Lingerie fashion brand Victoria’s Secret reported net sales of US$1.48bn for the first quarter of 2022, which is a decrease of 4.5% compared to its net sales of $1.55bn in the prior year first quarter. The company explains this result was at the high end of its previously communicated guidance of sales in the range of a decrease of 4% to 8%.
Total comparable sales for the first quarter of 2022 decreased 8% compared to the first quarter of 2021, however excluding the estimated first quarter 2021 benefit of $75m related to government stimulus payments, the company states net sales were essentially flat year over year.
The company explained in its earnings call that it saw momentum in its bras and beauty businesses and also in its international business as it recovered from prior year Covid-related restrictions. However, the stores and digital channels faced significant headwinds from last year’s US federal stimulus benefits, which resulted in a first quarter sales benefit of $75m last year.
Victoria’s Secret chief executive officer Martin Waters was pleased with the first quarter results and the team’s strong execution.
He explained: “Against the backdrop of significant global headwinds and a challenging inflationary environment, we delivered sales results at the high end of our guidance range and better than expected adjusted earnings per diluted share.”
He believes the performance is a testament to the hard work and relentless focus of his team and added: “Powered by our brand revolution, we have strengthened our emotional connection with our customer and further enhanced our leadership in bras through innovative product launches, while diligently focusing on the efficiency of our retail operations.”
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He pointed out the company’s actions have resulted in a stabilisation of the business and delivered over $1bn in EBITDA for the previous 12-month period.
The company reported net earnings of $80.8m for the period compared to to net earnings of $174.0m for the first quarter of 2021
The adjusted gross margin rate decreased 660 basis points to 36.6% compared to the first quarter of 2021 due to supply chain cost pressures of about $80m, or approximately 550 basis points, and higher margin sales connected with the stimulus benefit last year.
Victoria’s Secret Q2 outlook
The company is projecting Q2 sales to be up low-single digits to down low-single digits versus sales of $1.61bn in Q2 of last year. The midpoint of the forecast of about flat is in line with the Q1 result adjusted for stimulus.
Victoria’s Secret expects the second quarter gross margin rate to be about 37%, down compared to last year’s rate of 41.5%, driven by merchandise margin declines (approximately 370 basis points).
For the full fiscal year 2022 forecast, the company believes the environment will continue to be challenging into the second half of the year. Notwithstanding that industry backdrop, it remains focused on delivering sales that are flat to up low-single digits compared to last year.
Victoria’s Secret said it has plans in place that it believes will enable it to manage through the dynamic macro environment to deliver full year operating income directionally in line with last year.
Waters believes the company has the focused strategy, resilient and expert talent, and customer connection that it needs to sustain and grow its dominant position as the market leader in the intimates merchandise category.
He added: “We are well prepared to continue to address macro challenges through merchandise and marketing that delights our customers, new business initiatives designed to expand our customer base and grow sales, and disciplined financial management. Our Board and our entire team are aligned on our key priorities and are swiftly working together to advance them to create value for our shareholders and other stakeholders.”
The lingerie retailer announced last week that it is launching a digital platform on its website called ‘VS&Co-Lab’. The platform will feature a collection of 19 brands that align with the retailer’s values of innovation and inclusivity, including its minority stake-owned For Love & Lemons and Frankies Bikinis brands.