Afternoon and welcome to another session of our 32nd Annual Global Retailing Conference. My name is Brooke Roach, and I cover the apparel brands and software sector here at GF. I'm thrilled to introduce our next session with Victoria's Secret & Co. Here with me today are Hilary Super, CEO, and Scott Sekella, CFO. Welcome, Hilary and Scott.
Thank you.
Before we get started, I think we're going to play a brief sizzle reel.
Great.
Hilary, you're about to reach your first year milestone in about a week as CEO of the company. Stepping back, what are the most important changes that you've implemented so far to the business, and what do you see as the biggest opportunities ahead?
First, I'll just start by saying when I got the call for the job, which was a move across country, the question for me was, do I want to disrupt my life and move across the country? It was just a resounding yes because of what these brands represent in culture, the reach, the reach, the power, the market share. There's just no more interesting transformation in the industry, and I was so excited about that. I know Scott felt the same way when I called him. In terms of the changes we've made, there are many, but I would say it really starts with what our focus is. Our focus is on two distinct and compelling growth brands. When I arrived, I felt like we weren't a creative, we didn't feel like a creative company. We put creativity and customer back at the center of everything that we do.
Every decision we make, every conversation we have, it's centered around creativity and the customer and what does she want and what will make her heart race. That's number one. I like to say that we're creatively led, customer focused, and technology enabled. That's the first one. Second is really evaluating the talent for this next chapter. Who is the leadership team and what are the capabilities that I need to round out me and also to drive for the future and drive the future success of the company? We've made meaningful changes to the leadership team. We are a primarily women-led team for a female consumer brand. Scott got excluded. He's our honorary male. The team is a world-class team. It starts with dedicated brand presidents who each have a different specialty tailored to the brand or product category they lead.
Secondly, Elizabeth Price in marketing and Adam Selman in creative are just industry-leading creatives and strategists who are going to take us to the next level. I would say that along with the early days of execution of our path to potential. When I looked at the strategies coming into the business, almost none of them were really grounded in the brands. We refocused on four brand and product strategies that everyone, all 25,000+ customers are focused on and know their piece of delivering. That is really reasserting our brand authority, recommitting to PINK, growing beauty, and revolutionizing our go-to-market strategy. We're seeing green shoot. As I think about the last year, the fact that in a year we've been able to do all that work, we've been able to start to get back into growth mode.
We're starting to grow new customers and grow our customer base, and we're growing our market share. That feels like a really good year.
That's a great introduction. Let's dive into each of those, starting with supercharging your authority in bras. There's a lot of different pieces to this, whether that's the new Flex Factor launch or the sport bra initiative. How should we be thinking about what might be changing in your bra business go-to-market into 2026? How does your strategy with sport and swim fit into this? What do you think of the sustainable growth rate for the bras business as you look ahead?
Sure. I guess I would just start by saying that bras are the center of our universe. For a while, I'm not sure we were putting the resources towards it that would enable it to continue to be the center of our universe. We have reestablished a much deeper innovation pipeline. We have put dedicated teams who are bra experts back in the business. We have Ann Stevenson, who's running the business, who is a lifelong intimate and bra expert. We really, really focused on the expertise there. We have a pipeline, an innovation pipeline that is two to three years long. We constantly test and iterate bras. We take consumer insights and work them into the development pipeline. We're really taking consumer insights and bringing big ideas to life, Flex Factor being one of them. We had an insight that wireless was a big demand in the market.
We had an insight that she wants to be comfortable above all else. This bra really walks the line of that because it is a sexy bra, but you can barely feel it wearing it. The wire, you can actually tie it in a knot. That's how flexible it is. It molds to your body in a way that you just feel like you're not wearing anything. The product is there. The product has been there. It continues to evolve. We're matching it more closely with customer insights. We're also bringing the experience and the marketing and creative together all at one time. I think that's what was really missing here, that we weren't delivering the entire 360 experience. We may have had one element, but not the other. Finally, we have the entire ecosystem working together. We've invested in store labor and bra specialists. That's really working for us.
We're getting feedback that customers are feeling more served. We're seeing results in stores that support that. For all of Victoria's Secret, we sell two bras every second. In Body by Victoria, we sell one every five seconds. This is a big, big business. We're just getting better and just getting started. With the Flex Factor bra, we were able to quickly adjust our marketing optimization. What we saw was we grew market share. We launched a bra and for the first time saw all bras lift, which was a big breakthrough. I really attest to that being a more optimized lower funnel strategy. We continue to grow market share and grow bras for the first time in a long time. We are really seeing lots of green shoots there. We have learned that we do not have to be just about big bra launches.
We can also have more of a constant drumbeat of fashion, and that is really working for us as well. It is still signing up for the big moments, really leaning with innovation, but then bringing her back on fashion iterations of the styles we know she loves. That formula is working.
Very clear. Let's pivot to the second strategy, which is recommitting to PINK. What is it about the PINK business and the opportunity that you see that excites you the most? What changes should we expect this holiday season versus what might be longer dated from an adjustment perspective?
I think what excites me most about PINK is that it once was double the size. When you look back at how we got from there to here, it was really primarily self-inflicted. We know what those action items are. We know what things we need to either put back in the business or change. We have a very clear path to doing that, and we're already seeing the results. I would also say that we just diluted the brand. We didn't spend, we distorted our spend in marketing to Victoria's Secret. We distorted our spend to content creation versus content dissemination. We consolidated a team. When you have one team working on all the brands, they're going to focus on the big one first. It just sort of got slided all the way along.
They also very critically shifted from being, over time, a special lifestyle brand grounded in apparel to being more of an intimate brand and really flipping that mix. I think the apparel opportunity, the accessory opportunity, and the beauty opportunity in PINK and just making it a full lifestyle brand is super important. Having its own brand message is really important. It has really been commingled with Victoria's Secret. If your question is about the back half of the year, when we had the fashion show last year, all PINK was really talking about on its social was the Victoria's Secret fashion show. It didn't have its own story. It is really important that both of these brands have their own story, but they live in one ecosystem. We can do things like leverage traffic between the two. We can leverage different seasonality between the two.
There's a lot in one ecosystem that gives us a competitive advantage, but it needs to stand on its own. I'd say marketing that stands on its own, marketing spend that is targeted to a very segmented 18 - 24 customer, and more frequent flows being the big levers in the back half.
Very clear. You recently had a very exciting collaboration with LoveShack Fancy for the PINK brand. You talked about some new customer acquisition that you're getting. How are you thinking about the new customers that you're acquiring today, either through your core or through collaboration and launches? What's the demographic? How do you keep and re-engage with those customers?
Yes. We are definitely acquiring a younger customer in both brands. That's very exciting for us. In some cases, we are also, in the case of LoveShackFancy, a little bit more fluent customer. That's an interesting data point. I think what's really interesting about LoveShackFancy is some of those new customers to our brand are gravitating towards the things that are most iconic about PINK. Logo, the dog, those sorts of things are popping to the top, which tells me there's a lot of brand equity there. We have all sorts of mechanisms to continue to re-engage. I think this drumbeat of cultural moments, the drumbeat of more frequent deliveries—we used to really just set a quarter and minimally change it over the course of a quarter. We know that she has information coming to her on her phone on a daily basis.
We need to connect with her emotionally, culturally, and through really compelling products at a pace that we weren't in the past.
Very clear. Let's shift to beauty, where you have been demonstrating very strong growth. What about your beauty business is working so well? How does beauty fit into the overall strategy? What does the opportunity look like?
Yeah, beauty is sort of our secret assassin. It really is a very powerful business. I think it really, so I like to say that Victoria's Secret is about sexy, glamorous, accessible luxury. I think more than any other area, it really delivers on that accessible luxury piece of our brand promise. There is such deep brand love. Very interestingly, only about less than 40% of our file, our customer file, shops beauty. We actually have a big opportunity to bring these customers together and make them more valuable customers. We just delivered a new campaign for Very Sexy, which was both fragrance and intimate at the same time. We are really working to bring the world together, the world of all of Victoria's Secret together, including beauty, and the world of PINK all together, including beauty, to tell one compelling brand story.
I think we have a lot we can do with our existing customer file. We have relatively low share in a market that the beauty business is 4x bigger than the intimate business, and we have single-digit share. Lots of room to grow in North America. We have an incredibly robust international business in beauty, and one that I think we can learn a lot from and continue to expand as we expand doors and regions.
Very clear. Your final strategy is in evolving your brand projection and go-to-market strategy. Recently, you've brought on a new Chief Marketing and Customer Officer. You just talked about differentiating the Victoria’s Secret and PINK brands. As you think about that in the context of your fashion show coming up on October 15, how should we be thinking about your vision for each of these brands? Who's the target customer? What changes might we expect to see? Is there anything exciting that you can preview for us about the fashion show?
I'm not going to tell you much about the fashion show. What I will say is, VS, sexy, glamorous, accessible luxury. The target is 25 - 35, but we know we serve all, we serve a very wide range of demographics. The target is 25 - 35. What I want you to take away that's different is that we believe in sexy. We believe that is in our DNA. I think much has been sort of speculated about this. I like to say that we're entering a new era of sexy, and that is one that expresses sexy on a number of levels. We're not here to define one version of sexy. We're not here to say one look is only sexy. We serve a very broad range of customers, both in the United States and globally.
We are here to create an inspiration to reflect all of the occasions of her life and to give you a mood and a vibe. We are not going to dictate beauty standards. I think that's a big difference. I think it's really about her feeling great and her as the subject of her own story.
Very clear. Scott, let's turn to you and talk about the store base and the store of the future. What changes to the store base do you expect as you execute the path to potential strategy? How does the store of the future concept fit into this opportunity?
Yeah, I really think our store footprint sets us apart and gives us a competitive advantage to execute this strategy. We've got an 800-store fleet in North America, nearly a 1,400-store footprint globally. Taking advantage of that to execute this through expansion, through changing the size of the assortment to fit as we focus on intimates. We focus on PINK apparel, modifying that. We continue to grow beauty, whether it's smaller store footprints and learning from what our international partners do, to continuing to drive the store of the future success that we've had. By the end of this year, we will have converted about 25% of our North America store fleet into the store of the future concept. We see increased traffic, increased conversion, nearly a double-digit increase in sales when we do those conversions. By the end of the year, our international fleet will be about 40% converted.
As we continue to invest in that in the future, by the end of 2027, we'll probably have about 50% of a global footprint converted to the store of the future concept.
As a follow-up, is there anything else you can add regarding other potential uses of free cash flow and how you're thinking about capital allocation?
Yeah, so we're going to continue, as I said, first and foremost, to invest in the store of the future. We see those increase in sales. We see the profitability exceed our internal hurdle rate. That's first and foremost. As we go, we've got to look at how do we evolve our supply chain network to take out some non-customer-facing costs. It's going to give us an opportunity to look at share buybacks and debt pay down as we go forward.
Very clear. Hilary, let's switch back to you. As you look at the competitive backdrop and the consumer today, how would you describe your positioning? How are you viewing the current health of the consumer?
I describe our positioning as accessible luxury in VS in particular. The state of our consumer is very strong. I think that it goes back to that compelling, creating want and creating an emotional connection and making her feel something. The intimate market has been soft for some period of time. We have proven, I think, recently that with strong product execution, listening to the customer, strong and modern creative, and then a marketing strategy that really optimizes the full funnel, we can connect with her. We can claim that traffic and market share through our own full price efforts. It's really exciting to see those green shoots coming.
That's really great to hear. Let's shift to your international business, Scott. You mentioned this earlier. Victoria's Secret & Co. has seen very strong international growth in recent years. Where is the largest opportunity ahead for continued international growth?
Is that one for me?
Yes.
OK. I mean, I think we have an enormous opportunity. We have opportunity in digital growth. We have opportunity in store growth in regions that we already operate in. A little fun fact from last week, there was an event in China on TikTok called the Super Brand Event. We were the number one brand in China. It was incredible, I was looking at the selling reports, like, wow. I think the power of opportunity in China, I know we have competitors who have billion-dollar businesses in China. I think there's a big runway there. We still have markets that are untapped. We actually have a lot we can learn from international. For U.S., they have a very productive smaller footprint that we're interested in experimenting with in North America. They distort towards the beauty customer. We have seen both same store sales and total growth be very strong.
Our comp sales were about 22% last quarter. Very strong business that we think we continue to grow on.
Very clear. Let's turn to Scott and talk about one of the biggest topics of the year, which is tariffs. You recently updated your assumptions for that impact of tariffs on your latest call. How should we be thinking about the timeline to fully mitigate these headwinds? What proportion of the offset will be driven by pricing versus other mitigating factors? To the extent that you've taken any price, are you seeing any elasticity?
Yeah, just to set the stage, recently we updated our guidance to account for 30% tariffs in China, 20% rest of the world. For our fiscal year 2025, that is about a net $100 million impact. That includes about $70 million of mitigation efforts this year. As we go forward into next year, our mitigation efforts will definitely ramp up. There's an opportunity for us to lower our air mix. That really is only coming into play in Q4 of this year, so we'll get a larger proportion of that savings next year. The other big lever we have next year versus this year is sourcing diversification. Where can we source out of higher tariff countries into lower tariff countries? As you know, those things take time. We need to evaluate them, assess them for quality, raw materials, labor, and manufacturing capacity. That work is underway.
We don't have a number for 2026 or how fully mitigated we'll be yet. What we have done is, usually at this time of the year, we've had more orders placed for next year than what we do right now. We've held those back as we evaluate these sourcing opportunities so we could stay nimble. As we know, tariffs are constantly evolving. We need to stay nimble because if things even do shift from this, we need to be prepared to move with that. On top of that, the biggest sort of pricing lever we have is a pullback of promotions. We've been having success with that through the first part of this year. That will continue through the balance of the year and into next year. That really is a multi-year journey when we think about it.
We have to be very strategic and surgical with how we address those promotions. Lastly, we have taken some strategic price increases in the back half, being mindful of entry price points and traffic driving categories. Even before tariffs, we're always evaluating pricing and where we see value proposition in the marketplace. We'll continue to be selective as we go forward if we think there's value there. On the strategic price increases we've taken this year, we have not seen the customer really pull back yet. That's something we constantly are reading and reacting and monitoring. We'll continue as we go.
Is there any contextualization that you can give to us about the magnitude of the benefit from promotion reduction and what that might mean into next year? I know you mentioned it could continue to be a benefit.
Yeah, so in terms of magnitude, in Q2, it was about a net 40 bps benefit from pullback on promo and a little bit more gifts with purchase to offer that customer some value back. We saw an even greater benefit as we drove more full price sales. Our semi-annual clearance inventory was in a much healthier position in Q2. We introduced a lot of the newness that Hilary touched on, and that drove more of a mix into our full price selling. Those combined is actually quite considerable, north of 100 bps when you look at the magnitude of the margin benefit.
Very clear. Hilary, you've talked about needing a more differentiated and agile production cycle and calendar. You recently talked about the PINK and LoveShackFancy collab, which we talked about earlier, and how that was executed on a new 26-week production calendar. Can you talk about what you're doing to evolve the production cycle today?
Sure. I think it's really about decoupling the categories and businesses to make sure that we have a supply chain product development calendar that really is catered to the category versus anchored on bras. Historically, the company, really all of our processes were anchored around bras. Bras are an extremely technical fit-oriented category. We don't want to speed those up too much. We want rapid response and reorder. When you're creating a bra from scratch, you want to make sure you got it just right and you have it tested, et cetera. Bras will stay at about 52 weeks. We have an innovation pipeline that goes, it's almost three years out at this point where we pull things up when we see a need. Bras will not change. We are increasing our amount of response capabilities in bras.
In every category, we can get reorders where we have raw materials in place in 8- 12 weeks. In panties and mist, we can get it in more like 2 weeks - 3 weeks. Our reaction time is really, really good and in a strong place. Where I have a desire to speed up is more on the fashion side of the business. It's primarily PINK apparel where we're focusing. That's the 26-week timeline that I'm talking about. It does require you have to be strategic with capacity. You have to be strategic with raw materials. It allows us to get closer to the customer. We know that there are things like the fold-over legging, like our fleece category. She loves the base fabric. It's about a new shape or treatment.
The closer in we can make that after being out on campuses or being out shopping, the more accurate we get. We are seeing a ton of success with that. PINK will be leading that charge. I'm sure we will be applying that to other categories. We do have a capsule coming into Victoria’s Secret right around the fashion show. It's called Supermodel Essentials. That was done in 33 weeks, also much faster than the bra timeline. We're making a ton of progress there. I'm proud of the work the team's doing. I think we'll just continue to get smarter and more agile.
Scott, as you think about some of those things that are happening in the business, can you discuss your expectations for inventory growth into the back half to affect any disruption or change in the timing as a result of what's happening in the environment?
Yeah, we're not seeing any disruption right now. It's something we watch closely. As inventory goes in the back half with tariffs coming on, we do think the inventory dollars will be up sort of high single digits. The inventory units will only be up low single digits in line with sales. We're pacing that inventory to match quite consistently.
Maybe sticking with you, as we put this all together, how are you thinking about the path to return to Victoria's Secret's historical margin levels? What's possible in the current environment? What are the drivers that will deliver the improvement?
Yeah, our main focus is finding efficiencies and reductions in non-customer-facing areas. Think about our supply chain network and our transportation model. How do we get closer to the customer, especially on the international side? An example of that is late last year, we opened our European distribution center. That cuts down the transportation. That cuts down the lead time. That gets the product to the customer that much faster. Where do we have those opportunities as we go forward, both domestically and internationally? How do we continue to partner with our vendors to find cost optimization with them? Not so much on a product quality standpoint, but there are things that we could do to find cost efficiencies for them that thereby allow us to reduce costs. We think getting back to our historical margin levels is quite possible.
Tariffs aside is the only disclaimer as those continue to evolve.
Very clear. As you think about those SG&A efficiencies, you just discussed a lot of different options. As we drill a little bit deeper into SG&A, how much more optionality is there on that line item? How should we be thinking about the leverage point?
Yeah, because you're coming in, over the last couple of years, there was a lot of great cost takeout work that was done. Our leverage point is quite low. It's basically, if we grow sales 1% - 2%, we're going to be leveraging both buying and occupancy and SG&A. As that sales ticks low single to mid-single sort of digit growth rates, we're going to get great leverage as it goes. We are being mindful, though, on protecting product and customer experience investment. You'll see us continue to invest in those areas. We will do that while maintaining that low leverage point.
Very clear. Hilary, earlier in the session, you noted that you're looking to bring the company into a new era of sexy, particularly for the Victoria's Secret brand. As you think about what that represents to the consumer and this evolving idea of sexiness, how are you translating that understanding into brand expression and consumer engagement?
I think at the highest level, we're here to make her feel. We're here to make her feel good. We want to make sure that we are addressing every occasion in her life. I think we had a pretty singular look and feel in the past. We kind of moved to a different singular look and feel. I think that neither of those is right. I think that sexy comes in all forms, and it's in the eye of the beholder. We want to be a mirror back in some ways. It will be a creative platform. You'll see lots of different types of talent. The angel is a huge part of our DNA and one that we're going to think a lot about. What is the definition of an angel going forward? What is a modern angel? What makes a modern angel?
I think expansion of some of these iconic pieces of the brands and a re-refinement of that is going to be very important. More than anything, it's just a women's lens on what is sexy today. We're here to connect deeply with her. If I could give you one example, it would be a Flex Factor bra and the tagline. We had the customer insight. We had the technology. It was our first new creative campaign. The tagline, "Better than braless," was said in the meeting. I just immediately said yes, because intuitively, women, like that's you're saying the quiet part out loud, right? You're connecting with an emotion that all women, I think, have on some level. I thought it was really brilliant. That's the kind of emotional connection we need to have. We're taking an everyday item and bringing real resonance to it.
I think that's the challenge ahead. We have a team in place that I believe can do it.
That's really great to hear. We're about out of time. Hilary, any closing comments or thoughts that you'd like to leave with the audience?
I'd just like to say that we are entering a new era of sexy, that our path to potential is in the early green shoot stages. We're back to growth, we're back to acquiring new customers and total file growth, and we're stealing share. We're really headed down an exciting path. It's a great time to be part of the brand.
Thank you so much, Hilary. Thank you, Scott. Thanks for everyone in the audience for tuning in.
Thank you.