Victoria’s Secret Pressured By Inflation; Cuts Forecast

Victoria’s Secret joins the list of retailers feeling the effects of inflation. 

The lingerie and beauty company — which includes Victoria’s Secret Lingerie, Victoria’s Secret Beauty and the Pink brands — revealed quarterly earnings Wednesday after the market closed, falling short on both top and bottom lines (and failing to meet Wall Street’s expectations) as consumers continue to pull back from spending on discretionary items. 

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Victoria's Secret
Models in Victoria’s Secret’s “Very Sexy Collection.”

The innerwear giant is just one of many retailers trying to manage its way around price hikes, supply chain bottlenecks, budget-conscious shoppers, excess inventory and reduced customer traffic in an era of uncertainty. In the case of Victoria’s Secret, the end result was a balance sheet of $67.2 million in net income for the quarter ending July 30, down from $151 million a year ago, more than $1.08 billion in excess inventories and the firm slashing its current quarter and full-year guidance.  

Victoria's Secret Bella Hadid
Bella Hadid in Victoria’s Secret.

“We have adjusted our inventory position and cost structure accordingly while allowing for continued investment in growth initiatives,” Martin Waters, chief executive officer of Victoria’s Secret & Co., said in a statement. He added that the firm is expecting inflationary pressures will continue to impact consumer spending for the rest of the year. 

As a result, the company cut its current-quarter forecast and is now anticipating net sales will decrease in the high-single-digit range, compared with last year’s net sales of $1.4 billion, while earnings per share will also decline by up to 25 cents per diluted share, compared with earnings of 81 cents per share a year ago. For the full year, Victoria’s Secret expects net sales to be down in the mid- to high-single-digit range, compared with 2021’s full-year net sales of $6.78 billion. 

Victoria's Secret
Pieces from Victoria’s Secret’s “Very Sexy Collection.”

But the CEO also pointed out in his prepared remarks that the results are not all bad. 

“This transformation is a journey,” Waters said. “Even in a very difficult macroeconomic environment, thanks to our team’s relentless focus on execution, we were able to deliver second-quarter adjusted operating income and adjusted earnings per diluted share results within our guidance range. We are confident in our ability to navigate and execute in a shifting consumer landscape with our new, optimized leadership structure, which allows for greater agility and focus on the customer and growth initiatives.

“We continue to be the market leader in our category and our brand transformation continues to be well received by our customers,” he continued. “Our work continues to become the Victoria’s Secret our customers and associates deserve — where everyone feels seen, respected and valued.”

But investors were not convinced. Shares of Victoria’s Secret & Co. plunged more than 10 percent during Wednesday’s after-hours trading.  

Broken down, total revenues for the three-month period fell by 5.7 percent to $1.5 billion, down from $1.6 billion the year before. Comparable sales for the quarter also sank, by 8 percent year-over-year. In the North American store channel, sales totaled roughly $968 million, down 6.6 percent, compared with 2021’s $1.03 billion. Revenues in the direct channel also declined, down 11.8 percent to $413 million, compared with nearly $469 million last year. 

Inventory levels at the end of the quarter were up 46 percent, year-over-year. That’s more than $1.08 billion of excess goods. The company said it adjusted its fall inventory receipts as a result, and is now expecting year-end inventory levels will be up in the mid-single digit range, compared with last year.  

“We expect inventory levels will further normalize in the front half of 2023 as we anniversary the modal mix shifts and strategic merchandise assortment investments,” the company said in a statement. “The majority of the increase is related to supply chain impacts and strategic decisions to support our identified growth initiatives. We estimate supply chain impacts (modal mix changes, cost increases and delivery slide impacts from last year) represent approximately 80 percent of the dollar increase, year-over-year.”

In addition, second-quarter results were impacted by a $29 million pre-tax charge as a result of recent leadership restructuring and severance pay. One bright spot was the international business, where sales are up 30 percent, compared with last year. 

The retailer ended the quarter with 829 company-operated stores in North America. 

Shares of Victoria’s Secret, which closed down 0.03 percent to $38.33 Wednesday, are down more than 45 percent, year-over-year.

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