Q2 2024 Victoria's Secret & Co Earnings Call
Amanda: Good morning, my name is Amanda and I will be your conference operator today. At this time, I'd like to welcome everyone to the Victoria's Secret in Companies Second Quarter, 2024 earnings conference call. Please be advised that today's conference is being recorded. All parties will remain in a listen-only mode.
Amanda: I would now like to turn the conference over to Mr. Kevin Wynk, Vice President of External Financial Reporting and Investor Relations, A Victoria's Secret and Company. Kevin, you may begin.
Kevin Wynk: Thank you, Amanda. Good morning and welcome to Victoria's Secret in Company's second quarter earnings conference call for the period ended August 3, 2024.
Speaker Change: As a matter of formality, it 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 findings and in our press releases.
Speaker Change: Joining me on the call today is CFO and interim CEO Tim Johnson. We are available today for up to 45 minutes to answer any questions.
Speaker Change: Certain results we discussed on the call today are adjusted results and exclude the impact of certain items described in our press releases and RCC filings.
Speaker Change: Reconciliation of these and other not-got measures to the most comparable got measures are included in our press release, our RCC filings in the investor presentation posted on the investor section of our website.
Speaker Change: Thanks, and now I'll turn the call over to TJ.
TJ: Thanks, Kevin, and good morning, everyone.
TJ: I'm pleased to report that second quarter results exceeded or met our expectations for the quarter on all key financial metrics and we delivered year over year quarterly operating income growth for the first time since 2021.
Speaker Change: We were encouraged by the continued sequential improvement in quarterly sales results in North America for the fourth consecutive quarter as sales trends improved in both our stores and our digital channels.
Speaker Change: Our customers responded in new merchandise deliveries in events with particularly success in the launch of our Victoria's Secret Dream Brock Collection.
Speaker Change: in a peril with our Pink Friday back to campus event in late July and through consistent steady improvement of VS4 as we introduced the Featherweight Max Front Close Braw and a broader assortment of merchandise flowed to stores in digital.
Speaker Change: Sales for the second quarter, 2024, will 1.4 billion a decrease of 1% to last year and it's a better end of our expectations for the quarter.
Speaker Change: In North America, the improvement in sales trends was evident in both our stores and in our digital businesses.
Speaker Change: Momentum experienced that the end of 1st quarter in April continued into the month of May.
Speaker Change: As anticipated sales performance during our semi-annual sale period in the June timeframe was lower than last year, driven by fewer units on sale, particularly in Think the Parallel.
Speaker Change: We saw strength in July driven by the introduction of product newness with Victoria Secret Dream Brock Elections in a peril with our Pink Friday back to campus event in consistent steady growth of ES sport.
Speaker Change: From a source perspective, we experienced improvement in traffic, which outperformed the balance of the mall for the quarter, and with meaningful outperformance in late July, during Pink Friday.
Speaker Change: In terms of our digital business, traffic levels improved in the quarter and were up compared to the second quarter last year, while conversion was down in the quarter, in particular during the semi-annual sale period, when year over year we had fewer units on sale and our digital channels.
Speaker Change: From a market perspective, third-party market data indicates the sales trend in the overall intimate market in North America got a little bit softer in the second quarter than what was reported in the first quarter.
Speaker Change: are combined Victoria's Secret and thank market share in the Intemans category remained at 20%.
Speaker Change: We were encouraged to see our digital markets here increase in both broads and panties along with an overall increase in our sports broad market share for the second consecutive quarter.
Operator: Operator today. At this time I'd like to welcome everyone to the Victoria's Secreting Company's second quarter, 2024 earnings conference call. Please be advised that today's conference is being recorded. All parties will remain in a listen-only mode.
Speaker Change: This was partially offset by his flight decrease in market share in the store's channel, where value or low price points appear to be gaining share.
Speaker Change: From a merchandise category perspective for Victoria's Secret, our beauty business continues to be our best performing category with year over year growth for the fourth consecutive quarter.
Kevin Wynk: I would now like to turn the conference over to Mr. Kevin Wynk, Vice President of External Financial Reporting and Investor Relations of Victoria's Secreting Company. Kevin, you may begin. Thank you, Amanda.
Speaker Change: followed by strong acceptance of VS Sport as merchandise available for sale groomed throughout the quarter in anticipation of an important event in Q3.
Kevin Wynk: Good morning and welcome to Victoria's Secreting Company's second quarter earnings conference call for the period ended August 3rd, 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.
Speaker Change: in bras and panties, newness and innovation sold well and several older legacy styles were accident or downtrended during the spring season.
Speaker Change: Pinks sales trend overall improved in the quarter, both in total and in most major categories.
Kevin Wynk: Joining me on the call today is CFO and Interim CEO 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 releases and our SEC filings. Reconciliation of these and other not-gap measures to the most comparable gap measures are included in our press release, our SEC filings, and the investor presentation posted on the investor section of our website.
Speaker Change: Specifically in a peril, we were encouraged by the improving customer response to product-neunists during our Pink Friday back-to-campus event in late July as we ended the quarter.
Speaker Change: This strength continued into August to start the third quarter as the back-to-campus event continued in stores and online.
Speaker Change: In addition to improving trends for Victoria's Secret and Pink, we experienced sales growth in the high-single digits for both our international business and a dormitory.
Tim Johnson: Thanks and now I'll turn the call over to TJ. Thanks Kevin and good morning everyone. I'm pleased to report that second quarter results exceeded or met our expectations for the quarter on all key financial metrics and we delivered year-over-year quarterly operating income growth for the first time since 2021. We were encouraged by the continued sequential improvement in quarterly sales results in North America for the fourth consecutive quarter as sales trends improved in both our stores and our digital channels.
Speaker Change: International sales in the second quarter, we're driven by year over year growth with our franchise and travel retail partners.
Speaker Change: are performance with our partner next who is also strong in the UK and we grew profitability in China, where our top line trends were challenged by the overall market and economics offness in the country.
Speaker Change: We're optimistic about sales, profit, and growth opportunities for all of our partners around the world.
Tim Johnson: Our customers responded to new merchandise deliveries and events with particularly success in the launch of our Victoria's Secret Dream Brawl Collection in apparel with our pink Friday back to campus event in late July and through consistent steady improvement of VS4 as we introduce the Featherweight Max front closed brawl in a broader assortment of merchandise flowed to stores and digital. Sales for the second quarter 2024 will 1.4 billion a decrease of 1% to last year and at the better end of our expectations for the quarter.
Speaker Change: The retail environment in North America was challenging and the promotional environment remains competitive, but improving product acceptance and disciplined inventory management led to a domestic gross margin dollar growth.
Speaker Change: and 80 basis points of adjusted gross margin rate expansion year over year in the quarter.
Speaker Change: A just to this, you need dollars were down in the quarter, leveraging 20 basis points compared to last year and coming in better than our guidance due to discipline and proactive expense management initiatives to drive incremental efficiency within our operating model.
Tim Johnson: In North America the improvement in sales trends was evident in both our stores and in our digital businesses. Momentum experience at the end of first quarter in April continued into the month of May as anticipated sales performance during our semi annual sale period in the June timeframe was lower than last year driven by fewer units on sale particularly in pink apparel. We saw strength in July driven by the introduction of product newness with Victoria's Secret Dream Brawl Collection in apparel with our pink Friday back to campus event and consistent steady growth of VS4.
Speaker Change: You may recall at our investor day we committed to transforming the foundations of our company and established a $250 million dollar three year goal and we're on track to exceed that goal.
Speaker Change: I believe we have demonstrated our commitment to focusing on efficiencies within our model and improving the cost structure of our business.
Speaker Change: Aside from the financials over the last 90 days, we've executed several key actions in support of our strategy and brand positioning for the long term.
Tim Johnson: From a stores perspective we experienced improvement in traffic which outperformed the balance of the mall for the quarter and with meaningful outperformance in late July during pink Friday. In terms of our digital business traffic levels improved in the quarter and were up compared to the second quarter last year while conversion was down in the quarter in particular during the semi annual sale period when year over year we had fewer units on sale in our digital channels.
Speaker Change: including in July, we introduced newness with the launch of the Victoria Secret Dream Collection, a collection of bras, panties, and sexy sleeves that combines the ultimate experience and beauty in everyday comfort.
Speaker Change: Also in July, we added a new style to our top-selling sports row with the launch of the Featherweight Max Front Closed for maximum support meets maximum comforts now with an easy zip front closure.
Tim Johnson: From a market perspective, third-party market data indicates the sales trend in the overall intimance market in North America got a little bit softer in the second quarter than what was reported in the first quarter. Our combined Victoria's Secret and Pink market share in the intimance category remained at 20%. We were encouraged to see our digital market share increase in both bras and panties, along with an overall increase in our sports bra market share for the second consecutive quarter.
Speaker Change: Additionally, within the VS Frame, we launch the T-Sugar Floor, Beauty Collection, a limited edition version of our fan-favorite T-s.
Speaker Change: We continue to create meaningful and medmobile connections with our customers, including the return of Pink Friday the last weekend of July as our collegiate customers get ready to head back to campus, and with the celebration of National Underwear Day in early August.
Speaker Change: You may have heard the Victoria Secret Fashion Show is returning on October 15th in New York City.
Speaker Change: with an amazing cast of talented women.
Tim Johnson: This was partially asked that by a slight decrease in market share in the stores channel, where value or low price points appear to be gaining share. From a merchandise category perspective for Victoria's Secret, our beauty business continues to be our best performing category with year over year growth for the fourth consecutive quarter, followed by strong acceptance of VS Sport as merchandise available for sale grew throughout the quarter in anticipation of an important event in Q3.
Speaker Change: The show's return will deliver precisely what our customers have been asking for. Glamour, runway, fashion, fun, wings, entertainment, all through a powerful, modern lens reflecting who we are today.
Speaker Change: and we continue to further develop our understanding of our Victoria Secret and Pink customer through our multi-tender loyalty program, which has now been active for just over a year.
Speaker Change: We have 32 million members who drive about 80% of our sales on a weekly basis.
Tim Johnson: In bras and panties, newness and innovation sold well and several older legacy styles were exited or downtrended during the spring season. Pink's sales trend overall improved in the quarter, both in total and in most major categories. Specifically in apparel, we were encouraged by the improving customer response to product newness during our Pink Friday back-to-campus event in late July as we ended the quarter. This strength continued into August to start the third quarter as the back-to-campus event continued in stores and online.
Speaker Change: Through insights and data, we are focused on turning our understanding of our customers into world-class seamless customer experiences.
Speaker Change: As we look forward, we're encouraged or North America business trends have continued to improve as we've moved through August and the start of the third quarter.
Speaker Change: Early customer feedback on follow-sortments is encouraging for both the Victoria's Secret and Pink Brands and our beauty business has continued solid performance in his driving traffic to our stores.
Tim Johnson: In addition to improving trends for Victoria's Secret and Pink, we experienced sales growth in the high single digits for both our international business and adorning. International sales in the second quarter were driven by year over year growth with our franchise and travel retail partners. Our performance with our partner next was also strong in the UK, and we grew profitability in China, where our top line trends were challenged by the overall market and economic softness in the country.
Speaker Change: strategically, we have several exciting events planned for the balance of third quarter, including a major VFX sport launch in the return of our Victoria Secret Fashion Show to kick off the all-important holiday season.
Speaker Change: While we're optimistic about the positive signs we're seeing in our business
Speaker Change: We recognize the consumer environment remains challenging and our customer is pressured economically.
Speaker Change: We remain focused on what we can control, which is leveraging our market position in instruments and delivering our multiple initiatives to drive growth in our business over the longer term.
Tim Johnson: We're optimistic about sales, profit and growth opportunities for all of our partners around the world. The retail environment in North America was challenging and the promotional environment remains competitive, but improving product acceptance and disciplined inventory management led to adjusted gross margin dollar growth and 80 basis points of adjusted gross margin rate expansion year over year in the quarter. Adjusted SGN $8 were down in the quarter, leveraging 20 basis points compared to last year, and coming in better than our guidance due to discipline and proactive expense management initiatives to drive incremental efficiency within our operating model.
Speaker Change: Today, for a fiscal 2024, we're raising our financial forecast to reflect Q2 and spring out performance to our original expectations, and also some level of modest improvement in our fall assumptions.
Speaker Change: For the year, we now expect sales to be down approximately 1%, to a comparative 52 weeks from fiscal 2023, comparative prior guidance of download single digits.
Speaker Change: This forecast reflects sequential improvement in North America, along with continuous strengthened our international business, and tracks in line with a positive trajectory we've been discussing throughout 2024.
Tim Johnson: You may recall that our investor day, we committed to transforming the foundation of our company and established a $250 million three-year goal, and we were on track to exceed that goal. I believe we have demonstrated our commitment to focusing on efficiencies within our model and improving the cost structure of our business. Aside from the financials over the last 90 days, we've executed several key actions in support of our strategy and brand positioning for the long term, including in July we introduced newness with the launch of the Victoria's Secret Dream collection, a collection of bras, panties and sexy sleep that combines the ultimate experience and beauty and everyday comfort.
Speaker Change: At this forecast at level of sales, we expect our adjusted operating income in 2024 to be about 275 to 300 million, compared to prior guidance of 275 million.
Speaker Change: We also now forecast our adjusted free cash flow in 2024 to be approximately 225 million compared to prior guidance of 175 to 200 million.
Speaker Change: For the third quarter of 2024, we're forecasting sales to increase, most single digits compared to sales in the third quarter last year, and at this level of sales, we're forecasting a third quarter adjusted operating loss in the range of 40 to 60 million dollars.
Tim Johnson: Also in July we added a new style to our top selling sports brawl with the launch of the Featherweight Max front clothes for maximum support meets maximum comfort, now with an easy zip front closure. Additionally within the VS brand, we launched the Tees Sugar Flour Beauty collection, a limited edition version of our fan favorite Tees. We continue to create meaningful and memorable connections with our customers, including the return of Pink Friday, the last weekend of July, as our collegiate customers get ready to head back to campus and with the celebration of National Underwear Day in early August.
Speaker Change: And finally, we're sure you also are recent announcement regarding the appointment of Hillary Super as our next CEO, effective September 9.
Speaker Change: And once again, we want to thank Martin for his time with the company and his support and we're excited for Hillary to take us into our next chapter.
Speaker Change: Thank you, that concludes our prepared comments and at this time we'd be happy to take any questions.
Speaker Change: Thank you ladies and gentlemen if you wish to ask a question please press star 1 and record your name clearly when prompted
Speaker Change: to withdraw your question at any time you may press star then too. As a reminder, as we ask each participant to limit themselves to one question and one follow and one follow up for ample time to respond to each participant that may wish to participate in this portion of the call.
Tim Johnson: You may have heard the Victoria's Secret Fashion Show is returning on October 15th in New York City, with an amazing cast of talented women. The show's return will deliver precisely what our customers have been asking for, glamour, runway, fashion, fun, wings, entertainment, all through a powerful modern lens reflecting who we are today. And we continue to further develop our understanding of our Victoria's Secret and Pink customer through our multi tender loyalty program, which has now been active for just over a year.
Speaker Change: Our first question comes from the line of Ike Borchau, which whilst fargo, your line is open.
Ike Borchau: Hey, good morning to you Jake and we're out on the results. To make two from me, just first real quick on the model, you talked about international uppicing goals, found bigger confident that can you just tell us what you're expecting from the international segment in the back after the year.
Tim Johnson: We have 32 million members who drive about 80% of our sales on a weekly basis. Through insights and data, we are focused on turning our understanding of our customers into world class seamless customer experiences. As we look forward, we're encouraged our North America business trends have continued to improve as we've moved through August and the start of the third quarter. Early customer feedback on fall assortment is encouraging for both the Victoria's Secret and Pink brands and our beauty business has continued solid performance and is driving traffic to our stores.
Speaker Change: and then could you just elaborate further on the promo environment that you're seeing and what you're basically baking into your plan. A most curious, what kind of promo slash gross margin outlook you can maybe share with us for the fourth quarter specifically. Thanks.
Speaker Change: Hmm
Speaker Change: Thanks for the question, I'm your first off, we're okay.
Speaker Change: continued to be very, very excited about her.
Speaker Change: International Business really all around the world.
Speaker Change: As I mentioned in the prepared remarks, both the travel retail.
Speaker Change: As well as franchise businesses, we're this strongest in second quarter. We continue to do very well with our partners in the UK.
Speaker Change: and the one area of the international business that's often a bit is in China, which is, I don't think, unique to our business. There does appear to be a more pressure to consumer there in that country at the moment.
Tim Johnson: Strategically, we have several exciting events planned for the balance of third quarter, including a major VFX sport launch in the return of our Victoria's Secret Fashion Show to kick off the all important holiday season. While we're optimistic about the positive signs we're seeing in our business, we recognize the consumer environment remains challenging and our customer is pressured economically. We remain focused on what we can control, which is leveraging our market position in intimates and delivering on multiple initiatives to drive growth in our business over the longer term.
Speaker Change: As we look forward, I will expect more of the saying from our travel retail and franchise partners.
Speaker Change: in the third quarter, as well as our partners in the UK. I do think there's some timing on promotional events.
Speaker Change: in China and some events that are more national and nature from a e-commerce perspective that will likely get pulled into third quarter because the calendarships, so third quarter for our international business might be a little bit better than fourth, but I think that's largely due to calendarships in and around the China business.
Tim Johnson: Today, for fiscal 2024, we are raising our financial forecast to reflect Q2 and spring outperformance to our original expectations and also some level of modest improvement in our fall assumptions. For the year, we now expect sales to be down approximately 1% to a comparative 52 weeks from fiscal 2023, comparative prior guidance of download single digits. This forecast reflects sequential improvement in North America along with continuous strength in our international business and tracks in line with the positive trajectory we've been discussing throughout 2024.
Speaker Change: From a promo perspective, as we look at third quarter and fourth quarter, our guidance assumes much of the same that we've incurred here in the front half of the year. We do think it will continue to be promotional.
Speaker Change: were prepared to be more promotional if need be in the 3rd and 4th quarter to drive our outcomes.
Speaker Change: I think what the business has gotten much, much sharper with
Speaker Change: is utilizing key areas of business, I mentioned the beauty business.
Speaker Change: as a traffic driver, you've seen us be very successful.
Speaker Change: leveraging our PANY business as a traffic driver.
Tim Johnson: At this forecasted level of sales, we expect our adjusted operating income in 2024 to be about 275 to 300 million compared to prior guidance of 250 to 275 million. We also now forecast our adjusted free cash flow in 2024 to be approximately 200 to 225 million compared to prior guidance of 175 to 200 million.
Speaker Change: Clearly the size and growth of our loyalty program is also supporting level of traffic.
Speaker Change: Growth We're seeing that customers inside our loyalty program.
Speaker Change: Now we have some annual data are actually shopping more year over year and spending more year over year. That's a really good sign for us in terms of
Speaker Change: Product Acceptance and how we're reaching them so I do think each of the three of those items I mentioned.
Speaker Change: Have the opportunity to drive traffic in our business and might lead to a little bit more promotion here in the fall season.
Tim Johnson: For the third quarter of 2024, we're forecasting sales to increase low single digits compared to sales in the third quarter last year and at this level of sales, we're forecasting a third quarter adjusted operating loss in the range of 40 to 60 million dollars.
Speaker Change: Coming back up to a high level, I think the most exciting part about our business is really the early merchandise acceptance to newness, particularly in the VSN Pink Brands.
Tim Johnson: And finally, we're sure you also are a recent announcement regarding the appointment of Hillary Super as our next CEO effective September 9. Once again, we want to thank Martin for his time with the company and his support and we're excited for Hillary to take us into our next chapter. Thank you.
Speaker Change: You'll recall that if you go all the way back to almost a year ago now, when we were in New York for our investor day in the team laid out.
Speaker Change: from the strategy from a merchandising perspective and the newness that would be coming and some of the adjacent category expansion work that would be coming. It's now starting to show up in stores here in July and August.
Kevin Wynk: That concludes our prepared comments and at this time we'd be happy to take any questions. Thank you ladies and gentlemen. If you wish to ask a question, please press star one and record your name clearly when prompted to withdraw your question at any time you may press star than two. As a reminder, we ask each participant to limit themselves to one question and one follow and one follow-up for ample time to respond to each participant that may wish to participate in this portion of the call.
Speaker Change: and clearly something is working. So we're excited about that. We think we're very early in that process. And again, merchandise product and newness ultimately we think will win the day in the back half of the year.
Speaker Change: Thanks for the questions and can you say, can you say, Chris Martin will be up down in the 4th quarter?
Speaker Change: Gross margins are guided to be up in the third quarter, I'd say embedded in the model is the rate might be down a little bit.
Ike Borchow: Our first question comes from the line of Ike Borchow with Wells Fargo. Your good morning, TJ. Congrats on the results. Thank you for me. Just first real quick on the model. You talked about international up high singles. Sounds like a compliment.
Speaker Change: in fourth quarter, principally because you'll recall we had an extra week in our results last year.
Speaker Change: and obviously an extra week of spelling and leveraging B&O has a pretty meaningful impact on margin rates, but I would suggest from a merchandise.
Tim Johnson: Can you just tell us what you're expecting from the international segment in the back half of the year? And then could you just elaborate further on the promo environment that you're seeing and what you're basically baking into your plan? A most curious, what kind of promo slash gross margin outlook. You could maybe share with us for the fourth quarter specifically. Thanks.
Speaker Change: Margin Wright, when we think about the fourth quarter compared to last year, it might be down a little bit, but the gross margin rate being down is more about the VNO rate than anything else.
Herbert: Herbert, thank you.
Herbert: Yep.
Speaker Change: Thank you, our next question comes from Alex Straten with Morgan Stanley. Your line is open.
Tim Johnson: Yeah, thanks for the question. I, you know, first off, we'll continue to be very, very excited about our international business really all around the world. As I mentioned in our prepared remarks, both the travel retail as well as franchise businesses were the strongest in second quarter. We continue to do very well with our partners in the UK. And the one area of the international business that's softened a bit is in China, which is I don't think unique to our business.
Alex Straten: Great, thanks so much, I just have a couple for you both.
Alex Straten: So just on the sales guidance raised for the year, I know you said you did a bad embed, you know, the back half out will be slightly better than previous.
Speaker Change: Can you talk with us about where you've grown more optimistic, right, banner, or geography, or category, just to understand that a little bit more?
Speaker Change: and then just a quick follow-up on your promo color that you just gave, which is super helpful. I'm just wondering, bigger picture, do you feel like you guys are at the right promotional levels? Or is it still too elevated compared to what you think of as like a steady state level for the brand? Thanks a lot.
Tim Johnson: There does appear to be a more pressured consumer there in that country at the moment. As we look forward, I would expect more of the same from our travel retail and franchise partners in the third quarter as well as our partners in the UK. I do think there's some timing on promotional events in China and some events that are more national in nature from a e-commerce perspective that will likely get pulled into third quarter because of the calendarships.
Speaker Change: Yeah thanks for the question Alex, I think you raised in the sales guide for the year was predominantly the spring outperform, you know, coming in at the better and the range two quarters in a row.
Speaker Change: Obviously pushed the year up a little bit in terms of dollars. I'd say generally speaking, the sales estimates for the balance of the year are largely...
Speaker Change: Unchanged, you know, the model probably got a little bit stronger would be below the sales line and some of the margin elements or particularly from an expense standpoint. The teams continue to do a great job managing costs and managing inventory and cash.
Tim Johnson: The third quarter for our international business might be a little bit better than fourth, but I think that's largely due to calendarships in and around the China business. From a promo perspective, as we look at third quarter and fourth quarter, our guidance assumes much of the same that we've incurred here in the front half of the year. We do think it will continue to be promotional or prepared to be more promotional if need be in the third and fourth quarter to drive our outcomes.
Speaker Change: You know, I think from what am I kind of most encouraged by just reiterate what I mentioned that you've product acceptance early.
Speaker Change: in both the Victoria Secret and Pink Brands has been very encouraging.
Tim Johnson: I think what the business has gotten much, much sharper with is utilizing key areas of the business. I mentioned the beauty business as a traffic driver. You've seen us be very successful leveraging our panty business as a traffic driver. Clearly, the size and growth of our loyalty program is also supporting level of traffic growth. We're seeing that customers inside our loyalty program. Now, we have some annual data are actually shopping more year-over-year and spending more year-over-year.
Speaker Change: As I mentioned, we've been waiting for this inflection moment here in July and August.
Speaker Change: for a long period of time in the newness that we were expecting both an instruments.
Speaker Change: and adjacent categories to instruments as shown up in is doing well. I think that's the single most encouraging part of what we're seeing in the business.
Speaker Change: and the team that has been working on that tirelessly has done a really, really good job.
Speaker Change: I think from me.
Speaker Change: promo color and kind of you know back after the year or just general.
Tim Johnson: That's a really good sign for us in terms of product acceptance and how we're reaching them. I do think each of the three of those items I mentioned, to have the opportunity to drive traffic in our business and might lead to a little bit more promotion here in the fall season. But coming back up to a high level, I think the most exciting part about our business is really the early merchandise acceptance to newness, particularly in the VS and Pink brands.
Speaker Change: Discounting Levels, it is true or discount.
Speaker Change: is up a little bit year on year. I think it's also true that we don't believe that we should be at this discount rate.
Speaker Change: Forever and ever. I think this is a reflection of the environment.
Speaker Change: It's a reflection of where we are in terms of the evolution of the merchandising assortments and making sure that we're getting enough customers across the least line or to our site for trial of the newness that the teams have delivered.
Tim Johnson: You'll recall that if you go all the way back to almost a year ago now, when we were in New York for our investor day and the team laid out. Some of the strategy from a merchandising perspective and the newness that would be coming and some of the adjacent category, category expansion work that would be coming. It's now starting to show up in stores here in July and August. And clearly something is working. So we're excited about that. We think we're very early in that process and again, merchandise product and newness. Ultimately, we think we'll win the day in the back after the year. Thanks for the questions.
Speaker Change: Um...
Speaker Change: making a coming out of holiday season.
Speaker Change: and going into next year, I think we would all like to believe that we could be a little less promotional as a brand, and I'm sure we'll be working towards that. I do think it's important to highlight and I've mentioned this on previous calls that we do have a fair amount of testing regular around.
Speaker Change: Promotionality and what I mean by that is we do have testing control groups or holdout groups where we are less promotional and in the current environment what we're seeing is the Promotions Matter.
Tim Johnson: Could you say could you say Chris margins will be up or down in the quarter? Chris margins are guided to be up in the third quarter. I'd say embedded in the model is the rate might be down a little bit in fourth quarter, principally because you recall we had an extra week in our results last year and obviously an extra week of spelling and leveraging BNO has a pretty meaningful impact on margin rates, but I would suggest from a merchandise margin rate when we think about, you know, the fourth quarter compared last year, it might be down a little bit, but the gross margin rate being down is more about the BNO rate than anything else. Perfect.
Speaker Change: Promotions matter to the customer, they're a creative to sales and a creative.
Unknown Executive: Thank you.
Speaker Change: to margin dollars. So, again, for the moment and where we are in the evolution of...
Speaker Change: merchandising and where we are with...
Speaker Change: The customer
Speaker Change: We think the promotions make sense. Longer term, I think we would all like to be a little less emotional than we are today.
Speaker Change: Great Good One.
Alex Straten: Thanks Alex
Speaker Change: Thank you, our next question, come term quarry, tarlowe with Jeffries, your line is open.
Tarlowe: Great, thanks and good morning to TJ, I wanted to ask about pink because you highlighted an improvement there.
Speaker Change: and I know that you've infused the ferramon on a newness in that segment. Could you talk a little bit about what you feel is working with that segment and what you think the trajectory might look like into the back half. Thanks so much.
Alex Straton: Our next question comes from Alex straighten with Morgan Stanley. Your line is open. Great. Thanks so much. I just have a couple for you both. So just on the sales guidance raised for the year. I know you said you did a bad embed. You know, the backup outlook being slightly better than previous.
Speaker Change: Thanks for the question, Corey, and...
Corey: You know, it's...
Corey: Wynk.
Speaker Change: We've been looking forward to talking about the pink business in a positive life because there's been a tremendous amount of work to get us here.
Tim Johnson: Can you just talk to us about where you've grown more optimistic you right banner or geography or category just to understand that a little bit more. And then just a quick follow up on your promo color that you just gave, which is super helpful. I'm just wondering bigger picture. Do you feel like you guys are at the right promotional levels or is it still too elevated compared to what you think of as like a steady state level for the brand.
Speaker Change: I think in summary, you know.
Speaker Change: Peace, tanks, dresses, continue.
Speaker Change: to start off well for the business in July.
Speaker Change: in August around the Pink Friday event.
Speaker Change: and as we deliver more and more newness and capsules to the front of the store.
Tim Johnson: Thanks a lot. Yeah, thanks for the question. Alex, I think you raising the sales guy for the year was predominantly the spring outperform, you know, coming in at the better end of the range to quarters in a row. Obviously pushed the year up a little bit in terms of dollars. I'd say generally speaking that the sales estimates for the balance of the year are largely unchanged. You know, where the model probably got a little bit stronger would be below the sales line and some of the margin elements or particularly from an expense standpoint.
Speaker Change: We're seeing good customer response if you think about what you see on the front table.
Speaker Change: particularly in early August, fair amount of stores had sell out activity. But T's tanks and dresses were some of the early...
Speaker Change: Good winners for the business. You might have seen some denim shorts on the front table. Here in the third quarter, different types of pants, inventory available for sale.
Speaker Change: and I'd be remiss if I didn't mention the Wynk bra that delivered early in the season that has continued to sell through Wells. So I think there are a number of different category examples, quarries that give us optimism as we move into the back half of the year.
Tim Johnson: The teams continue to do a great job managing costs and managing inventory and cash. You know, I think from what what am I kind of most encouraged by I'll just reiterate what I mentioned that your product acceptance early in both the Victoria secret and pink brands has been very encouraging. As I mentioned, we've been waiting for this inflection moment here in July and August for a long period of time in the newness that we were expecting both an instruments and adjacent categories to instruments has shown up and is doing well. I think that's the single most encouraging part of what we're seeing in the business and you know the team that has been working on that tirelessly has done a really, really good job.
Speaker Change: that there's more opportunities to come with with thanks.
Speaker Change: You know, for back to school I'd be remiss if I didn't mention we actually had back back to this year to drive customers to the store and get that basket.
Speaker Change: started and used it as a promotional item, so backpacks for back to school was a pretty novel idea and the teams have done a good job executing against that and it's been very well received.
Speaker Change: I think maybe.
Andrew: One of the most encouraging parts of you, and I know you're in stores almost every day. If not every day, but for those that are in store, particularly Andrew July and for back to school.
Tim Johnson: I think from a promo color and kind of you know back half of the year or just general discounting levels. It is true our discount rate is up a little bit year on year. I think it's also true that we don't believe that we should be at this discount rate forever and ever. I think this is a reflection of the environment. It's a reflection of where we are in terms of the evolution of the merchandising assortments and making sure that we're getting enough customers across the least line or to our site for trial of the newness that the teams have delivered.
Speaker Change: Seeing a younger customer return to the pink side of the store was very encouraging for our store's team.
Speaker Change: and our merchant team. So getting back to that.
Speaker Change: Younger customer
Speaker Change: In that 18 to 22 year old age demographic, you saw significantly more of that type of foot traffic in our stores in late July and August than maybe you have in prior seasons.
Speaker Change: So a lot to like about what's happening so far in pink but more to come.
Speaker Change: Great, thanks so much and best of luck, thanks!
Speaker Change: Thank you, our next question comes from Simian Siegel with BML Capital Markets. Your line is open.
Tim Johnson: But you know coming out of holiday season and going into next year, I think we would all like to believe that we could be a little less promotional as a brand and I'm sure we'll be working working towards that.
Speaker Change: The me and your line is open, you may need to unmute yourself.
Alex Straton: I do think it's important to highlight and I've mentioned this on previous calls that we do have a fair amount of testing rigor around. Promotionality and what I mean by that is we do have testing control groups or holdout routes where we are less promotional and in the current environment what we're seeing is the promotions matter. Promotions matter to the customer. They're a creative to sales and a creative to margin dollars.
Speaker Change: All right, I'll go to the next question, our next question comes from Brooke Roach with Goldman Sachs. Your line is open.
Brooke Roach: Good morning and thank you for taking our question. I was hoping you could speak to the drivers of the better S-China, cost control that you saw. In the quarter, could you provide a few examples of where you're finding those efficiencies?
Speaker Change: And then as you look ahead, how are you thinking about the cadence of Estine a dollar growth in the back half of the year and any additional levers that you might be pulling that?
Alex Straton: So again for the moment and where we are in the evolution of merchandising and where we are with the customer. We think the promotions make sense longer term. I think we would all like to be a little less promotional than than we are today. Great good luck. Thanks, Alex. Thank you.
Speaker Change: Yeah, it's a little soft, but I think you're asking about cost opportunities and kind of let drove.
Speaker Change: The outcome in second quarter and our outlook for the balance of the year. I think that's what the question was.
Speaker Change: Um...
Speaker Change: There were a number of different areas within the business. I wouldn't want you to think that it was any one big thing that drove the cost out performance in second quarter.
Corey Tarlowe: Our next question comes from Corey Tarlowe with Jeffries. Your line is open. Great. Thanks and good morning to TJ. I wanted to ask you about pink because you highlighted an improvement there and I know that you infuse the firm on a newness in that segment. Could you talk a little bit about what you feel is working? With that segment and what you think the trajectory might look like into the back half. Thanks so much. Yeah, thanks for the question, Corey.
Speaker Change: I think the best way to think about it is the teams.
Speaker Change: have rallied around keeping costs under control.
Speaker Change: as we've kind of come into this inflection point and they understand.
Speaker Change: that driving profitability is important while we're in this inflection moment.
Speaker Change: and keeping costs under control is one thing that we can do to help in that regard. So there are a number of different areas throughout the business, whether it's...
Speaker Change: You will closely monitor and travel and headcount.
Tim Johnson: We've been looking forward to talking about the pink business in a positive light because there's been a tremendous amount of work to get us here. I think in summary, peace, tanks, dresses continue to start off well for the business. In July in August around the pink Friday event. And as we deliver more and more newness and capsules to the front of the store, we're seeing good customer response. If you think about what you see on the front table, particularly end of July in early August, fair amount of stores had sell out activity.
Speaker Change: or whether it's really looking at your ship commitments and promise states and how we deliver this a customer differently.
Tim Johnson: But these tanks and dresses were some of the early good winners for the business. You might have seen some denim shorts on the front table here in the third quarter. Different types of pant inventory available for sale. And I'd be remiss if I didn't mention the wink bra that delivered early in the season that it's continued to sell through well. So I think there are a number of different category examples. Corey that give us optimism as we move into the back half of the year that there's more opportunity to come with with pink.
Speaker Change: from a digital and distributions standpoint.
Speaker Change: or whether how we're managing our store payroll.
Speaker Change: or what we're expecting of our stores in terms of changes.
Speaker Change: and frequency of change and kind of monitoring that closely. There are a number of different areas throughout the business where
Speaker Change: We were able to keep costs in check here in the second quarter. Have every expectation that will continue on into the third quarter.
Speaker Change: You've probably worked through your model at this point in a leverage that we're guiding to on the sales we're guiding to has us $9 relatively flat.
Speaker Change: year over year and I did expect they'll probably be a little bit of growth in SGNA dollars.
Speaker Change: essentially as we move into the fourth quarter when you account for the extra week last year. That growth in fourth quarter, you canably is probably as much about.
Speaker Change: The Good Start to the Season in the Expectation that we will be, you know.
Speaker Change: providing for more incentive compensation in the back half of the year the last year than anything else. We're not doing anything differently or adding cost to the business.
Tim Johnson: You know, for back to school, I'd be remiss if I didn't mention we actually have backpacks this year to drive customers to the store and to get that basket started and use it as a promotional item. So backpacks for back to school is a pretty novel idea and the teams have done a good job executing against that and it's been very well received. I think maybe one of the most encouraging parts of fewer and I know you're in stores almost every day, if not every day, but for those that are in store, particularly end of July and for back to school, seeing a younger customer return to the pink side of the store was very encouraging for our stores team.
Speaker Change: and the fourth quarter differently than we have in any prior years. So, I feel very good about the cost I'll look.
Speaker Change: and maybe, again, most importantly, I just want to underline that this is something that the teams have rallied around.
Speaker Change: It's not always the most fun part of what we do, but it's necessary in the environment that we're in. And this is been a multi-year journey. This isn't something that's been new to the S&CO in just the last quarter or two. This has really been something we've been after.
Speaker Change: for a while. So, feel very good about how the teams are managing cost and managing inventory.
Tim Johnson: And our merchant team, so getting back to that younger customer in that 18 to 22 year old age demographic. You saw significantly more of that type of foot traffic in our stores in late July and August that then maybe you have in prior seasons.
Speaker Change: You know, you didn't necessarily mention, but I'll mention it anyway, you know, we do have costs that sit inside of those gross margin.
Speaker Change: Component in the business buying an occupancy cost in those costs.
Speaker Change: We're down year over year and I expect they would be flat to down as we move through the balance of year. So again, much the same disciplines around all areas of the business plus.
Corey Tarlowe: So a lot to like about what's happening so far in pink, but more to come. Great. Thanks so much. That's the walk. Yep. Thanks. Thank you.
Unknown Executive: Our next question comes from Simeon Siegel with BMO capital markets. Your line is open. Simeon, your line is open.
Speaker Change: So, pretty meaningful positive movement from our...
Speaker Change: I'll call occupancy cos meaning lower rent
Speaker Change: Working on locations and getting better turns on a go-forward basis.
Unknown Executive: You may need to unmute yourself. Alright, let's go to the next question.
Speaker Change: and looking at things like co-tenancies as anchors have gone out and things like that. So really there's no stone unturned right now from a cross perspective to keep things heading in the right direction.
Brooke Roach: Our next question comes from Brooke Roach, with Goldman Sachs. Your line is open. Good morning and thank you for taking our question. I was hoping you could speak to the drivers of the Better S-Sune cost control that you saw in the quarter. Could you provide a few examples of where you're finding those efficiencies? And then as you look ahead, how are you thinking about the cadence of S-Sune dollar growth in the back half of the year?
Speaker Change: Great. Thanks so much. I'll pass it on. Yep. Thank you.
Speaker Change: Thank you, our next question comes from Mauricio Serna with UBS, your line is open.
Mauricio Serna: Great. Good morning. Thanks for taking my questions. I wanted to ask about, you know, the third quarter guidance, you know, it's called for a sequential improvement. I just want to understand, like, from a business, from a segment standpoint, what what what segments are driving that improvement is it like across the board.
Brooke Roach: And any additional levers that you might be pulling there? Yeah, it's a little soft, but I think you were asking about cost opportunities and kind of what drove the outcome in second quarter and our outlook for the balance of the year. I think that's what the question was. Brooke, there were a number of different areas within the business. I wouldn't want you to think that it was any one big thing that drove the cost out performance in second quarter.
Mauricio Serna: or anything in particular, and then, like, as you think about that improvement, it just focuses on the North America intimate market, you were mentioning that it got softer.
Mauricio Serna: of the kind of slap a slap in the self-term second quarter. What are your expectations for the industry growth of the intimate North America and the intimate industry growth for the second half of the year, thank you.
Brooke Roach: I think the best way to think about it is the teams have rallied around keeping costs under control as we've kind of come into this inflection point. And keeping costs under control is one thing that we can do to help in that regard. So there are a number of different areas throughout the business, whether it's closely monitoring travel and headcount, or whether it's fully looking at your ship commitments and promise dates and how we deliver to the customer differently from a digital and distributions standpoint, whether how we're managing our store payroll, or what we're expecting of our stores in terms of changes and frequency of change and kind of monitoring that closely.
Speaker Change: Yeah, thanks for the question, Marie. So when we think about third quarter, if I could just maybe stay to high level for a moment and use big round numbers, we were down 1% in Q2 as a business.
Speaker Change: on the top line. We've guided to low single digit growth.
Speaker Change: in the third quarter.
Speaker Change: So one to three percent is how we define the low single digits. So if I just take a midpoint of that up plus two, so really what we're talking about is going from down one to plus two in the third quarter.
Speaker Change: In our prepared remarks, we talked about the retail calendar shift that is happening for us in all retailers this year, and it's a relates to the third quarter that's about two points of positive impact.
Speaker Change: So really that plus two, in my example, without the retail calendar shift would be more like flat.
Brooke Roach: There are a number of different areas throughout the business where we were able to keep cost and check here in the second quarter. You have every expectation that will continue on into the third quarter. You've probably worked through your model at this point and in a leverage that we're guiding to on the sales we're guiding to has SGNA dollars relatively flat year over year. And I'd expect there'll probably be a little bit of growth in SGNA dollars, potentially as we move into into the fourth quarter when you account for the extra week last year that growth in fourth quarter.
Speaker Change: So on an Apple Stap, we'll space this you might be talking about going from down one to flat again on it.
Speaker Change: reported basis would be from going from down one to plus two because of the calendar shift.
Speaker Change: and again, to be clear the calendar shift is really about.
Speaker Change: We move a week off
Speaker Change: The first week in November last year into the third quarter this year, first week in November, as you know, as a big holiday week or holiday volume starts to ramp.
Speaker Change: in our business so you can hopefully visualize the positive impact there.
Speaker Change: To the heart of your question, what's going to drive that from our view, we're already seeing some of that in our business in the month of August.
Brooke Roach: Candidly is probably as much about the good start to the season in the expectation that we will be providing for more incentive compensation in the back half of the year than last year than anything else. We're not doing anything differently or adding costs to the business in the fourth quarter differently than we have in any prior years. So I feel very good about the cost outlook. And maybe again, most importantly, I just want to underline that this is something that the teams have rallied around.
Speaker Change: I would expect the month of August.
Speaker Change: will be positive in the low-single digits if not a little bit better, based on the strength of Pink Friday and National Underwear Day to start off the month and then just better core business here as we're finishing the month. So feel good about August.
Speaker Change: and what's driving that and what we anticipate will drive this third quarter is all about newness and product acceptance major VSX launch coming in September kick off of the fashion show which will be commercialized this year live and commercialized this year to drive.
Brooke Roach: It's not always the most fun part of what we do, but it's necessary in the environment that we're in. And this has been a multi year journey. This isn't something that's been new to the S&CO and just the last quarter or two. This has really been something we've been after for a while. So feel very good about how the teams are managing cost and managing inventory. You know, you didn't necessarily mention, but I'll mention it anyway, you know, we do have costs that sit inside of the gross margin component in the business buying an occupancy cost and those costs were down year over year.
Speaker Change: Hopefully positive results from a sales perspective.
Speaker Change: and really kick off the holiday season for us in a major major way.
Speaker Change: That's what we anticipate will drive from a product perspective, we do think that North America
Speaker Change: Paint, you know, Victoria's Secret in Paint, the Brands in North America.
Speaker Change: Again, business gets sequentially better from 2nd to 3rd quarter, again, that would be the 5th quarter in a row.
Speaker Change: I do think North America in total will get closer to flat in the quarter or maybe down slightly but again sequential improvement.
Brooke Roach: And I expect they would be flat to down as we move through the balance of year. So again, much the same disciplines around around all areas of the business, plus some pretty meaningful positive movement from us. I'll call occupancy costs, meeting lower rents, working on locations and getting better terms on a go-forward basis, looking at things like co-tenancies as anchors have gone out and things like that. So really there's no stone unturned right now from a cross perspective to keep things heading in the right direction. Great, thanks so much. I'll pass it on. Yep. Thank you.
Speaker Change: Bureau of Recorder for the Fifth Quarter. And then we have every expectation, the International Business and our partners at a dormitory will continue to grow in the high single digits for better. So those are kind of the building blocks of third quarter, but I think it's important to understand the calendar shift.
Speaker Change: does need to be accounted for there.
Speaker Change: You know, on the last part of your question is a relates to the domestic market share. You know, coming into the year we had to make some assumptions on.
Speaker Change: the domestic intimate market and performance.
Speaker Change: We said at that time we expected the market to be softer here in the front half of the year and then stabilized.
Mauricio Serna: Our next question comes from Mauricio Serna with UBS. Your line is open. Great.
Tim Johnson: Good morning. Thanks for taking my questions. I wanted to ask about, you know, the third quarter guidance, you know, it's called for a sequential improvement. I just want to understand, like, from a business, from a segment standpoint, what is, like, what segments are driving that improvement? Is it, like, across the board or anything in particular? And then, like, as you think about that improvement, just focus on the North America intimate market, you were mentioning that it got softer, kind of slightly softer in the second quarter.
Speaker Change: in the back half of the year.
Speaker Change: I guess that's as a good assumption his and he still may be it continues to be a little bit softer in the back after the year I'm not quite sure.
Speaker Change: But what I am confident in is here in the second quarter where the market was tougher. Our business has still got better in North America.
Speaker Change: and even if in the third quarter, the domestic incident's market is difficult. I'm seeing our business get better in the month of August and we have every expectation and we'll get better in September and October. So, while we prefer it to be a tailwind,
Tim Johnson: What are your expectations for, like, the industry growth of the intimate North America intimate industry growth for the second half of the year? Thank you. Yeah, thanks for the question, Mauricio. When we think about third quarter, if I could just maybe stay at a high level for a moment and use big round numbers, we were down 1% in Q2 as a business on the top line. We've guided to low single-digit growth in the third quarter.
Speaker Change: and we just...
Speaker Change: have to kind of keep our heads down and push through it with all of the newness innovation and initiatives that we're launching in our business.
Tim Johnson: So one to three percent is how we define low single digits. So if I just take the midpoint of that at plus two, so really what we're talking about is going from down one to plus two in the third quarter. You know, prepared remarks, we talked about the retail calendar shift that is happening for us and all retailers this year. And as it relates to the third quarter, that's about two points of positive impact.
Speaker Change: will come to Bowle with where we are to start the Q3 timeframe.
Speaker Change: and we'll see how we do in September, October.
Speaker Change: and just a quick follow-up on Gross Margin. You know, one of the things I noted in the commentary provided for Q3 is you call out, you know, transportation costs, on ocean air.
Tim Johnson: So really that plus two, in my example, without the retail calendar shift, would be more like flat. So on an apples-to-apples basis, you might be talking about going from down one to flat. Again, on a reported basis would be from going from down one to plus two because of the calendar shift. And again, to be clear, the calendar shift is really about we move a week of the first week in November last year into the third quarter this year.
Speaker Change: Maybe you could elaborate a little bit more like what kind of impact that you're expecting in Q3, Rose Margin, and that's only like a one-time thing or is this something that we should be maybe considering for Q4 and maybe going into fiscal year 25. Thank you.
Speaker Change: Yeah, I wish my crystal ball was that clear on forecasting transportation rates. I can only see...
Speaker Change: For sure, a month or a few weeks out, Mauricio, but...
Speaker Change: What we really saw was the transportation rates from down significantly as we are.
Speaker Change: and in the front part of 2024.
Speaker Change: and those transportation rates would be down or what rolled through our margin and was a tailwind in the spring season.
Tim Johnson: First week in November, as you know, is a big holiday week or holiday volume starts to ramp in our business. You can kind of hopefully visualize the positive impact there. To the heart of your question, what's going to drive that? From our view, we're already seeing some of that in our business in the month of August. I would expect the month of August will be positive in the low single digits, if not a little bit better.
Speaker Change: As we started to work through second quarter in the June to lie timeframe and even here in August.
Speaker Change: What we've seen is that transportation rates, whether it's ocean or air, start to spike in the spot market.
Speaker Change: for a number of different reasons. Some capacity related, some movement between East Coast and West Coast related, but regardless we're seeing the overall rate environment.
Tim Johnson: Based on the strength of Pink Friday and National Underwear Day to start off the month and then just better core business here as we're finishing the month. So feel good about August. And what's driving that and what we anticipate will drive the third quarter is all about newness and product acceptance, major VFX launch coming in September, kick off at the fashion show which will be commercialized this year, live and commercialized this year to drive hopefully positive results from the sales perspective and really kick off the holiday season for us in a major, major way.
Speaker Change: You'll pick up your over the last few weeks and the last couple months.
Speaker Change: Your Expectation in our guidance is that likely continues through the balance of the year.
Speaker Change: So, what was the tailwind? Well, like we'd be a little bit of a headwind as we move into the fall season, and potentially even a little bit more than that as we move into fourth quarter. Where it goes next year, you know, your estimate might be as good as mine.
Speaker Change: But here in the near term, air guidance, we've assumed that transportation rates are a bit of a headwind in the back half of the year.
Tim Johnson: So that's what we anticipate will drive from a product perspective. We do think that North America, you know, Victoria, Secret and Pink, the brands in North America. Again, business gets sequentially better from second to third quarter. Again, that would be the fifth quarter in a row. I do think North America in total will get closer to flat in the quarter or maybe down slightly, but again, sequential improvement year of quarter of a quarter for the fifth quarter.
Speaker Change: Not a very clever one, that's also why you think like merchandise margins and Q4 might be down a little bit
Speaker Change: It's certainly an element that is new and different. I mean, last year, transportation rates were probably close to a historical low level. And as I mentioned, since they've been spiking your late, we do think it likely continues.
Speaker Change: We do think it likely continues through the fourth quarter, so that's probably...
Tim Johnson: And then we have every expectation the international business and our partners that adore me will continue to grow in the high single digits or better. So those are kind of the building blocks of third quarter, but I think it's important to understand the calendar shift does need to be accounted for there. You know, on the last part of your question, as it relates to the domestic market share, you know, coming into the year, we had to make some assumptions on the domestic, intimate market and performance.
Speaker Change: One change from maybe our beginning of your expectation to where we are currently. I think the other piece that I'd be remiss if I didn't mention in your recall, the fourth quarter last year is when we started seeing meaningful cost of good sales.
Speaker Change: Costs of goods hold reduction or reduction in average unit costs.
Speaker Change: and that's something that the teams had been working on production sourcing merchant teams.
Speaker Change: and others had been working on something that's part of our transform the foundation goal.
Tim Johnson: We said at that time, we expected the market to be softer here in the front half of the year and then stabilized in the back half of the year. I guess that's as a good assumption as any still. So maybe it continues to be a little bit softer in the back half of the year. I'm not quite sure. But what I am confident in is here in the second quarter where the market was tougher, our business has still got better in North America.
Speaker Change: You may recall us talking about an annual opportunity of probably $130 to $140 million.
Speaker Change: or more in the form of lower unit costs. That kicked off last year in fourth quarter.
Speaker Change: and obviously we'll have our full 12 months here wrap up in third quarter of this year so we will start to go up against that but in terms of year over year change.
Speaker Change: The transportation rates is probably the one piece where you see how that's certainly different. So going from historic lows, last year, fourth quarter to a spiky market here in the fall season, we've tried our best to reflect that in the fourth quarter guide.
Tim Johnson: And even if in the third quarter, the domestic, intimate market is difficult. I'm seeing our business get better in the month of August and we have every expectation and they'll get better in September and October. So while we prefer it to be a tailwind, we just have to kind of keep our heads down and push through it with all of the newness innovation and initiatives that we're launching in our business. So feel comfortable with where we are to start the Q3 timeframe.
Speaker Change: got understood very helpful. That's a look. Thanks.
Speaker Change: Thank you, our next question comes from Simeon Seagull with BMO Capital Markets. Your line is open.
Simeon Seagull: Thanks, hey guys, morning, we'll be having a nice summer and congrats on some really nice improvement. Apologize, got disconnected. So if you already answer any of these, just disregard, and I'll get it from the transcripts or about that. All right, so could you quantify the puts and takes behind the gross margin improvement this quarter and how you're thinking about those drivers going forward? What do you expect buying an obviously dollar still look like going forward, recognizing the comment from this past quarter? And then with the fashion show returning, how are you thinking about marketing dollars this year? So if you said any of those before I'll get them again, and then just higher level, or I'll get them from the script, you know, save them again, and then just higher level. The even dollar growth was great. So that was really encouraging. Could you speak to your comfort and continuing that inflection going forward? Is this the beginning of that turn? Thank you.
Tim Johnson: And we'll see how we do in September and October. God, and just a quick fall-up on Gross Margin. You know, one of the things I noted in the commentary provided for Q3 is you call out transportation costs, ocean, air. Maybe you could elaborate a little bit more like what kind of impact that you're expecting in Q3 Gross Margin. And that's only like a one-time thing or is this something that we should be maybe considering for Q4 and maybe going into fiscal year 25?
Tim Johnson: Thank you. Yeah, I wish my crystal ball was that clear on forecasting transportation rates. I can only see, you know, for sure, a month or a few weeks out, Mauricio. But what we really saw was that, you know, transportation rates were down significantly as we accepted 2023 and then the front part of 2024. And those transportation rates would be down or what rolled through our margin and was a tailwind in the spring season.
Speaker Change: You've made up for the last time there, I think I've got three or four things. I'll try to address all of them, but the puts in takes here in second quarter from a margin perspective, as I just mentioned, with Maricio, you know, significantly.
Speaker Change: Uh-huh.
Speaker Change: Up to last year from a rate perspective up about 80 basis points.
Tim Johnson: As we started to work through second quarter in the June, July timeframe, and even here in August, what we've seen is that transportation rates, whether it's ocean or air, start to spike in the spot market for a number of different reasons, some capacity related, some movement between East Coast and West Coast related. But regardless, we're seeing you overall rate environment, you'll pick up to your over the last few weeks and the last couple months.
Speaker Change: close margin dollar growth.
Speaker Change: in access to sales activities, so good performance in the quarter, the team's manager inventory inventory is in a down 2% in line with our guidance, so everything seemingly moving in the right direction. You know, the positives here in Q2 were mostly about the cost of good sold.
Speaker Change: worked that I mentioned in Mower Adders Unit costs.
Speaker Change: because of the lag and how things themselves lose from a margin perspective and how we recognize.
Tim Johnson: Your expectation and our guidance is that likely continues through the balance of the year. So what was a tailwind will likely be a little bit of a headwind as we move into the fall season in potentially even a little bit more than that as we move into fourth quarter where it goes next year. Your estimate might be as good as mine, but here in the near term, air guidance, we've assumed that transportation rates are a bit of a headwind in the back half of the year.
Speaker Change: Post of goods we still did have some favorable transportation activity from the front half of the year flowing through in the second quarter. Again, it gets more challenging as we move forward. Those were probably the two good guys in the quarter.
Speaker Change: from a margin perspective, and then a third good guy would be just over all for the second quarter buying an occupancy dollars. We're actually down here over here, and again, that helpful at now the B&O impact.
Speaker Change: on a down one sales number.
Tim Johnson: Not a very helpful one. That's also why you think merchandise margins in Q4 might be down a little bit? It's certainly an element that is new and different. I mean, last year, transportation rates were probably close to a historical low level. And as I mentioned, since they've been spiking here late, we do think it likely continues. We do think it likely continues through the fourth quarter. So that's probably one change from maybe our beginning of your expectation to where we are currently.
Speaker Change: The one item one the other way is it was a promotional quarter across our category and across retail. I mentioned earlier, discount rate was up a little bit year over year. We did our best to try to target that discount rate in a couple of key areas, namely beauty, namely panties.
Speaker Change: So this discount was not about liquidating or performing inventory at all. This is about trying to drive trial and traffic.
Speaker Change: as we look forward.
Speaker Change: from a margin perspective guiding the margin rate up year over year and third quarter.
Tim Johnson: I think the other piece that I do remiss if I didn't mention in your recall, the fourth quarter last year is when we started seeing meaningful costs of good sales, cost of good sold reduction or reduction in average unit costs. And that's something that the teams had been working on production sourcing merchant teams and others had been working on something that's part of our transform the foundation goal. You may recall us talking about an annual opportunity of probably $130 to $140 million or more in the form of lower unit costs.
Speaker Change: Again, cost of good soul would be the primary driver there and lower average unit costs. We'll start to see transportation rates turn from a tailwind to a bit of a headwind in Q3.
Speaker Change: and then I'd say from a promotion standpoint, probably pretty similar year or maybe slightly more promotional in our guide. So just, you know, same sort of elements, just...
Speaker Change: moving slightly one way or the other. From a buying and occupancy standpoint, I would expect dollars to continue to be flat or down here in the third quarter and likely in the fourth quarter as well, again to rucks question earlier.
Tim Johnson: That kicked off last year and fourth quarter. And obviously, we'll have our full 12 months here wrap up in third quarter of this year. So we will start to go up against that. But in terms of year over year change, the transportation rates is probably the one piece Mauricio that's certainly different. So going from an historic lows last year, fourth quarter to a spiky market here in the fall season, we've tried our best to reflect that in the fourth quarter guide. God, I understood very helpful. Thanks. Thank you.
Speaker Change: We manage all costs in our business, not just the ones that show up in S.T. and A, and the teams doing a great job in that, so I feel good that
Speaker Change: um, you're on
Speaker Change: You know, a low single digit sales increase will leverage B&L with B&O dollars being down.
Speaker Change: So those are some of the puts and takes from a margin perspective.
Speaker Change: You might not have picked up on, you know, I think Marisa is last question on Q4. We talked about the margin rate in Q4, like we being down a little bit. As we anniversary last year's cost of goods sold work, but probably more importantly, just some of the expectations and the transportation rates.
Simeon Siegel: Our next question comes from Simeon Siegel with BMO capital markets. Your line is open. Thanks. Hey guys. Morning. We'll be a nice summer and congrats on some really nice improvement. I apologize. I just connected. So if you already answer any of these, just a discard and I'll get it from the transcript. Sorry about that. All right.
Speaker Change: could remain elevated for the balance of year.
Speaker Change: You're question on marketing, I'd say we're spending.
Speaker Change: and appropriate level of marketing from our view. Yes, our marketing dollars in total were elevated.
Tim Johnson: So could you quantify the puts and takes behind the gross margin improvement, this quarter and how you're thinking about those drivers going forward. What do you expect buying an opposite dollars to look like going forward, recognizing the comment from this past quarter and then with the fashion show returning. How are you thinking about marketing dollars this year? So if you said any of those four, I'll get them again. And then just higher level or I'll get them from the scripts, you don't have to say them again.
Speaker Change: a bit last year with the World Tour.
Speaker Change: this year with the fashion show.
Speaker Change: The fashion show is not the same cost as the World Tour, it's lower than the World Tour. So overall marketing dollars will likely be down year or year, but again from our views and appropriate.
Tim Johnson: And then just higher level. The eve dollar growth was great. So that was really encouraging. Could you speak to your comfort and continuing that inflection going forward is just beginning of that turn. Thank you. You made up for lost time there. I mean, I think I got three or four things. I'll try to address all of them. But the puts and takes here in second quarter from a margin perspective. As I just mentioned with Mauricio, you know, significantly up to last year from a rate perspective up about 80 basis points, gross margin, dollar growth and access of sales activities.
Speaker Change: Budget, when we looked to the third quarter, we're really excited to see what type of...
Speaker Change: Not just positive sentiment, we've already got a pretty good indicator on that based on yesterday's
Speaker Change: Instagram post of announcing the date and a couple of...
Speaker Change: Keep people associated with the program, so very positive sentiment, customers are super excited about it.
Speaker Change: We're really looking forward to seeing what we can do to generate new customer trial through the fashion show and through the launch of the SX Sport here in third quarter. So, a lot to like about what's coming from a marketing perspective. And I think I lost the last question.
Tim Johnson: So good performance in the quarter, the teams manage inventory inventory is ended down 2% in line with our guidance. So everything seemingly moving in the right direction. And the positives here in Q2 were mostly about the cost of goods sold work that I mentioned in lower average unit costs because of the lag and how things sell through from a margin perspective and how we recognize cost of goods we still did have some favorable transportation activity from the front half of the year flowing through in the second quarter.
Speaker Change: just the ADLM even dollars. We're growing the inflecting, so just comfort in that, continuing this meeting at the beginning of the trend because that's obviously very encouraging.
Speaker Change: Yeah, so from, you say that we speak in operating dollars.
Speaker Change: Since a lot of our incentive programs are tied to operating profit dollars.
Speaker Change: Yes, the inflection point for the first time since really Q3 of 2021, I think you.
Speaker Change: and your note this morning was full last time operating income dollars were up year over year, our guide for two, three suggests that should continue into this quarter.
Tim Johnson: Again, it gets more challenging as we move forward. Those were probably the two good guys in the quarter from a margin perspective. And then a third good guy would be just overall for the second quarter buying an occupancy dollars were actually down year over year. And again, that helped flatten out the BNO impact on a down one sales number. You know, the one item when the other way is it was a promotional quarter across our category and across retail.
Speaker Change: The fourth quarter is a little bit tough to look at because of the extra week, year over year, which we did quantify that new drove about.
Speaker Change: 20 million dollars of operating income last year, do the extra week.
Speaker Change: We've got some work to do to get 4th quarter back to the last year's first quarter from an operating income perspective.
Tim Johnson: I mentioned earlier a discount rate was up a little bit year over year. We did our best to try to target that discount rate in a couple of key areas, namely beauty, namely panties. So this discount was not about liquidating or performing inventory at all. This was about trying to drive trial and traffic. You know, as you as we look forward from a margin perspective, guiding the margin rate up year over year and third quarter again cost of goods sold would be the primary driver there and lower average unit costs will start to see transportation rates turned from a tailwind to a bit of a headwind in Q3.
Speaker Change: But there's a lot of dollars at play there from a volume perspective. You'll note, in squeeze in the model a little bit, our sales expectation for Q4 is a little bit lower from a growth perspective than Q3.
Speaker Change: Again, two-three being aided by the calendar shift, calendar shift kind of works. Again, two and a few four.
Speaker Change: and that November week one was in the Q3 and you replaced it with a February week and those volumes are not the same. So we've got a little bit of work to do yet on Q4, but...
Speaker Change: You know, I think the biggest opportunity there for us is, you know, the...
Tim Johnson: And then I'd say from a promotion standpoint, probably pretty similar year over year or maybe slightly more promotional in our guide. So just same sort of elements, just moving, moving slightly one way or the other from a buying an occupancy standpoint, I would expect dollars to continue to be flat or down here in the third quarter and likely in the fourth quarter as well. Again, to rooks question earlier. We manage all costs in our business, not just the ones that show up in SGNA in the teams doing a great job and that so I feel good that you on, you know, a low single digit sales increase will leverage BNO with BNO dollars being down.
Speaker Change: such strong early acceptance of
Speaker Change: You know, new product on both the VSN Pink side really is where the opportunities that's to drive better self-through, higher self-through.
Speaker Change: Um...
Speaker Change: Better March and Lower Promotion for all of the votes, so a lot to like about our position for the balance of this year.
Speaker Change: Hey Amanda, we're running up on time here. Let's go with one more question, please. Thank you. Our last question comes from Jonah Kim with TD Cowan. Your line is open.
Jonah Kim: Thanks for taking my questions as quick once for me. You mentioned O'Dore and the crew, I think with the Shittis Quarter, it's curious what were the drivers behind it when what you're assuming for the back half for the brand. Thank you.
Tim Johnson: So those are some kind of some of the puts and takes from a margin perspective. You might not have picked up on, you know, I think Reese is last question on Q4. We talked about the margin rate in Q4, likely being down a little bit as we anniversary last year's cost of goods sold work, but probably more importantly, just some of the expectation the transportation rates could, could remain elevated for the balance of year.
Speaker Change: Yeah, thanks for the question, Joanna.
Speaker Change: In the dormitory business, I think most people know there are actually two brands which fit inside the dormitory business as we report it.
Speaker Change #100: that is the Adormie brand, which focuses primarily on instruments, but does present other categories.
Speaker Change #100: and then there's a second business called Daily Look, which also features a home trion model but more focused on the apparel side.
Tim Johnson: Your question on marketing, I'd say we're, we're spending an appropriate level of marketing from our view. Yes, our marketing dollars in total were elevated a bit last year with the world tour this year with the fashion show, the fashion show is not the same cost as the world tour. It's lower than the world tour, so overall marketing dollars will likely be down year over year, but again, from our view, still an appropriate budget.
Speaker Change #100: In the last couple of quarters, we've seen outside growth.
Speaker Change #100: in the daily look business that's striking the growth.
Speaker Change #100: in total, or overall, at a dormitory.
Speaker Change #101: Having two different businesses, two different brands inside of that business gives the team the opportunity to toggle investment dollars.
Speaker Change #102: from a marketing perspective into what's trending, what's working best, and I think they're doing a really, really good job of doing that.
Tim Johnson: When we look to the third quarter, we're really excited to see what type of not just positive sentiment, we've already got a pretty good indicator on that based on yesterday's Instagram post of announcing the date and a couple of key people. So associated with the program, so very positive sentiment customers are super excited about it. We're really looking forward to seeing what we can do to generate new customer trial through the fashion show and through the launch of the SX sport here in third quarter.
Speaker Change #102: Putting the investment where the customer is in the near-term, so the daily look or a pair outside of the business is driving the majority of the growth there, having set all of that, they're managing to...
Speaker Change #103: The total business to high single digit grows on the top line and pretty meaningful growth here in the second quarter from an operating income perspective.
Speaker Change #104: Looking forward, I'm comfortable that they have a response here for the third quarter. You may recall that.
Tim Johnson: So a lot to like about what's coming from a marketing perspective, and I think I lost the last question. Christian, just the idea of EBIT dollars. We're growing, they're inflecting, so just comfort in that continuing this beginning of the trend because that's obviously very encouraging. Yeah, so Vrooman, you say that we speak in operating dollars since a lot of our incentive programs are tied to operating profit dollars. Yes, the inflection point for the first time since really Q3 2021, I think you caught it right in your note this morning was the last time operating income dollars were up year over year, our guide for Q3 suggests that should continue into this quarter.
Speaker Change #105: They actually are on a one-month lag to our business so we report them on a one-month lag so we've already seen you know really the first half of their third quarter and the business is off to a good start and it's on forecast.
Speaker Change #105: to not only grow in the top line, but be profitable in the quarter again. So happy with where we are in the near term, in the indoor meat business.
Speaker Change #106: Alright, thank you everyone that concludes our call for this morning. We appreciate your interest in V.S. Have a great day. Thank you.
Speaker Change #107: Thank you for participating in the Victoria Seekerding Company's second quarter 2024 earnings conference call that concludes today's conference. Please disconnect this time.
Tim Johnson: The fourth quarter is a little bit tough to look at because of the extra week year over year which we did quantify that you drove about 20 million dollars of operating income last year, do the extra week. So we've got some work to do to get fourth quarter back to last year's first quarter from an operating income perspective, but there's a lot of dollars at play there from a volume perspective. You'll note in squeezing the model a little bit our sales expectation for Q4 is a little bit lower from a growth perspective and Q3 again, Q3 being aided by the calendar shift, calendar shift kind of works against you.
Tim Johnson: Q4 again, that November week one moves into Q3 and you replace it with a February week and those volumes are not not the same. So we've got a little bit of work to do yet on Q4, but you know, I think that the biggest opportunity there for us is, you know, that the such strong early acceptance of new product on on both the VS and pink slide. It really is where the opportunity sets to drive better self through higher self through better margin, lower promotion or all of the votes. So lots of like about how we're positioned for the for the balance of this year. Hey Amanda, we're running running up on time here. Let's go with one more question, please. Thank you.
Jonah Kim: Our last question comes from Jonah Kim with TD Cowan. Your line is open. Thanks for taking my questions.
Tim Johnson: This is a quick one for me. You mentioned Ador and me who hasn't visited this quarter curious what were the drivers behind it when what you're assuming for the back caps for the brand. Thank you. Yeah, thanks for the question, Joanna. In the Adormi business, I think most people know there are actually two brands, which sit inside the Adormi business as we report it. There's the Adormi brand, which focuses primarily on instruments, but does present other categories.
Tim Johnson: And then there's a second business called daily look, which also features a home try on model but more focus on the apparel side. You know, in the last couple of quarters, we've seen outsized growth in the daily look business that's driving the growth in total or overall at Adormi. So having two different businesses, two different brands inside of that business gives the team the opportunity to toggle investment dollars from a marketing perspective into what's trending what's working best and I think they're doing a really, really good job of doing that.
Tim Johnson: So putting the investment where the customer is in the near term, so the daily look or apparel side of the business is driving the majority of the growth there. Having said all of that, they're managing to the total business to high single digit growth on the top line and pretty meaningful growth here in the second quarter from an operating income perspective. Looking forward, I'm comfortable that they have growth plans here for the third quarter, you may recall that they actually are on a one month lag to our business that we report them on a one month lag.
Tim Johnson: So we've already seen really the first half of their third quarter and in the business is off to a good start and is on forecast to not only grow in the top line, but be profitable in the quarter again. So happy with where we are in the near term in the Adormi business.
Unknown Executive: All right, thank you everyone, that concludes our call for this morning. We appreciate your interest in VS. Have a great day. Thank you.
Operator: Thank you for participating in the Victoria's Secreting Company's second quarter 2024 earnings conference call. That concludes today's conference. Please disconnect this tie.