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Victoria’s Secret Latest Retailer Hit by Supply Chain Headwinds

by News Desk

Victoria’s Secret & Co. is the latest retailer to feel the effects of inflation. 

Looks from Victoria’s Secret’s summer 2022 campaign.
Courtesy Photo

The lingerie and beauty company — which includes Victoria’s Secret Lingerie, Victoria’s Secret Beauty and the Pink brands — revealed quarterly earnings Tuesday after the market closed, falling short on top- and bottom-line results, thanks to rising costs throughout the supply chain and lapping stimulus checks. 

But the firm met Wall Street’s expectation, leaving investors unsure of what to make of the results. Shares of Victoria’s Secret & Co. teetered between red and green during Tuesday’s after-hours trading session, at one point rising more than 7 percent. 

Either way, Martin Waters, chief executive officer of the retailer, said he was pleased with the quarter.  

“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,” Waters said in a statement. “Our performance is a testament to the hard work and relentless focus of our team. Powered by our brand revolution, we have strengthened our emotional connection with our customer and further enhanced our leadership in bras through innovative product launches, while diligently focusing on the efficiency of our retail operations.

“As a result of our deliberate actions, we have stabilized the business and delivered over $1 billion in EBITDA [earnings before interest, taxes, depreciation and amortization] for the trailing 12-month period,” Waters continued. “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. 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. Our board and our entire team are aligned on our key priorities and are swiftly working together to advance them to create value for our shareholders and other stakeholders.” 

Victoria’s Secret’s spring 2022 Dream Angels campaign.

Total revenues for the three-month period ending April 30 fell 4.5 percent to $1.48 billion, down from $1.55 billion the same time last year. Total first-quarter comparable sales decreased 8 percent, while total comp sales for stores only fell 3 percent. 

First-quarter adjusted earnings per diluted share were $1.11 apiece, compared with earnings per share of $1.97 during last year’s first quarter. 

By channel, sales in Victoria’s Secret stores were about $931 million, just below last year’s volume of nearly $933 million. Revenues in the direct channel total roughly $421 million, down from about $521 million a year ago. But Victoria’s Secret & Co. made gains internationally, where sales totaled more than $132 million for the quarter, up from about $100 million last year. The retailer also reported tailwinds in bras and beauty. 

Pieces from Happy Nation, a tween brand by Victoria’s Secret & Co.
Courtesy Photo

The firm purchased a minority stake in swimwear brand Frankies Bikinis, launched gender-neutral tween brand Happy Nation and began selling Victoria’s Secret Beauty products on Amazon during the quarter. Most recently, the retailer launched the VS&Co-Lab platform, which showcases third-party brands. 

In total, the company logged $76.1 million for the quarter, down from $174 million a year ago. 

Victoria’s Secret said headwinds included longer in-transit times as it began shifting back to ocean freight, increased prices along the supply chain and higher inventory levels (up 37 percent for the quarter). 

Many retailers throughout the industry — including Abercrombie & Fitch Co., American Eagle Outfitters Inc. and mass channel merchants Walmart Inc. and Target Corp. — have been struggling with increased supply chain costs, which are eating into the bottom line.

Pieces from Victoria’s Secret’s spring 2022 Dream Angels collection include innerwear as outerwear.

In the case of Victoria’s Secret, the firm is now expecting its current quarter sales to be up low-single digits to down low-single digits, compared with sales of $1.6 billion during 2021’s first quarter, thanks to continued macro challenges. The firm is forecasting earnings per diluted share in the range of 95 cents to $1.25 apiece, compared with $1.71 a share last year. 

For the full year, Victoria’s Secret is anticipating revenues flat to up low-single digits, year-over-year. 

“We are confident with our ability to manage inventory throughout 2022 and expect inventory growth at the end of the second quarter to be similar to Q1 and to begin moderating through the back half of the year,” the company said in a statement. “Turning to the full, fiscal-year 2022 forecast, we believe the environment will continue to be challenging into the second half of the year. We have plans in place that we believe will enable us to manage through the dynamic macro environment to deliver full-year operating income directionally in line with last year. 

“Our ability to successfully execute on these initiatives is evidence of a new era for our business,” the retailer continued. “We also see a number of factors and opportunities in the back half of the year that are projected to improve trends, including lapping inventory disruptions that we experienced in the back half of last year, which will result in improved in-stock levels and inventory positioning and new launches. However, we understand there could be volatility in our results this year. If the first-quarter sales trends adjusted for stimulus were to continue for the balance of the year, it could challenge our ability to deliver full-year operating income in line with last year. Although, we do believe we could maintain an operating income rate in the low-double digits as a percent of sales and remain on track to achieve our midteens operating income rate target over time.”

The retailer ended the quarter with 1,362 stores, including 899 company-owned stores and 463 partner-operated locations. In addition, the company ended the quarter with $204 million in cash and cash equivalents. 

Pieces from Victoria’s Secret’s spring 2022 Dream Angels collection.

Also on Tuesday, Victoria’s Secret & Co. said Mariam Naficy has been elected to the company’s board, bringing the total number of board members to eight, seven of whom are women. 

Naficy is cofounder, co-CEO and chair of the board of Minted, an online marketplace for creative and custom goods. Before that, she led the e-commerce division of The Body Shop. 

Shares of Victoria’s Secret & Co., which closed down 3.56 percent to $41.15 Tuesday, are down 3.1 percent, year-over-year.

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