(Filed Under wholesale Lingerie News). Victoria’s Secret second quarter sales declined 5.7% to $1.521 billion from $1.614 billion in the same period last year, while net income plunged 55.5% to $67.211 million, down from $151.084 million.
The company noted that “customer traffic trends decelerated across the retail environment throughout the quarter. Total comparable sales for the second quarter of 2022 decreased 8% compared to the second quarter of 2021.” It added that the results included “a pre-tax charge of $29 million, principally severance, related to the previously announced restructuring actions to reorganize, streamline and improve our leadership structure.”
Victoria’s Secret reported that sales at its stores in North America fell in the quarter to $968.5 million, down from $1.0369 billion in the same period last year, and that direct sales fell to $413.7 million, down from $468.8 million last year. Sales from its international business, which includes “consolidated joint venture sales in China, royalties associated with franchised stores and wholesale sales,” rose to $139.0 million from $108.1 million in the second quarter of 2021.
Despite the recent sales declines, VS is about to start adding new locations, reversing its strategy of recent years. As of January 28, 2017 the company was operating 1117 shops in the U.S. and Canada (1,131 Victoria’s Secret and Pink stores in the U.S. and 46 in Canada), but the total number had been reduced to 829 by the end of July 2022. “We see up to 100 new locations of stores over the coming three or four years, particularly in off-mall locations where we’re currently underrepresented,” revealed CEO Martin Waters during the call with analysts to discuss the quarter.
The new locations will share what Waters called the “Store of the Future” format, which is currently being created and tested. It will be lighter, with less emphasis on black fixtures and sexy images, and with some new technology, stouter “mannequins that look like the human race,” and re-designed fitting rooms. “It’s allowing the product to be the hero. It’s allowing the customer to feel welcome and included,” he said.
The company revealed that since January 29 it has closed six and opened one store in the U.S., dropping the total to 803 at the end of July. It continued to operate 26 shops in Canada.
As part of its joint venture in China, brand opened one full assortment store, bringing the total to 31; and opened one, closed three and “reclassified” eight Victoria’s Secret Beauty and Accessories shops raising the total to 41.
Victoria’s Secret also reported on partner operated stores noting, from January through July, eight full assortment stores were opened and seven closed bringing the total of 129. Two Beauty and Accessories shops were opened, 19 closed and eight reclassified dropping the total to 310.
Waters discussed the results of the various merchandise categories, claiming “bras was our best-performing business” achieving “flat performance year-over-year,” and “followed by other intimates.” Victoria’s Secret “panty business was close to flat, down low single-digits,” he added. “The beauty business was solid.”
“Our most challenged category continues to be the apparel business, which represents about 25% of our sales and it was down in the high-teens for the quarter.” The firm’s swimwear category “has been incredibly mixed. Victoria had a disappointing season in swim and Pink had a very, very strong season in swim. So overall, we were down a bit from where we expected to be.” The company had exited swimwear in 2016 but returned to the category last year. “On reflection, the first season of Victoria back in the swim business we were probably a little basic. And in the second season back in the swim business, we swung the pendulum a little too hard and we are a little too fashion forward and a little light on basic,” said Waters.
Looking ahead at the full year, Victoria’s Secret announced it “is forecasting full year 2022 net sales to decrease in the mid to high single digit range compared to last year’s full year net sales of $6.785 billion. At this forecasted level of sales, adjusted operating income is expected to be in the range of $525 million to $575 million, or approximately 8% to 9% of sales.”
Wholesalers have been forced to adopt new shipping strategies due to supply chain issues in recent years, and Waters addressed one change at Victoria’s Secret. “Last year,” he revealed, “we were at 90% air and 10% sea, which gave us very little opportunity to react,” and quickly replenish popular styles. “This year, we’re more like 75% sea, 25% air,” and that means “we can convert some of that planned merchandise” for sea shipping “to air and get goods in more quickly, which gives us opportunity to chase.”
Finally, Waters, who has been with Victoria’s Secret (and at the previous company owner L Brands) since 2008, emphasized how committed he and the firm is to its new, inclusive image. “The overarching headline would be that we are really pleased with the progress that we have made and the repositioning of the brand. It takes time to reposition a brand. We are 12 months, 14 months, 15 months into it. And I always say the things that we are doing, be it producing merchandise or producing assets or to speak, anything. Anything we do, the way we show up, does it polish or tarnish the brand. And after years and years and years of tarnishing the brand, I would say 99% of what we have done in the last period has polished the brand.” — NM
The full transcript of the Victoria’s Secret call can be found here: https://seekingalpha.com/article/4537037-victorias-secret-and-co-vsco-q2-2022-earnings-call-transcript
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