(Filed Under wholesale Lingerie News). Victoria’s Secret Q3 net income plunged 67.6% to $24.368 million, down from $75.213 million in the same period last year. Sales slipped 8.5% to $1,318 billion from $1.441 billion.
The company explained that “in both our stores and direct channels, average basket size and conversion rates were down in the quarter compared to last year, highlighting a customer who is very cautious and cost conscious in this current environment.” It continued, “traffic was up in our stores in the quarter as compared to the third quarter last year, and our average unit retail remained healthy and at or near record highs in most categories across both channels.”
“From a merchandise category perspective, beauty was our best performing category and significantly outperformed the balance of the business, followed by bras whose performance was in-line with the overall business. For the third consecutive quarter, we have seen growth compared to last year in our domestic market share for the intimates category. Panties and apparel performance in the quarter lagged the balance of the business amidst an extremely promotional environment.”
“Our international business continues to be a bright spot with sales up 43% compared to last year as we continued to experience momentum in our business recovering from prior year Covid-related restrictions. The international business has been profitable in each of the last three quarters, with most lines of business and countries performing well. We continue to be optimistic about sales and profit growth for all of our partners around the world.”
Victoria’s Secret pointed to highlights of the quarter including the expansion of “our bra fit services with the launch of new bra fit technology that will help customers more easily find the right size when shopping on the Victoria’s Secret app,” the addition of “a portion of our Pink apparel assortment in our Amazon storefront,” and the expansion of “our Store of the Future fleet to 23 total stores (12 in the United States and 11 internationally).”
Looking ahead, the company predicted fourth quarter 2022 net sales to decrease in the high-single digit range compared to last year’s fourth quarter net sales of $2.175 billion,” and “full year 2022 net sales to decrease 6% to 7% compared to last year’s full year net sales of $6.785 billion.”
During the conference call with analysts to discuss the results, CFO Timothy Johnson revealed that “both ocean and air rates have now moderated significantly,” and that “we’ve been able to put more of our merchandise on boat” and “take merchandise off of airplanes.” As a result of these moves “we believe we’ll recognize about an incremental $65 million of good news or lower supply chain costs in the fourth quarter. We think that number gets probably closer to about $100 million as we move into the spring season.”
On the call, CEO Martin Waters explained as it moved into the holiday season, the company “made the decision that it was appropriate to be more promotional than we had been in the previous year, to be more promotional than we have been in the balance of Q3 in order to make sure that we were fighting as hard as we possibly could. And we feel good about that choice. We were all out in stores in different markets across the U.S. And everybody reported back at the end of the day and on Monday morning with about the same take, which is the customer is hungry for good value on great merchandise, and that’s what we’re striving to do. So in our guidance for the balance of the quarter, we provided for the opportunity to give her great value.”
He continued, that “the start of November up until the Black Friday weekend seemed to be very much a continuation of the trend from the third quarter, a reflection of a very cautious customer in a challenging economic environment. However, since Black Friday, our customers have responded positively, and we’ve been very pleased with an uptick in the trend and our level of performance. Our stores have been some of the busiest in the mall, and our promotional levels were appropriately aggressive with increased traffic and conversion both in stores and online. That being said, there are still many very important days ahead in the month of December, where we make the overwhelming majority of our profits for the fourth quarter. Our guidance for the quarter reflects our results to date and the expectations that we’ll need to be aggressive in December to get our fair share and more of consumer spending this holiday season.”
Waters pointed to two successful recent introductions: “We know that when we’ve given the customer newness that she’s responded really well to it. So the So Obsessed bra is a great example of that, which had an immediate impact and was extremely positive. The “Shacket” within the Pink assortment blew out within the first week of being in the store.”
During the call, CFO Johnson acknowledged that Victoria’s Secret was “starting to deemphasize a little bit some of the apparel parts of our business again, focusing more into core intimates, core beauty and growing the things that are working the best for us.”
He also acknowledged that “most retailers seem to be in a much better inventory position coming out of the fall season,” but questioned, “does the promotional activity across the mall subside? And does it go lower than where it was in Q3 and Q4? I think that’s a TBD.”
Finally, Waters pointed to improvements in the company’s China joint venture operations with Regina Miracle: “we’ve made substantial progress stabilizing our business and growing digital sales in China with Regina. After years of significant losses, I’m expecting the China business will break even in spring ‘23.” — NM
The full transcript of the conference call can be found here: https://www.yahoo.com/video/edited-transcript-vsco-n-earnings-130000182.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAJcHanF-OnXizGJxlkd4AnNm8nv16SBerVShyW-RxIDxteC9la4041-4tv1zp3jFgX_XpfKm3hl7KN-S5FzuQ7AlEH7quHy3o_IlUcY4cQ5yEUfcge0rjTjPS5izITJ6KwiuNBzv0GhMTAGfIwhhZxW7TxkU6XA_V4aXs0RFN9Ox
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