(Filed Under wholesale Lingerie News). Victoria’s Secret net income plunged as sales slipped in both the full year and fourth quarter. The company in particular admitted to serious problems with its Pink brand that will require an “urgent reinventing” of the label, something that has already begun.
For the fiscal year ended January 28, 2023 VS net income plunged 48% to $337.66 million, down from $646.38 million last year, as sales slid 6% to $6.34 billion, from $6.78 billion in fiscal 2021.
In the fourth quarter, profit fell 30% to $172.09 million, down from $246.05 million last year. Meanwhile sales dropped 7% to $2.021 billion from $2.18 billion in the 13 weeks ended January 29, 2022.
CEO Martin Waters explained during the conference call that for the Victoria’s Secret brand “our conversion rates” and “our average unit retail” were both “down in the quarter compared to the fourth quarter last year,” indicating “a customer who is very cautious and cost-conscious in this current environment.”
For Pink the problems were even more serious. “Within Pink, intimates outperformed sleepwear and apparel, which had a difficult quarter. While Pink apparel has been a consistent challenge during the last couple of quarters, the underperformance gap widened during the holiday season, and we’ve already begun to urgently reimagine the Pink apparel strategy, assortment and positioning with our customer, and we will see that impact in late Q2. The Pink apparel impact alone was a drag of more than four points on the fourth quarter for the company. So, it’s a very high priority for me going forward.”
Later in the call he discussed Pink again, admitting, “we have had a difficult time in the last 12 months. And it’s time for some urgent reinvention. And I’ve seen that reinvention, and I’m super excited about it. Customers will start to see it towards the end of Q2. It’s a new design direction. It’s much more fresh approach. More and better outfit starts. More modern raw materials and fabrications. It’s a rebuild of the use of our logo, more minimal, less overt logo, an exit from some of our legacy graphics. So, a lot going on in that very important part of the business that I think bodes well for the back half of the year.”
“Relative to our Pink apparel assortment,” he concluded, “we say, yes, we’re missing some stuff. We’re not quite as trend right as we should be, and we’re overly reliant on a logo business and overly reliant on frames that we’ve had for a number of years.”
The way for improvement at Victoria’s Secret will be a focus on its bra business. “That’s where we put most of our energy. And while we are active in other categories, health in the core of the business is the most important thing we do.” He added the company is committed to “having at least two bra launches, major bra launches per year. And so, it has been -- this year will be no exception. In fact, we’ll probably have more than two big bra launches. I don’t want to say more about that yet for competitive reasons. But we’re very excited about the plans that we have in the core of the business.”
Looking ahead Waters said the company is projecting “15 to 20 new stores, all of which will be in store of the future and about 50 renovations that will move some of our better and bigger higher-performing stores from the current old format to new store of the future format.” The new stores focus on open, brighter, non-intimidating, muted color formats located outside of malls, with new fitting rooms, better check out technology and a lack of skinny mannequins.
As of January 28 VS was operating 812 Pink and Victoria’s Secret company-owned stores in the U.S. and 25 in Canada, along with six Adore me locations. VS has a joint venture with partners in China that was operating 72 locations. And around the world there were another 443 “partner operated” locations.
Waters revealed that the “international business continues to perform very well. Total international system-wide sales were up double digit in 2022. And the business has been profitable in each of the last four quarters.”
The CEO noted that Victoria’s Secret will continue to offer non-company brands as it has done for years, but less of them. In the past “it was a little bit of across the board, lots of different brands, particularly too many brands, frankly.” The company will bring in brands that are in categories where VS is “underweight;” or where it can “get us access to a customer base where we’re currently underweight;” or when the “third-party relationship brings a halo to the overall house of Victoria.” He said the policy is “helping very much,” noting that “where our customers buy into those third parties, they also buy into Victoria or Pink at the same time, and they’re our most valuable customers with the highest spend per customer.”
“We think it’s a very, very good tool and it’s an area where we can broaden the appeal of the franchise without needing to do all of the lifting within Victoria on her own.”
Waters stated that Victoria’s Secret will utilize certain features of its recently acquired Adore Me brand to help with its own growth. “I think there are three ways that we can leverage their technology going forward. One is we’re going to test selling an edited assortment of Adore Me merchandise on our site. We’re going to test that.” He continued, “we’re going to leverage the technology and try on at home that Adore Me has perfected, and we’re going to apply that to our much larger scale customer base in Victoria’s and Pink. And the same with subscription services. That will be applied towards the back half of the year.”
Looking ahead at the full year 2023, the company stated it is projecting sales to “increase in the mid-single digit range compared to last year’s net sales of $6.344 billion. At this forecasted level of sales, we expect the adjusted operating income rate for the full year 2023 to be similar to 2022. The company is forecasting first quarter 2023 net sales to decrease in the mid-single digit range compared to last year’s first quarter net sales of $1.484 billion. At this forecasted level of sales, adjusted operating income for the first quarter of 2023 is expected to be in the range of $55 million to $85 million.” —NM
The full call transcript can be found here: https://seekingalpha.com/article/4584351-victorias-secret-and-co-vsco-q4-2022-earnings-call-transcript
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