Victoria's Secret is cutting back on deals and discounts as tariffs hit its business

Victoria's Secret is reducing discounts and gift promotions to offset an expected $50 million operating income loss in fiscal year 2025 due to tariffs. CFO Scott Sekella indicated a strategic approach to price increases, avoiding blanket adjustments across all categories, while also exploring new suppliers and negotiating with existing ones to mitigate tariff impacts. The company wrote off some raw materials from China in Q1 due to the tariffs.

Analysis

Victoria's Secret (VSCO) is proactively addressing an anticipated $50 million negative impact on its fiscal year 2025 operating income stemming from tariffs. The company's primary mitigation strategy involves optimizing promotional activities, specifically by reducing the frequency and depth of discounts and scaling back on gift-with-purchase offers, as articulated by CFO Scott Sekella. This approach suggests a potential shift in its value proposition to consumers. Furthermore, VSCO is pursuing a "strategic, case-by-case" methodology for price increases, aiming to avoid across-the-board hikes, and is concurrently exploring alternative sourcing options and negotiating with existing suppliers to alleviate cost pressures. The company has already written off some raw materials from China in its first quarter due to these duties. These measures are being implemented against a backdrop where importers face a 30% tariff on many Chinese imports and 10% on goods from other nations, although some higher tariffs on consumer goods are paused until July. The moderately negative sentiment surrounding this news, particularly the -0.6 sentiment score for VSCO, reflects investor concern over margin compression and the potential impact on sales volume from reduced promotional intensity.

Key Decisions for Investors

• Investors should monitor Victoria's Secret's upcoming quarterly results for evidence of margin protection and sales volume trends, given the planned reduction in promotional activity and the $50 million operating income headwind expected in FY2025 from tariffs.
• Consider the potential impact on consumer demand if Victoria's Secret significantly curtails its historically frequent discounts and gift-with-purchase promotions, as this could affect customer traffic and conversion rates.
• Evaluate the effectiveness of the company's multi-pronged strategy to offset tariff costs, including sourcing diversification and supplier negotiations, particularly in light of the ongoing tariff environment and the July deadline for the pause on certain consumer goods tariffs.