going and what sales trends look like so down mid single digits here in the first quarter down low singles for the year or slightly better as we move through Q2, three and four.

So that's kind of how I would think about the key drivers.

TJ: I do think there's an opportunity for the margin rate just in total, obviously, to be up in the first quarter and potentially up in the second and third. We had a very strong gross margin performance in the fourth quarter that we just came across. So I think an anniversary in that might be a little bit more challenging, but we'll see what we can do when we get there.

Do think there is an opportunity for the margin rate just in total obviously to be up in the first quarter.

And potentially up in the second and third we had a very strong gross margin performance in the fourth quarter that we just came across.

So I think we're anniversarying that might be a little bit more challenging but.

We'll see what we can do when we get there so feel.

Warren Chang: So I feel very good about the gross margin opportunity, again, on lower sales based on how the teams are managing inventories in our stores and our distribution. Thanks, and I just wanted to clarify an earlier comment on the impact of the CFPB ruling. It sounds like you're saying the late fees don't flow directly into the P&L. I wanted to clarify whether they flow indirectly, or are you saying it's just not an input share or credit share in the range?

Feel very good about the gross margin opportunity again on lower sales.

Based on how the teams are managing.

Inventories in our stores and our distribution centers.

Thanks, Dan I think we're just wanted to.

Clarifying earlier comment on the impact of the CFPB ruling it sounds like Youre, saying the late fees don't flow directly into the P&L I wanted to clarify whether they flow indirectly or are you seeing.

Inputs, you're kind of sharing arrangement.

TJ: not an input to our P&L. That's something that is between our provider and the customer. Thanks. Good luck. Great. Thanks, Warren. Fran, I think we have time for one more question. Then our final question today is from Mauricio Serna with UBS, and your line is open. Greg, good morning.

It's not an input to our P&L.

That's something that is between our our provider and the customer.

Thanks, Good luck.

Great. Thanks, Warren Fran I think we have time for one more question then.

And our final today is from Marcio Serna with UBS. Your line is open.

Great. Good morning, Thanks for taking my question.

Mauricio Serna Vega: Thanks for taking my question. You wanted to ask about, you know, the operating margin outlook. Maybe you could help us reconcile on SG&A. As you were mentioning earlier in the call, I think you called out, you know, first quarter, it seems that SG&A dollars are up like $10-15 million year-over-year in Q1, which is roughly like 2-3%. Just wondering if that should be, like, the run rate we should assume for the rest of the year, you know, excluding the impact of the additional week, you know, in Q4. Just wanted to get more sense. And, like, is that increase, like, what kind of increase is that coming from? Is it technology, or marketing? What would be, like, the building blocks for that?

Want to ask about.

The operating margin outlook, maybe if you could help us reconcile on the SG&A. Okay. As you were mentioning earlier in the call I think you called out.

First quarter. It seems that SG&A dollars are up $50 million year over year in Q1, which is roughly like 2% to 3% I was just wondering if that should be the run rate, we should assume for the rest of the year excluding.

The impact of the additional week.

On Q4, just wanted to get more sense.

Is that increase like what kind of like where is that coming promising technology.

Getting what would be like the <unk>.

Building blocks for that thank you.

TJ: Thank you. Yeah, we're not breaking down Q2, 3, and 4 by line item at this point, Mauricio, so I can't really help you too much further than what we've done.

Yes.

We're not breaking down Q2, three four at the line item at this point, where you see us I can't really help you too much further than what we've done other than to say.

TJ: Other than to say, you know, expense hours being up slightly here in the first quarter is really being driven by, you know, two or three things. I think, you know, first off, we're continuing to lean into investing in technology and customer experience initiatives that were talked about at Investor Day. I think the second piece that Martin referred to a moment ago, we are seeing some timing on marketing spend principally at our dormy business to grow the file and grow sales over the entirety of the year. We will still have some level of merit pressure across our, you know, 800 plus stores and distribution centers and 25,000 associates or more. So, there are some levels of merit pressures. So, I think on a base of, you know, roughly $450 million or so in the prior year, slightly up, we think it is managing the business pretty tightly in a difficult environment. So, I feel very good that the team is able to accomplish, you know, an SG&A leverage point in that 1% to 2% range throughout on an annual basis for the year.

Expense hours being up slightly here in the first quarter.

It's really being driven by.

Two or three things I think first off we're continuing to lean into investing in.

In technology.

And customer experience initiatives that were talked about at the Investor Day, I think the second piece that Martin referred to a moment ago.

We are seeing some timing on marketing spend principally at our dorm business to grow the file and gross sales over the entirety of the year.

We will still have some level of merit pressure.

Across our 800 plus stores and distribution centers in 25000 associates are more so there are some some level of pressure. So I think on a base of.

Roughly 450.

<unk> 50 million or so in the prior year.

Being up slightly we think is managing the business pretty tightly.

In a difficult environment so.

We feel very good that the team was able to accomplish.

And SG&A leverage point in that 1% to 2% range throughout.

On an annual basis.

TJ: Thank you very much. Okay, thanks, everyone. Appreciate the time today. Have a great day. Thanks, everybody. Thank you. We are now concluded. Again, thank you very much for your participation. Please disconnect at this time.

For the year.

Okay.

Got it thank you very much thanks.

Yes.

Okay. Thanks, everyone I appreciate the time today.

Have a great day, thanks, everybody. Thank you.

We are now concluded again, thank you very much for your participation. Please disconnect at this time and have a great day.

Yeah.