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06/01/2022

Victoria’s Secret profit tops Street, sales fall; warns of ongoing challenges

Marianne Wilson
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Victoria's Secret
Victoria’s Secret reported first-quarter sales of $1.48 billion.

Victoria’s Secret & Co. posted a better-than-expected first quarter even as ongoing supply chain issues drove up costs.

“Against the backdrop of significant global headwinds and a challenging inflationary environment, we delivered sales results at the high end of our guidance range and better than expected adjusted earnings per diluted share,” said CEO Martin Waters. “As a result of our deliberate actions, we have stabilized the business and delivered over $1 billion in EBITDA for the trailing twelve-month period.

The lingerie and beauty company warned that it could continue to face supply chain and sales challenges for the remainder of the year. On the earnings call, executives told analysts they they are  doing what they can to control costs and prices. They will also do what they need to do to keep customers buying. 

"We have to be relevant, we have to give her compelling offers, and if that means leaning into promotionality a little bit more in order to make sure we get our fair share of her spend, that’s what we will do,” Waters said.

Also on the call, Waters said that Victoria's Secret's — in consultation with its partner, Alshaya, who operates the Victoria's Secret stores business in Russia — made the decision to close the  Russian stores earlier in the season.

"Those stores will not be reopening," he said. "We expect that there will be no more business from that part of the world."

In separate news, Victoria’s Secret said that Mariam Naficy has been elected to the company’s board, for a total number of eight board members, seven of whom are women. Naficy is co-founder and co-CEO of Minted, an online marketplace for creative and custom goods. Prior to Minted, she led the e-commerce division of The Body Shop International.

Victoria’s Secret profit totaled $80.8 million, or $0.93 a share, in the quarter ended April 30. compared with $174 million, or $1.97 a share, in the year-ago period. Adjusted earnings were $1.11 per share. Analysts had expected $0.84 a share.

Net sales fell 4.5% to $1.48 billion, topping expectations. The company noted that it faced significant headwinds from last year’s federal stimulus benefits, which it estimated resulted in a sales benefit of $75 million in the year-ago quarter.  Adjusted for the stimulus benefit, total sales were essentially flat to the prior year’s first quarter.  Comparable sales were down 8%.

The costs of goods sold, buying and occupancy rose to $962 million during the period from $882 million during the same time the year prior. General, administrative and store operating expenses were also about $427 million, down slightly year over year from $446 million.

It was a busy quarter for the retailer, during which it acquired a minority stake in swimwear brand Frankies Bikinis, entered the tween space with the launch of the digital-only, gender-neutral brand Happy Nation and started selling beauty products on Amazon. 

[Read More: Victoria’s Secret launches online marketplace focused on women-led brands]

For its fiscal second quarter, Victoria’s Secret expects to earn between $0.95 per share to $1.25 a share, on an adjusted basis. It expects sales to be up low-single digits to down low-single digits compared to last year’s second quarter 2021 sales of $1.614 billion.  For the year, the company still expects total sales to be flat to up low-single digits from 2021.

“Looking ahead, I believe we have the focused strategy, resilient and expert talent, and customer connection that we need to sustain and grow our dominant position as the market leader in the intimates merchandise category,” Waters said. “We are well prepared to continue to address macro challenges through merchandise and marketing that delights our customers, new business initiatives designed to expand our customer base and grow sales, and disciplined financial management.”

We have proactively anticipated and are managing supply chain and inflationary pressures,” the company said in prepared remarks. “However, we understand there could be volatility in our results.”

Victoria’s Secreta ended the quarter with more than 1,350 retail stores in more than 70 countries, including 899 company-owned stores.