Victoria’s Secret & Co. Earnings Call Signals Renewed Momentum
Victoria’s Secret & Company ((VSCO)) has held its Q4 earnings call. Read on for the main highlights of the call.
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Victoria’s Secret & Co.’s latest earnings call struck a broadly upbeat tone, as management highlighted its strongest fourth quarter since the spinoff, improving profitability, and accelerating international growth. Executives acknowledged tariff headwinds, restructuring charges, and inventory buildup but stressed margin resilience, solid cash generation, and confidence in the Path to Potential strategy.
Top-Line Rebound and Record Fourth Quarter
Q4 comparable sales rose 8%, driving net sales to $2.27 billion, up 8% year over year and 9% excluding last year’s gift card adjustment. For fiscal 2025, net sales reached $6.553 billion, about 6% higher on a comparable basis and marking the company’s highest fourth-quarter revenue since becoming a standalone public company.
Profitability Beats and EPS Upside
Profitability outpaced sales growth, with fiscal 2025 adjusted operating income up 16% to $403 million and adjusted EPS climbing 22% to $3.00. In Q4, adjusted operating income of $316 million and EPS of $2.77 both topped the high end of guidance, underscoring strong execution on pricing, cost control, and mix.
International Engine Accelerates, Led by China
International net sales surged 43% in Q4 to $276 million, or 27% on an adjusted reporting basis, making the region a key growth lever. China stood out as a primary driver, fueled by social commerce and live-streaming channels, and management signaled confidence with expectations for double-digit international growth in fiscal 2026.
Customer File Expansion and Higher Spend
The company’s customer base expanded in the low single digits, driven by new customer acquisition and deeper digital engagement. App downloads grew 25% in Q4, with mobile apps now contributing roughly a third of digital sales, while spend per customer increased in the mid-single digits, pointing to better quality of sales.
PINK Resurgence and Viral Digital Reach
PINK delivered its strongest growth in a decade, posting high single-digit gains in Q4 and leading the brand’s youth-focused resurgence. PINK app downloads jumped 50%, and the TWICE campaign generated more than 79 million social views, supporting double-digit AUR expansion and multiple sellouts of key bra styles.
Core Intimates and Sleep Categories Recover
Victoria’s Secret’s bra business returned to annual growth for the first time since 2021, including mid-single-digit gains in Q4, signaling renewed strength in the core category. Panties delivered their best performance since 2021 with higher AURs, while the sleep category exceeded expectations and emerged as a top growth engine and a leading entry point for new customers.
Beauty Nears $1 Billion with More Runway
The beauty segment grew at a low single-digit rate in Q4, supported by fine fragrances such as the Bombshell holiday edition and mists. Management now frames beauty as a nearly $1 billion business with ample room for innovation and longer-term acceleration, making it an increasingly important diversification pillar.
Margins Expand Despite Tariff Drag
Excluding the prior-year gift card benefit, adjusted gross margin expanded about 50 basis points in Q4 even as net tariff pressure totaled roughly $60 million, or 250 basis points. The company credited reduced promotional activity, more full-price selling, and operating scale for offsetting much of the tariff burden and preserving profitability.
Balance Sheet De-Risking and Solid Cash Flow
Cash on hand ended the year at $518 million, up $291 million from a year ago, while fiscal 2025 free cash flow reached $312 million, or $244 million on an adjusted basis excluding a one-time legal settlement. The company fully repaid borrowings under its $750 million ABL facility, increasing financial flexibility for investments and potential capital return.
Tariff Headwinds and Mitigation Efforts
Tariffs remain a key earnings swing factor, with management citing about $85 million of net pressure in fiscal 2025 and roughly $60 million in Q4 alone. For fiscal 2026, the team expects around $160 million in additional gross tariffs, planning mitigation to keep the net hit near $40 million, with the heaviest impact in Q1 where tariffs represent roughly a 175-basis-point drag.
Adore Me Reset and Restructuring Costs
The company booked a noncash pretax impairment of $120 million tied to Adore Me long-lived assets and $36 million of inventory and restructuring charges, totaling about $156 million. Management is exiting Adore Me’s subscription model and consolidating fulfillment to the U.S., with these charges excluded from adjusted results as the business is repositioned.
Portfolio Review of Non-Core Assets
DailyLook is under strategic review and Adore Me is undergoing reassessment, signaling a push to streamline the portfolio around core, scalable brands. While these moves may unlock value over time, they also bring near-term uncertainty and one-off costs as non-core operations are evaluated and potentially reshaped.
Inventory Build and Timing Dynamics
Inventories ended Q4 up 12% year over year, partly due to Adore Me reserves and a strategic shift toward more ocean freight that shifts inventory ownership earlier. Management expects inventories to be up high single digits in Q1, reflecting tariff timing and logistics changes but framed the build as largely deliberate rather than a sign of demand weakness.
Higher SG&A from Investments and Incentives
Adjusted SG&A reached $579 million in Q4, with the rate at 25.5%, slightly above the prior year as the company invested in stores and talent. Looking to Q1 2026, SG&A is expected around 33% of sales versus 32.8% last year, driven by higher store labor investments and stronger incentive compensation following outperformance.
Regional Disruption Risk in the Middle East
Management flagged limited operational disruption in the Middle East, where some franchise stores have closed and shipments have been delayed amid regional tensions. The financial impact remains modest due to the royalty-based franchise model and minimal sourcing exposure, but the region remains a watch point for investors.
Reliance on Event-Driven Brand Buzz
Recent momentum has been amplified by major brand events, including a fashion show and K-pop and celebrity campaigns that fueled viral social media engagement. While these cultural moments have clearly boosted demand, management implicitly acknowledged execution risk if similarly powerful events cannot be replicated consistently.
Guidance Signals Steady Growth and Margin Gains
For fiscal 2026, the company guided net sales to $6.85–6.95 billion, up about 5–6%, adjusted operating income of $430–460 million with 20–50 basis points of margin expansion, and EPS of $3.20–3.45 alongside capex of $220–240 million and free cash flow of $220–250 million. Q1 2026 is expected to show 10–13% sales growth, modest gross margin expansion, higher SG&A, and EPS of $0.20–0.30, with store counts flat to slightly up and “Store of the Future” concepts reaching roughly half the fleet by 2027.
Victoria’s Secret & Co. used this earnings call to showcase a business that is regaining top-line traction, rebuilding its core categories, and tightening its portfolio while managing through substantial tariff and restructuring headwinds. For investors, the story is one of improving fundamentals and cautious but constructive guidance, with international growth, digital momentum, and margin discipline set against policy risk and the need to sustain brand heat beyond viral moments.
