Victoria’s Secret & Co. (NYSE:VSXY) reported fiscal second-quarter net sales of $1.611 billion, up 10%, while comparable sales increased 9%. The retailer also recorded $140.3 million of pre-tax income from IEEPA tariff-refund recoveries, including interest received and net of related costs and other items.
Those recoveries added $135.8 million to GAAP operating income, but Victoria’s Secret & Co. (NYSE:VSXY) excluded them from company-defined non-GAAP adjusted results. The company-defined measure also excludes restructuring and other one-time items and, in the prior-year comparison, intangible-asset amortization. On that basis, adjusted operating income rose to $124 million from $55 million, and the adjusted operating margin expanded to 7.7% from 3.8%.
The refund exclusion makes the improvement more credible. The next test is whether demand remains profitable as Victoria’s Secret & Co. (NYSE:VSXY) spends more to sustain brand attention.
Bull Case
The quarter showed improvement beyond the refund. Company-defined non-GAAP adjusted gross margin increased 320 basis points to 38.8%, while the adjusted general, administrative, and store operating expense rate declined 70 basis points to 31.1%. Management attributed the progress partly to stronger regular-price selling and disciplined promotions.
Product and customer indicators also broadened the case. Bras delivered mid-teens sales growth, panties grew in the high teens, and PINK posted mid-teens growth after adjusting for the timing of its PINK Friday event. Victoria’s Secret & Co. (NYSE:VSXY) reported mid-single-digit growth in its customer file, led by high-single-digit growth among new customers, while traffic increased across stores and digital channels.
Victoria’s Secret & Co. (NYSE:VSXY) raised full-year net-sales guidance to $7.10 billion to $7.18 billion from $7.03 billion to $7.13 billion. It also increased company-defined non-GAAP adjusted operating-income guidance to $560 million to $590 million from $550 million to $580 million. Inventory rose about 8% to $1.146 billion, slower than quarterly sales, which provides some support for the quality of the sales growth.
Bear Case
The third-quarter outlook shows how quickly operating leverage can narrow. Victoria’s Secret & Co. (NYSE:VSXY) expects sales of $1.57 billion to $1.60 billion but operating income of only $10 million to $20 million. The forecast calls for gross margin of approximately 38.0%, up 150 basis points from the prior-year adjusted rate, yet an SG&A rate of approximately 37.5%, up 100 basis points.
