Victoria's Secret & Co (VSCO) 2025 Q3 法說會逐字稿

Good morning. My name is Amanda, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Victoria's Secret & Co.'s third-quarter 2025 earnings conference call. Please be advised that today's conference is being recorded.

(Operator Instructions)

I would now like to turn it over to Priya Trivedi, Senior Vice President and Global Head of Investor Relations and Treasury at Victoria's Secret & Co. Priya, you may begin.

Good morning, and welcome to Victoria's Secret & Co.'s third-quarter earnings conference call for the period ended November 1, 2025. I would like to remind you that any forward-looking statements we may make today are subject to our Safe Harbor Statement found in our SEC filings and in our press releases.

Joining me on the call today is Chief Executive Officer, Hillary Super; and Chief Financial and Operating Officer, Scott Sekella. We are available today for approximately 30 minutes to answer any questions.

Certain results we discuss on the call today are adjusted results and exclude the impact of certain items described in our press releases and in our SEC filings. Reconciliations of these and other non-GAAP measures to the most comparable GAAP measures are included in our press release, our SEC filings and in the investor presentation posted on the Investors section of our website.

With that, I'll turn the call over to Hillary.

Thanks, Priya. Good morning, everyone, and thank you for joining us today. I am pleased to share that we delivered standout third-quarter results with outperformance on the top and bottom lines that far exceeded the high end of our guidance. These outstanding results reflect what we can achieve as we advance our Path to Potential strategy, which is built around four pillars: supercharging our bra authority, recommitting to PINK, fueling growth in Beauty, and evolving our brand projection and go-to-market strategy.

This is the first-quarter that our new leadership team has been fully on board, and their impact is clear. When the implementation of our strategy is aligned and working in concert, it creates a powerful multiplier effect, accelerating global growth, elevating the distinctiveness of our brands, and unlocking greater value across our ecosystem to drive sustained shareholder returns.

A great example of this multiplier effect was the iconic Victoria's Secret Fashion Show. Brand-right product, a major upper funnel moment and digital and social amplification came together, propelling us into the cultural conversation, ultimately driving mind share, customer share, and market share. This translated into tangible business impact, particularly in our intimates business.

In the quarter, our intimates business returned to growth, up mid-single digits, resulting in us gaining over 1% share in the US intimates market. Additionally, a big unlock for the quarter was customer acquisition. Before I arrived, there was not enough focus here and, as a result, our active customer base was shrinking. We have made reversing that trend a priority. For the first time this year, our total customer file grew and, importantly, we saw growth coming from an increase in new customers.

Now let's walk through the third-quarter results. We delivered net sales of $1.47 billion, an increase of 9% versus last year with robust adjusted gross margin expansion of 170 basis points and earnings growth of 45%. This was driven by growth across Victoria's Secret, PINK and Beauty and underpinned by broad-based outperformance across channels and geographies.

Our international business continues to grow at an accelerated pace with Q3 marking our third consecutive quarter of double-digit retail sales growth. Sales were up over 30% during the quarter driven by exceptional performance in China, primarily in the digital channel.

In late October, we saw a strong start to the 11.11 Singles Day selling period. These results continue to affirm our brand's global appeal and International's role as a growth engine. With Black Friday and Cyber Monday behind us, our fourth-quarter is off to a strong start. We saw our highest Black Friday customer turnout since our spinoff with roughly 1 million customers shopping our brands in North America, up high single digits from last year, and a strong engagement from new customers.

Building on our third-quarter outperformance and the momentum of the fourth-quarter, we are raising our outlook for the year. With the strength of two iconic brands and a thoughtfully curated product assortment, amplified by our merchandising and marketing strategies, we are well positioned to deliver a strong holiday season and a solid finish to fiscal 2025.

Now let's turn to a signature brand moment for us as the world's leading intimates brand, the Victoria's Secret Fashion Show, which celebrated the new era of sexy, masterfully blended pop culture with storytelling. It was a full force celebration of our community, brought to life by a dynamic lineup of global music artists including Madison Beer, Carol G., TWICE and Missy Elliott, alongside iconic runway talent, and fresh faces. PINK's moment in the spotlight sparked tremendous excitement, amplifying the impact of the entire event and elevating the experience for fans around the world.

The show once again became a cultural phenomenon. In the four weeks following the show, streaming views reached approximately 61 million, up over 60% versus last year. We gained nearly 9 million new social followers, and total media impressions hit $51 billion, an increase of over 30% versus last year. On show day alone, the event dominated fashion media with over 42 billion impressions, while traffic to our site surged over 60% year-over-year, converting over 15% more new customers.

Post show, Victoria's Secret kept the cultural spotlight, converting the buzz into measurable business results as engagement soared across search volume, click-through rates, positive sentiment, and brand desire. The Fashion Show delivered strong commercial impact, significantly exceeding both last year's results and our expectations. The halo from the show is evident across our business, from the increased demand for sexy and glamorous bras and related lifestyle collections to renewed traction for iconic VS brand codes. Shoppable product linked to the event doubled year-over-year with several key styles selling out.

We also launched our holiday collection alongside the show, which started strong in the third-quarter and continues to perform well. The show serves as a powerful customer acquisition engine. We saw double-digit growth in new and reactivated customers following the event, with particularly strong traction among the 18- to 34-year age group. The show remains an unrivaled cultural event fueling growth, brand love and engagement while reinforcing our leadership in the global intimates market.

This year's fashion show was a defining moment, allowing us to show the world how we've evolved into our new era of sexy. In this era, beauty is no longer a singular standard. It's on her own terms, a conscious liberating choice. Some of the shift is subtle. It's in the tone, the gaze, the feeling.

And some of it is unmistakable, more diverse bodies and ages, a fuller spectrum that's joyful at its core and an expanded product assortment that empowers her to feel exactly how she wants. Our role isn't to dictate or to define. It's to meet women where they are, to inspire them, listen to them and reflect the many ways they show up today. Now let's review the meaningful progress we made in the third-quarter across each pillar of our Path to Potential strategy.

Turning to our first strategic pillar, supercharging our bra authority. Bras are the heart of our business and we are a market leader in the bra category. We want to reinforce our position as her number one destination for all bras because when we win in bras, it creates a halo effect across our entire brand. Our bra customer is among our most valuable and loyal.

She spends more, visits us more frequently and shops additional categories, reinforcing her connection with us. To achieve this, we are delivering market-leading innovation with style and fashion that solves real lifestyle needs. We are educating with authority to showcase our expertise.

We are amplifying our digital marketing voice through a social-first approach to attract new customers and grow the value of existing ones. And we are elevating the experience with profiting experts in top stores and creating emotional connected digital experiences. These actions position us to unlock significant growth and deepen loyalty through an exceptional bra experience.

The third-quarter showcased our ability to win across the bra lifestyle spectrum with a frequent drumbeat of fashion innovation complemented by sharp messaging. The Body by Victoria FlexFactor bra with the tagline, Better than Braless, delivered casual comfort and innovation and has quickly become one of our top styles, driving incremental growth.

Ahead of our Fashion Show, we activated a sophisticated campaign for the Very Sexy franchise, which delivered impressive results. Finally, in Sport, we expanded our range of support levels, reinforcing our authority in sports bras across all wearing occasions.

In North America, our Victoria's Secret bra business delivered a mid-single-digit increase in the third-quarter, signaling a strong return to growth in the category. Performance was steady throughout the quarter as our bra offering from casual to sexy and glamor, with the latter accelerating with the heightened interest around the Fashion Show.

As a result, we grew our share of the US bra market by low single digits, a nice acceleration from last quarter. By connecting emotionally with the customer, we've been able to increase regular price selling, pull back on promotions and execute select strategic price increases all while growing the bra base business. As our bra category accelerated, so did the rest of Victoria's Secret brand.

For the fourth-quarter, we've been very pleased with the response to our intimates collection thus far, and momentum continues to build. The VS Lifestyle extends into sexy and casual sleepwear and gift sets, a key gifting category for the quarter. Then as we transition into post-holiday, we are excited to unveil a fresh Valentine's Day assortment designed to keep our customer engaged and inspired.

The Victoria's Secret brand proposition of sexy, glamorous, and luxurious is clearly resonating. The customer is responding, returning, and reengaging with the brand. As we continue to innovate, deliver differentiated product and communicate in compelling ways, we are not just succeeding, we are gaining share.

Our next pillar is recommitting to PINK. PINK has long been an iconic, immediately recognizable, and beloved brand. We are focused on returning PINK to its roots as a lifestyle brand designed for 18 to 24 year olds, a segment we pioneered and once dominated. That means reestablishing PINK's identity as digitally first and socially driven while staying true to its DNA: bold, playful, and irreverent. This is at the heart of everything we do from product design to storytelling.

By showing up in the moments that matter most to her and creating compelling products and experiences, we are building the emotional connections needed to win her loyalty for the long term. PINK delivered an outstanding third-quarter with double-digit sales growth accelerating from the second-quarter.

As we increase our apparel penetration, we are delivering frequent fashion to create a steady drumbeat of newness. We showed up in key moments like back-to-school, Game Day and Halloween, supported by culturally relevant and entertainment-led digital and social content. A record-breaking LoveShackFancy collaboration and PINKs included in the Fashion Show also fueled awareness and connection.

Our LoveShackFancy collaboration was highly successful. We seized the launch on our social channels and hosted a pop-up event in New York City with media and influencers. At launch, traffic to our site soared and we logged our highest five minutes of digital volume ever. Importantly, this is all at regular price and incremental to the base PINK business. This buzz translated into authentic brand content that drove engagement across social channels. Nearly 15% of customers shopping this collaboration were new or reactivated.

PINK also took center stage at the Fashion Show with the K-pop sensation, TWICE, and a lineup of talent that appeals to Gen Z. This collaboration resonated with our target customer and reintroduced PINK to their highly engaged fan bases. The Wear Everywhere bra worn by TWICE sold out following the performance and related content on social media went viral, generating over 52 million views to date. PINK intimates also returned to growth, signaling positive momentum across the brand. This remarkable post show lift in PINK intimates reinforced a key insight.

With the innovation and brand experience, PINK intimates can unlock meaningful growth. PINK has gotten off to a strong start in the fourth-quarter. Earlier this week, we launched our second collaboration with LoveShackFancy. PINK is regaining its spark, and we are confident in our strategy to drive growth, deepen customer connection and the long-term brand value.

Our next pillar is fueling growth in Beauty, a powerhouse business nearing $1 billion in net sales in North America. Beauty is a high-frequency category and our beauty customer is our second most valuable in spend, yet only 40% of our customers purchase Beauty, which is a clear opportunity. To capture this, we are investing in talent to scale Victoria's Secret Beauty, build a differentiated offering for PINK Beauty, and strengthen our innovation pipeline. We're putting innovation at the forefront while enhancing merchandising and speed-to-market capabilities to consistently deliver fresh, exciting products.

With a strong team in place, we see tremendous runway for growth in North America and internationally. In the third-quarter, our Beauty business grew low single digits, building on last year's mid-teens increase. An important reason our business is thriving is because we listen and act. After last year's Fashion Show, customers asked for more glamor, so we delivered runway exclusives and the response was electric. This year, the customer buzz after the fashion show got even louder, and we are turning those insights into innovation for our upcoming product launches.

Scent is our secret weapon. It creates lifelong memories and a deep emotional connection with our brand. You see it with Bombshell, which is America's number one fragrance. This quarter, we introduced the holiday addition of Bombshell and launched our first integrated lifestyle campaign for the Very Sexy franchise, bringing together intimates and the restaged fragrance, which drove solid growth.

For the fourth-quarter, Beauty is a key gifting category. We have a full selection of fine fragrances, mists and beautifully packaged gift sets heading into the holiday season. We are investing in the future of this business to innovate and differentiate to capture market share across North America and internationally, where beauty is a key category.

Finally, evolving our brand projection and go-to-market pillar. We are creating a compelling shift in our market presence, more purposeful, more provocative, and more aligned with who our customer is today. Our focus is on driving brand heat to reclaim mind share, which ultimately fuels market share and growth. Over the past year, we clarified our target customer for each brand's positioning. This clarity informs every decision, from product creation to how our brand shows up in the world, helping to reestablish our relevance and leadership position.

To capture mind share, we are continuing to fine-tune our marketing investments. This includes rightsizing direct mail spend to protect our most valuable customers while investing in digital and social marketing. We are leveraging owned channels that reach more than 145 million followers and expanding influencer campaigns, all with a sharp focus on acquiring new customers. We are delivering bold, entertainment-led creative content that is forging an emotional connection. Our approach is working.

The momentum in brand buzz and mind share gains are evident with the commercial success of our FlexFactor bra launch in late July, LoveShackFancy collaboration in early August and the ultimate cultural moment, our Fashion Show in mid-October.

This strategic marketing shift, combined with our product initiatives, is also driving meaningful customer growth. In the third-quarter, our total customer file grew low single digits, a significant improvement over the second-quarter. We saw gains across all customer segments, new, reactivated, and active with our new customers showing the biggest shift in trend. Additionally, we saw nice increases in both the number of customers and average sales per customer across all income cohorts.

Our gains in mind share and customer share are translating into market share. In the third-quarter, despite the total US intimates market declining, we grew our share of the market by over 1% driven by growth across our intimates business. This was our second consecutive quarter of gaining market share, reinforcing that our growth is not dependent on the category growing. It comes from creating desire, building brand heat, and providing exceptional customer experiences.

Our brand projection and marketing efforts are delivering heightened awareness, deeper affinity, and increased relevance. Victoria's Secret is now dominating the conversation and moving into the center of culture, converting buzz into measurable business impact and market share gains.

In closing, we delivered a standout third-quarter with sales and earnings growth that positions us to raise our outlook for the year. We feel confident in our ability to execute but are being thoughtful about the consumer, particularly post-holiday. We are heading into the holiday season with momentum and are well positioned to deliver a strong finish for the year. I would like to thank our incredible, talented, and passionate teams for their tireless work in driving our transformation strategy forward and for delivering exceptional service to our customers every day.

When the implementation of our Path to Potential strategy is aligned and working in concert, it creates a powerful multiplier effect, unlocking greater value across our ecosystem. We are reinforcing our leadership in global intimates and beauty to drive sustained long-term profitable growth.

I will now turn it over to Scott to provide a financial overview of the quarter and our updated fiscal 2025 guidance. Scott?

Thanks, Hillary, and thank you, everyone, for joining today's call. Our third-quarter results significantly exceeded expectations, building on the momentum from our strong first half of the year. This outperformance was broad-based and reflects continued progress on our Path to Potential strategy. We continue to focus on the fundamentals while prioritizing investments in product innovation, brand strength, and customer experience. These investments are positioning us for long-term differentiation and success.

Now let's turn to our third-quarter results in more detail. Net sales for the quarter were $1.472 billion, an increase of $125 million or 9% over last year with comparable sales growth of 8%, exceeding the high end of our guidance. These strong results built on last year's third-quarter growth of 7%. As Hillary highlighted, these results reflect growth across all businesses Victoria's Secret, PINK and Beauty. This momentum was supported by broad-based outperformance across channels and geographies, improved sales metrics including higher comp traffic and average order value and increased regular price selling.

We saw solid growth leading into the fashion show and then an acceleration following the fashion show. In North America, the Victoria’s Secret brand delivered a strong mid-single-digit increase in sales versus last year while PINK achieved a low double-digit sales increase. Traffic continued to outperform the mall driven by enhanced product offerings, our digital-first and socially driven marketing approach and haloed by the fashion show later in the quarter.

AURs in the quarter were up 3% compared to last year. And excluding panties, which is a low AUR category, AURs increased 6%. As Hillary highlighted, customers also responded to the frequent drumbeat of newness in the quarter.

We were extremely pleased with our performance and intimates in the Victoria's Secret brand, where we saw major trend improvements from the first and second-quarter across both bras and panties. Contributing to this improvement was strong demand and regular price selling through the quarter for our full assortment across casual to sexy and glamor bras, with the latter accelerating post fashion show. Additionally, PINK intimates returned to growth for the first time in years, a real positive trend shift and a key learning going forward.

For the quarter, we grew our market share in US intimates by over 1% compared to last year, driven by increases in our bra business. Beauty again delivered top line growth with sales up low single digits over last year on top of the exceptional results in the third-quarter of 2024.

Our international business also continued to perform exceptionally well during the quarter. Reported third-quarter sales grew 34% to $265 million, reflecting an improvement over a strong second-quarter. Approximately six points of this sales increase reflect a shift in the reporting of European digital sales, which were previously fulfilled from our US distribution center and recorded in North America direct sales. They are now being fulfilled from our European distribution center as part of our ongoing efforts to enhance international operations and will be reported as part of our international sales.

International retail sales grew in the high teens during the quarter driven by exceptional performance in China, primarily in the digital channel. In late October, we also saw a strong start to the 11.11 Singles Day selling period. International results included low double-digit retail comparable sales gains across both stores and digital, combined with continued new store openings.

Third-quarter adjusted gross margin dollars were $537 million with an adjusted gross margin rate of 36.5%, which was 170 basis points above last year and 250 basis points above our guidance. We've built a solid operational foundation, creating a business model that enables us to scale effectively and support the company's growth. This was evident in the significant leverage on our buying and occupancy expenses, which contributed nicely to margin expansion.

Additional favorable drivers versus last year included continued strength in regular price selling and a pullback in traditional promotions, resulting in lower discounting throughout the quarter. Altogether, these factors allowed us to more than offset approximately $15 million or 100 basis points in tariffs in the quarter. This operational foundation positions us well for long-term success.

Adjusted SG&A dollars were $537 million in the third-quarter and our adjusted SG&A rate was 36.5%, which was 30 basis points better than our guidance and leveraging 30 basis points versus the prior year rate of 36.8%. Our better-than-expected adjusted SG&A rate in the quarter was driven by the sales beat, along with continued disciplined expense management across all aspects of the business. We did make additional strategic marketing investments in the quarter, where we saw positive ROAS opportunities.

Driven by the sales beat as well as the disciplined expense management, adjusted operating income for the third-quarter was breakeven, which was better than our guidance of an adjusted operating loss of $35 million to $55 million. This result compares to last year's third-quarter adjusted operating loss of $28 million.

Adjusted nonoperating expenses, consisting principally of interest expense, were $18 million in the quarter, in line with our guidance and down from last year, driven by a lower level of weighted average borrowings and lower interest rates. Our third-quarter adjusted tax rate was 15% and our adjusted net loss per share came in at $0.27, significantly better than our guidance of an adjusted net loss per diluted share of $0.55 to $0.75 and last year's adjusted net loss of $0.50 per share.

Turning to the balance sheet. Total inventories ended the third-quarter up 7% compared to last year and in line with our guidance. From a liquidity standpoint, we ended the third-quarter with a cash balance of $249 million, which is $88 million above last year and our outstanding balance under our $750 million ABL credit facility was $375 million, which was down $65 million from last year.

Since the end of the quarter, we have paid off approximately $165 million and expect to fully pay off the outstanding balance this quarter and end the year with full availability under the ABL. Our liquidity position is strong and provides us financial flexibility for continued execution of our strategic pillars.

Now let's turn to our updated outlook for fiscal year 2025. We are raising our full year outlook for net sales and are now forecasting net sales in the range of $6.45 billion to $6.48 billion compared to our prior guidance calling for net sales in the range of $6.33 billion to $6.41 billion.

This compares to net sales of $6.23 billion in fiscal 2024 or approximately $6.204 billion excluding the previously disclosed benefit of the approximately $26 million cumulative adjustment related to the gift card break exchange an accounting estimate recognized in the fourth-quarter of 2024. This adjustment increased net sales, gross margin, and operating income by approximately $26 million in the fourth-quarter and full year 2024. Adjusting for this benefit in 2024, our raised sales outlook anticipates a growth of approximately 4%.

As we discussed, we saw significant outperformance in the third-quarter. Additionally, we continue to see momentum into the fourth-quarter, tailored by the Fashion Show, and our holiday offering is resonating well. We are winning in big moments like Black Friday and Cyber Monday, and we also have a robust gifting assortment across key categories like beauty, sleep and PINK and continued brand moments planned through the holiday season.

Post holidays, we will be ready with the Valentine's Day floor set, giving us confidence in our ability to deliver a strong finish to fiscal 2025. We are also raising our full year guidance for adjusted operating income, which is now expected to be in the range of $350 million to $375 million for fiscal year 2025 compared to our previous guidance of $270 million to $320 million. This compares to last year's adjusted operating income of $373 million in 2024 or approximately $347 million excluding the $26 million gift card breakage benefit.

Our guidance for the full year 2025 now assumes net tariff impact of approximately $90 million, with approximately $65 million impacting the fourth-quarter. Our mitigation efforts include optimizing costs with vendors, further diversifying our sourcing, ensuring we have a more efficient air versus ocean freight mix and implementing a combination of select pricing adjustments through more targeted promotions and strategic price modifications, where we see a value proposition gap in the marketplace.

Adjusted nonoperating expenses, consisting principally of interest expense, are projected to be about $65 million for fiscal year 2025, down from $84 million in fiscal year 2024 and lower than the previous guidance, driven by expected lower levels of weighted average borrowings along with lower interest rates. We estimate our adjusted tax rate will be approximately 24% to 25% for fiscal year 2025, in line with guidance last quarter. We estimate weighted average diluted shares outstanding of approximately $83 million for fiscal year 2025.

Given these inputs, we are raising our fiscal year 2025 adjusted net income per diluted share to be in the range of $2.40 to $2.65 compared to our previous guidance of $1.80 to $2.20 and $2.69 in fiscal year 2024. Fiscal 2024 EPS would have been approximately $2.45 excluding the $26 million gift card breakage benefit.

We continue to be prudent with planning capital expenditures and still expect approximately $200 million in fiscal year 2025. Capital investments will primarily focus on investing in stores and the customer experience, along with investments in technology and logistics related to our strategic initiatives to drive growth and support productivity. We are also increasing our forecast of adjusted free cash flow to approximately $170 million to $210 million in fiscal year 2025.

Store counts and renovation plans in North America in 2025 continue to be similar to what we discussed in our previous calls. Square footage in our North American stores this year is still expected to decrease approximately 2% compared to 2024. By the end of the year, we estimate our Store of the Future presence in North America will be nearly 200 stores or approximately 25% of the fleet. Internationally, we estimate our Store of the Future presence end of 2025 will be approximately 40% of the fleet.

Turning to our outlook for the fourth-quarter. We are forecasting net sales in the range of $2.17 billion to $2.2 billion compared to last year's fourth-quarter net sales of $2.106 billion or approximately $2.08 billion excluding the $26 million gift card breakage benefit. Excluding last year's breakage benefit, our forecast assumes an approximate 4% to 6% top line growth based on continued momentum we are seeing quarter-to-date in our North America business as well as strength in our international business.

At this forecasted level of sales, we expect fourth-quarter 2025 adjusted operating income to be in the range of $265 million to $290 million compared to an adjusted operating income of $299 million in the fourth-quarter of 2024 or approximately $273 million excluding the $26 million gift card breakage benefit.

We expect fourth-quarter 2025 adjusted gross margin rate to be about 37% to 38%. For comparison, last year's fourth-quarter gross margin rate was 39.7% or approximately 38.9% excluding the $26 million gift card breakage benefit. This means we anticipate the fourth-quarter 2025 gross margin rate to be down between 90 to 190 basis points year-over-year. The decline reflects estimated net tariff pressure of approximately 300 basis points, partially offset by our disciplined promotional strategy and the strength of our operational model, which continues to deliver leverage on buying and occupancy expenses as net sales grow.

The adjusted SG&A rate in the fourth-quarter 2025 is expected to lever slightly compared to the fourth-quarter 2024's adjusted rate of 25.4% or approximately 25.8% excluding the $26 million gift card breakage benefit. The forecasted increase in SG&A dollars is primarily driven by store labor and other costs that drive top line.

We expect total inventories to be up mid-teens percent compared to last year. This increase is driven by growth to support business trends, the impact of tariffs and timing related to our operations mostly as we strategically shift towards ocean freight from airfreight, which results us in taking ownership of inventory earlier as compared to last year.

Given these inputs, we are forecasting fourth-quarter adjusted earnings per diluted share to be in the range of $2.20 to $2.45 compared to $2.60 in the fourth-quarter of 2024 or approximately $2.35 excluding the $26 million gift card breakage benefit.

In closing, I want to reiterate a few key points. Our Path to Potential strategy is producing tangible results. We remain focused on managing costs while prioritizing investments in product innovation, brand strength, and customer experience. These efforts, along with the solid operational foundation we have built, enables us to scale effectively and support the company's future growth. We feel confident in our ability to execute but are being thoughtful about the consumer, particularly post-holiday.

Despite the uncertain macro environment, our fundamentals remain strong and resilient. Our outperformance in the third-quarter, along with our market share gains and momentum into the fourth-quarter, give us confidence in delivering the raised outlook for 2025 and positioning us for long-term success.

I would now like to open it up for questions. Operator?

(Operator Instructions)

Mauricio Serna, UBS.

Great. First, could you elaborate a little bit more on how are you maintaining the momentum so far post the Fashion Show? And just give a little more detail on initiatives that you're thinking as you look into the startup of '26 just to maintain like the momentum around the brand. And generally speaking, I guess, where do you see the market share opportunities in bras and beauty, particularly with the comment about PINK intimates returning to [equal].

Mauricio, I'll take that one. Momentum post Fashion Show, we are still in the halo of the Fashion Show. We see it in our traffic, which has been very, very strong in both channels. Particularly in stores, we're seeing it much stronger than the balance of the mall. And internationally, we're seeing just incredible momentum.

That is led and grounded by bras and sexy and glamor. And so the messaging from the Fashion Show and the work that we've done to really build a sharp brand point of view is paying off. The initiatives are the initiatives and the Path to Potential. We continue to focus on those categories.

We are incredibly pleased with the progress we've made in top and bottom line, in increased market share and in the growth of our customer file, particularly from new and reactivated customers and customers that are coming in on higher AURs and are being compelled by brand and product and not necessarily by deals. So all of that feels really good and feels like things we can continue to play forward and double down on in the future.

As we enter 2026, we have a full pipeline of innovation in the bra world in particular as well as in the beauty world. We are building on what we've learned from partnerships and collaborations in PINK, PINK, we did well, as we said, with LoveShackFancy.

Very, very pleased with that. And there are many things that we have in the future that we can apply those learnings to as well as PINK in the Fashion Show was a big surprise for us. The partnership with TWICE and the virality of that moment and how it impacted our PINK business, it was new news for us. And we quickly played that forward and impacted the first-quarter of next year.

So lots to be excited about here. And with all cylinders firing on our four key pillars, we feel very well positioned for 2026.

Got it. Just a quick follow-up on the part of promotions. Maybe could you elaborate on strategies in place to keep pulling back on promotions? And how much is this lever contributing to gross margin expansion?

Mauricio, it's Scott. I'll take that one. So yes, we continue to pull back on promotions. We saw a good benefit to our gross margin in Q3, and that's even net of some increases in GWPs. And as we've talked on prior calls, having GWPs as a lever to provide value for customers as we pull back on promos, we've had a lot of success through that.

While our promotional level is going to be much more similar in Q4 year-over-year, we have utilized the GWPs in a way where we've increased the amount that triggers the GWP, and we've seen great success in the Q4 and the Black Friday period with that. The demand through our stores was very, very strong for those GWPs and giving customers to come in with a much higher average order value.

And as we've talked, promotions will be a multiyear journey. So we'll continue to find these opportunities to drive more regular price selling, pull back on full box promotions and continue to be more about emotion versus promotion, as Hillary said.

Great. Congratulations on the results.

Thank you.

Thank you.

Brooke Roach, Goldman Sachs.

Hillary, I wanted to talk a little bit more about the change in rate of new customer acquisition that you're seeing this quarter. Can you talk a little bit about the profile of those customers? Are they younger? Are they higher income? What are you seeing across your brands, particularly in North America? And what drives your plans for marketing as a result as you look ahead into '26?

Brooke, happy to answer that question. So customer acquisition and reactivation is something that we are extremely focused on and very excited about. And happy to report that we are seeing it distorted to 18- to 24-year-olds. So that was our goal. We are seeing that come to life.

I would also add that they're coming in on a higher AUR. So we feel like the quality -- and we noticed anecdotally from interactions in stores that customers are coming in with their phones and showing videos and content, whether it's Love Shack, whether it's Better than Braless, whether it's Fashion Show content, they're bringing their phones in and saying, I need this. And that is the ultimate goal rather than, I want this price point.

And so we feel really good about that. In terms of the cohorts, we're seeing growth across all cohorts, maybe a slight uptick in higher income customers on the growth side. But I do want to just add that I know a big question has been how are all income cohorts doing. I'll just take this moment to say that we are seeing consistent positive performance across all income cohorts. And we're really pleased with that and feel like that's a real proof point as we move forward.

Great. And then just a follow-up for Scott. Historically, the business had targeted a low double-digit EBIT margin profile. Is this rate achievable in your view? And how are you thinking about the potential pace of expansion, offset by any reinvestment to continue the positive comp momentum?

Yes. So we definitely still see a low double-digit operating margin as achievable. I think the question is when over the next couple of years, the margin has continued to expand, number one, as we grow and we've talked about we have that low leverage point for both our buying and occupancy expenses but also our SG&A.

So as we grow north of 1% to 2%, we're going to expand margin. That's still going to allow us to make select investments back into the business, in particular, in marketing. We've had success with some of that where we've seen positive ROAS opportunities. And we'll continue to take advantage of those. But even taking advantage of those, we feel like we can get back to that low double-digit operating margin over the next couple of years through our Path to Potential growth strategy.

Adrienne Yih, Barclays.

Great. And really great to see the stores, the product, the brands really turning. Hillary, I guess on that, the fall of this year, we really started to see that bra focus and the franchise bra focus is kind of calling out those products. And it kind of reminded me of kind of historically when Victoria's Secret would regularly come to market with bra launches. And so I'm wondering kind of what do you have in the pipeline for 2026 to keep that going?

And then on PINK, sort of more at the high level kind of from a trend perspective, it does feel like -- and maybe I'm wrong here, but it does feel like we're kind of in a little bit of a retro, maybe like with the tracksuits coming back, some of that kind of juicy look that's sort of like very good for PINK. So I'm wondering if you can talk about some of that, that's happening. And then, Scott, really kind of want to talk about kind of the multiyear opportunity.

We're sitting at a mid-single-digit op margin. You just talked about a 10% opportunity. Promos are inflecting. And really wanted to just kind of understand where we are in that merch margin journey. It seems like we're in the very, very early signs of that with some good underpinnings for long term.

Okay. I will take those first couple of questions. So bras, bras franchises and launches, yes, you're right. Extremely important. And we have been uber, uber focused on our innovation pipeline and our strategy around bra launches and have several in the pipeline next year for both brands.

But the point that I want to make here is an unlock that we had with the FlexFactor launch and throughout Q3 was that we were able to have a successful launch and continued growth across all bras. And that was a change for us.

We, in recent history, have had a number of successful bra launches but often with a softening of the bras around it. And that was not the case this quarter. And I really credit our full funnel marketing strategy for that, that was able to talk about multiple things at one time and communicate our full breadth of range and wearing occasions. And we saw major payback for that. And we creatively and emotionally connected to the customer in a way that just drove outsized traffic.

So feeling great about the learnings there, feeling great about what's in the pipeline and very confident that this is just the beginning of bra growth for us as a total company. PINK and trend, yes, I think, well, trends are cyclical. We're definitely seeing a number of trends that harken back to those early days of PINK. We always want to put a modern spin on it. But that's just one part of PINK's opportunity. We are seeing outsized growth in apparel but also saw incredible improvement in both panties and bras, and that was a bit of a surprise to me.

I was thinking that the opportunity was primarily in apparel, accessories, and beauty for PINK. But we've seen that with the right cadence of fashion newness, we can drive growth across all categories in PINK, which is an extremely exciting learning and something that we're running with.

I would also point to partnerships and collaborations as a lever that we have across the entire brand. And those take various forms, sometimes as big as LoveShack, sometimes much smaller with an influential person that we're collaborating with. Sometimes it's an item rather than an entire collection. So you'll see us dipping our toe into a lot of those different things, but we have clearly seen the power of getting the product right, getting the brand heat right. And having the right media strategy to get that in front of the right audiences is the winning ticket here, and we intend to run with those strategies forward.

Adrienne, it's Scott. Taking the last part of your question and building upon Brooke's question as well, you mentioned promos inflecting, and that's absolutely the case we've been seeing and going to continue to see. But a couple of points to just solidify that. AURs in Q2, we talked about we're up 1%. But when you include panties, they were up 8%. This quarter, as I mentioned on the call, AURs were up 3% and, excluding panties, they're up 6%. So that's both pulling back in promotions but also driving more full-price selling.

In Q4, I do expect AURs to be up probably not to the same degree because it's a heavier promotion quarter, as you know. But that sort of momentum from Q2, Q3 will definitely carry into next year. And again, it's not just promos coming, but it's driving more of our mix into regular price selling.

And one sort of anecdote on that, building about the momentum we have with PINK and as Hillary was talking about, particularly PINK apparel. PINK apparel, we're seeing double-digit increases in AURs right now because we're driving that newness in that more regular price selling. And so that's going to help build these margins getting back to that double-digit operating margin over the long term.

Matt Boss, JPMorgan.

Congrats on a nice quarter. So Hillary, could you speak to the inflection in your performance relative to intimates category growth as we think about market share capture relative to larger picture category trends in the US or globally? And then near term, could you just help break down the cadence of your monthly comps like you saw in the third-quarter, particularly October, or the exit rate and just elaborate on the strong start that you cited to the fourth-quarter, maybe relative to 8% comps in the third-quarter or relative to second half of the quarter or October? Have you seen any change in momentum or demand?

You want to take that one first?

Yes, I'll take the last one first. So we saw a strong performance through the entire third-quarter, started off with PINK Friday in the LoveShackFancy collab. That momentum sustained into September, particularly as we had a Very Sexy launch later in August and then a sort of a sport reset in September. But then the comps really amplified in October with the Fashion Show, particularly in the back half and sort of the virality of both shoppable collections, but also even the PINK and the Wear Everywhere bra. So that momentum we've seen sustained into November through the Black Friday selling period.

We are, though, cautious as we get sort of post-holiday, will we see a broader consumer pullback. And so that's contemplated sort of in our nq4 thinking right now. But the momentum from the Fashion Show has definitely carried through November into this early December selling period. But I'll let Hillary take the first couple.

Okay. So bra performance, intimates performance versus total market share performance, I think what we have learned is that we can continue to perform and grow market share despite the market. And just as a point of reference, we are the number one market shareholder. We all know that. But the next closest is about 8 points less than us.

So we really have a hold on this market. And when we execute well and when we connect emotionally with the customer and really talk about our innovation and the value we add to her life, we win. And we're seeing that. Bras and panties both grew market share in the quarter and panties to a really impressive degree. And we're proud of that. And we see a long runway, and we're excited to keep that going.

Got it. Maybe just as a follow-up. Relative to the benefit from lower promotional activity in the third-quarter, I mean, to what extent did you embed opportunity in the fourth-quarter? And maybe just what inning overall do you see this opportunity on the promotional front? Or is there a way to kind of bifurcate the margin to get to double digits relative to where we're at today?

How much of this is promotional activity? How much of this is SG&A? Maybe just any way to break down that delta.

Yes. So tackling the Q4 piece first. There's less promotional benefit in our Q4 margins right now just because it's a heavier promotional quarter, as you know. But there is still a shift to more, I would say, regular price selling, which is a bit different than just a straight pullback in promo. So an example is really we, just this week, had our second collab on LoveShackFancy and PINK. And so that's going to be more regular price selling sort of mix than what we've had in the past.

And then as you think longer term, the promo piece, I think we're still in sort of the early middle innings, I would say, on the promotional pullback. It is going to be a multiyear journey. But the number one lever as we think about margin expansion is just how we're going to leverage our solid operational foundation, and that's both on buying and occupancy and SG&A as we grow north of 1% to 2%. That flow through to the bottom line will far outweigh the promotional pullback over the next couple of years.

Dana Telsey, Telsey Group.

Congratulations on the nice progress. Two things. As you think about beauty, which I think you've always mentioned is the bigger market than intimates, how do you think about the beauty progress over the next year, what it could do on the top line and how it could impact margins? And then also the marketing being as effective as it is in attracting new customers, any framework of those customers' age, income levels? Anything that you're noticing and what you'd do differently next year at all to keep the active customer growth going?

And then just lastly, Store of the Future. Thoughts on next year for Store of the Future. Any changes or enhancements that you want to make?

Thanks, Dana. I'll start out with the question around Beauty. So as you know, Beauty has been our stronger business for the last couple of years and has like a very impressive two-year stack. We have just started really reinvesting in Beauty, reinvesting in the innovation pipeline, investing in talent and thinking about how can we really supercharge this business.

So as I think about 2026 and 2027, in 2026, there are a number of insights that we have that are known to us that we can go after, whether it's the fact that only 40% of our current customer base is shopping beauty, and there's a lot within our own internal file that can be claimed and converted and then continued customer acquisition and really integration of beauty within each brand to be an extension and more connected to each brand. And then PINK beauty, we've only just very much scratched the surface of.

So we think there's a lot of near-term known opportunities for optimization in Beauty. In 2027 and beyond, it's really about what's unknown today and the innovation pipeline and reaching into the future and bringing that to market to really excite and delight our customers. So short term, double down on what we know the opportunities are and optimize the business. Slightly longer term, it's really about reaching into the unknown and innovating.

Your second question is about marketing and new customers. Okay. So we're very excited about it, both in the new and reactivated. We are seeing an uptick in 18- to 24-year-olds, which is extremely exciting. We're seeing growth across all income cohorts with a slightly larger uptick in high-income customers, but growth across all of them.

And I would say most importantly, they were coming into the brand based on product, brand, and emotion and not on promotions. They're coming into the stores, they're showing associates photographs and videos and saying they need this, they want this. And that's exactly the place that we want to be. And so as we continue to fine-tune our brand heat initiatives, as we continue to fine-tune our creative, we're really going hard at what is culturally inspiring in this moment and how do we engage with that new customer.

And then I'll tackle the Store of the Future. We're continuing to look at our Store of the Future concept and how do we optimize it with the Path to Potential strategy. So how do we better assort as we continue to supercharge bras, as we continue to drive PINK, particularly PINK apparel. But now with some of the learnings around PINK intimates that we had in the quarter, how do we better optimize and assort PINK in the stores and differentiate PINK in the stores.

So I think those are things we're taking away, these learnings, and applying them real time. And it will impact not only next year but, I would say, the next couple of years. And then I think the last opportunity we're looking at with Store of the Future is how do we drive that cross-shop with beauty even better.

And so when we have a Very Sexy launch not only on the intimates side, how do we tie in Beauty with that sort of stuff? And so you won't see a wholesale change to Store in the Future, but you'll see these enhancements to help better drive our Path to potential Strategy.

Jungwon Kim, TD Cowen.

Just curious on the apparel side, what's the mix now and where you see that trending over time. And also, I know you've been working on your lead time on the apparel side. What is the lead time now? And is there further opportunities to expedite that?

Sure. So when we first started talking about the PINK apparel opportunity, we had shared that, at one point, it was about 70-ish percent of the business and it had gone all the way down to mid-30s. It's now above 40% and climbing. We think ultimately it's somewhere in between 50% and 60% of the total PINK business and we are extremely pleased.

It was the leading category in the PINK business in Q3. We saw that, as Scott mentioned, much higher AUR, a lower discount rate. It was just a very solid business. So lots of optimism about that. We also shared previously that we did the LoveShackFancy collaboration in 26 weeks. We continue to look for opportunities to shorten time lines and gain that agility. We have a wide range of ways to chase into and make product and get to the market more quickly. And I think we have even further room that we can go. In some cases, we're doing things like making T-shirts in LA and get those very, very quickly.

And we have core raw materials in all of our top iconic items. We can get into those quickly sub-26 weeks. And we continue to work on it. So I would say we are early to mid-innings on our optimization of how we go to market in PINK apparel, and lots of opportunity to optimize that in the future.

Marni Shapiro, The Retail Tracker.

Congratulations. The stores have had so much energy. It's been a pleasure to shop. So I'm so curious, I want to dig into Beauty a little bit, dovetailing on what everybody has said. I really liked your home launch in Victoria's Secret. And I'm curious, I guess, what you're thinking about in the future. Specifically candles are a big opportunity in general in the market. I thought it was really beautiful.

And then just also in PINK beauty, with this brand coming back and the younger customer coming back in, the younger customer today is much more sophisticated than they were when PINK first launched. And there's a lot of good youth-facing brands that have come to market. So are you seeing a different kind of PINK beauty? And I would assume, like isn't there room for real PINK beauty business out there in light of the way the customer has changed?

Yes. The short answer is yes. We have recently just made some key hires in this area, a senior leader to oversee VS beauty and merchandising and another senior leader to oversee PINK. They were once a combined role and as with everything, you focus on the bigger piece.

So we see the opportunity. We're going to go after the opportunity. And I couldn't agree more that this is a much more sophisticated consumer than 20 years ago, and I think there is a significant prize ahead for that business. And what a fun job that is.

So I think we can't wait to roll our sleeves up and get into that. And then in home, we also think it's beautiful and are excited about it and we continue to believe it's an opportunity. In hindsight, I think we went very broad and very large for relatively unknown for us. So we've gotten very key learnings that are honing in on the best of the best and pushing that forward. And so we're going to continue to iterate on that category. And we feel good about it. We're proud of it.

And then can I just ask one quick follow-up on marketing? You've done a lot of collaborations, a lot of fun things this year. As we think about marketing as a percentage of sales into '26, are you guys going to play up? Or as sales increase, you're going to keep the percentage falling? What's just the thinking, I guess, behind where marketing spend should be?

Yes. I think you'll see the marketing tick up both in dollars and percent of sales. I don't know that it's going to be a massive jump, but we'll keep inching it up. And as we saw positive ROAS opportunities, we continue to invest in the quarter. So there are even real-time decisions we can make there.

And our work in media, as a percent of total, last year was closer to 70%. It's increasing more to 75% this year. And so even as the spend stays the same, we are shifting more spend into sort of consumer-facing areas.

Ike Boruchow, Wells Fargo Securities.

Scott, a couple of ones on the gross margin I was hoping to ask. So just the way you're talking about ex the gift card breakage last year, the gross margin you're planning ex tariffs is up 200 basis points. Is that an accurate ballpark?

Yes. That's a good description, yes.

Okay. And that's a little bit lower than the ex-tariff gross margin in 3Q because you're not planning as much as you are. So I guess that makes sense. I guess the other follow-up question I would have to that is, is this kind of run rate the way we should think about the first half assuming tariffs stay in place?

And then obviously, your margin trajectory is now starting to move up. Does next year kind of act as a buffer year to that just because of the first couple of quarters of the year where you have to kind of like embed these tariff headwinds into the business? Just kind of curious like how much that throws you off, your trajectory. Like can you take margins up next year despite those pressures that you guys have in front of you?

Yes. And we're still working through our plan specifically for next year. But as you said, tariffs will be a headwind through the first half as they continue to come on. But the other thing we do have is our mitigation efforts will increase through next year because a big chunk of them really aren't taking hold here until Q4. So we'll be able to anniversary that, plus some of the select price increases we took in back half of this year will help offset in in the first part of next year.

So there will be some headwinds continued with tariffs, but the mitigation efforts will be ramping through the year as well. So that's the color right now.

Thank you. I will now turn the call back to Hillary Super for closing remarks.

Thank you, operator. I want to end by expressing my sincere thanks to all of our associates for their passion and hard work and to our partners our customers and our shareholders for their support. We're energized heading into holiday and excited about what's ahead for our brands. I'd like to wish everyone a happy holidays, and we will see you in March.

Thank you all for participating in the Victoria's Secret in Co.'s third-quarter 2025 earnings conference call. That concludes today's conference. Please disconnect at this time, and enjoy the rest of your day.