Good morning. My name is Amanda, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Victoria's Secret & Co.'s Second Quarter 2025 Earnings Conference Call. Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to turn the call over to Mr. Kevin Wynk, Head of Investor Relations at Victoria's Secret & Co. Kevin, you may begin.

Thanks, Amanda. Good morning, and welcome to Victoria's Secret & Co.'s second quarter earnings conference call for the period ended August 2, 2025. As a matter of formality, I would like to remind you that any forward-looking statements we may make today are subject to our safe harbor statements found in our SEC filings and in our press releases. Joining me on the call today is Chief Executive Officer, Hillary Super, and Chief Financial and Operating Officer, Scott Sekella. We are available today for approximately 30 minutes to answer any questions. Certain results we discuss on the call today are adjusted results and exclude the impact of certain items described in our press release and our SEC filings. Reconciliations of these and other non-GAAP measures to the most comparable GAAP measures are included in our press release, our SEC filings and the investor presentation posted on the Investors section of our website. Thanks. And now I'll turn the call over to Hillary.

Thanks, Kevin. Good morning, everyone. Thank you for joining us today. I'm excited to share that we continued our momentum in the second quarter, once again delivering results that beat our top and bottom line guidance. This growth reflects disciplined execution, the power of the evolving Victoria's Secret and PINK brands and the early impact of our Path to Potential strategy. Before we walk through the detailed results for the quarter, I want to take a moment to reflect on our progress during the past year since I joined. We have taken meaningful steps to reposition the business for sustained growth, led by our Path to Potential strategy. Our refreshed leadership team is in place, including a new Chief Marketing and Customer Officer and a new Brand President model. We are executing with greater discipline and focus, moving faster with shorter production cycles and bringing more innovation to market. Q1 demonstrated early progress, and today, we will discuss how this progress is continuing to unfold. I'm particularly encouraged to see how our efforts are starting to translate into higher-quality product, a more engaging store experience, increased traffic and more regular price selling. This would not be possible without the dedication and passion of our global team working in our stores, distribution centers, offices and partner organizations. Together, we are operating with more energy, collaboration and focus on delivering for our customers. While we have a lot more work to do, I'm now more confident than ever in the opportunity for this company and our ability to execute our strategy to grow shareholder value. We're still in the early days, but the direction is clear, the energy is real and the progress is promising. Now let's walk through the highlights from the second quarter. We grew net sales 3% despite the…

Thanks, Hillary, and thank you, everyone, for joining today's call. Our second quarter results exceeded expectations, building on our strong first quarter beat. The business showed broad-based strength that built steadily throughout the quarter, demonstrating that our early progress against our Path to Potential strategy is translating into results. This outperformance reflects strength in our core business and the team's focus on the fundamentals while continuing to prioritize investments in product innovation, brand strength and customer experience. These investments are positioning us for long-term differentiation and growth. I'll start with a few highlights from the quarter. As Hillary mentioned, net sales were up $42 million or 3% year-over-year while comps grew 4%, which excludes the digital outage, both reflecting sequential improvements over the prior quarter and significantly above our expectations with growth across both Victoria's Secret and PINK. Our total net sales performance was noteworthy, given the security incident in May, which negatively impacted net sales during the quarter by approximately $20 million. Adjusted gross margin dollars were up $18 million compared to last year, while our adjusted gross margin rate was up 20 basis points versus last year and was 60 basis points better than our guidance. We delivered adjusted operating income of $55 million, exceeding the high end of our guidance by $20 million. Adjusted operating income would have exceeded last year's second quarter result of $62 million absent the impact of the security incident that occurred in May, which we estimate resulted in an operating income impact of approximately $14 million in the quarter. And our adjusted net income per diluted share came in at $0.33, significantly above the high end of our guidance. Now let's turn to second quarter results in more detail. Net sales of $1.459 billion were up 3% versus last year. Performance accelerated…

[Operator Instructions] For our first question, we will go to the line of Alex Straton from Morgan Stanley.

This is Lauren Levine on for Alex Straton. We were wondering how you were thinking about the implication of the end of the de minimis exemption on the industry. Do you think that's a tailwind? Or do you rely on that benefit at all?

Lauren, it's Scott. The de minimis exemption isn't a big part of how we go to market. Largely our e-com distribution centers are located in Columbus. So it's not really a material impact on the business.

Our next question comes from Marni Shapiro with Retail Tracker.

Congratulations. I got to just say the stores have been so much fun to shop every week because the energy is unbelievable. And it feels like we finally, Hillary, have somebody in place who understand the importance of this brand globally. I feel like it's been undervalued. So with that, I have a question about your innovation. There's been so much from the Flex bra, that shiny active set, LoveShack, some of it is fashion innovation, some of it's like technical innovation. How should we think about this over the back half of the year and into '26 even with tariffs involved? And will you take that kind of thinking into Beauty because it feels to me watching all the girls and other places that there's a lot of opportunity for you guys even innovating within Beauty for you guys.

Marni, thanks for the support. I'm excited that you're as excited as we are. And I feel like, once again, maybe you're reading my mind or spying on me, but I really agree with everything you say. It is absolutely about fashion innovation and then technical innovation. I'll start with VS. In VS, we have a very deep pipeline of innovation, primarily focused on bras but also in sport as you referenced. It's geared towards customer insights and particularly around the technology of bras, but also, I would say the shine that you're talking about is a great example of fashion innovation. And I think what's different, what we're really unpacking in VS is that we used to have a formula where we sort of set a quarter and let it roll, and we stand behind big ideas for an extended amount of time. And we've started really pacing a more frequent drumbeat of fashion and innovation and messaging and really addressing much more wider variety of her wants and needs, and it is working. And so you'll see a more constant drumbeat from us in both innovation and in fashion as we move through the back half of this year and into next year. And I would just say the shine speaks to -- it speaks to fun, it speaks to joy, it speaks to novelty. And I think as I've stated in previous calls, we got a little serious. And this brand should be joyful and it should be fun and it should be useful. And so you'll start seeing more of that as we move in -- especially as we move into 2026. On the PINK side, it's really more about cultural connection and fashion drops and collaborations and this Wednesday Drop phenomenon that we have in PINK is doing really well, and we want to build on that. But also what we have unlocked not only, first and foremost, with Frankies and our collaboration and partnership with Frankies, but now with LoveShackFancy is that when we hit the right cultural moment, it is explosive for us in this business. So both will have a drumbeat of newness that is more frequent than the past, but serves each individual customer segment appropriately. So we're very excited about what's to come.

Congrats and best of luck for the rest of back-to-school.

Thank you.

Our next question comes from Dana Telsey with the Telsey Group.

Congratulations on the nice progress. Would love to hear a little bit more about on the gross margin side, how are you thinking about pricing and promotions going forward? And then also, when you think about Store of the Future and the technology you've implemented there, what are you seeing traffic- wise? And also, are you seeing an expanded customer, maybe a trade-down customer also ?

Dana, it's Scott. On the gross margin front, as we discussed, we've really made a conscious effort to pull back on promos and the traditional discounts. We expect that to continue into the back half. That is one of our mitigation levers on tariffs, but coupled with our product newness that Hillary was just talking about and really driving more regular priced sales. So we're really encouraged with what we're seeing and how the customer is responding to that. In terms of sort of strategic pricing, we're looking where we see opportunities that can still create that value, but we're being mindful of entry price points and sort of not to exceed price points. So first and foremost is promos and then select strategic price modifications where it makes sense. In terms of Store of the Future, I mean, we continue to get good results where we do either a full Store of the Future remodel or partial. We see some of our more recent ones sort of a double-digit lift in sales from pre to post, that's driven by traffic and better assorted within the store. So we're going to continue to drive that as improvement to customer experience as we go forward.

Our next question comes from Adrienne Yih with Barclays.

This is Michael Vu on for Adrienne Yih. And I just wanted to ask, so your international business was up nicely during the quarter and it continues to grow. Is there any particular category other than Beauty or maybe a consumer cohort that's outperforming in the international market versus the domestic one?

I'll take that one. No, not really. I mean, they definitely have smaller square footage stores, generally speaking, internationally. So we don't have the same breadth of assortment in international. But intimates business is very strong there. We have less of a presence in PINK internationally, and we have less of a presence in some markets in things like sport and swim. So it's really the 2 core categories of Beauty as well as intimates both doing very well globally.

And as a follow-up, is there any difference between the go-to-market strategy in the international market versus the domestic?

No, It's Scott, Michael. No real difference. I mean, we're thinking about the customer globally as we look at our marketing and messaging. So it follows very much the same pattern that we drive here in North America.

Our next question comes from Mauricio Serna with UBS.

I wanted to ask about the fashion show that you're doing this year. Just want to make sure like is this year also mainly focused on the Victoria's Secret brand? Or will there be something that will also include PINK? Because maybe I think I recall that you mentioned that you wanted to do something for PINK, but maybe that's like a completely separate event. And maybe could you provide some details about like the SG&A investments behind the fashion show and how do those compare to last year?

I'll start and then Scott will finish up on your second question. So we -- as you know, we announced yesterday the date of the fashion show. Beginning next week, we will start to slowly unveil some of the details around talent and content of the fashion show through our social channels, so you have to stay tuned. We're not ready to talk about it quite yet. But rest assured, we will have activations in the back half of the year that talk about all of our businesses in some way, shape or form.

And to the second part of the question, we're actively working on how do we amplify the fashion show in a better and even more impactful way than what it was previously. But our marketing dollars for the full year will be basically flat year-over-year. We'll have some movements between quarters, but largely the marketing spend is flat year-over-year.

Our next question comes from Ike Boruchow with Wells Fargo.

This is Juliana on for Ike. I was wondering if you could give us any more detail on the categories, specifically if intimates still remains pressured from panties, and how that's continued throughout the quarter.

Yes, be happy to. Actually -- so let me just start and talk about what really sort of changed between Q1 and Q2 as a total. So after Q1, I talked about strength in Beauty, strength in PINK apparel and strength in sport. All 3 of those categories continued and actually accelerated into Q2. But the big game changer was the core intimates business in Victoria's Secret, and to a lesser degree, PINK both improved. And panties across the board was very, very strong in both brands. So we're extremely pleased about that. And bras improved. We saw full priced selling positive in the quarter, but because we had less in semiannual sale, we didn't see a total comp -- positive comp in bras for the quarter. But big, big improvement in the core of the intimates business in Q2, which we're very, very excited about.

And we saw that for VS&Co, we gained share in the 18 to 44 sort of consumer in Q2 versus Q2 last year.

Our next question comes from Jonna Kim with TD Cowen.

This is [ Julia Shelanski ] for Jonna Kim. I was wondering what your plans are for this holiday season and what's different for fashion this year versus last year and key earnings from last year?

The plans for Q4 and I didn't catch the last -- for fashion. Is that what you said?

Yes, yes. And fashion and key learnings from last year into this year.

Okay. Great. So I'm not going to tell you all of our plans for holiday quite yet. But what I can say is that probably the #1 thing that we learned was the importance of this drumbeat of newness and drumbeat of content, creative content. We saw incredible success and momentum last year coming out of the fashion show, and that carried us sort of into middle of the quarter. And then we had a very clear opportunity sort of mid-December through January to really not only deliver newness and excitement to talk about it and market it in a loud way. And so that is the big change that you will see this year is the front half of the quarter will be focused on holiday and fashion show and really building up that incredible gifting destination that we're known for and then we will shift our messaging. And we will -- we have a huge opportunity around both sport and Valentine's Day later in the quarter that we plan to capitalize on. And in PINK, it's just really about those cultural moments and making sure we're tapping into the cultural moments exactly at the time that they're happening and being much more nimble. So we're actually still working on that because we want to stay as close to the customer as possible.

Our next question comes from Janet Kloppenburg with JJK Research Associates.

I wanted to say congratulations to Hillary that the newness and iteration that you've introduced has been pretty darn compelling. I wanted to ask you, Hillary, about the inventory planning, which has been sort of out of balance for a while. And if you have more conviction that it's going to be where it should be by product and flow as we go forward? And if there's any operational kinks in there that are preventing it from being as solid as it should be. I need to gain confidence in that. And then on pricing, I wondered what kind of pricing power you think you have if you'll use it. And particularly on panties where I think it was being used as a loss leader and to drive traffic, but also to meet competitive headwinds.

Yes, so let me get at this inventory. I mean, I think we always have opportunity to optimize our inventory. I think what we are learning is that we should be -- we should turn faster, particularly in the PINK apparel side, we need to be in and out of ideas and we need to create that sense of urgency with the consumer, and that's going to help us pull back on the promotions and the markdowns that we're so laser-focused on doing and are starting to have some good success with. So I would say that's step number one. Shortening our production lead times helps us with managing that inventory, and that's something that we have made incredible traction on. LoveShackFancy collaboration we brought to market in 26 weeks. That is a wild improvement from where we were a year ago. I think PINK in particular, we have -- actually in PINK, in particular, but also in VS, we have an opportunity to really scrutinize our size breakdowns and make sure we have enough inventory in the right sizes and that's something that's actively in process. So we're looking at everything. I also think we have an opportunity to look at how we allocate the stores and what assortments got to what stores and really utilize data science to drive more customized assortment. So there's a lot particularly in the stores channel we can do to optimize and that is in progress right now. Pricing power. This is something we've been looking at before tariffs were even a topic. Last Q4, we made some strategic price increases in the area of gifting and Beauty as well sleep. Saw no resistance to that. I think when emotion and the quality and the marketing behind it is there working in a singular ecosystem, we are seeing that she will pay. So we believe that we always need an opening price point and we believe that price ceilings in our business are also something that we need to look at, but there's room to play in between and so we'll be strategically looking at that. As it relates to panties, I think panties are absolutely a traffic driver. They are an acquisition tool. They are a basket starter. And across the industry, everyone is priced in multiples. Now what that multiple price point is, is something we're definitely looking at. And actually, we have one running this weekend that is at a lower -- actually it's at a higher ticket than last year. So we are pulling back where we can, but we're testing into that because we don't want to take our foot off the gas of acquisition. And we don't want to take our foot off the gas of our total basket size. So hopefully, that answers your question.

You did. And I have one last, which is just on the 26-week lead time for LoveShack, which was really well done, is that about as good as it gets, Hillary? I mean, could you get that for 20 weeks? Or is 26 weeks where it's going to be?

I think it's just a fantastic first step from a company that a year ago was running everything on a bra timing cycle. So to move within a year from 52 to 26 is a big jump forward. And then of course, we're always looking for opportunities. And it depends on the category. I mean there are some things that we should be faster, and we are. Like we can get into panties in 2 or 3 weeks. We can get into some bras that we own raw materials in, in about 8 to 12 weeks. So we do have places where we have flexibility and that's something we'll continue to work on. But to get an entirely new collection that had never been thought of in 26 weeks to market, I think, is an incredible win for this company and a proof point that we can move quickly and with agility.

Okay. And I wasn't being critical. I just wanted to understand what it...

Oh, I know. Actually I'm glad you asked. Yes, absolutely. And we'll be working to be as fast as possible.

We have time for one more question, Brooke Roach with Goldman Sachs.

This is Evan Dorschner on for Brooke. I was hoping you could just dive a little bit deeper on the tariff impact you expect for this year? How should we be thinking about that into next year as you also start to action your mitigation strategies?

Evan, it's Scott. So as we said, the tariff assumption right now is 30% for China and 20% non-China, which is up from 30% China and 10% on China in our last call. That increase is about a $50 million impact versus our prior guidance. So our net tariff impact in fiscal '25 is $100 million total. There is $70 million of mitigation in that. So you think about the gross impact is really north of $100 million. The mitigation we've got in place is largely locked down for fiscal '25 just given our orders are already bought into and whatnot. But as we go forward into '26, we are attacking and we'll have additional mitigation, particularly on less air, more ocean. That's going to be a big lever that we pull. We are actively looking at resourcing out of different countries to further mitigate in 2026. But as you know, that takes time and so that we need to work through all of that. And we will continue to thoughtfully pull back on promos to help offset this, and then continue our sort of expense management. So mitigation will definitely increase in 2026. It just takes a little bit while for some of these levers to play out.

Okay. Thanks, everyone. That concludes our call this morning. We appreciate your time this morning and your interest in VS&Co. Have a great day.

Thank you all for participating in the Victoria's Secret & Co.'s Second Quarter 2025 Earnings Conference Call. That concludes today's conference. Please disconnect at this time, and enjoy the rest of your day.