Victoria`s Secret & Co Stock

Thank you. Good morning. My name is Amanda Douglas, and I will be your conference operator today. At this time, I'd like to welcome everyone to Victoria's Secret & Company's second quarter 2026 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 Kevin Wynk, Global Controller at Victoria's Secret & Company. Kevin, you may begin.

Thanks, Amanda. Good morning, and welcome to Victoria's Secret & Company's second quarter earnings conference call for the period ended August 1st, 2026. Joining me on the call today is Chief Executive Officer Hillary Super, Chief Financial and Operating Officer Scott Sekella, and Chief Marketing and Customer Officer Elizabeth Preis. We are available today for approximately 30 minutes to answer any questions. I would like to remind you that any forward-looking statements we may make today are subject to our safe harbor statement found in our SEC filings and in our press releases. 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 investor section of our website. With that, I'll turn the call over to Hillary.

Good morning, and thank you for joining us. Q2 was another strong quarter for Victoria's Secret. Net sales increased 10% year-over-year, near the high end of our guidance, and operating income and earnings per share exceeded the high end of our guidance. This marked our fifth consecutive quarter of positive comps, giving us further confidence in the progress we are making. The bigger story is what sits underneath those results. When I joined Victoria's Secret two years ago, I saw iconic brands with deep emotional connection but significant untapped potential. Today, we are attracting more customers, winning market share, and strengthening the value proposition for both brands. Product, brand identity, storytelling, and execution are all working together.

We have made meaningful progress, but we are not done. As part of the Path to Potential strategy, we are working to build Victoria's Secret and PINK into two distinct world-class growth brands, supported by a powerhouse beauty business. This quarter, we continued to make tangible progress towards that goal. Strength in the quarter was broad-based, with continued growth across Victoria's Secret, PINK, and Beauty, and across channels. We also delivered continued momentum in our international business. Our customer file continues to grow, increasing mid-single digits versus last year and marking our fourth consecutive quarter of growth. Growth spanned both brands and channels, as well as all age and income groups, led by strong new customer acquisition and improving retention.

At the same time, we continued to improve the quality of our sales. Regular price selling increased in the low double digits, accompanied by strong unit and AUR growth. Within that broad-based performance, two areas stood out: ROSS and PINK. Both are central to our Path to Potential strategy, and both are showing that our work is gaining traction. Our bra business grew in the mid-teens, driven by strength in core franchises and by new innovation, contributing to both VS and PINK's performance. PINK delivered another quarter of growth with strength in bras, panties, and apparel. Beauty also continued to grow, delivering its 12th consecutive quarter of sales growth.

Importantly, we are not standing still and are continuing to learn and adjust quickly. Semi-annual sale is a good example. We have made a deliberate decision to reduce our reliance on promotion and increase regular price selling. As a part of that shift, we entered the period with less sale inventory. Initial demand and sell-through exceeded our expectations, demonstrating that the event continues to resonate, but as the sale process progressed, lower inventory pressured the June top line. That gives us a clear opportunity going forward. June has historically been a sale-heavy month, but we increasingly see it as buy-now, wear-now fashion window.

We'll continue to use semi-annual sale to clear seasonal inventory while bringing more newness, innovation, and seasonal fashion into the month. We saw the potential of that approach in July, when growth returned to double digits as customers responded to new bra innovation across both VS and PINK. All altogether Q2 reinforced that our Path to Potential strategy is working. We are entering Q3 with a larger customer file, strong brand relevance, and a full brand and marketing calendar ahead. I will now walk through the progress we made against each of our Path to Potential pillars: supercharging our bra authority, recommitting to PINK, fueling growth and beauty, and evolving our brand projection and go-to-market strategy. I'll start with bras, where we have firmly re-established the category as our #1 growth driver. Bras are the foundation of Victoria's Secret.

They're where our authority begins, often the starting point of her relationship with us, and an important driver of the business. This quarter, our bra business grew in the mid-teens. That strength was a major contributor to the VS brand, which also grew in the mid-teens during the quarter, with bras driving a performance of over 1. approximately half of its growth. What is encouraging is how broad-based the growth is. We are growing both new and existing bra customers with particularly strong new customer growth among 18 to 24 year olds. That strength also spans the assortment from wardrobe staples to more fashion driven styles. That includes functional and seasonally relevant solutions like strapless, as well as lacy where bright colors, fabrication, and styling give her another way to make intimates part of her overall look.

Importantly, our core franchises continue to grow alongside more frequent newness. We have established a more consistent cadence of innovation and fashion updates that gives her more reasons to come back while growing the core. A good example was the 25th anniversary of Very Sexy. We celebrated the franchise with an iconic campaign set in Rome for the launch of our new Very Sexy Envy bra. While the campaign was anchored in Very Sexy, the impact extended across the bra assortment. That is exactly what we want our big brand moments to do: create heat, deepen emotional connection, and lift the total business. We also continue to see a strong response to innovation across key silhouettes.

One example this quarter was the Flex Factor Balconette. This new frame is a shape she loves and builds on the Flex Factor innovation that is already resonating. The launch drove incremental growth in both Body by Victoria and the broader Balconette business while driving demand across the collection. This quarter proved once again that when we win in bras, we create a halo across the broader Victoria's Secret business. Momentum and bras help drive high teens' growth in panties and mid-teens' growth in sleep. We amplified that momentum through both marketing and sharper execution. We are reaching new audiences while fine-tuning assortments, size curves, and in-stock to put the right product in the right places and execute with greater precision.

As we move into Q3 and holiday, we will continue to build on what is working, maintaining a healthy core while bringing her more innovation, fashion, and powerful storytelling. We see significant opportunity to build on this momentum through the back half and beyond. We are seeing similar progress in PINK, the focus of our next pillar. The work to sharpen PINK's identity is taking hold. The brand is standing more confidently on its own with a clear personality, stronger brand codes, and a deep emotional connection. PINK grew high single digits and delivered its fifth consecutive quarter of growth, within increasing strength from the heart of the brand: bras, panties, and apparel. That gives us further confidence in the renewed resonance we are seeing with the PINK customer.

We have a clearer read on what she wants from PINK: product that is comfortable, expressive, and tied to the moments that matter. It starts with the icons she knows and loves. We are keeping those franchises fresh with new silhouettes, fabrics, color, and fashion so the core feels familiar but never static. At the same time, we are using customer insights to create new growth opportunities. Marshmallow is a great example. It is our first new bra pillar in two years, and it came from a very clear customer need: an all day, every activity comfort bra that still feels fun, fashionable, and uniquely PINK. We paired that insight with our expertise in bras to deliver four new frames with easy sizing, wireless support, and soft fabrication.

We brought it to life digitally through a broad network of creators, making Marshmallow feel like it was everywhere she was. That combination drove outsized results following the launch, reinforcing our belief that bras can become an increasingly important growth engine for PINK. As the core fueled growth, we also continue to build PINK as a lifestyle brand. Apparel, which has now delivered eight consecutive quarters of growth, remains an important part of the strategy and one of PINK's largest customer growth vehicles. Denim, linen, and sleep all performed well this quarter, giving us new ways to outfit her and showing us where we have additional opportunity to scale. The Soho store continues to be an important physical expression of the PINK world. It brings together product, merchandising, and experience in a way that feels unmistakably PINK, and it gives us new ways to interact with our customers.

We are taking what resonates in Soho and thinking about how to apply those learnings more broadly across the fleet. PINK Friday is another example of how we are bringing the PINK World to life. This August, we evolved the event from one largely focused on promotion into an immersive experience, bringing together great product, playful moments, and the viral return of PINK's Square Fragrance Bottle. By leading with emotion over promotion, we created a fun and engaging experience for our customers. We are also showing up in ways that feel most relevant to her. As part of PINK Friday, we launched our first TikTok Live from the store, taking the in-store experience she loves and bringing it to her phone through our social channels. This is another example of how we are leaning into our heritage as an entertainment brand and creating more ways to engage through content and experiences.

We are also expanding brand heat through collaborations and partnerships, such as with Jansport and most recently Hydrojug and the NFL. These remain important ways to create excitement, reach new customers, and give her new reasons to engage. As PINK increasingly stands on its own, those collaborations become the icing on a much stronger foundation built on recognizable brand codes, compelling core product, and a clear point of view. As we head into fall, we are listening to her, understanding the moments that matter, and responding in ways that feel uniquely PINK. We are bringing that focus to moments like back to school while continuing to build opportunities in categories like accessories. We see significant runway to continue building from here. Turning to beauty. Beauty grew mid-single digits in Q2 and delivered its 12th consecutive quarter of sales growth.

Importantly, the quality of that growth remained strong, with regular price selling up high single digits. Growth was driven by strength in the core, especially fine fragrance and mist, while a consistent cadence of innovation gave her new reasons to engage. This year, we introduced six incremental scents, creating a steady flow of newness. And when customers tell us they've found something they love, we're extending many of those fragrances beyond their original launch windows. We are integrating beauty more fully into the broader Victoria's Secret world. We increasingly think about fragrance as the final outfitting layer, connecting scent to the product, campaigns, and moments she is already engaging with across the brand. Mother's Day was a great example. Bombshell Bouquet was at the center of an integrated campaign that brought together fragrance, emotional storytelling, and gifting.

We were also more surgical about where, when, and how we deployed our marketing investment, focusing on key days and channels leading into the holiday. Over Mother's Day weekend, beauty sales further accelerated, which reinforced an important learning. When we win in the moments that matter, we win in beauty. We're becoming more disciplined about identifying those moments, aligning product, marketing, and experience around them, and showing up in a more focused way. We're also getting better at identifying what is resonating with her and bringing those trends into beauty in ways that feel distinctly Victoria's Secret. Shimmer is a good example. We introduced shimmer across both core and seasonal mist offerings and have seen continued growth. Looking ahead, we see an opportunity to build on that response by expanding into additional shimmer forms within Bombshell.

We're also tapping into the nostalgia trend through archive drops. When we brought back the original PINK square bottle scents for PINK Friday, the collection sold out digitally in less than 1 day. More importantly, it reinforced the deep emotional connection our customers have with our fragrance heritage. We have decades of iconic scents and formats across Victoria's Secret and PINK, and we are bringing them back in ways that feel relevant today. We are applying all of the learnings and our integrated marketing approach to one of our biggest beauty launches this year, Strawberry Bisou, which continues to accelerate. Along with the customer response to PINK Friday, this gives us further confidence in our momentum going forward. Looking ahead, we continue to see meaningful runway in beauty through innovation, franchise expansion, archived storytelling, strategic media investment, and stronger integration across the brands. Turning to our fourth pillar, evolving brand projection and go-to-market strategy. And relevance, awareness, and emotional connection are translating into customer growth.

We continue to gain share in Intimates, outpacing the market. That momentum is supported by emotionally resonant campaigns, better customer engagement online and in-store, and much fuller utilization of the marketing funnel. We delivered our first-hand experience fourth consecutive quarter of overall customer growth with gains across new, active, and reactivated customers, as well as all income and age cohorts. That growth was broad-based across all channels, brands, and key categories. New customer acquisition grew high single digits and continues to outpace total file growth with particularly strong acquisition among 18 to 24 year olds, an encouraging sign of our growing relevance with younger customers. Customers are returning at a higher rate and spending more, supported by a more integrated marketing ecosystem, including digital, social, app push, and CRM, all working together to reach new audiences and retain our loyal customer base. As part of our strategic rebalance of marketing investment, we are engaging her in new and exciting ways.

Alongside our bigger campaigns, we have significantly increased our work with influencers, become more agile with social-first content, and experimented with new formats like TikTok Live. Our app and own channels are also helping us create a more connected customer journey. As we create more opportunities for her to engage, we are seeing a growing sense of community around our brands. Customers want to engage. They want to participate. They want to be part of the VS and PINK worlds. That is an important part of how we deepen our relationship with her and build fandom over time. We have significant opportunities to build on that engagement and sense of community in the back half.

One of the biggest is the Fashion Show, which we are continuing to evolve from a single event into an ongoing franchise. Last year gave us important insights into the show's potential. What stood out most was the excitement and fandom that emerged from our community, people through watch parties, gathered with friends, and engaged across social. That engagement helped drive customer acquisition and product demand that exceeded our expectations and gives us confidence to increase our marketing investment behind the opportunity this year. We are also applying learnings from last year by creating dedicated watch parties around the country, making the show more accessible with distribution across YouTube and live streaming on social platforms and building more excitement in the lead up to the show. Angels Among Us, a nationwide search for the next angel, is an important part of that strategy. Building on the overwhelming response, we recently announced a special docu-series produced by Boardwalk Pictures.

Premiering globally on YouTube on September 27th, the series will follow the aspiring angels on their journey all the way up to the Fashion Show where the newest angel will be revealed. Angels Among Us is a great example of how we are leveraging our strength as an entertainment brand by giving our community a more active role in the Victoria's Secret world and celebrating the fans who have always been the heart of the brand. Through the docuseries and the Fashion Show, we have an exciting and packed calendar ahead. We have more product innovation, partnerships, and emotionally connected campaigns coming through fall and holiday as we continue giving customers more reasons to engage with both brands. Finally, I want to touch on international. Our international business continued to grow in Q2, led once again by China and our European digital business. The growth was broad-based, with strength across channels and geographies. Importantly, we are delivering this growth on top of strong performance last year.

We're continuing to expand the brand's global presence through new flagship openings in key markets, local content and marketing, and through the Fashion Show, which is resonating with customers all over the world. Our strategic priorities are translating globally and we continue to see significant runway ahead. In closing, next week will mark two years since I joined Victoria's Secret. When I arrived, I knew there was meaningful work ahead, but I also knew what these brands could become. Two years later, I have even greater conviction in the opportunity in front of us. Our customer file is larger and healthier. We are gaining market share, and customers are responding to stronger product, more fashion, and more culturally relevant storytelling. We're winning from the core. We're amplifying those wins through fashion, innovation, and emotional connection.

And we're seeing that translate into more customers, stronger brands, and higher quality growth. Our Path to Potential strategy is delivering results. Despite a challenging macro environment, we are firmly in growth mode. For all the progress we have made, we still see tremendous runway ahead. We're getting better and faster at turning customer insight into action, helping us target more effectively and drive increased customer engagement. We enter the back half with a strong pipeline of product innovation and brand moments to build on this momentum. We will continue investing behind the growing brand heat in both VS and PINK to expand our reach and deepen engagement.

Two years in, I am incredibly proud of what our teams have accomplished. Their energy and commitment to putting our customers' and Brands First continue to impress me. I want to thank them for their passion and dedication, which have driven the progress we have made. Our teams are one of the biggest reasons I am even more excited about what is ahead. We have bold ambitions for this company, significant opportunities still to capture, and we are not slowing down. With that, I will turn the call over to Scott to walk through our results in more detail.

Thanks, Hillary, and thank you, everyone, for joining today's call. We are very pleased to report second quarter results with operating income and earnings per share well above the high end of our guidance and net sales near the high end of our expectations fueled by strong North America and international performance. As Hillary mentioned, our Path to Potential strategy continues to deliver. Accelerating brand heat is translating into customer growth across the portfolio, and we are seeing healthy, regular price selling in our core categories. Our continued execution and discipline drove exceptional first half performance, keeping us firmly in growth mode. We enter the back half well-positioned with a high-quality inventory position and elevated product innovation across Victoria's Secret, PINK, and Beauty. We're also energized by our marketing activations, including the Angels Among Us docu-series and an extended Fashion Show presence, all of which give us confidence as we head into the second half of the year. 1 note before jumping in the second quarter results. In the quarter, we received IEEPA tariff refunds of over $140 million, representing over 95% of the IEEPA tariffs paid by the company. We have excluded the refunds from our non-GAAP results, and thus the results discussed on today's call exclude the impact of the refunds. Now, turning to second quarter results in greater detail. Net sales were $1.611 billion, an increase of $152 million, or 10%, compared to last year. This was our fifth consecutive quarter of strong top line growth.

Q2 comp sales increased 9% and 13% on a 2-year basis, consistent with our Q1 trend. Adjusted operating income increased a strong 125% to $124 million. Adjusted net income per diluted share increased almost threefold to $0.95 from $0.33 in the second quarter of last year. As Hillary highlighted, the quarter performance was broad-based with strength across Victoria's Secret, PINK, and Beauty, and across channels. Thank you. For the quarter, store and digital traffic both increased compared to last year, with digital traffic outpacing stores. We registered our fourth consecutive quarter of customer file growth up mid-single digits over last year. And as Hillary noted, new customer growth continued to outpace the total file, growing high single digits. Regular price selling continued to strengthen in the second quarter, supported by product innovation wins and expanding brand heat across Victoria's Secret, PINK, and Beauty.

We remained disciplined on inventory, allowing us to further reduce promotional activity across levels, event count, and duration. As a result, second quarter AURs accelerated to up high single digits compared to last year, of the mid-single-digit growth we saw in the first quarter. We also grew total units low single digits in the quarter, including regular price units, which were up high single digits. From a top, we saw outside strength in May and July, both up double digits year-over-year. June was up mid-single digits, with strong performance during the initial weeks of our semi-annual sale event. Hillary noted we have gained valuable insight into the opportunities to strengthen next year's semi-annual sale, and that work is already underway. By brand, we registered year-over-year retail sales growth across the portfolio, with Victoria's Secret up mid-teens, PINK up high single digits, mid-teens, excluding a shift in the timing of the PINK Friday event from Q2 last year into Q3 this year, and beauty up mid-single digits. We saw another quarter of strength in North America, with VS Intimates accelerating from Q1, growing mid-teens compared to last year, with PINK Intimates up high single digits, which reflected a headwind from the timing shift of the PINK Friday event.

As Hillary reviewed product innovation, marketing execution, an integrated gifting approach around Mother's Day, and strong initial semi-annual sale performance all contributed to another quarter of strong North American results. Our international business delivered another quarter of strong year-over-year growth. International reported net sales growth was 20% in the second quarter, inclusive of retail comp sales growth up low teens. The growth was led by another quarter of outstanding performance in China in both the digital channel and the digital market, which continues to be driven by social selling, as well as in stores where we are seeing very impressive comp sales results. The continued growth in the quarter was partially offset by fewer merchandise sourcing sales to our franchise partners in Q2 compared to last year as a result of order and shipment timing. For the full year, we continue to forecast international net sales up approximately 20% on top of strong results last year. As Hillary mentioned, our strategic priorities are translating globally, and we continue to see significant runway ahead.

As a reminder, we began fulfilling digital orders in Europe out of our new European distribution center in the third quarter last year, thus began recording these sales as part of our international channel at that time. Adjusting for the reporting shift to these European digital sales, from direct sales to international sales, second quarter international sales grew 10%. Turning to margins, second quarter adjusted gross margin dollars were $626 million, an increase of $106 million or 20% over last year. The adjusted gross margin rate in the quarter was 38.8% compared to 35.6% in the second quarter last year, an expansion of 320 basis points and 30 basis points above the high end of our external guidance of 38.5%. Of the 320 basis points of year-over-year expansion, approximately two-thirds was driven by higher merchandise margin, reflecting increased mix of regular price selling and continued reduction in promotions, with the remainder driven by buying and occupancy leverage on the 10% increase in net sales. The incremental gross tariff headwind in the quarter compared to last year was approximately $10 million, slightly better than our expectation, and the net benefit factoring in mitigation was approximately $20 million, consistent with our guidance. The adjusted SG&A dollars were $502 million in the second quarter, and our adjusted SG&A rate was 31.1% compared to 31.8% last year, a 70 basis point improvement and 140 basis points better than our guidance of 32.5%.

SG&A rate leverage on higher sales was achieved despite increased expense from North America flex costs related to higher demand trends. Adjusted SG&A dollars continue to grow slower than net sales in the quarter, reflecting ongoing leverage, even as we made thoughtful investments in customer-facing initiatives, including marketing and the in-store customer experience, a trend we expect to continue for the balance of the year. Adjusted operating income of $124 million was 125% above last year's adjusted operating income of $55 million, an increase of $69 million and exceeded the high end of our guidance range of $90 million to $100 million by $24 million. Adjusted non-operating expenses, consisting principally of interest expense, were $13 million in the quarter, consistent with our guidance and compared to $17 million last year. Our adjusted tax rate was 22.9% in line with our guidance. Adjusted net income was $80 million compared to $27 million last year. Our adjusted net income per diluted share was $0.95, above the high end of our guidance range of $0.65 to $0.75, and compared to $0.33 in the second quarter of last year.

In the second quarter, we did not repurchase any shares under our $250 million repurchase authorization approved in March of 2024. Year-to-date, we have repurchased 2.2 million shares, totaling $100 million at an average price of approximately $45, leaving $150 million remaining under our current authorization. We had 84 million weighted average diluted shares outstanding in the quarter in line with our guidance. Now, turning to the balance sheet, our inventories remain in a healthy position. Second quarter total inventories were up 8% year-over-year, in line with our guidance of up high single digits. From a liquidity standpoint, we ended the second quarter with a cash balance of $522 million, an increase of $334 million above last year, and with no outstanding borrowings on our ABL compared to $75 million last year. Cash balance and the remaining availability under our ABL leaves us in a strong financial position with ample flexibility for continued execution of our strategic priorities.

Now, let's turn to our outlook for the remainder of fiscal 2026. 1 note regarding tariffs. Our third quarter forecast assumes current tariff rates of approximately 10% and 12.5% for the respective countries in which we source products. The fourth quarter, our forecast assumes a return to an approximate 20% tariff rate. For fiscal year 2026, we are raising our top and bottom line guidance. Now expect net sales to be in the range of $7.10 billion to $7.18 billion, up from our prior range of $7.03 billion to $7.13 billion, and compared to net sales of $6.553 billion in fiscal year 2025. The increased net sales outlook represents year-over-year growth of 8% to 10% compared to prior guidance of 7% to 9%. We now expect fiscal 2026 adjusted operating income in the range of $560 million to $590 million, compared to $403 million in fiscal 2025.

This represents an increase of $10 million at both ends of our prior guidance range of $550 million to $580 million. This outlook, in part, reflects our decision to reinvest a portion of the outperformance into marketing to accelerate short and long-term growth. We are raising our fiscal year 2026 adjusted net income per diluted share to be in the range of $4.45 to $4.70, up from our prior range of $4.35 to $4.60, and compared to adjusted net income per diluted share of $3 in fiscal year 2025. Our forecast assumes weighted average diluted shares outstanding of approximately 85 million. We continue to estimate capital expenditures in the range of $220 million to $240 million in fiscal 2026, or approximately 3% of sales. In North America, we continue to expect store counts at the end of 2026 to be flat to slightly up compared to last year, with 45% of our global fleet in our store of the future design, including 30% in North America and 55% internationally. Turning to our outlook for the third quarter of 2026.

The strong first half momentum has continued in the third quarter. We are forecasting third quarter net sales in the range of $1.57 billion to $1.60 billion compared to net sales of $1.472 billion in the third quarter of 2025. As mentioned earlier, PINK Friday shifted from Q2 last year into Q3 this year, which represents a growth tailwind of approximately 1%. This outlook assumes top line growth of approximately 7% to 9% based on continued momentum quarter to date in our North American business, as well as strength in our international business. On a 2-year basis, our sales forecast for the third quarter is up 16% to 18%, reflecting an acceleration from Q2. With this sales outlook, we expect third quarter 2026 operating income to be in the range of $10 million to $20 million, compared to adjusted operating income of approximately break even in the third quarter of 2025. We expect our third quarter 2026 gross margin rate to be about 38% compared to 36.5% in the third quarter of 2025, representing approximately 150 basis points of expansion.

The expected rate expansion is based on the strength of our operating model, which continues to deliver leverage on buying and occupancy expenses as net sales grow, as well as our disciplined promotional strategy and more regular price selling. We also expect a gross tariff headwind similar to last year in the third quarter, and when factoring in mitigation efforts, a year-over-year net benefit of approximately 60 basis points compared to the prior year. Partially offsetting these gross margin tailwinds is incremental pressure this year from rising transportation costs. SG&A rate in the third quarter of 2026 is expected to be approximately 37.5% compared to an adjusted SG&A rate of 36.5% in the third quarter of 2025, an increase of approximately 100 basis points. This reflects customer-facing investments, including Angels Among Us and overall marketing spend, and higher assumed incentive compensation on improved forecasted results for the back half of the year. Non-operating expense is expected to be approximately $13 million, favorable compared to $18 million in the third quarter of last year, reflecting higher interest income on higher cash balances following the collection of tariff refunds, together with reduced borrowings under our ABL facility. Given the near break-even level of pre-tax income forecasted in the third quarter, we are forecasting income taxes to be insignificant in the period.

Given these inputs, we estimate third quarter net income per diluted share to be in the range of a loss of 9 cents to income of 1 cent compared to adjusted net loss per diluted share of 27 cents in the third quarter of last year. We enter the back half of the year with healthy inventories and expect to end the third quarter with inventories up high single digits compared to last year to support business trends. In closing, our results this quarter reflect two years of significant transformation across Victoria's Secret, PINK, and Beauty. We are pleased with the continued acceleration in our top and bottom line performance, and we wish you a great day. We believe there remains a long runway of opportunity ahead as we continue to grow our customer base, invest in our brands, our customer experiences, and our operating capabilities. Would now like to open it up for questions. Operator?

[Operator Instructions] For our first question, we will go to the line of Michael Vu with Barclays. Your line is open.

Good morning. This is Mike Vu on for Adrian Yee, and thank you for taking our question. So it's great to continue to see the strong regular price selling and strength at PINK across all the categories. So I guess we wanted to ask specifically to PINK, would you be able to share any color on the use of promotions at the division, and were you seeing any changes, any elevated promotions within the apparel category versus the other ones?

Scott, I can take that. So at PINK, much like the other brands, we continue to pull back on promotions, particularly even on apparel. I mean, the regular price selling continues to be where all the growth is coming from, and within apparel, it's even particularly to our sort of PINK icon styles.

Got it. And then as a follow-up, I know, Hillary, you cited the total customer file grew mid-single digits, new customer acquisition was up high single digits, and you saw improved retention during the quarter. So I guess we wanted to know, what are you learning about the quality of these newer cohorts, any color on initial AUR, repeat purchases, or cross-category purchasing. Thanks.

Thanks for the question. I'm actually going to have Elizabeth, our Chief Marketing Customer Officer, answer that.

Yes, we're very happy with our customer file this past quarter. It was the fourth straight quarter of customer growth and the fourth straight customer of new customer acquisition that outpaced. The key thing we're doing right now is we're really using our core network of own channels and paid channels. That would include paid search, paid social, push and email to make sure that we're keeping that customer engaged within the brand. As a result of these efforts, we're actually bringing those customers back to us, more of them back to us, they're coming back faster, and they're actually spending more when they do come back. Thank you.

Great. Thank you very much.

Thank you. Our next question comes from Dana Telsey with Telsey Advisory Group. Your line is open. Dana, your line is open. You may need to unmute yourself. Okay.

Hi, good morning everyone and nice to see the progress. As you think about the bra category where you're gaining significant share and the path going forward, how do you think about product introductions, pricing, and how do you think about it for PINK versus Victoria's Secret? Secondly, what about retail stores? The PINK store in Soho is doing well. Is there opportunity for others, even if a selective number? And just lastly, marketing spend and how you think of marketing spend, this the balance of this year and how you think about it for next year. What is sustainable in marketing investment? What's new and different? Okay.

Thank you. Thanks, Dana. I'll start off and then Scott.

Elizabeth may chime in at the end. Yes, certainly.

in PINK and VS. So I will start by saying our innovation engine is fully in gear, shall we say. And in July, we were able to launch two innovations, one in PINK, one in VS, that were very much grounded in what we heard from the customer. On the VS side, it was taking a frame, the Balconette, which she is absolutely loving, and marrying that with Flex Factor, a technology we know she loves, and creating a new product that really, really resonated with her. And then on the PINK side, it's the first time we have had a new frame in over two years. And it has been tremendous. It was 100% incremental. We still saw the other two franchises grow in the month.

And we continue to see momentum in both brands and bras. Bras are really driving the lion's share of our growth in both brands, and we have a full pipeline of innovation on the way. We also think of innovation in terms of technical innovation and also fashion innovation. And so then I would point to our Very Sexy launch in August where we launched a very fashion bra called the Very Sexy Envy, and it's already in our top 10, which is quite tremendous for a fashion brand. So long story short, more innovation, more fashion, more frequent newness, and really focusing in our core to be much more productive to allow for that fun in the fashion space. So firing on all cylinders in the bra category, I'm very excited for all of what's to come. On your question on retail stores and the PINK store in Soho, we are really pleased with that store, and we're pleased with it and its performance, but we're also pleased with it in terms of the experimentation, community building, cultural connectivity, such as the TikTok Shop Live that we did during PINK Friday. So it is absolutely a laboratory for us, and we're actively thinking about where there might be opportunity to bring more PINK standalones.

Over time, we want to meet the customer where she is. We will be selective in that, but we definitely think it's an opportunity. And then I'll let Scott and Elizabeth talk about the marketing.

In terms of marketing spend, we're in the low 7% of sales right now. We see opportunity over the next couple years to drive that up to a high single digit. The return that Elizabeth will talk to in the marketing is what gives us confidence to invest in marketing on the back half of this year. So there's an investment with Angels Among Us, the docu-series that we're excited about, but that investment will continue in the fourth quarter. And we see this as really being a sustainable as we go forward.

Yes, we've had solid growth. We started this journey about four quarters ago, basically redeploying our marketing investments. I would say that we were sort of focused very much on our existing customers and we weren't really reaching more new customers. Since we've deployed a much more digital first, social-centric approach, that's allowed us to reach a broader audience, a broader relevant audience, and that is what has helped us bring in many more new customers. I would say that when we started this journey, we didn't have a marketing that was not performing. What we have done in the past four quarters is actually optimize our marketing mix. So, without spending a lot more, we've actually just been shifting the dollars, and that has performed very nicely for us. We see the results both in terms of traffic, traffic to stores, traffic to online, and we also see the results very clearly in our customer accounts and our customer acquisition.

So that gives us a lot of confidence for the go forward. We're going to continue this. We see this additional opportunity of turning even more dollars into working dollars for us and are excited about the back half. Over time, we believe that we could take the marketing investment from currently just over 7% annually up to high single digits.

Thank you. Thank you. Our next question comes from Matthew Boss with JPMorgan. Your line is open.

Great, thanks. So, Hillary, on 9% comps in the second quarter, which accelerated on a 2-year stack, could you speak to the cadence or July exit rate trends, excluding some of the shifts, and just elaborate on the August momentum or your confidence in raising back half revenue guidance despite tougher conditions?

Comparison? Hi, Matt. Yes, sure. So July was incredibly strong for us, and we accelerated in August. So July, very much grounded in bra innovation across both brands. Very, very pleased with our performance in July. And as we entered August, I would say that in VS and PINK, the business was largely consistent, and we saw beauty really accelerate. And so I thought I would just take a minute to talk about some of the things that we've been working on in beauty because you will start to see them in the back half of the year. Really four key things we've been working on in beauty. 1 is our innovation pipeline. Very similar, taking a page out of the playbook in bras and applying it to beauty. And that is starting to come to market.

2 examples of that are Strawberry Bisou from Tees, which just launched this month and has been very, very strong, as well as integrating shimmer into our products. And that's something you'll see in the back half with the Bombshell franchise. The third is really tapping into our archive and the nostalgia trend that is going on on social media and what we are calling bring back fragrances. And scent memory is really important and with all of the emotional attachment that our customer has to the brand, really, tying that with a bow with scent memory, we are finding is incredibly impactful. And so the PINK square bottles, which sold out online in the first day, are a good example of that, and we have more of that to come in the pipeline. That's something that we're really thinking about across the entire enterprise. The third is brand integration, making sure that scent is part of the big brand moments, Mother's Day being an example, Valentine's Day being example. And then finally, what is our channel experience for beauty? We've been working on new in-store displays, integrating into the main floor, new creative, etc.

So you'll start to see an elevation in the beauty area in stores, as well as some work in the service piece of the business. And finally, our digital channel. When I say digital channels, I mean all of the touch points of digital. And that includes the use of influencers, which we also have had incredible success in the bra arena with, as well as TikTok shops and TikTok Lives. So it's really a full court press in beauty, and that's just starting to come to life. And we're just feeling really, really, really strong about the business overall.

Great color. And then as a follow-up, Scott, could you speak to North America and international top-line performance relative to internal plan in the second quarter? Have you seen acceleration in both regions, as you cited in August, and just what you've embedded for the back half across the 2 regions or are there any growth drivers that you see moderating relative to the front half of the year?

I mean, Hillary touched on how North America has performed to start the back half, which gives us confidence there. From international, you know, in Q2, we saw a little bit of a mix shift where we had less of the sell-in to our franchise partners. Those are real low-margin sales, which is why we had one of the reasons we had such good flow through in the second quarter. But as we go forward in international, it was really the back half of Q2 when their growth accelerated even beyond what we had been seeing. So we're lapping that in the back half. So I do expect, you know, the growth in international to moderate a bit. And for the year, I think it will be approximately 20% growth.

Great color, best of luck.

Thank you. Excuse me. Our next question comes from Corey Tarlowe with Jefferies. Your line is open.

Great, thanks and good morning. I guess first for Hillary and Scott. 1 of the things that is very impressive to me is that if we look back over the last several years, the company has not made money in the third quarter. And based on the outlook that you provided today, there actually is scope for positive operating profit and earnings. And I think that that speaks to potentially the positive underlying momentum of the business. So I was wondering if you could maybe highlight for us, what it is that you see helping to drive that and support a more profitable business going forward, despite the investments being made in the third quarter.

Hey, Corey, it's Scott. Great question. 1 we're proud of that we've been able to turn positive in Q3 because we know that's a heavy investment quarter. What's driving that is the continued strength of strong sell-through of our regular price core products. We saw that in Q2, which helped contribute to the strong flow through. We're seeing that continue to come to fruition in Q3. So a few numbers on that. In Q2, our total units were up low single digits, but our regular price units were up high single digits.

So I'll take that mix any time. And as we go forward into Q3, we really see units on 14 Q3 accelerating and going to be up in the mid to high single digit. And so that strong flow through is what's enabling us to turn profitable in Q3, despite investing even more into marketing to support Fashion Show, Angels Among Us, and just driving that new customer growth. So it speaks to the health of the P&L.

Great. And then just to follow up, Hillary, you shared that the customer file continues to grow across all customer segments, particularly a focus on new customers. Could you provide a little bit more color around how these new customers are performing post acquisition? Are they 1 and done? Or can you share any insights into their long-term value?

Thanks, Corey. I'll have Elizabeth speak to that.

Sure. Yeah, we're very encouraged that these customers are not 1 and done. Through our network, we're able to actually bring more of them back. We're doing that with a very strategic approach. We are benefited with literally tens of millions of customers and over 100 million followers and fans across all the social platforms. So that allows us a very, very rich data set to tap into and to market and to remarket against. So all that basically allows us to be very efficient with our funds, be very efficient with our targeting, and is bringing more customers back to us, not only in the paid channels, but also in our organic channels.

A fun fact is our app growth was up 30% last quarter, and that was on top of double-digit growth from last year.

Great. Thanks so much and best of luck.

Thank you. Our next question comes from Alexandra Straton with Morgan Stanley. Your line is open.

Great, thanks so much for taking our questions. My first one is for Scott. Can you just speak to why back half margin expansion flows a bit from what you were seeing in the front half? Maybe just the puts and takes around gross margin and SG&A and what gets worse in the back half would be helpful.

to have just 1 follow-up. Yes, so I'll talk Q3 and a little bit on Q4. So Q3, you know, the growth of 7% to 9% on the forecast is just a little bit, obviously, below what we've had in Q1 and Q2 as we have the tougher comps. So our leverage on B&O is just less than it was in that first half. The other thing to consider is in Q4, well let me jump back, Q1 to Q3 we continue to drive promo favorability down close to 100 basis points each quarter. In Q4, given the heavy promotional nature of that quarter, we don't plan promos to be down. We are planning them flat to slightly down, so that's a decision. Turn on that margin expansion in the back half.

Perfect. And then maybe for Hillary, I just wanted to dig into stores a bit more. I think you all said digital traffic outpaced the store. So what is your view on the role of stores for the brand generally? Do you think the current fleet size is the right one? Do and any learnings on Store of the Future, if you plan to continue rolling those out, any changes there would be helpful. Thanks so much.

Sure. Digital did outpace, but I would like to add that our stores outpaced them all. So I think that they are a very, very important competitive tool for us. They differentiate us. I think with bras being at the heart of our business, our service, which I think is industry leading, is critical. I think what we do in terms of bra fitting in a personal space is unmatched. And so I believe very much in stores. We definitely see Gen Z wanting a store experience even more than other groups of customers. And so we are investing in stores.

Store of the Future continues to be more productive. We are tweaking it as we learn about the business. I would say primarily in the beauty arena. Making sure that we have appropriately sized selling square footage by business, making sure that we have a PINK side of the business that is what I will call pinkified, and so we're really looking at the Soho store and determining what we will take to all stores or some stores based on the success of that pilot. And in terms of the future of the fleet, you know, we haven't really grown meaningfully in store count in some time, and we do think there's opportunity to selectively grow our footprint actually globally, but also in North America. So very much believe in stores, very much believe that they're at the heartbeat of our business, and proud of what they've delivered. Okay.

Thanks, Omar. Thank you. Our next question comes from Mauricio Serna with UBS. Your line is open.

Great. Good morning. Thanks for taking my questions. I guess just 1 follow-up on the comment about the semi-annual sale, how should we think about the strategy for that event going forward? Should we see that less of a revenue driver but more stronger profitability just given how you continue to pivot towards more regular price selling? And then in terms of the marketing investment, that you talked about, you know, exactly could you just elaborate on the main buckets of marketing investments and how should we think about that maybe manifesting in sales upside, you know, I don't know if it's a second half or you expect to see that investment, you know, come into fruition or is it more like thinking about fiscal 2027? Thank you.

Hey, Mauricio, Scott, I'll take the semi-annual sale and start there. You know, we do see semi-annual still playing a key role in the period. It is, you know, allows us to clear units, but to your point, it, It's less of an event as we go, and we do think there's an opportunity to add newness in the back part of that event and not have the event be the hero. We are seeing higher AURs in the semi-annual sale as we pull back on promotions and levels, and so it will continue to increase. Be less than a quarter for us. In terms of marketing investment, I'll start and turn it over to Hillary and Elizabeth, but we believe strongly in the marketing investment we're making. It's across the board, both in Fashion Show, but also in driving customer growth and the brand projection. We see it impacting not only second half, but carrying forward into next year. And so we're looking at this as a key investment that we'll continue to make.

And it's not just Q3, but it's also in Q4. And then we'll carry forward as Elizabeth talked about previously. Thank you.

I mean, yeah, we are confident that we're investing in the right ways to reach a new audience. We have a lot more runway ahead of us. We know that at our peak we had many more customers than we do now. But here are the things that are giving us confidence that we will continue to invest and that will prove fruitful for us. 1, our evolving marketing is already working for us. Customers up, brand health metrics are up, and traffic is up both in stores and online. Secondly, we have a very disciplined execution plan in place.

It's all about increasing our awareness to increase traffic, and then based on that traffic, we will then convert that traffic much more efficiently based on our ecosystem and very wide network on both the digital platforms as well as our own active base. And then finally, as I said earlier, we're bringing these customers back to our brands once they do shop at a higher rate, and when they do, they're spending more. So we have a very good system in place. We've now had four straight quarters of this being deployed, and we're seeing results, and we still have more to go.

Got it. If I could squeeze in a quick follow-up, just on international, I think like, you know, underlying growth, you know, if you like, if you exclude the shift in the shipments of the European distribution center, decelerated from 36% the previous quarter to 10% this quarter, you know, I know like, you know, anything in particular that, you know, you could call out that caused that. I know you mentioned some shift in the shipments to your wholesale partners, but just more details will be very helpful and then just on top of that, what are you seeing in China? We have heard actually some concerns about that market, generally speaking. Just as a reminder, how big is that market for you at this point? Thank you.

Yeah, on international, you said it, the biggest change in that deceleration was the sales into our franchise partners, which is a very low margin sale. And so that was due to order and shipment timing. No world concerns there. In terms of China, China started seeing its accelerated growth with their 618 event last year. So we've lapped that in the back part of the quarter. And China is still our #1 growth area within international. And so really encouraged. It continues to be led by digital, which is heavy in the social selling, but our retail comps have accelerated as well. So we're really pleased with the store performance in China as we're going into the back half and they're lapping that accelerated growth.

So still feel really strong about that market.

And how much was the shift in the sale from the international wholesale partners?

I mean, that's not a number we quantify, but that was the biggest drag on that deceleration.

Great. Thank you so much.

Thank you. Our next question comes from Simeon Siegel with Guggenheim Securities. Your line is open.

Thanks, Nick in there. Hey everyone, good morning. Hope you had a great summer. Hillary, I don't know if this 1's for you or Elizabeth, but within the customer acquisition conversation, 1, I guess, do you have a view on where the customers are coming from? And then, higher level, can you share with us how you're thinking about the customer acquisition for Victoria's Secret from PINK customers now? You've just done such a nice job at recreating specific and distinct brand identities for them, but curious how you think about the right level of bringing VS acquisition from PINK customers.

Yes, I'll stop there. Thanks. All right, Simeon. I'll let Elizabeth start, and I'll fill in with anything I think is relevant.

Okay. First and foremost, you're absolutely right in terms of distinct brands. We look at VS and PINK and also the beauty category within that very distinctly. I will share that we've actually seen growth across all three brands, both total customer count as well as new customer count this past quarter. We're very happy about that. In general, our total file is also are growing, so we know that people are coming in not only to 1 brand. Yes, there is some cross-shop, but we're also seeing people coming in specifically for just a single brand, growing our total file. Secondly, I would say, where are we bringing them from? I would say it's very much a function of how we're reaching them. We're bringing many more through the digital channels.

Paid Social was our best performing channel this past quarter in terms of bringing in more customers. We see that continuing. And it's really about leveraging that network, leveraging our existing footprint or network to its maximum ability.

And then I would just add that if you look at market share data, it's really mass that is losing share in the space category, and I think it is really that brand promise and that emotional connection that is convincing customers to shop with us and engage with our brands because she believes so much in what we stand for.

Thanks. And actually, if I can, Scott, just a quick follow-up. Great to see the growth in both AUR and units this quarter. How do you think about price and units embedded within the third quarter and full year guide? Thanks, guys.

Yes, so for Q3, we're thinking AUR is probably going to be up low single digits, so a deceleration there, but the units will be up in that mid to high single digit in the future. So feeling good about the mix there.

Thank you.

Thank you. Our next question comes from Jungwon Kim with TD Cowen. Your line is open.

Thank you for taking my question. I would be curious to know just overall, your thoughts what you're seeing on the intimates side and you sort of how you're thinking of market share gains going forward. And then just 1 follow-up is your apparel strategy, how you're thinking about the mix at this point, just given the strength on the intimate side. Do you plan to have that increase over time or sort of keep it balanced just given how the intimate side has been. Thank you so much.

I think you asked me about trends in intimates and then the balance of intimates and apparel. It was a little fuzzy.

Um, okay, so our bra business is broad-based success. Really nothing not performing. So everything from push-up to wireless, everything from balconette to Demi, it really, it really goes the whole distance and we have what I'm really particularly encouraged about is that our core continues to grow even as we introduce more fashion and so I And also we are seeing PINK and Victoria's Secret both grow at the same time, which has not always been the case. So broad-based success across intimates. I think that comes partially from trend, partially from us reasserting our authority in the category, providing incredible fitting service, and connecting with her on an emotional level. To answer your question about apparel, you know, on the PINK side of the business, where it's most important, we really see bra, the mix between bras and apparel, intimates and apparel being about 50-50 over time. So, still seeing great growth in apparel. The icons in PINK in particular are incredible. I'm sure you just saw our PINK Pantherus Super Flare yesterday, which you can see we think is really exciting and lots more to come in both intimates and apparel.

Thank you so much. Thank you. We have time for 1 more question. Our last question comes from Ike Boruchow with Wells Fargo. Your line is open.

Hey, thanks so much. Scott, could we just, sorry if you said this already, just the gross margin drivers in Q3 and Q4. The tariff, the core merch margin, the occupancy, and any details specifically in Q3. And then could you comment on what that gross margin is supposed to look like for the full year as well? And last follow up to that is, Hillary, I know you've spoken about the medium term gross margin opportunity. I think you've mentioned low 40s very much on the table. Can you kind of just comment on where you think the puck's kind of going for you guys on that line item? Thanks.

Yes, so gross margin on Q3, we're calling it up about 150 basis points. Gross tariff in the quarter is going to be flat when you think about the tariff rates now at 10% and 12.5% respectively. Factor in some of the mitigation efforts, there's going to be about a 60 basis points sort of benefit. Promos will be favorable a little bit less than prior quarters because that Black Friday shifted in to Q3. So that just causes the promo favorability to be probably in the 70 basis points range or so. And then we'll leverage on B&O and then have a headwind on transportation costs probably around 30 basis points or so for the full year. You factor in the strong performance, Q1, Q2, that 150. The gross margin expansion in Q4, it will still expand. It will be less than the prior quarters, as I mentioned earlier, when you think about promos being less of a tailwind just as a heavy promotional quarter.

Thank you. Does that conclude your question? Yes, can you repeat the second part of your question?

Yes, I think, you know, we see this gross margin, you know, all the uncertainty around tariffs aside, starting with a 4. And so we're definitely on that trajectory and feel really good, especially as we drive more regular price, higher margin, you know, core product sales.

Thanks a lot.

Thank you. I will now turn the call back to Hillary Super for closing remarks.

Thank you, everyone, for attending our Q2 call, and we look forward to seeing you after the Fashion Show to report Q3.

Thank you all for participating in the Victoria's Secret & Company's second quarter 2026 earnings conference call. That concludes today's conference. Thank you for participating. You may now disconnect.

This live transcript is auto-generated without human intervention or review.

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 & Company's First Quarter 2026 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 Kevin Wynk, Global Controller at Victoria's Secret & Company. Kevin, you may begin.

Thanks, Amanda. Good morning, and welcome to Victoria's Secret & Company's First Quarter Earnings Conference Call for the period ended May 2, 2026. 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.

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. 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. Reconciliation 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.

With that, I'll turn the call over to Hillary.

Good morning, and thank you for joining us. I am pleased to report a very strong quarter and start to 2026. The momentum we built in the back half of 2025 continued through the first quarter, and we delivered results that exceeded both our top and bottom line guidance. The strength was broad-based across the business. Victoria's Secret, PINK and Beauty all delivered double-digit sales growth. We achieved our fourth consecutive quarter of positive comps with total comp sales increasing 13% and driving total sales growth of 15%. We also saw strength across channels and geographies.

We were particularly encouraged by double-digit gains in new customer acquisition and continued file growth across all age and income cohorts. In fact, we saw the strongest growth from customers and households earning under $50,000 annually and over $200,000, underscoring the broad resonance of our brands across the consumer landscape. During the quarter, we continued to gain share in intimates, particularly amongst 18- to 24-year olds. Traffic also accelerated from the fourth quarter, reinforcing the momentum we are seeing across the business.

We are now a little more than a year into our Path to Potential strategy and our new management team is hitting its stride. We are executing with precision and agility, deepening connections with our customers and strengthening the foundation of the business while driving sustainable long-term value. A big part of our work is what we call World Buildings, creating distinct and emotionally resonant worlds for the VS and PINK brands. These are immersive brand ecosystems where product, marketing, customer experience and visual identity all work together to create a clear and recognizable look and feel for each brand.

For Victoria's Secret, that world is sexy, glamorous and luxurious. For PINK, it is bold, playful and irreverence. When those worlds take shape with the right product and storytelling, we create a strong emotional connection with the customer that drives results. At the same time, we have remained highly disciplined in how we drive growth.

A key part of that discipline has been a promo detox. We are reducing promotions and markdowns and replacing promotional offers with compelling emotional messaging. The result is a healthier, more brand-led business. The customer is responding. We are seeing strong AUR growth, reflecting the increased strength of our brand propositions. That brand strength was on full display during one of our biggest moments this quarter of Valentine's Day.

Across Victoria's Secret, PINK and Beauty, we delivered double-digit growth and drove positive comps across key gifting categories during the Valentine's Day period. These results were driven by a stronger assortment, culturally relevant campaigns and a more strategic media mix. Valentine's Day is especially important for VS and we leveraged key learnings from last year and delivered a more fashion-forward colorful assortment with the breadth of newness across end users.

We partnered with [indiscernible] on a modern sexy campaign that resonated with customers while also optimizing our marketing spend by investing earlier and more strategically in channels where she is most engaged. As a result, we delivered growth in the month of February for the first time in 8 years.

For PINK, we leaned into agility and cultural connection following the strong response to the K-Pop group twice at the fashion show we partnered with them again for Valentine's Day. We paired that partnership with newness in our Wink franchise. The resulting campaign drove over 2 billion impressions through the Valentine's Day period more than tripling last year's levels, underscoring the power of putting ourselves at the center of the cultural conversation and untapped potential in our core business.

Beauty also delivered a great Valentine's Day performance with double-digit growth across the category and continued strength in fine fragrance and Mist. This was driven in part by integrating beauty into brand storytelling and deploying strategic marketing support on the days that matter and the final lead up to the holiday. While Valentine's Day is an important moment for us, our performance was broad-based throughout the quarter. Before I dive deeper into the quarter's performance, I want to briefly acknowledge the current environment.

We remain thoughtful about the consumer environment and continue to monitor it closely. Despite macro uncertainty, our first quarter results improving customer engagement and the strong resonance of our product and storytelling give us confidence in the resilience of our business and the strength of the connection we are building with our customer. In a world that can feel heavy at times, she is increasingly looking for ways to feel seen, comforted and restored. We are uniquely positioned to offer her an escape something that is just for her.

Now I'll walk you through our progress during the quarter in each pillar of our Path to Potential strategy, supercharging our bra authority, recommitting to PINK, fueling growth in Beauty and evolving our brand projection and go-to-market strategy. Then I'll provide an update on our international business before turning it over to Scott to discuss our financial performance in detail and our raised 2026 outlook.

I'll start with our first pillar, supercharging our bra authority. This quarter, our bra business grew low double digits, contributing significantly to overall company growth with strength broad-based across silhouettes and price tiers. When we win in bras, we create a halo across the entire VS brand. This quarter, we saw that again in panties and in sleep with sales up mid-teens in both categories. Bras also drove stronger new customer acquisition versus last year. These results reflect the cohesiveness of the brand and the strength of our execution.

VS is really in its [indiscernible] at the intersection of innovation, technical expertise and fashion authority. Those elements are increasingly working in concert. As a result, we are bringing more joy, personality and fashion relevance into our assortments. At the center of this progress is a disciplined focus on our core. Over the last 18 months, we have edited and refined our top 10 bra frames strengthening fit, comfort and styling across the foundation of the business. That work has made the core stronger, healthier and more productive. This also creates room for us to introduce more innovation and adjacent offerings such as bra tops, bra [indiscernible] and unline bras.

Innovation takes multiple forms for us. technical innovation to deliver real-life solutions through improved fit, comfort and performance and fashion innovation through new colors, fabrications, treatments and styles. During the quarter, we executed across both dimensions. The result is a brand with a stronger fashion point of view and a deeper connection with the customer. We saw that come to life through launches like our refresh Signature Collection and our new Invisible Strapless Collection. Following a successful Valentine's Day, we relaunched Signature, our most foundational everyday essentials, including our top-selling T-shirt bra. For the launch, we brought new energy to one of our most important franchises combining improved fit and comfort with a bold, modern expression of the brand. As we've done consistently across the business, we coupled the product with a disruptive campaign featuring many of our Angels.

We also launched our Invisible Strapless Collection combining customer insight with our best technical innovations to deliver a product that is both functionally superior and culturally relevant. The campaign starting Angel Reef taps into the innerwear/outerwear trend and shows how we're pairing breakthrough innovation with standout talent to cut through exactly the right moment heading into strapless season.

As we look ahead, we are encouraged by the broad-based strength across the broad portfolio. A healthier core is giving us the freedom to expand into opportunistic areas in ways that feel compelling to both loyal and new customers, supporting continued growth and deeper engagement across the business. That balance is helping us gain share in bras and gives us confidence in the durability and scalability of this category.

Turning to our next pillar, recommitting to PINK. Over the past year, we have reset the foundation of the PINK brand. That work is now starting to translate into real momentum. PINK delivered low double-digit growth this quarter, driven by strength in core apparel and intimates and improved regular price selling. Across PINK, we saw meaningful engagement around fashion-led assortments, frequent newness and sharper cultural relevance. This engagement translated into strong new customer growth during the quarter, led by 18- to 24-year olds. Our PINK icons remain at the core of the business, driving both growth and frequency and giving us a consistent platform to build from as we layer in new fabrics, silhouettes and styling.

At the same time, we've reestablished Intimate as another growth driver. During the quarter, we delivered a consistent drumbeat of newness in [indiscernible] patterns that contributed to new customer growth with less promotion. A key part of our progress revitalizing PINK has been aligning the brand to a modern, young customer and the moments that matter most in her life. This quarter, this included Valentine's Day, spring break and summer kickoff.

For example, we channeled the spring break mindset through our second annual PINK break event, which drove strong customer acquisition, traffic and sales growth with less reliance on promotions. We also saw success reaching a younger demographic through expanded apparel offerings. We drove new customer growth by showing up in bigger louder ways with the items she needs for her every day. This includes denim, going out tops and [indiscernible] skirt that provide outfitting for every life moment.

I'm particularly encouraged that PINK is beginning to stand more clearly on its own. On top of that, collaborations and partnerships will continue to play a key role in creating excitement. We see them as an important complement to the foundation built on recognizable brand codes, a clear point of view and a more confident and distinct relationship with the customer. Looking ahead, we continue to see proof points that reinforce our belief that PINK is a full lifestyle brand. We see significant opportunities both in existing and new categories, including apparel, accessories and beauty, and our progress in these areas gives us strong confidence in the runway ahead.

Turning to our third pillar, fueling growth in Beauty. We were encouraged by the momentum we saw in Beauty in the first quarter. The business accelerated to low double-digit growth, driven by continued strength in Fine Fragrance and the Mist Collection. Key to our performance this quarter was increased newness, integrated brand campaigns and surgical marketing on the days that matter. Our consistent drumbeat of newness is driving connection and relevance. As an example, in March, we launched Bombshell Bouquet, a vibrant spring extension of a top-selling franchise, bringing fresh energy to Mother's Day gifting. Throughout the quarter, we amplified this newness through integrated brand campaign, which drove engagement, brand heat and increased regular price selling.

This summer, our cross-category campaign featuring Angel Reese was our most integrated beauty marketing activation to date, highlighting fragrance as the final outfitting layer and driving Bombshell Bronze as our top Fine Fragrance at launch. By bringing Intimates and Fragrances together as one powerful brand story, we are building out the brand's world and deepening our connection with her. Looking ahead, we will continue to expand the world of Bombshell through product extensions building on its strength as America's #1 fragrance.

At the same time, we have developed deeper insight into the customer journey to Beauty. We know where, when and through which channel she converts and we are working to optimize those touch points with the right product and message. That includes identifying specific days and times around the holidays when beauty can be a meaningful driver of incremental revenue and customer acquisition. In these moments, we are taking a surgical approach to marketing that is delivering results. This was evident this quarter as we identified and seize the Valentine's Day opportunity, driving double-digit growth in the period. Looking ahead, as we continue to build the innovation and operational agility needed to scale over time, we are excited about the combination of a strong core regular newness, continued franchise expansion and a more integrated approach.

Finally, turning to our fourth pillar, evolving our brand projection and go-to-market strategy. During the quarter, we continued to propel brand heat beyond the fashion show and the holiday season with a higher frequency of emotionally connected product campaigns and media activations. To start, we own Valentine's Day by bringing together product, creative talent and media to drive accelerated growth. In April, we announced Angels Among Us to extend the excitement of our iconic fashion show Beyond a Single Moment. We launched a nationwide search for the next Angel and invited our community to apply, opening the doors to the brand with live castings in cities across America. We saw an overwhelming response to our announcement over 100,000 aspiring Angels participated in the application process, and the search drove conversations and engagement across social platforms and earned media generating more than 1.7 billion media impressions. We are excited to meet these women and capture their stories, and we plan to share those stories with our community over the next several months leading up to our fashion show this fall.

The strong interest in social engagement around Angels Among Us reinforces our belief that the fashion shows more than a single moment, and we are deepening our customer engagement as we build the fashion show into an ongoing franchise.

Other major brand moments from the quarter include Mother's Day, which took on a more emotional tone celebrating motherhood, while reinforcing that being sexy and being a mom are not mutually exclusive. The campaign was a success with strong sales growth versus last year that helped support our momentum into Q2.

Finally, the new PINK store in Soho recently brought the brand into the cultural heartbeat of New York. Customers began lining up at 10 a.m. on the day of opening, and the response translated to strong regular price demand, especially among our 18- to 24-year-old customers as she fully immersed herself in the PINK world.

As we support these initiatives, we are becoming more precise in how we reach her. Our performance marketing and customer analytics capabilities are improving, allowing us to target more effectively scale our biggest brand moments and drive more customer acquisition and engagement. The differentiated brand identities we are creating for Victoria's Secret and PINK are coming to life across product, marketing and channel experiences.

When a customer enters our stores, opens our app or sees our campaign, she should feel like she is stepping into a distinct and emotionally resonant world. That consistency supported by highly effective media spend and a variety and breadth of content is helping us to drive brand heat. As a result, our customer file continues to grow in both VS and PINK and across channels, with total VS&Co growth up mid-single digits in the quarter. Our focus on new customer acquisition paid off with new customer growth accelerating from mid-single digits in Q4 to low double digits in Q1.

We are also seeing market share expansion in key categories. During the quarter, we once again continued to outperform the broader intimates market and grew our share. At the same time, stronger brand relevance, trust and overall perception signal that our strategy is working. We are growing sales through customer count and higher average spend as we lead with a motion over promotion. Overall, our evolving brand projection and go-to-market strategy is strengthening customer connection, improving marketing efficiency and supporting more durable long-term growth.

Before I close, I want to touch on our international business. As we continue strengthening our North America business and core brands, we are increasingly seeing the effects of that work extend globally. Growth was broad-based globally with particular strength in core bras, sleep and fine fragrance. China remained a key driver for our international business and continues to represent a meaningful growth opportunity. We are seeing strong engagement across our digital and social channels there, which is helping us deepen customer connections and build brand awareness. We are listening closely and being deliberate in how we go to market.

The key franchises we are building, such as the Fashion Show and Valentine's Day are resonating globally, and we are being thoughtful about tailoring our marketing to the needs of local markets. International remains a significant long-term growth opportunity for us, and we continue to see meaningful runway ahead.

In closing, we demonstrated broad-based momentum across the business in the first quarter, and that is carrying into second quarter. Our customer file continues to grow across new, active and reactivated customers. The business is growing globally, and we are delivering this growth with more efficiency. Across both VS and PINK, we are strengthening our core franchises while layering in more fashion, technical innovation and culturally relevant storytelling. We are also continuing our world-building efforts across both brands creating more distinct and immersive brand identities and leaning into our foundational heritage as an entertainment brand. The path to potential strategy is driving continued momentum in our business, giving us confidence in the remainder of the year. We continue to have a strong pipeline of product launches, including more bra launches for both brands than we had last year.

We also have a robust calendar of collaborations, partnerships and high-impact brand moments ahead including the return of the fashion show, where we plan to extend the halo even further with Angel's Among Us. More people are engaging with our brands, talking about our brands and participating in our brand moments. That growing engagement is creating a multiplier effect across the business and gives us confidence in our ability to sustain growth over time.

Today also marks an important milestone for the company as we begin trading under our new ticker symbol, VSXY. Our new ticker reflects our evolution into a business that is more confident in identity and clear about the opportunity ahead. We celebrate sexy in all forms not as one look or one definition, but is a feeling every woman owns for herself. We are uniquely positioned to capture and reflect that feeling in a way no one else can. VSXY reflects the strengths of our brands, the connection we are building with our customer and the work our teams have done to reposition this company for long-term value creation.

Before I hand it over to Scott, I want to take a moment to thank the team for all their hard work. As our Q1 results show, we are really starting to hit our group and accelerate momentum.

I'll now turn the call over to Scott.

Thanks, Hilary, and thank you, everyone, for joining today's call. We are extremely pleased to report first quarter results that well exceeded the high end of our guidance on both the top and bottom line. As Hillary discussed, the momentum we built in the back half of 2025 continued into the first quarter and we are firmly in growth mode. We remain keenly focused on prioritizing and driving investment in key customer-facing areas of the business, spanning product innovation, brand strength and customer experience. Executing with focus and discipline across our Path to Potential strategy, we delivered a very strong start to the new fiscal year, continuing into Q2 which positions us well to deliver long-term sustainable profitable growth.

Now let's turn to the first quarter results in greater detail. Net sales were $1.56 billion, an increase of $207 million or 15% compared to last year. Comp sales increased 13%, adjusted operating income increased 153% to $80 million, and adjusted EPS increased over 500% to $0.60, all well above the high end of our guidance. As Hillary noted, we registered strong growth at Victoria's Secret, PINK and Beauty and the quarter's strength was broad-based across categories, channels and geographies.

We saw continued momentum in key sales metrics year-over-year. Store and digital traffic both increased, which helps support our customer file growing mid-single digits, an acceleration from Q4 and our third consecutive quarter of growth. This was driven by strong new customer acquisition, combined with improved retention rates. Strong product acceptance emotional brand connection and growing brand heat at Victoria's Secret, PINK and Beauty drove another quarter of higher regular price selling. This combined with disciplined inventory management enabled us to continue pulling back on promotions, including promotional levels, number of events and number of days.

First quarter AURs were up mid-single digits compared to last year. Our top line performance was strong throughout the quarter. Overall, we delivered double-digit growth in both February and the March to April period, which takes into account the timing shift in the Easter holiday and school spring breaks. Digital traffic grew at a faster rate than the growth in stores. Our stores traffic grew mid-single digits and significantly outperformed the mall. This outperformance accelerated from the fourth quarter. The strength in both channels is particularly encouraging as it demonstrates the strong and growing customer engagement across our entire retail ecosystem. As Hillary outlined in her review, from a brand perspective, Victoria's Secret, PINK and Beauty, all registered low double-digit year-over-year retail sales growth.

We saw strength in both North America and international, in North America, our total intimates business across VS and PINK accelerated from Q4, registering low double-digit growth. As Hillary described, the strength was driven by increased fashion newness throughout the quarter and strong Valentine's Day performance. As Hillary also noted, our international business continued delivering outstanding results with reported sales growth of 45% in the first quarter, inclusive of retail comp sales growth up mid-teens. The growth was led by another quarter of outstanding performance in China, primarily in the digital channel, which continues to be driven by social selling. This performance builds on the momentum we established throughout 2025.

As I've previously mentioned, we began fulfilling digital orders in Europe out of our new European distribution center in the third quarter last year and thus began recording these sales as part of our international channel at that time. Adjusting for the reporting shift to these European digital sales from direct sales to international sales, first quarter international sales grew 36%.

First quarter adjusted gross margin dollars were $587 million, an increase of 23% over last year. Adjusted gross margin rate in the quarter was 37.6% compared to an adjusted gross margin rate of 35.2% in the first quarter last year while exceeding our guidance. We expanded our year-over-year adjusted gross margin rate by 240 basis points by approximately $14 million or 90 basis points of incremental net tariff pressure in the quarter. The strong rate expansion was a result of higher merchandise margins driven by an increased mix of regular price selling and continued reduction in promotions, reflecting the promo detox strategy Hillary outlined. Additionally, we had significant buying and occupancy leverage driven by the 15% net sales growth.

When compared to our guidance for the quarter, the tariff rate changes in the quarter favorably impacted gross profit by approximately $14 million or approximately 90 basis points. Adjusted SG&A dollars were $507 million in the first quarter and our adjusted SG&A rate was 32.5% compared to 32.8% last year. The 30 basis points of SG&A leverage was better than our guidance and driven by the sales beat and continued expense management, partially offset by higher incentive compensation expense associated with our quarter outperformance and investments in store labor and other customer-facing initiatives to support growth.

Adjusted operating income of $80 million was 153% above last year's adjusted operating income of $32 million. Excluding the $14 million tariff benefit relative to guidance, results were still well above the high end of our guidance of $32 million to $42 million. Nonoperating expenses, consisting principally of interest expense, were $12 million in the quarter, down from last year's $14 million, driven primarily by the lower level of weighted average borrowings. Adjusted income tax expense was $8 million, which was higher than our guidance driven by the earnings outperformance in the quarter. And our adjusted net income per diluted share was $0.60, significantly better than our guidance of net income per diluted share of $0.20 to $0.30 and last year's first quarter adjusted net income per diluted share of $0.09.

During the quarter, we repurchased 2.2 million shares for $100 million at an average price of approximately $45 per share. As of the end of the first quarter, $150 million remains on our $250 million repurchase authorization approved in March of 2024. We had 85 million weighted average shares outstanding in the quarter, favorable to our guidance of 87 million shares.

Turning to the balance sheet. Our inventories remain in a healthy position. First quarter total inventories were up 5% year-over-year, lower than our guidance of up high single digits, driven by lower estimated tariff impact and top line outperformance in the quarter. From a liquidity standpoint, we ended the first quarter with a cash balance of $207 million, an increase of $69 million above last year and with $15 million outstanding on our ABL compared to $105 million last year. Our cash balance and the remaining availability under our ABL leaves us in a strong financial position with ample flexibility for continued execution of our strategic priorities.

Now moving to our outlook for 2026. First off, regarding tariffs. Our forecast assumes that imported goods remain at the current 10% rate under Section 122 through the end of July. Subsequently, given the uncertainty regarding what will happen following the current expiration of Section 122 tariffs, we are assuming that tariff rates return to 20% through the end of the year which is consistent with rates in place prior to Section 122. Lastly, while we are actively pursuing refunds associated with the [ IEPA ] tariffs, our outlook does not contemplate any recovery of refunds.

As we discussed, we registered significant outperformance in the first quarter and the strong momentum has carried into the second quarter of 2026. For fiscal year 2026, we are raising our top and bottom line guidance. We now expect net sales to be in the range of $7.03 billion to $7.13 billion, up from the prior range of $6.85 billion to $6.95 billion and compared to net sales of $6.553 billion in fiscal year 2025. The increased net sales outlook represents year-over-year growth of 7% to 9% compared to the prior guidance of 5% to 6% and embeds an expectation that our top line strength continues through the balance of the year reflecting a low double-digit 2-year comp for the balance of the year.

We now expect 2026 adjusted operating income in the range of $550 million to $580 million compared to $403 million in fiscal 2025. This represents an increase of $120 million at both ends of our prior guidance range of $430 million to $460 million. The $120 million increase comprises $55 million, driven by underlying business strength and top line expansion with the remaining $65 million, reflecting more favorable net tariff impact than previously expected. The rate guidance implies adjusted operating margin expansion of approximately 170 to 200 basis points year-over-year.

We are raising our fiscal year 2026 adjusted net income per diluted share to be in the range of $4.35 to $4.60, up from the prior range of $3.20 to $3.45 and compared to adjusted net income per diluted share of $3 in fiscal year 2025. Our forecast assumes weighted average diluted shares outstanding of approximately $84 million. We continue to estimate capital expenditures in the range of $220 million to $240 million in fiscal 2026 or approximately 3% of sales. In North America, we continue to expect store counts at the end of 2026 to be flat to slightly up compared to last year, with 45% of our global fleet in our Store of the Future design including 30% in North America and 55% internationally.

Turning to our outlook for the second quarter of 2026. We are forecasting net sales in the range of $1.59 billion to $1.615 billion compared to net sales of $1.459 billion in the second quarter of 2025. This outlook assumes top line growth of approximately 9% to 11% based on our continued momentum quarter-to-date in our North America business as well as strength in our international business. It is important to note that the start of PINK Friday shifts from Q2 to Q3 this year, representing its due to growth headwind of approximately 1%. We are also lapping the digital outage from last year, which is a Q2 growth tailwind of approximately 1%.

With this sales outlook, we expect second quarter 2026 operating income to be in the range of $90 million to $100 million compared to an adjusted operating income of $55 million in the second quarter of 2025. We expect our second quarter 2026 gross margin rate to be about 38.5% compared to an adjusted gross margin rate of 35.6% in the second quarter of 2025, representing roughly 290 basis points of expansion. The expected rate expansion is based on the strength of our operating model, which continues to deliver leverage on buying and occupancy expenses as net sales grow as well as our disciplined promotional strategy and more regular price selling. We also expect a gross tariff headwind of approximately $15 million in the second quarter and a year-over-year net benefit of approximately 145 basis points compared to the prior year.

The SG&A rate in the second quarter of 2026 is expected to be approximately 32.5% compared to the second quarter 2025's adjusted rate of 31.8%. The forecasted increase in SG&A dollars is primarily driven by store labor investments and other costs to support the customer experience and top line growth as well as approximately $7 million of proxy contest-related expenses. Given these inputs and weighted average diluted shares outstanding of approximately $84 million, we estimate second quarter earnings per diluted share to be in the range of $0.65 to $0.75 compared to adjusted earnings per diluted share of $0.33 in the second quarter of 2025.

We expect to end the second quarter with inventories up high single digits compared to last year. This expected increase reflects growth to support business trends, the impact of tariffs and timing related to our operations, mostly due to our strategic shift towards ocean freight from airfreight which results in us taking ownership of inventory earlier as compared to last year. This ownership comparison dynamic will begin to normalize in the back half of the year.

In closing, our Path to Potential strategy continues to deliver exceptional results. Our outstanding first quarter performance with 15% sales growth and over 500% adjusted EPS growth demonstrates accelerating momentum across Victoria's Secret, PINK and Beauty. We've raised our full year guidance, reflecting both our strong Q1 results and continuation of our momentum. Despite tariff headwinds, we're continuing to expand margin while investing in product innovation, brand strength and customer experience. Our improved financial position provides flexibility to capitalize on growth opportunities and return value to shareholders. We remain confident in our ability to drive sustainable, long-term profitable growth.

I will now turn the call back over to Hillary for a moment before we get into Q&A.

Thanks, Scott. Before we get into Q&A, I want to briefly address the campaign launched by one of our shareholders ahead of our upcoming annual meeting. While we respect the perspectives of all shareholders, including BBRC, we believe this campaign is a distraction from the significant progress and momentum we are building across the business. Our focus remains on executing our Path to Potential strategy and delivering results for shareholders. Given this, we would like the Q&A to remain focused on the strong quarter, our strategy, our performance and our outlook.

Operator?

[Operator Instructions] For our first question, we will go to the line of Matthew Boss with JPMorgan.

Congrats on a great quarter. So Hillary, could you break down drivers of the traffic acceleration that you saw in the first quarter despite the promotional detox? And then could you elaborate on the strong momentum that you cited to start the second quarter? Have you seen any moderation in trends? And just if you could flag assortment opportunities you see in the second quarter and back half of the year.

Sure, Matt. Okay. So first and foremost, I believe that our content and the talent in our content really resonated with the customer. So let's start there. But then from there, we also really optimized our media mix and we saw the biggest growth coming out of paid both in social and search. And then I would also add, app downloads are up over about 50%, and that's a big driver of traffic as well. And then finally, our community is powerful. Their voices and their testimonials of our product and our brand were 4x higher than last year. And that is -- we see that being a big driver. We see it in the stores where they bring their phone in and talk to us about things are looking from both the [indiscernible] it's all working together in one ecosystem, and we're really pleased with how that's turning out.

In terms of the back half, we have a very loaded back half. I'm very excited about it. It includes more bra launches than last year in both brands, including a new franchise launch in PINK. We have a number of partnerships and collaborations that we're excited about throughout the year as well as amplifying our own content on our own franchises like the fashion show and extending it with Angels Among Us. So we feel fully loaded for the balance of the year, very confident.

And in terms of your question about May, it had -- the trajectory has [indiscernible].

That's great. And then as a follow-up for Scott. On your raised full year operating margin forecast, could you just walk through the embedded tariff and freight assumptions versus full price selling opportunity you see this year? And then how best to think about the next leg potential for margins relative to 10% embedded in the back half of the year?

Yes, sure, Matt. So on operating income, we raised our guide on the low and the high by $120 million. About $55 million of that is from the business outperformance and about $65 million of that is tariff favorability. As we noted, we're assuming the 10% Section 122 tariffs stay in effect through Q2 through the end of July. And then in the back half with all the uncertainty, we're assuming they return to sort of the pre-Section 122 rates of about 20%.

As we -- and then on the freight side, we've got roughly 30 bps of headwind plan from Q2 to Q4. So we expect this to be with us for some time. In terms of opportunities, it's a lot of what we've called out, the continued reduction in promos. We've said from the start that is a multiyear journey we continue to reduce, whether it's events, days, motional levels, there's a lot of levers we have to pull there. and we'll continue to do so. That drives our mix more into regular price selling and our AURs continue to be up. They were up mid-single digits in the quarter, and we expect to continue to be up for the balance of the year.

And then as we go, the leverage we continue to see quarter after quarter on buying and occupancy and on SG&A to a lesser extent as we make some investments on the customer-facing customer [indiscernible] really, really encouraged by the performance momentum that we have.

Congrats again.

Our next question comes from Corey Tarlowe with Jefferies.

Hillary, you mentioned something really interesting and impressive, which was that you're seeing growth among kind of $50,000 and below income cohorts and then several hundred thousand dollars and above in terms of customer acquisition. So are these -- one, where do you see these share gains coming from? Two, what do you see is driving different customers into your store? And then three, what kind of products or what strategies do you have to continue to acquire and maintain the share that you gained with these customers?

Corey, yes, we really love this piece of the business. So we saw broad-based growth across all income cohorts in both customer count and customer spend, but the largest growth was as you said, under $50,000 and over $200,000. And the way I think about it is in a world full of choices, she's choosing us. And when you think about the $50,000 and below customer, she's likely [indiscernible] not to spend in other places in order to spend with us. And when you think about the over $200,000, she has lots of choices. And she's choosing us because of our brand [indiscernible] our brand [indiscernible], brand fashion, right product. And so I think it really points to brand's health, brand relevance.

And at the same time, we're also seeing really, really strong performance in that 18- to 24-year-old cohort. And that, again, points to brand relevance, brand heat. And I really think that when the product -- and the marketing together, and we have the right partnerships with right talent, it's creating an ecosystem that she just wants to belong. And I think the [indiscernible] over the [indiscernible] promotional messaging, we are telling her that we are working [indiscernible].

That's great. And then I guess a follow-up for Scott. One of the main focuses for investors is not just, I think, the trajectory of the top line recently, but also really the profit opportunity. And I know that you've talked to double digits as a margin opportunity. But I think this quarter was a proof point of moving in the direction of that double-digit target that you've laid out for us. So could you maybe talk a little bit about specific to Q1, what really drove the margin outperformance versus your initial guidance? And then what you expect to perhaps be a little bit stickier in the profile as we look ahead?

Yes. Thanks, Corey. So on Q1, we beat our expectations by roughly $40 million on operating income. About $25 million of that was really the outperformance in the business and $14 million, $15 million was our expectation from tariffs as they lowered from the IEPA 20% down to 10% Section 122 tariffs, but the outperformance on the business still are the biggest driver, and that continues to come from the reduced promos, the outpaced growth and the leverage we get on buying and occupancy and SG&A, and then lastly, that more regular price selling.

So it speaks to that brand heat Hillary was just referencing and how the consumer at all ends of the [indiscernible] is continuing to engage with us and what that flow through mean on the outperformance. So we've said all along that double-digit operating margin is within our sites. And it's one going to be fueled by that growth and the leverage we get on the business. We're seeing that for multiple quarters in a row now.

Our next question comes from Adrienne with Barclays.

So congratulations across the board. Hillary, I wanted to talk about sort of the testament of the product regimens and product launches, particularly in the that 18 to 24, I think you said kind of that millennial age range. What is the new customer acquisition percentage as they enter the market? And what are you doing specifically with your advertising strategy to target them specifically?

Secondly, a bit of a wildcard question, how are you thinking about the GLP-1 adoption and impacted the business? And then I have a follow-up for Scott.

Adrienne, I'm not sure I totally understand your first question, but 18 to 24 is a key demographic for us, particularly in the PINK brand but also on the VS brand. And we are targeting them the way -- in the ways you would expect. So fashion-right product, a youthful sensibility incredible color and pattern, I think a really good example of that in the VS brand is the Lacy franchise [indiscernible], which we've, I think, injected a ton of youthfulness on an energy [indiscernible]. And then in the PINK brand, we are targeting a 20-year-old. And 20 is the target, it halos both ways, but we are really studying her deeply to understand how she lives her life, what the moments that matter are, what's important to her and [indiscernible]. And so we are maniacally focused on that 18- to 24-year old and that is paying back because that is where we are seeing big growth in our customer acquisition as well as in market share data. So feeling great about that.

GLP-1s, so far, we have seen minimal impact to our business. We have looked at existing customers and seen a very, very modest, I'm saying, like 3% and below in smaller sizes getting even smaller. And in new customers, we are seeing a slightly smaller customer, but I do think that can also be aged. So it's a little tricky to look at, but it's something that we continue to think about, watch and sort of forecast in our size going forward.

Fantastic. And then, Scott, sort of in this promotional strategy, so obviously, we've been watching the promos and you're on your fifth consecutive quarter of incredible promotional restraints, anniversarying that and you're still getting material upside in that kind of gross margin, the margin piece of it. So we're kind of in that 38 -- high 30% range. Historically, you've been over 40% when you're kind of at your normal. I'm wondering if you can just speak to kind of the peak to trough, where you are? And how can -- what confidence do you have in anniversarying pulling back on promos and continuing to deliver 100 basis points north of that on merch margin expansion for the year?

Yes. No, absolutely. Yes, we've said all along it's a multiyear journey, and we, as you said, continue to pull back on promos. What's interesting, tacking on to the question of new customer acquisition as well, our new customers are coming in at higher AURs. So it proves that coming in on the emotion versus promotion, as Hillary likes to say, that gives us confidence that it's not being driven promos. So we continue to read and react and look at the length of events, the level of promotion, the number of days all of that to say what can we continue to pull back and still get that customer engagement.

And the other thing we've seen, we saw in Q4, we saw it last year in Q2, and we expect it to continue is, semiannual sale will be less of the thing in those periods, and then we can still introduce newness. So it gives us a lot of confidence as we go forward, we can continue to pull back. And we do see a world where gross margins are again in the 40s. We'd be there if it wasn't for tariffs right now. So we feel confident on it.

Our next question comes from Ike Boruchow with Wells Fargo Securities.

Let me add my congrats. One for Hillary, one for Scott. I think, one for Hillary, one for Scott. I know you mentioned, Hillary, you really haven't had a great Valentine's Day in almost a decade. So that's a nice turn. I guess, when you look at the business or your former company, is there a correlation between a strong Valentine's Day to a strong holiday? Like is there a good read through in some respect, it gives you good line of sight. I know you're only guiding a low single-digit rev in the back half, but just kind of curious how you would align those 2 dynamics.

And then, Scott, I'm sorry if I missed it. 3 months ago, you guided a tariff headwind for the year of $40 million. What is that now? I assume it's either nothing or a tailwind? And specifically, in Q4, if tariff rates go back to kind of where the -- where you're planning them to go back to that $65 million headwind that you had last Q4. What does that turn into this year in terms of like what's baked into your plan?

I'll take that first one, Ike. In terms of your question about the relationship between Valentine's Day and holiday, I haven't seen a direct correlation between Valentine's Day at the next holiday. I've really actually seen it in the inverse, where great customer acquisition in Q4 sets us up for a great Q1. But I will say that the consistency of what we're delivering, the brand heat we're creating, the product elevation that we're driving, all of this is compounding over time as the team gets in its stride as we learn as we learn from our own work and then optimize that and move forward and learn that we can tweak this a little further, push this a little higher.

We're just all getting in our grove as a team. So I do think that the things that we have been learning will continue to multiply as we move into the back half of the year. So I do have do have confidence, is it based on Valentine's Day, not necessarily, but it's just based on the general overall strong execution.

In terms of your tariff question, it's a good question. So as we said versus the prior expectation [indiscernible] $65 million. So that implies that our net tariff benefit, if you will, on the full year's $25 million, but that's only a benefit because of the hard work on the mitigation side of things. Even with this tariff assumption of 10% Q2 and then returning 20% to the back half, the gross tariffs on the year is still a headwind of about $75 million. So that's kind of what we're up against and how we're doing in the business.

Our next question comes from Marni Shapiro with The Retail Tracker.

Congratulations, first half looked fantastic. The energy is great. Just 2 quick ones. If you could just give us an update on VSX because the product really has looked significantly better. The color choices have been really good. I see you've extended like the glossy collection into current colors and things like that. So if you can give us an update there, it feels like you should be owning the active wear bras.

And then if you could also talk of -- and this is kind of a bigger picture, Hillary, but the younger customer loves the scarcity model that's almost as important to them as the cool factor. They love to wait online for things. Could you talk a little bit about the ability to do collaborations and drops that sell out kind of the Dot Cake Parke Sweatshirt model vis-a-vis either Victoria's Secret or PINK and how that could work?

Sure. And thanks, Marni. I always await your commentary. Okay. So VSX, we have rightsized that business. I think this time last year, it was a little over assorted and we were overinvesting in it from a marketing perspective. I think what we've learned through the path to potential is that the 4 top strategies have so much juice in them that we are doubling down on things like bras, PINK and Beauty in this first phase of the Path to Potential rightsizing VSX, standing for, as you said, bras as our [indiscernible] and as a vehicle for sports, but also as one of her options in overall bra wardrobe, reflecting the fit and the technology there. And then in future seasons, we will start building back to VSX in a bigger way. But we see that now as a slightly later activity for us based on the amount of opportunity we see in more adjacent categories like bras with panties and sleep in that ecosystem. We're seeing just much more productive in that area, right?

In terms of younger customers and the scarcity model, I think that's something we think about a lot. And we're seeing it in our business right now. If you look at Victoria's Secret brand, the Lacey collection is something that we are chasing like crazy right now. And it is a bit of a like candy store environment, scarcity model. I tried to go on and buy some this week and couldn't buy my size. So we are chasing that. And I think that is creating a bit of a frenzy and it's good to have a few stockouts here and there. It does create that full price demand.

And as we are [indiscernible] on, we do want customers to feel like they need to buy it now. [indiscernible] in good pockets of our business. And on the PINK side with collabs, absolutely, that's the way we're approaching it. And I will say the way we're approaching it in our core business. We have a tote bag right now that we have, I think, 115,000 back orders on and it is a PINK branded tote. And so that, to me, is a signal of brand health, that's a signal that we have an accessories business we can grow out and just a lot of exciting learnings that are happening in real time. And that's why I say this team is really getting a ride. And as we cross the 1-year mark as a team, we have [indiscernible] learnings that are happening, and we're acting on those learnings [indiscernible].

Our next question comes from Simeon Siegel of Guggenheim Partners.

So Hillary, my question is not going to be as exciting as Marni's, but really encouraging to hear about all the improvements in customer acquisition. You're clearly bringing people into the brand. Can you share a bit about how you're thinking about the retention and maybe further lifting the new customer spend as they enter year 2 and beyond?

And then, Scott, sorry if I missed it, did you say what AUR was? Just how are you thinking about this quarter and then within the guidance price versus [indiscernible]?

Yes, sure. So we are -- so while we are acquiring new customers at an accelerated rate, we are also retaining and reactivating them in a really strong way as well. So we have an engine that is working really well. I would say the app is like a very key part of that and creating -- keeping that content and like entertainment engine going and engaging in the places where she lives. So I think it used to be that we had a store and we had a site and those are 2 places you came [indiscernible] with the brand at any given moment. That is just not what it is anymore. There is an ecosystem of digital content out there and we're engaging with her where she is, and then we are inviting her into our channels, and we're having a lot of success really meeting her where she is.

And as she evolves, which we know she is doing very quickly in terms of discovery with LLM, et cetera, we are very, very focused on future-proofing ourselves and making sure that we are evolving with her. So top of mind for us and having a lot of success at it now and continue to move with the customer as needed.

On the AURs, yes, for Q1, we were up mid-single digits for the balance of the year, we expect that to continue in that mid-single digit, maybe low single-digit range. The caveat on that is Q4 as we know that's a heavier promotional quarter, and that's one where we need to read and react on promos even closer. So that's the only disclaimer, I would say. But we feel good about that. In terms of units, what we're seeing is slight increases in units, and that's really driven more in the regular price side and less in the sort of discount markdown sort of side of things. So we really, really like that mix.

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

Congratulations on the progress. As you think about some categories like sport and beauty, what are you seeing there, Hillary? How do you see that growing and contributing going forward? And then just on the margin sit, anything new on with occupancy costs and what you're seeing? I saw the new PINK store on Broadway and [indiscernible], it looks terrific. Any additional thoughts for some stand-alone like that?

Dana, I'll take a crack at the Sport and Beauty, I have a few thoughts about [indiscernible] as well that I'll sneak in there and round it out. So I spoke about for a minute ago. I think it's a very saturated market. It's a market that's going through a lot right now, I think. And I do think sports bras are ours to own, and we are doubling down on that. At the same time, we are seeing so many other bigger returns in our business, primarily in bras and panties and sleep, the PINK brand, Beauty we are just prioritizing that work right now, knowing that both sport and swim are opportunities for us to grow more aggressively in the out years. So on our radar, but not as important as the big 4. So that's important.

With -- Beauty continues to be a growth driver. It actually grew on par with the 2 brands. We've got a nice acceleration coming out of Q4 into Q1. We grew market share. We're feeling good about it. We are also laser-focused on newness and the frequency of newness in beauty, which we are finding to be a big driver of our success in Q1 and innovation and our pipeline in -- like making sure that our pipeline is full of innovation is the way I should say that. And the team is working fast and furious on that. They're also working on [indiscernible] beauty, which we continue to see as an opportunity. And that's really a reinvention more than an evolution. And so that's probably in mid-2027, but still feeling great about it, good about the current business and really good about the future innovation.

And PINK -- so the PINK Soho store has been tremendously successful. It is now our #1 PINK store. Again, it's only about 3 weeks. It's been open about 3 weeks. But we see a number of things there that can translate into existing stores in terms of treatment, some of the visual treatments in that store that really [indiscernible] the experience. We think we can layer that into key stores that have already been remodeled. And then we're always looking for opportunistic locations where our customer is. And we prefer a short-term lease for proof of concept that moves to a longer-term lease, but we're evaluating those case by case and just feeling really optimistic about what we're learning [indiscernible].

And just to round out from a bigger picture, we did say, well, over the last few years, our North America store base has been a net decline. This year, it's flat to slightly up. And so we continue to view our store fleet is a competitive advantage to give that customer experience that others can't really provide in the same way.

Our next question comes from Mauricio Serna with UBS.

Just 2 quick follow-ups. On the Beauty business, very nice to see the acceleration in the top line. Maybe could you talk about how you're thinking about that business for the balance of the year? Like what you can do to keep that double-digit growth given that historically, this has been like a pretty strong business? So technically versus the rest, the comparison might be a little bit difficult on a multiyear basis?

And then a quick one on the margins, I guess, margin top line, could you help out just Middle East, like what kind of exposure do you have in terms of like revenues? And how -- if there's any impact to bottom line or margins, just given how -- I would think that there's some franchise royalty business there. So I don't know if it's like a headwind or a tailwind to gross margin given the current situation?

Sure. I'll take the first one. Beauty, we feel good about it. We are coming up on 3 years of growth in Beauty. We still feel that Fine Fragrance is really the crown jewel of this business and in particular, Bombshell. And we think there's a lot of opportunity to build out the world of Bombshell and really own that in a more meaningful way. We also think newness is key. And so we are increasing our cadence of newness. And then thirdly, I would say, we've integrated Beauty into the campaign of the brand and really created a much more cohesive brand and world building story, and that is really working for Beauty.

And then finally, I would just say there are a handful of days each quarter where Beauty really drives the business in an outsized way and making sure we're surgically spending for media on those days and marketing in a very pointed way on those days can have very outsized returns. So those are some of the shorter-term things that we're looking at. But we feel great about Beauty and strong about the months and years ahead.

In regards to the Middle East question, as you said, our business in the Middle East is a royalty business based on our franchise partner sales. And so while that business has seen some disruption, our business models largely kept us shielded. And so the impacts of that are factored into the guidance that we provided.

Congratulations on the results.

We have time for one more question. Our last question comes from Brooke Roach with Goldman Sachs.

Hillary, as you've executed the differentiated marketing and customer experiences this year such as Angels search and Valentine's, how are you thinking about your willingness to reinvest in additional marketing spend to fuel the flywheel into the back half of this year and into next year?

And then Scott, maybe a related question. How are you thinking about the flow-through from here? Should you outperform the plan that you've laid out today?

Thanks, Brooke. Are you reading our minds? Are you spying on us? What's happening? We're talking a lot about that, and we have a lot of confidence, and we're kind of working on our revised LRP and starting to think about next year's budget right now, and we definitely believe there is an opportunity, and we need to massage all the numbers, but we are seeing incredible results. The more we invest, the more we generate. And we think there's more opportunity there, and we're very, very excited not only about the back half of this year, but about 2027. And so you'll hear us thinking -- you'll see us evolving on this topic, and we'll be talking about it more on future calls, but feeling really excited about what we can do in the marketing organization.

And on the flow-through question, we took the OI up $120 million, as we said, $55 million of that was related to base business performance, $65 million to the tariff assumption change. But on the $55 million coming off of taking the top line up $180 million on the low and the high, that's roughly a 30% flow-through on that. And so that's really how we kind of see this as we go forward and right around that 30% range when you factor in variable costs and things that we could reinvest in a small way as we go forward.

Thank you, does that conclude your questions?

Yes, it does.

Thank you, and thank you all for participating in the Victoria's Secret & Company's First Quarter 2026 Earnings Conference Call. That concludes today's conference. Please disconnect at this time and enjoy the rest of your day.

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 & Company's Fourth Quarter and Fiscal 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 Priya Trivedi, Senior Vice President and Global Head of Investor Relations and Treasury at Victoria's Secret & Company. Priya, you may begin.

Good morning, and welcome to Victoria's Secret & Company's Fourth Quarter and Fiscal 2025 Earnings Conference Call for the period ended January 31, 2026. 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 questions. I would like to remind you that any forward-looking statements we may make today are subject to our safe harbor statement found in our SEC filings and in our press releases. Certain results we discuss on the call today are adjusted results and exclude the impact of certain items described in our press releases and in 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 in the investor presentation posted on the Investors section of our website. With that, I'll turn the call over to Hillary.

Thanks, Priya. Good morning, everyone, and thank you for joining us today. This is a standout year for our business. We returned to growth mode in 2025 with full year comp sales up 5%. Fourth quarter and full year results exceeded top and bottom line guidance, reflecting strength across brands, channels and geographies. In the fourth quarter, we grew comp sales 8% to deliver our highest fourth quarter revenue since becoming an independent public company. Brand momentum is building, our customer file is growing, and we are gaining market share. 18 months ago, I joined Victoria's Secret because I saw one of the most compelling transformation opportunities in retail. To capture that opportunity, we put in place a clear road map for the business, our path to potential strategy built on 4 pillars: supercharging our Bra Authority, recommitting to PINK, fueling growth in beauty and evolving our brand projection and go-to-market strategy. Throughout the year, we executed this strategy with focus and discipline.

We assembled a leadership team that has rallied around the new direction for our business, recentering the organization around what matters most, creating emotionally compelling product, building brand heat and deepening our connection with the customer. While still early in our transformation, the results to date are clear. We reasserted our leadership in bras, restoring the category to growth for the first time in 4 years. We reignited PINK, delivering its strongest growth year in a decade, and we steadily grew our nearly $1 billion beauty business. We also expanded our customer file for the first time in years. A signature brand moment in 2025 was the fashion show, which reestablished Victoria's Secret at the center of the cultural conversation and translated directly into business momentum. It also marked a meaningful step forward in our new era of sexy, defined not as a single look or standard, but as a feeling of confidence and authenticity.

The progress we made in 2025 reflects a deliberate evolution in how we operate. When we combine great product, powerful storytelling and an elevated experience, our customer responds. I'd like to spend a few moments discussing our holiday and Valentine's Day execution, which reflects marked improvement versus the prior year. I'll then cover our international performance, followed by the progress we are making against our strategic pillars. Scott will then walk you through our detailed financials and 2026 outlook. As we reflected on last year's holiday and Valentine's seasons, we saw an opportunity to further strengthen our position and translate learnings and insights into growth. In 2025, we amplified the fashion show to drive sustained traffic and engagement through November and into Black Friday, delivering our highest customer turnout since 2021 with strong participation from new customers.

In December, we maintained a consistent cadence of fashion newness, especially in Bras and Sleep. We supported key categories with deliberate inventory investments, targeted digital and social marketing and refreshed store windows and merchandising. In particular, Sleep significantly outperformed expectations and became a key growth engine for the business during the quarter. For Valentine's Day, we reinforced Victoria's Secret as the destination. We shortened the semiannual sale and set the assortment earlier, extending the selling window and broadening the lifestyle offering. For VS, this was my favorite floor set since joining the business, elevated, beautifully executed and undeniably Valentine's Day.

Anchored in bras, the floor set was powerful and offered a range of sensibilities from glamorous to casual. We supported the launch with a high-impact campaign featuring Hailey Bieber driving engagement and new customer acquisition. At PINK, we built on the viral fashion show moment featuring the K-pop group twice with a bra-centered Valentine's Day campaign. The campaign focused on self-expression, friendship and empowerment in a way that was unmistakably PINK. The campaign resonated and drove continued acceleration in the PINK bra business. The VS and PINK Valentine's collections outperformed our expectations, delivering double-digit sales growth. The week of Valentine's Day store traffic increased significantly year-over-year, meaningfully outperforming the mall.

Turning to international. For the fourth quarter, net sales increased 43% year-over-year with growth across channels and geographies, led by continued strength in China. In that market, social commerce and live streaming are critical to the purchase journey and powerful drivers of engagement and conversion. This year, we took a more coordinated global approach to product, marketing and storytelling. We aligned our merchandising to our strategic pillars to ensure each market delivers the right assortment and messaging. We have complemented our global assortment with exclusive local product, allowing us to move quickly to meet demand. We also benefited from a more global approach to the fashion show, resulting in a brand halo that extended internationally.

During my recent visit, I saw firsthand the work our teams are doing to drive outsized results, and I am confident we have significant runway to grow digitally and in stores. International remains a significant long-term opportunity for us. In fiscal 2026, we expect to deliver double-digit growth by expanding in existing markets, entering new markets and maximizing our digital and social commerce opportunity. Now let's turn to the progress we've made in each of our 4 pillars of the strategy. We'll begin with supercharging our Bra Authority. Over the past year, we put bras back at the center of the Victoria's Secret brand while strengthening our operating muscle. Recognizing that bras are not typically a holiday gifting category, we focused on our core franchises.

We delivered a steady flow of newness as well as fun in the assortment, supported by digital storytelling and the right inventory levels to meet demand. Our disciplined execution drove outsized growth across our top Bra franchises and sustained customer engagement through the holiday. As a result, the Victoria's Secret Bra business grew mid-single digits in the fourth quarter. We continued reducing promotions throughout the year, which drove a mid-single-digit increase in our Bra AUR. This performance was partially enabled by our industry-leading Bra fitting experts who build meaningful connections that deepen customer loyalty in our stores.

Our efforts returned the Victoria's Secret brand Bra business to annual growth for the first time since 2021. When we win in bras, we see a halo across the brand. That effect was evident in panties as well as in sleep, which I noted earlier. We've made panties more fun and playful. We introduced more newness, balanced our silhouette offering and expanded fabrics. The results were strong. VS panty AURs increased and the business significantly accelerated in the fourth quarter, driving our best performance in panties since 2021. This momentum is particularly meaningful since this is our #1 new customer acquisition category. We leaned into sleep this quarter, an important gifting category and a meaningful driver of Q4 performance. Sleep is highly visible. Customers wear it, share it and signal their affinity for the Victoria's Secret brand.

Our social channels were flooded with real moments as our sleep assortment was celebrated in posts from holiday gatherings, family photos, theme parties and festive occasions. Our iconic sleep assortment was a standout through the holiday and into Valentine's Day, led by hero styles in logo and heritage strip. Applying insights from the last year, we were better positioned with inventory and digital activation to capture demand. As a result, sleep delivered outsized growth and became our third largest new customer acquisition category in the quarter. Altogether, the Victoria's Secret brand delivered low double-digit growth for the quarter, a clear demonstration of the multiplier effect of our strategy.

We carried our momentum into the first quarter with the outperformance of our Valentine's Day collection and immediately followed with the launch of the Victoria's Secret Signature Collection. Signature elevates the comfortable bra she reaches for every day, bringing new energy to an essential category and is anchored by our best-selling wireless T-shirt bra featuring a stylized update to our classic logo. The collection was supported by a thumb-stopping campaign with a cast of fan favorite VS Angels that drove strong social engagement and cultural buzz. Beyond signature, we have a powerful pipeline of innovation. Watching our spring floor sets come together genuinely made my heart race. They're vibrant, saturated with color and completely alive. I can't wait to see customers step into this experience and feel that same energy.

Our second pillar is recommitting to PINK. For several years, the brand had drifted from its core, losing clarity, energy and cultural edge. In 2025, we reset the foundation and returned PINK to a differentiated position, a digitally native, socially driven lifestyle brand for 18- to 24-year-olds rooted in its bold, playful and irreverent DNA. One year into our path to potential strategy, PINK has a stronger brand definition, growing awareness and relevance and renewed affinity. All of this is showing up in the numbers. In the fourth quarter, PINK grew high single digits, driven by increased apparel penetration and renewed momentum in bras. Importantly, we pulled back on promotions, driving more regular price selling and double-digit AUR expansion, which benefited margins across PINK's portfolio, showing that the brand is regaining pricing power.

On the apparel side, PINK won the holiday season with core icon styles and fashion newness. Our Wednesday drops have become highly anticipated as customers check in regularly with growing urgency to purchase and our second drop from LoveShackFancy collaboration resonated with our brand fans and drove significant regular price selling in December. PINK's bra business also exceeded expectations for the quarter. Twice as appearance in the fashion show sparked viral demand and drove 2 sellouts of the Wear Everywhere bra. We built on that momentum by featuring twice again in our Valentine's Day campaign, deepening the emotional connection with our customer.

I saw that firsthand during a visit to our Dadeland Mall store in Miami, where young customers gathered together to dance and learn the choreography. This is exactly the kind of emotional connection that we have been working towards. The TWICE campaign became our most viewed PINK campaign ever, generating more than 79 million social views. PINK app downloads increased 50% in the quarter as customers sought early access to drops and exclusive product with downloads accelerating further following the Valentine's Day launch. Importantly, PINK brand equity and consideration among 18- to 24-year-olds are at their highest levels in years. As we enter the first quarter, we are maintaining a disciplined cadence of product newness, activating around spring break, continuing to innovate our icon styles and seeing early progress in revitalizing the PINK panty category.

Later this year, we will open a stand-alone PINK pop-up in SoHo, New York, bringing the brand to life physically. In 2026, we see a long runway to expand PINK. Our focus is on building relevance with Gen Z by celebrating the moments that matter to her and meeting her in her digital world through entertainment, culture and community. By moving at the speed of culture from high-impact moments like the Fashion Show and Valentine's Day to partnerships that spark conversation and engagement, we believe we can strengthen emotional connection and drive growth.

Our third pillar is fueling growth in Beauty. In Beauty, scent is our secret weapon. It is often her first layer and her lasting impression tied to memory and the moments that matter most. For her, fragrance is emotional. For us, it's powerful. It creates loyalty and connection in a way that few categories can. This emotional resonance is translating into meaningful growth. Newness in fine fragrance, including the holiday edition of Bombshell resonated strongly, amplified by integrated marketing across channels. As a result, beauty grew low single digits in the quarter, driving another year of growth for the business.

Fine Fragrance continues to lead our beauty business and remains a key differentiator. While many brands compete primarily in Mist, we have established ourselves as a world-class fine fragrance destination with craftsmanship and creative rigor of couture fashion houses. This is anchored by Bombshell, America's #1 fragrance. We are investing in our team and creative capabilities in beauty. Looking ahead, we are strengthening our innovation pipeline, expanding into adjacencies and differentiating PINK's beauty offering. We are also using real-time insights to respond to demand. We see a meaningful runway to accelerate growth in 2027 and beyond.

Finally, our brand projection and go-to-market pillar is transforming how our brands show up. Over the past year, we have clarified each brand's distinct positioning. That clarity now guides our product, marketing and cultural engagement. We have sharpened our marketing model, shifting investments towards digital and social and leaning into bold, entertainment-led creative. This is allowing us to tell more brand stories on more platforms and with greater frequency. Recent examples include the January release of our behind-the-scenes fashion show documentary, which keeps the fashion show top of mind and brings the creativity and the people behind the brand to life. Social activations for the documentary have generated over 36 million views. Additionally, our Valentine's Day campaigns drove over 10.5 billion impressions, 3x that of last year.

These events extended the halo of our biggest brand moments. That brand heat is translating into strong results. In the quarter, we grew our total intimates business at a high single-digit rate and expanded intimates market share for the third consecutive quarter with share up low single digits. Our overall customer count grew at low single-digit rate, led primarily by new customer acquisition, including amongst young customers, while retention among existing customers improved. Growth spanned both digital and stores and spend per customer increased mid-single digits, reflecting the continued progress in quality of sale. At the same time, our brand relevance and purchase consideration metrics are at their highest levels in several years, including across digital.

Our app is a highly engaging way to connect with customers, offering personalized experiences and deeper insights into how customers shop. In the fourth quarter, app downloads increased 25%, and our apps now drive approximately 1/3 of our digital sales. For the remainder of 2026, we continue to execute a disciplined cadence of brand-building moments. With sharper positioning, stronger consumer insight and a more modern go-to-market model, we see a path to converting brand heat into sustained market share gains. In closing, we delivered exceptional results.

One year in, the Path to Potential strategy is taking hold. The acceleration in the back half of 2025 underscores the impact of our disciplined execution and sharper focus. This performance is especially meaningful because our team is just hitting its stride. Many members of the management team have been here for less than a year and are already driving tangible impact. Over the past several months, I've spent time in our stores across the U.S. and internationally. The energy of our teams and the engagement of our customers are unmistakable. We are listening closely, responding quickly and translating real-time insights into incredible product and experiences. That responsiveness, combined with innovation and more effective marketing has strengthened our trajectory and positions us to build on our success.

We enter fiscal 2026 with strong momentum and confidence in our ability to lap our recent performance. The guidance we are issuing today reflects the strength building across all 3 businesses and how our path to potential strategy is creating a multiplier effect that supports sustained growth. I want to thank our teams for the commitment, creativity and discipline they bring to this business every day. Our performance is a direct result of their execution. We are still early in this transformation, but the progress is real, the momentum is building and the opportunity ahead is significant. With that, I will turn it over to Scott to walk through the financials and our fiscal 2026 guidance.

Thanks, Hillary, and thank you, everyone, for joining today's call. Before I begin, as a reminder, in the fourth quarter of 2024, we recorded a change in our accounting estimate related to the expected future redemption of outstanding gift cards issued by the company. As a result of this change in accounting estimate, we recognized a onetime cumulative adjustment, which increased net sales, gross margin and operating income by approximately $26 million in the fourth quarter of fiscal 2024. That said, we are pleased to report fourth quarter and full year results that exceeded the high end of our guidance on both the top and bottom line.

For fiscal 2025, excluding last year's gift card breakage benefit, net sales grew 6% to $6.553 billion. Adjusted operating income rose 16% to $403 million and adjusted EPS increased 22% to $3, all despite $85 million in net tariff pressure. Now let's review our fourth quarter results in more detail. Net sales for the quarter were $2.27 billion, an increase of $164 million or 8% over last year or 9% excluding the onetime gift card breakage benefit. Comp sales increased 8% for the second consecutive quarter. These results exceeded expectations and reflected broad-based growth at Victoria's Secret, PINK and Beauty and across all channels and geographies.

We saw increases in sales metrics, including higher comp traffic and average order value, reduced promotions and increased regular price selling. AURs in the quarter were up 6% compared to last year and up 7% excluding panties. Hillary explained how we accessed the insights from fourth quarter of 2024 and applied these learnings across the business. But I want to highlight the operational excellence we are building as an organization. Our cross-functional teams have delivered more frequent product newness in bolder marketing and storytelling. This strong execution translated into impressive fourth quarter results. In North America, our total intimates business across VS and PINK grew at a high single-digit rate.

We outperformed the intimates market in the quarter, driven by strong performance in bras and delivered low single-digit market share gains. We exited the year having grown our total intimates business for the first time in 4 years. Combined with the success in Sleep and Valentine's Day that Hillary mentioned, the VS brand grew low double digits in the fourth quarter. At PINK, we invested in depth behind our key icon styles while delivering fresh fashion newness, returning both PINK apparel and the total PINK brand to growth. Fiscal 2025 marked PINK's strongest growth in a decade. In Beauty, we grew low single digits in the quarter, supported by Fine Fragrance and Mist, which continue to perform well. For 2025, Beauty delivered yet another year of growth.

Our international business also continued to perform exceptionally well during the quarter. Reported fourth quarter sales grew 43% to $276 million, driven by outstanding performance in China, primarily in the digital channel. Adjusting for the shift in the reporting of European digital sales, which were previously fulfilled from our U.S. distribution center and recorded in North American direct sales, international sales grew 27%. International results included high single-digit retail comp sales gains, combined with continued new store openings. Fourth quarter adjusted gross margin dollars were $895 million. Adjusted gross margin rate in the quarter was 39.4% compared to an adjusted gross margin rate of 39.7% in the fourth quarter last year or approximately 38.9%, excluding the $26 million gift card breakage benefit.

Excluding the gift card breakage benefit, we expanded our year-over-year adjusted gross margin rate by 50 basis points despite approximately $60 million or 250 basis points of net tariff pressure in the quarter. We mitigated this headwind with margin expansion driven by our strong operational foundation, which enabled us to scale effectively, resulting in significant leverage on buying and occupancy expenses. Additional drivers included a pullback in promotions and increased regular price selling. Adjusted SG&A dollars were $579 million in the fourth quarter, and our adjusted SG&A rate was 25.5% compared to 25.4% last year or 25.8%, excluding the $26 million gift card breakage benefit. We levered on the SG&A line by 30 basis points, driven by the sales beat and continued discipline in expense management across the business.

This was partially offset by investments in store labor and higher incentive compensation expense associated with our outperformance in the quarter. Adjusted operating income was $316 million for the fourth quarter, above the high end of our guidance of $265 million to $290 million and up from last year's fourth quarter adjusted operating income of $299 million or $273 million, excluding the $26 million gift card breakage benefit. Nonoperating expenses, consisting principally of interest expense were $14 million in the quarter, better than our guidance of approximately $17 million and down from last year, driven primarily by a lower level of weighted average borrowings and lower interest rates. And our adjusted net income per diluted share was $2.77, significantly better than our guidance of adjusted net income per diluted share of $2.20 to $2.45 and last year's fourth quarter adjusted net income per share of $2.60 or approximately $2.35, excluding the gift card breakage benefit.

Turning to the balance sheet. Our inventories remain in a healthy position. Fourth quarter total inventories were up 12% year-over-year. Excluding the impact of the Adore Me inventory reserves, inventory growth would have been in line with our previous mid-teen guidance. From a liquidity standpoint, we ended the fourth quarter with a cash balance of $518 million, an increase of $291 million above last year. We generated free cash flow of $312 million for the full year. Included in free cash flow was a $69 million benefit related to the settlement of a long-standing interchange fee litigation. Excluding this onetime item, our adjusted free cash flow was $244 million, more than $30 million above the high end of our guidance.

As planned, we repaid all outstanding borrowings under our $750 million ABL credit facility in the quarter. Our cash balance and the full availability under our ABL agreement leaves us in a strong financial position with ample flexibility for continued execution of our strategic priorities. Before moving to our outlook, I want to briefly address the Daily Look and Adore Me businesses. As noted in our press release this morning, we have initiated a strategic review of Daily Look, which operates as a digitally based premium subscription women's apparel and accessory styling service and represents a noncore asset within our portfolio. We are evaluating options to best position Daily Look for long-term success.

We also continue to assess the Adore Me business and explore opportunities to optimize it within our portfolio. As a result of this ongoing review, we recently discontinued Adore Me's intimates-based subscription offering and converted it to a loyalty program designed to provide customers with a flexible, improved and seamless shopping experience. We also decided to exit the Adore Me distribution center in Mexico, and we have transitioned all fulfillment operations to the U.S. In conjunction with these actions, in the quarter, we recorded a noncash pretax impairment charge of $120 million related to the long-lived assets of Adore Me and a $36 million charge related to inventory reserves and other restructuring charges.

These charges have been excluded from our adjusted non-GAAP results. Moving to our outlook, which is based on tariff assumptions consistent with the rates in place prior to recent developments. We have not included any impact of any potential changes to tariff rates, and we'll continue to monitor developments closely and remain agile in our approach. As we discussed, we saw outperformance in the fourth quarter, and that momentum has carried into the first quarter of 2026. Our spring offering is resonating well. And looking ahead, we have a strong pipeline of floor sets and brand moments.

Brand heat continues to build as our product resonates with customers, driving market share gains and growth in our customer base. Our path to potential strategy is in its early stages, and we see substantial opportunity ahead to continue to deliver top line growth. For fiscal year 2026, we expect net sales to be in the range of $6.85 billion to $6.95 billion compared to net sales of $6.553 billion in fiscal year 2025, representing growth of approximately 5% to 6%. We expect fiscal 2026 operating income to be in the range of $430 million to $460 million compared to adjusted operating income of $403 million in 2025. This implies operating margin expansion of approximately 20 to 50 basis points despite the incremental tariff headwinds.

We have built a solid operational foundation that enables us to scale effectively and supports growth. As our top line grows, this foundation provides meaningful leverage across our buying and occupancy expenses. In addition, we believe our disciplined expense management, tariff mitigation efforts and ongoing focus on reducing promotions and increased regular price selling positions us to continue to expand our operating margins. Our fiscal 2026 guidance assumes an incremental gross tariff cost of approximately $160 million. We expect to mitigate most of that impact, resulting in an incremental net tariff impact of about $40 million.

Our mitigation efforts include optimizing costs with vendors, further diversifying our sourcing, ensuring we have a more efficient air versus ocean freight mix and implementing strategic pricing actions, including more targeted promotions, increased regular price selling and selective price adjustments where we identify value gaps in the market. We expect tariffs to have the greatest impact in the first half of the year with the first quarter seeing the largest impact since last year's first quarter was not affected by tariffs. That impact eases in the back half as we begin to lap tariffs and our mitigation efforts increase. Given these inputs, we are forecasting fiscal year 2026 net income per diluted share to be in the range of $3.20 to $3.45 compared to adjusted net income per diluted share of $3 in fiscal year 2025.

We estimate capital expenditures in the range of $220 million to $240 million in fiscal 2026 or approximately 3% of sales. Capital investments will continue to focus on stores, the customer experience and technology and logistics supporting our strategic initiatives to drive growth and operating efficiencies. We estimate 2026 free cash flow of approximately $220 million to $250 million. As for store counts and renovation plans in North America in 2026, we expect store counts to be flat to slightly up this year. By the end of the year, we estimate our Store of the Future presence in North America will be approximately 250 stores or 30% of the fleet, up from 25% in 2025.

Internationally, we expect our Store of the Future presence at the end of 2026 to be approximately 55% of the fleet, up from 45% in 2025. By the end of fiscal 2027, we expect approximately 50% of our global fleet will be converted to this format. Turning to our outlook for the first quarter of 2026. We are forecasting net sales in the range of $1.49 billion to $1.525 billion compared to net sales of $1.353 billion in the first quarter of 2025. This outlook assumes top line growth of approximately 10% to 13% based on our continued momentum quarter-to-date in our North America business as well as strength in our international business. With this sales outlook, we expect first quarter 2026 operating income to be in the range of $32 million to $42 million compared to an adjusted operating income of $32 million in the first quarter of 2025.

We expect our first quarter 2026 gross margin rate to be about 35.5% compared to an adjusted gross margin rate of 35.2% in the first quarter of 2025. This means we anticipate the first quarter 2026 gross margin rate to expand approximately 30 basis points year-over-year. Our margins are expanding despite the approximately 175 basis points of tariff pressure in the quarter, which we expect to more than offset based on the strength of our operational model, which continues to deliver leverage on buying and occupancy expenses as net sales grow as well as our disciplined promotional strategy and more regular price selling.

The SG&A rate in the first quarter of 2026 is expected to be approximately 33% compared to the first quarter 2025's adjusted rate of 32.8%. The forecasted increase in SG&A dollars is primarily driven by store labor investments and other costs to support the customer experience and top line growth as well as higher incentive compensation expense as the first quarter of last year benefited from a reduced level of incentive compensation expense. Given these inputs, we estimate first quarter earnings per diluted share to be in the range of $0.20 to $0.30 compared to adjusted earnings per diluted share of $0.09 in the first quarter of 2025. We expect to end the first quarter with inventories up high single digits compared to last year. This expected increase reflects growth to support business trends, the impact of tariffs and timing related to our operations, mostly due to our strategic shift towards ocean freight from air freight, which results in us taking ownership of inventory earlier as compared to last year.

In closing, our path to potential strategy is delivering tangible results as evidenced by the significant acceleration in our business during the back half of 2025. We are entering 2026 with momentum. Despite an uncertain macro environment, our fundamentals remain strong and resilient. We remain focused on managing costs while continuing to invest in product innovation, brand strength and the customer experience.

We are positioned to continue to scale effectively, giving us confidence in our ability to drive sustainable, long-term value.

I would now like to open it up for questions. Operator?

[Operator Instructions] For our first question, we will go to the line of Matthew Boss with JPMorgan.

Congrats on a nice quarter. .

Thanks, Matt.

So maybe Hillary, could you elaborate on new customer acquisition trends following the inflection in the file to growth last quarter? And just what inning you see marketing and product improvement in today as we think about sustaining momentum into '26? .

Sure. Sure, Matt. So customer acquisition, we -- when you look at our total customer file, we're seeing growth across new, retained and reactivated but the highest growth in new. And within that, we're seeing a nice uptick in younger customers. It's a little gray because there's a delayed matching in age range. So it's not a precise science, but we do see that and we see anecdotally in our business that we are increasing our count of new customers, which feels great.

I would also add that from an income perspective, we are seeing consistent performance across the board in all income cohorts. And we are seeing growth in the customer account across all income cohorts as well as spend. So we're feeling really good about the complexion of customers as we enter 2026.

In relation to marketing and what we have planned, the team is just getting started. When we executed Q3 and Q4, the majority of the leadership team was on the brand side was new. And so while we are tremendously happy with the success we had in the back half of the year, we're just getting started. And we are learning things every day that we are playing forward. I think our Valentine's execution is an example of that, where we learned the power of the virality of a K-pop group, like TWICE brought them back to collaborate on Valentine's Day and just saw record results from that collaboration. So we are moving quickly.

We have a number of events planned for both brands. And I think one of the things I'm most excited about is we're really starting to find our voice with the PINK brand and what resonates there. I think we were farther along with VS and building brand heat in VS, and I'm very excited about some of the things that are in the pipeline for PINK. So all the way around, we're feeling really positive.

Great. And then maybe, Scott, as a follow-up, I think you mentioned momentum multiple times. I lost count in terms of the first quarter to date. But maybe just -- if you could elaborate on the momentum that you're seeing first quarter to date, maybe relative to the 10% to 13% revenue growth outlook and just drivers of the demand acceleration that you're seeing relative to holiday? .

Yes. I mean, coming off of holiday and what -- which started with the fashion show heat continued with the product newness. And then when you think about the -- towards the end of Q4 setting Valentine's Day a little bit earlier and getting the heat around Valentine's Day end of Q4. That carried into February through Valentine's Day, and we saw impressive traffic, especially the week of Valentine's Day, which has set us up for a strong Q1 with that guide of plus 10% to plus 13%. I will say February is probably our easiest comp month given last year, the trends were down and then sort of rebounded in March and April. So for Q1, we expect that 10% to plus 13%, but the March-April time frame will probably be a little bit below what we're seeing in February.

And then I'll just jump in on the categories. We're really, really pleased in February to see very broad-based success across business units, across channels and even in the categories that we're really focusing on. So I would say, very consistent, very broad-based success. That being said, the things that I'm really paying attention to, in VS sleep and intimates. In PINK it's bras, apparel and collaborations and in Beauty its fine fragrance and mist. And I'm really happy to report that all of those businesses are performing very well and very consistently.

Our next question comes from Simeon Siegel with Guggenheim Partners.

Really nice job. So Hillary and the team, obviously, you have this nice year behind you. You see what's working, what isn't. Maybe it feels like you have a really nice handle on the brand. So just as we take a step back, anything you're willing to share about how large you think each brand can and should be? And then I don't know if it's Hillary or Scott, but just any notable discrepancy in AUR at PINK versus Victoria in this past quarter? And do you see greater go-forward opportunity at either brand?

Sure. I'm just very optimistic about all 3 business units. I don't see a reason why we cannot hit historical levels of sales in VS&Co in general. I'm not going to point to any specific numbers by brand, but we see tremendous runway in all of them, and we're working towards delivering that. I'm feeling great across the board with -- and with PINK, I think we're just really getting started.

In terms of AUR, we are seeing broad-based success across removing promotions. But 2 things I want to highlight is real strength in bra AUR which just goes back to leaning into our expertise, authority and storytelling as well as our in-store service.

And then the other thing I would highlight is a real win with PINK apparel where we saw double-digit AUR increases. And we've been able to, I think, make the most headway with delayering promotions. But we still think there's tremendous room to continue delayering and we continue to look at that and discuss it and work towards it every day.

Our next question comes from Mauricio Serna with UBS.

Great. First to Hillary, maybe could you talk about on a higher level in what inning do you see yourself on the turnaround of VS and PINK? Just curious because you've had now 3 consistent quarters of very strong comp sales. So just thinking like how far along do you think you are on this turn around? And maybe could you elaborate on the market share trends you saw in the quarter for the North America bras and panties categories? .

Sure. What inning are we in? Early to mid. I think it's different for each business unit. Victoria's Secret brand, I think, is farthest along. That team has been working together for the longest. I think we have the clearest view of what we needed to be dominant in there, which is obviously bras being at the heart of that business. It's really just clicking. And there's so much that we can build upon there, and I feel great about that.

I think in PINK, we're seeing equally strong results, but we are more in learning mode. I would say this customer has changed more than the Victoria's Secret customer. The 20-year-old today is very different than the 20-year-old 20 years ago when this brand started. So we are learning and acting quickly and seeing real success. And one of the things that I would point to outside of TWICE and what we've been able to do with that collaboration is really learning through the LoveShackFancy collaboration, applying those learnings to our PINK by Frankies collab that just dropped just couple of weeks ago and seeing that turn into measurable results. And so we are consistently reading, learning and reacting in PINK and I think we're in earlier innings because of that.

And then in Beauty, Beauty is a much -- a very technical business. There's a lot of innovation that's required. We've made some key hires, and we're really thinking a little bit longer term in Beauty. So that innovation and that regulatory element of Beauty takes a little bit of time. So we're going to be a little more conservative with Beauty in 2026 with the intention to start ramping up in 2027.

And I think you asked me one other question, market share. Super pleased with market share increases in all of the key categories. The only other thing that I would say to elaborate is it does look like we're taking that share from the value sector primarily, which was where we had targeted all along. And so we continue to see that coming to fruition. And we're super excited that we're able to provide the emotional connection versus having to drive promotions to entice those customers, and that's also just feeling like a real proof point for us.

Great. And just a quick follow-up for Scott. Maybe could you talk about the cadence of a tariff impact throughout the year? You just kind of said that the first quarter is most going to be the biggest one, but just more details would be very helpful.

And just to clarify on the rates you're using, you're assuming 20% for every country except China. Does that include also like India being like 18% coming down to 18% from 50%? Just wanted to understand that since I think you have exposure to that market.

Yes. Let me start with the second and then tackle the first. So we're assuming tariff rates in place prior to Supreme Court ruling. And so we'll continue to monitor the developments with that.

With India, we had a good chunk of the 50% mitigated. So going to 18% a smaller impact for us. So not -- doesn't really move the needle in a significant manner.

In terms of the cadence of tariffs throughout the year, as we said, it will be heavier kind of in the first half and particularly even in the first quarter, if you think about tariffs weren't in place in Q1 last year. So we'll see a bit over 100 -- about 175 bps headwind in the quarter on that tariff pressure for Q1. And then it will still be an impact in Q2, but it will be lesser of an impact in the back half as, one, we start to lap tariffs, but, two, our mitigation even continues to execute and ramp up through the back half.

Our next question comes from Corey Tarlowe with Jefferies.

Great. Hillary, I wanted to ask you about what worked well for you in 2025? And then as you think about 2026, if you could, for us, just zoom in on what you're looking to change in the first half, specifically? Because I think if you compare what we saw in the back half of last year, some of that product in floor sets had your mark on it, but we heard in your prepared remarks today about how much -- how emphatic you are about the new floor sets that are really hitting.

So I was curious about what it is that you really see as the biggest factors of change in the first half of this year. And if you would like to elaborate about back half as well, that would be great, too, but I wanted to zoom in there.

Sure, Corey. Really proud of 2025 across the board. I think both from a product evolution standpoint, a cultural connection standpoint, and from a marketing optimization standpoint. I would say those were the 3 major levers that we pulled and worked in concert together to create the tangible results. As I think about the first -- and as I think about assortment specifically to your question, Q1 -- quarter we're in right now, really starting with Valentine's Day is the first season that we, as a new team, all work together from beginning to end, from concept to customer.

And so you are seeing all of our insights, all of our conversations, all of our debates and hard work come to fruition with these floor sets. And I think more than anything, they just have -- we breathe new life into this assortment. It's more energetic, it's more fun. It's a little more useful. We're not taking ourselves super seriously. Intimates should not be a serious business. This is about fun and escape and joyfulness. And I think that's really coming through on our floor sets. Particularly in the front half of the year, we have marketing optimization as a huge lever as that theme really started to impact the back half of the year.

And from our analysis on back half of the year marketing optimization, the analysis is telling us that like there's even more we can do with -- in particular, how we put the fashion show into the world. So we had a very specific pre, during, and post media strategy that worked very well, much better than it did the year prior, but even more to do there next year. So we have a very robust calendar of deliveries, activation, new ideas, new cultural connections in both brands throughout the entire year. I'm not going to tell you what they are. But we're excited.

And I think what you will see is the power of this executive team coming together as they all anniversary a year together and they start supercharging their ideas and really driving outsized results.

That's great. So I guess, a follow-up for Scott, given all the excitement that's flowing into the business and sort of circling that square with the outlook for the year, how do you think about the factors of upside to the current guidance?

Yes. I mean we feel really good about our current guide. As we've shared with Q1 of plus 10% to plus 13%, touched on the momentum coming into the quarter and what we're seeing I think you'll see that momentum sort of carry into Q2. And then as we start lapping the higher comps in the back half, we see a runway to growth there, but it probably won't be as high as the growth in the front half is how we're thinking about it right now.

So -- but excited for all of these new floor sets is excited for how the marketing is bringing the story to life, and I think it's setting us up for that sustainable growth throughout the year.

Our next question comes from Brooke Roach with Goldman Sachs.

I was hoping I could follow up on Matt's question on marketing. What marketing spend as a percent of sales is embedded in the plan this year versus last year? And do you expect that rate to move higher on a medium-term basis, given the success that you have with your customer engagement strategy?

Yes. I'll touch on the first part, and then Hillary can give some color. But in terms of marketing as a percent of sales, we see it ticking up slightly right now. We see there's opportunity to potentially invest more where we can get a return on that ad spend. And so we did invest more through the back half where we saw those opportunities last year, and we're planning for a slight uptick this year.

And then I would just add that we have tremendous opportunity in the optimization of marketing, especially in terms of segmented marketing. I think the early stages of really evolving with the customer as she evolves her purchase and sort of consideration journey with agentic commerce. And then we're going to be looking for places where we have opportunities, where we have like absolutely unbelievable idea that is potentially out of the box and something that we want to bring to market.

And so we are working to make sure that we have levers we can pull when those things arise. And we can manage it within our budgets. And those are some of the things I'm most excited about, to be honest with you.

That's great color. Scott, as you look at the merch margin opportunity ahead, how much more opportunity do you see from promotional reduction? And what are your pricing plans? And how might that change as a result of the dynamic tariff environment that we currently find ourselves in?

Yes. Great question. As we went through 2025, we had tailwinds from pulling back on promotions pretty much all year, even into Q4, which is a heavier promotional period and we were still identifying days of promotions that we could shorten. We also increased our holiday GWP buy-in. So we're always looking for those opportunities, and we see those opportunities all through 2026 as well. As these brands become more about emotion versus promotion, we'll continue to get tailwinds from pricing and promotions throughout the year.

We also talked last year where we implemented some strategic price increases here and there where we saw value gaps. So some of that will lap in the front half. We continue to monitor the consumer reaction, but we haven't seen the consumer pullback. So I think you'll see AURs continue to tick up then throughout the year. And then we continue to monitor tariffs. I mean as we said, we're planning with the tariffs that were in place prior to the recent developments. Talked about the color of how that's going to weigh on the front half versus the back half. But the other piece I'd touch on with margins is just as we grow, we've got that low leverage point. So as we get -- as we grow north of that 1% to 2%, we're going to continue to leverage in a meaningful way on buying and occupancy, which is what we've seen these last couple of quarters whereas tariffs have come on in a big way, we've been able to still grow that gross margin rate.

Our next question comes from Marni Shapiro with The Retail Tracker.

Congratulations. And especially on Valentine's Day. I'm still shook that you had Hailey Bieber. It looked so beautiful.

I do just want to focus a little bit on PINK. It feels like PINK is getting its grounding and footing around the balance of apparel versus intimates versus beauty and accessories. I'm curious if you could kind of outline what it should look like long term with the hits of fashion from your collaborations like the denim that you pop in there? And where does active and beauty kind of fit into the PINK assortment now?

Sure. You're right. I think we are hitting our stride, and we are putting the puzzle pieces together here. And Ali said to me last week, she said, it's really feeling great that the business is about 30% intimates, 30% core icons and then 30% collaborations and fun. That is unexpected. And so I thought that was a good comment and something that we're really thinking about and refining.

So lots of runway here, lots of experimentation. And then the key is when something clicks is how fast we can run with it to the next idea. And I think the team has done a tremendous job at that. And then in terms of accessories and beauty, I think I'm an accessories merchant from way back. So I have a lot of passion about that category, and I think there is upside and opportunity there. I think we need to spend some time really brainstorming that. We are not quite there yet. So that will be future upside. And then with beauty, we are actively working on that. So I expect that -- I expect that to be an early 2027 evolution as the team gets in place and starts working on longer-term ideas for PINK Beauty. But we know that, that customer is deeply engaged with beauty and we certainly think we have an opportunity there.

And so does active fall into core icons? And then if you could just...

Sorry.

It's okay. And if you could also touch on VSX, which I feel like also seems to have more consistency in like a real home in the stores over the last 4 to 6 months?

Yes. Okay. So active within PINK is it's actually in apparel. That being said, I think that the trend is moving away from like sort of a head-to-toe leggings bra look, and so we are evolving with that into more of a lifestyle look. So it won't be as pure of an active category as it has been in the past. It will be a bit more mixed. .

As it relates to VSX, we continue to have great success in our authority with sports bras and really thinking of those as an extension of our bra authority initiatives.

I think we have an opportunity to sharpen that assortment, focus it in. And in many cases, I think it is more of a digital opportunity than a store's opportunity. And so we are rightsizing that square footage in stores as we move towards the back half of this year. But we are a little fine-tuning to do there.

And so I -- as we see the enormous, enormous opportunities in the 4 pillars, we're really focusing our effort on that. And then we have some of these other secondary opportunities, which we will start more aggressively pursuing in the out years.

Our next question comes from Ike Boruchow with Wells Fargo.

Let me add my congrats. I just wanted to ask about 2 things. I think for Scott, maybe for Hillary. Firstly, on the momentum quarter-to-date, I'm sorry if I missed this. Did you reference what the U.S. business is comping thus far? Is there any shifts that are impacting the business in the first quarter, Chinese New Year, anything that we should be thinking about?

And then a follow-up, Scott, just on the margins, I think you had guided some slight leverage in the fourth quarter. And we saw some slight deleverage even though the revenue was significantly better. Can you kind of walk us through what exactly happened on the cost line and why there wasn't some better flow through there? Just kind of curious if that was incentive comp or something else and pull forward of investment.

Yes. So quarter-to-date, no real shifts like in or out of the quarter. So quarter-to-date, we've got the momentum coming off of Valentine's Day, super strong set that dropped in January, that momentum, as I said, carried into the Valentine's Day period. The Valentine's Day week, the traffic was just phenomenal.

So February is the lowest comp month, particularly of the year, but also the quarter and think as things started to turn in that March, April time frame. So for the quarter, we expect March and April to kind of be below what we're seeing in February, but still result in that 10% to 13% guide. There's a little bit of shift between April and March, but that's all in Q1 as Easter shifts from April to March this year. So it doesn't impact in or out of the quarter.

In terms of the margins, so gross margin grew -- the adjusted gross margin rate grew year-over-year. Obviously, we had the tariff headwinds but then we leveraged on buying and occupancy. And then we had more favorable promos and pricing than we initially thought because as the quarter progressed, even though it's a promotional period, we found opportunities to continue to pull back.

From an SG&A perspective, we did invest a little bit more in marketing to drive some of those outside [ pre ] sales, but then we have higher incentive comp given the outperformance, so that was sort of the cost drag, if you will, from an SG&A perspective.

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

Congratulations, everyone. Hillary, you mentioned a pop-up for PINK and SoHo happening sometime. What are the markers that you need to see that would make PINK a stand-alone concept for you? And then given the success of the fashion show in 2025, what learnings or hindsight that you're thinking about for '26 that could make it even more impactful ?

Dana, thanks. Okay, PINK stand-alone. We're doing a long-term pop-up in SoHo in the bull's eye of the traffic pattern in that area. So we're very excited about that. It's going to be a little bit of a laboratory for us as we start to build out some of these additional categories that Marni was asking about. We're going to be looking at the KPIs of traffic conversion, store productivity, all of those things. But also, it is a brand building and marketing moment and a customer connection moment.

And we -- what's very interesting about this modern 20-year-old is that, she is living and sort of beginning her connection with the brand in a digital world. Everything is happening off of her phone, but then she is seeking out in real life experiences. They refer to her as a lonely generation. She is looking for that third space. And we are seeing a higher penetration of store sales for the PINK brand. So we are looking to create that special space and learn about that.

Do I think that we would have a very significant PINK stand-alone strategy that comes out of it? Probably not. We like the side-by-side format. But I do think that there will be specific locations, whether they're college towns, et cetera, where there are particularly high levels of young customers where we may want to experiment with this.

And so it's a first step towards that. And I think we're going to learn a lot, and I think it's -- we're going to have a lot of fun in the meantime.

Was there a second question?

Fashion show learning.

Fashion show learning. We learned a lot with the fashion show. Overall, we were very, very pleased and saw much higher returns on our investment than we did a year prior. Part of that came from the very specific planning of the pre, during, and post sort of media activation strategy. We learned that we could do more. I think we learned that the global approach to talent was an extremely important piece of its success globally.

We learned that having a distinctly PINK section was particularly disruptive in a positive way for the PINK business. And I think we really have an appetite to pull to move beyond a singular event a year. And it's really an unlock to thinking about how we might be in conversation with our customer in a more evergreen way. And so those are all things that we're thinking about as we enter '26 and beyond.

We have time for one more question. Our last question comes from Adrienne Yih with Barclays.

Great. And great to see the progress, Hillary, Scott and whole team. I guess I'll start with -- it seems like we've been on this journey of kind of elevating the business and getting back to your historical strength. And this seems like really kind of an acceleration in that journey. When you kind of are getting feedback from customers and the new customers, are they recognizing now how highly complex bras are to make, well fitted bras? Are they understanding the quality and the investments that you're making there? It was really nice to see the bras returning -- the bra segment returning to growth. So if you can talk about kind of the cadence of launches and the feedback that you're getting in that particular category?

And then secondarily, I have to ask this, Middle East, I know you do franchises there. We're calculating maybe 2% of exposure there. If you can talk about any disruption there.

Sure. I'll start, and then I'll pass to Scott on the Middle East question. So with bras, I think that we are in the very early stages of reeducating and reengaging with our customer on our authority and expertise in bras. The amount of time, energy, resources we expand to fit and perfect bras, the culture that we have in stores around bra fitting and that -- it's a very personal, very emotional experience and one that I think our teams do very, very well and build long-term connections around.

And so -- and then thirdly, I would say middle funnel marketing with influencers, testimonials about bras, their love for bras had also been really impactful, and I think something that's been missing. So we haven't had that authoritative voice for years. And I think bringing that voice back, while being able to strike a code -- sorry, strike a balance of a emotion with authority has been the real key because it is an emotional purchase. It's a technical fit purchase, but also on an emotional purchase. And I think we're doing a very good job threading that line.

In terms of cadence of launches, we have a robust cadence of launches, events and milestones this year in both brands. And something that we are investing more resources and energy around. And really, we've learned that we must be always on in bras in some way, shape or form. And so that is our intention this year and we're excited with what's to come.

Adrienne, in terms of Middle East, we're obviously staying very close to the situation and monitoring the developments and how long this may last. But, there's 2 areas right now that we're paying close attention to. One is just shipments to North America. We are experiencing some delays, but not material that are going to have a broader impact on the business that way. And then as you said, we've got franchise partners in the Middle East. There are a handful of store closures right now. This is where our business model helps mitigate some risk because even though there's store closures, the impact to us is the royalty rate as that product sells to the end consumer. So the impact is a bit less benefit where our own stores.

And is it fair to assume it's no sourcing there, no sourcing exposure?

No real sourcing exposure. No.

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

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 Third Quarter 2025 Earnings Conference Call. Please be advised that today's conference is being recorded. [Operator Instructions]

I would now like to turn it over to Priya Trivedi, Senior Vice President and Global Head of Investor Relations and Treasury at Victoria's Secret & Co. Priya, you may begin.

Good morning, and welcome to Victoria's Secret & Co.'s third quarter earnings conference call for the period ended November 1, 2025. I would like to remind you that any forward-looking statements we may make today are subject to our safe harbor statement 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 releases and in 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 in the investor presentation posted on the Investors section of our website.

With that, I'll turn the call over to Hillary.

Thanks, Priya. Good morning, everyone, and thank you for joining us today. I am pleased to share that we delivered standout third quarter results. with outperformance on the top and bottom lines that far exceeded the high end of our guidance. These outstanding results reflect what we can achieve as we advance our Path to Potential strategy, which is built around four pillars: supercharging our bra authority, recommitting to PINK, fueling growth in Beauty and evolving our brand projection and go-to-market strategy.

This is the first quarter that our new leadership team has been fully on board, and their impact is clear. When the implementation of our strategy is aligned and working in concert, it creates a powerful multiplier effect, accelerating global growth, elevating the distinctiveness of our brands and unlocking greater value across our ecosystem to drive sustained shareholder returns.

A great example of this multiplier effect was the iconic Victoria's Secret Fashion Show. Brand-right product, a major upper funnel moment and digital and social amplification came together, propelling us into the cultural conversation, ultimately driving mind share, customer share and market share. This translated into tangible business impact, particularly in our intimates business.

In the quarter, our intimates business returned to growth, up mid-single digits, resulting in us gaining over 1% share in the U.S. intimates market. Additionally, a big unlock for the quarter was customer acquisition. Before I arrived, there was not enough focus here and, as a result, our active customer base was shrinking. We have made reversing that trend a priority. For the first time this year, our total customer file grew and, importantly, we saw growth coming from an increase in new customers.

Now let's walk through the third quarter results. We delivered net sales of $1.47 billion, an increase of 9% versus last year with robust adjusted gross margin expansion of 170 basis points and earnings growth of 45%. This was driven by growth across Victoria's Secret, PINK and Beauty and underpinned by broad-based outperformance across channels and geographies. Our international business continues to grow at an accelerated pace with Q3 marking our third consecutive quarter of double-digit retail sales growth. Sales were up over 30% during the quarter driven by exceptional performance in China, primarily in the digital channel.

In late October, we saw a strong start to the 11.11 Singles Day selling period. These results continue to affirm our brand's global appeal and International's role as a growth engine. With Black Friday and Cyber Monday behind us, our fourth quarter is off to a strong start. We saw our highest Black Friday customer turnout since our spinoff with roughly 1 million customers shopping our brands in North America, up high single digits from last year, and a strong engagement from new customers.

Building on our third quarter outperformance and the momentum of the fourth quarter, we are raising our outlook for the year. With the strength of two iconic brands and a thoughtfully curated product assortment, amplified by our merchandising and marketing strategies, we are well positioned to deliver a strong holiday season and a solid finish to fiscal 2025.

Now let's turn to a signature brand moment for us as the world's leading intimates brand, the Victoria's Secret Fashion Show, which celebrated the new era of sexy, masterfully blended pop culture with storytelling. It was a full force celebration of our community, brought to life by a dynamic lineup of global music artists including Madison Beer, Carol G., TWICE and Missy Elliott, alongside iconic runway talent and fresh faces. PINK's moment in the spotlight sparked tremendous excitement, amplifying the impact of the entire event and elevating the experience for fans around the world.

The show once again became a cultural phenomenon. In the 4 weeks following the show, streaming views reached approximately 61 million, up over 60% versus last year. We gained nearly 9 million new social followers, and total media impressions hit $51 billion, an increase of over 30% versus last year. On show day alone, the event dominated fashion media with over 42 billion impressions, while traffic to our site surged over 60% year-over-year, converting over 15% more new customers.

Post show, Victoria's Secret kept the cultural spotlight, converting the buzz into measurable business results as engagement soared across search volume, click-through rates, positive sentiment and brand desire. The Fashion Show delivered strong commercial impact, significantly exceeding both last year's results and our expectations. The halo from the show is evident across our business, from the increased demand for sexy and glamorous bras and related lifestyle collections to renewed traction for iconic VS brand codes. Shoppable product linked to the event doubled year-over-year with several key styles selling out.

We also launched our holiday collection alongside the show, which started strong in the third quarter and continues to perform well. The show serves as a powerful customer acquisition engine. We saw double-digit growth in new and reactivated customers following the event, with particularly strong traction among the 18- to 34-year age group. The show remains an unrivaled cultural event fueling growth, brand love and engagement while reinforcing our leadership in the global intimates market.

This year's fashion show was a defining moment, allowing us to show the world how we've evolved into our new era of sexy. In this era, beauty is no longer a singular standard. It's on her own terms, a conscious liberating choice. Some of the shift is subtle. It's in the tone, the gaze, the feeling. And some of it is unmistakable, more diverse bodies and ages, a fuller spectrum that's joyful at its core and an expanded product assortment that empowers her to feel exactly how she wants. Our role isn't to dictate or to define. It's to meet women where they are, to inspire them, listen to them and reflect the many ways they show up today.

Now let's review the meaningful progress we made in the third quarter across each pillar of our Path to Potential strategy. Turning to our first strategic pillar, supercharging our bra authority. Bras are the heart of our business and we are a market leader in the bra category. We want to reinforce our position as her #1 destination for all bras because when we win in bras, it creates a halo effect across our entire brand. Our bra customer is among our most valuable and loyal. She spends more, visits us more frequently and shops additional categories, reinforcing her connection with us.

To achieve this, we are delivering market-leading innovation with style and fashion that solves real lifestyle needs. We are educating with authority to showcase our expertise. We are amplifying our digital marketing voice through a social-first approach to attract new customers and grow the value of existing ones. And we are elevating the experience with profiting experts in top stores and creating emotional connected digital experiences. These actions position us to unlock significant growth and deepen loyalty through an exceptional bra experience.

The third quarter showcased our ability to win across the bra lifestyle spectrum with a frequent drumbeat of fashion innovation complemented by sharp messaging. The Body by Victoria FlexFactor bra with the tagline, Better than Braless, delivered casual comfort and innovation and has quickly become one of our top styles, driving incremental growth. Ahead of our Fashion Show, we activated a sophisticated campaign for the Very Sexy franchise, which delivered impressive results. Finally, in Sport, we expanded our range of support levels, reinforcing our authority in sports bras across all wearing occasions.

In North America, our Victoria's Secret bra business delivered a mid-single-digit increase in the third quarter, signaling a strong return to growth in the category. Performance was steady throughout the quarter as our bra offering from casual to sexy and glamor, with the latter accelerating with the heightened interest around the Fashion Show. As a result, we grew our share of the U.S. bra market by low single digits, a nice acceleration from last quarter. By connecting emotionally with the customer, we've been able to increase regular price selling, pull back on promotions and execute select strategic price increases all while growing the bra base business.

As our bra category accelerated, so did the rest of Victoria's Secret brand. For the fourth quarter, we've been very pleased with the response to our intimates collection thus far, and momentum continues to build. The VS Lifestyle extends into sexy and casual sleepwear and gift sets, a key gifting category for the quarter. Then as we transition into post holiday, we are excited to unveil a fresh Valentine's Day assortment designed to keep our customer engaged and inspired.

The Victoria's Secret brand proposition of sexy, glamorous and luxurious is clearly resonating. The customer is responding, returning and reengaging with the brand. As we continue to innovate, deliver differentiated product and communicate in compelling ways, we are not just succeeding, we are gaining share.

Our next pillar is recommitting to PINK. PINK has long been an iconic, immediately recognizable and beloved brand. We are focused on returning PINK to its roots as a lifestyle brand designed for 18 to 24 year olds, a segment we pioneered and once dominated. That means reestablishing PINK's identity as digitally first and socially driven while staying true to its DNA: bold, playful and irreverent. This is at the heart of everything we do from product design to storytelling. By showing up in the moments that matter most to her and creating compelling products and experiences, we are building the emotional connections needed to win her loyalty for the long term.

PINK delivered an outstanding third quarter with double-digit sales growth accelerating from the second quarter. As we increase our apparel penetration, we are delivering frequent fashion to create a steady drumbeat of newness. We showed up in key moments like back-to-school, Game Day and Halloween, supported by culturally relevant and entertainment-led digital and social content. A record-breaking LoveShackFancy collaboration and PINKs included in the Fashion Show also fueled awareness and connection.

Our LoveShackFancy collaboration was highly successful. We seized the launch on our social channels and hosted a pop-up event in New York City with media and influencers. At launch, traffic to our site soared and we logged our highest 5 minutes of digital volume ever. Importantly, this is all at regular price and incremental to the base PINK business. This buzz translated into authentic brand content that drove engagement across social channels. Nearly 15% of customers shopping this collaboration were new or reactivated.

PINK also took center stage at the Fashion Show with the K-pop sensation, TWICE, and a lineup of talent that appeals to Gen Z. This collaboration resonated with our target customer and reintroduced PINK to their highly engaged fan bases. The Wear Everywhere bra worn by TWICE sold out following the performance and related content on social media went viral, generating over 52 million views to date. PINK intimates also returned to growth, signaling positive momentum across the brand. This remarkable post show lift in PINK intimates reinforced a key insight. With the innovation and brand experience, PINK intimates can unlock meaningful growth.

PINK has gotten off to a strong start in the fourth quarter. Earlier this week, we launched our second collaboration with LoveShackFancy. PINK is regaining its spark, and we are confident in our strategy to drive growth, deepen customer connection and the long-term brand value.

Our next pillar is fueling growth in Beauty, a powerhouse business nearing $1 billion in net sales in North America. Beauty is a high-frequency category and our beauty customer is our second most valuable in spend, yet only 40% of our customers purchase Beauty, which is a clear opportunity. To capture this, we are investing in talent to scale Victoria's Secret Beauty, build a differentiated offering for PINK Beauty and strengthen our innovation pipeline. We're putting innovation at the forefront while enhancing merchandising and speed-to-market capabilities to consistently deliver fresh, exciting products.

With a strong team in place, we see tremendous runway for growth in North America and internationally. In the third quarter, our Beauty business grew low single digits, building on last year's mid-teens increase. An important reason our business is thriving is because we listen and act. After last year's Fashion Show, customers asked for more glamor, so we delivered runway exclusives and the response was electric. This year, the customer buzz after the fashion show got even louder, and we are turning those insights into innovation for our upcoming product launches.

Scent is our secret weapon. It creates lifelong memories and a deep emotional connection with our brand. You see it with Bombshell, which is America's #1 fragrance. This quarter, we introduced the holiday addition of Bombshell and launched our first integrated lifestyle campaign for the Very Sexy franchise, bringing together intimates and the restaged fragrance, which drove solid growth. For the fourth quarter, Beauty is a key gifting category. We have a full selection of fine fragrances, mists and beautifully packaged gift sets heading into the holiday season. We are investing in the future of this business to innovate and differentiate to capture market share across North America and internationally, where beauty is a key category.

Finally, evolving our brand projection and go-to-market pillar. We are creating a compelling shift in our market presence, more purposeful, more provocative and more aligned with who our customer is today. Our focus is on driving brand heat to reclaim mind share, which ultimately fuels market share and growth. Over the past year, we clarified our target customer for each brand's positioning. This clarity informs every decision, from product creation to how our brand shows up in the world, helping to reestablish our relevance and leadership position.

To capture mind share, we are continuing to fine-tune our marketing investments. This includes rightsizing direct mail spend to protect our most valuable customers while investing in digital and social marketing. We are leveraging owned channels that reach more than 145 million followers and expanding influencer campaigns, all with a sharp focus on acquiring new customers. We are delivering bold, entertainment-led creative content that is forging an emotional connection. Our approach is working. The momentum in brand buzz and mind share gains are evident with the commercial success of our FlexFactor bra launch in late July, LoveShackFancy collaboration in early August and the ultimate cultural moment, our Fashion Show in mid-October.

This strategic marketing shift, combined with our product initiatives, is also driving meaningful customer growth. In the third quarter, our total customer file grew low single digits, a significant improvement over the second quarter. We saw gains across all customer segments, new, reactivated and active with our new customers showing the biggest shift in trend. Additionally, we saw nice increases in both the number of customers and average sales per customer across all income cohorts.

Our gains in mind share and customer share are translating into market share. In the third quarter, despite the total U.S. intimates market declining, we grew our share of the market by over 1% driven by growth across our intimates business. This was our second consecutive quarter of gaining market share, reinforcing that our growth is not dependent on the category growing. It comes from creating desire, building brand heat and providing exceptional customer experiences. Our brand projection and marketing efforts are delivering heightened awareness, deeper affinity and increased relevance. Victoria's Secret is now dominating the conversation and moving into the center of culture, converting buzz into measurable business impact and market share gains.

In closing, we delivered a standout third quarter with sales and earnings growth that positions us to raise our outlook for the year. We feel confident in our ability to execute but are being thoughtful about the consumer, particularly post holiday. We are heading into the holiday season with momentum and are well positioned to deliver a strong finish for the year. I would like to thank our incredible, talented and passionate teams for their tireless work in driving our transformation strategy forward and for delivering exceptional service to our customers every day.

When the implementation of our Path to Potential strategy is aligned and working in concert, it creates a powerful multiplier effect, unlocking greater value across our ecosystem. We are reinforcing our leadership in global intimates and beauty to drive sustained long-term profitable growth.

I will now turn it over to Scott to provide a financial overview of the quarter and our updated fiscal 2025 guidance. Scott?

Thanks, Hillary, and thank you, everyone, for joining today's call. Our third quarter results significantly exceeded expectations, building on the momentum from our strong first half of the year. This outperformance was broad-based and reflects continued progress on our Path to Potential strategy. We continue to focus on the fundamentals while prioritizing investments in product innovation, brand strength and customer experience. These investments are positioning us for long-term differentiation and success.

Now let's turn to our third quarter results in more detail. Net sales for the quarter were $1.472 billion, an increase of $125 million or 9% over last year with comparable sales growth of 8%, exceeding the high end of our guidance. These strong results built on last year's third quarter growth of 7%. As Hillary highlighted, these results reflect growth across all businesses: Victoria's Secret, PINK and Beauty. This momentum was supported by broad-based outperformance across channels and geographies, improved sales metrics including higher comp traffic and average order value and increased regular price selling. We saw solid growth leading into the fashion show and then an acceleration following the fashion show.

In North America, the Victoria’s Secret brand delivered a strong mid-single-digit increase in sales versus last year while PINK achieved a low double-digit sales increase. Traffic continued to outperform the mall driven by enhanced product offerings, our digital-first and socially driven marketing approach and haloed by the fashion show later in the quarter. AURs in the quarter were up 3% compared to last year. And excluding panties, which is a low AUR category, AURs increased 6%. As Hillary highlighted, customers also responded to the frequent drumbeat of newness in the [ work ].

We were extremely pleased with our performance and intimates in the Victoria's Secret brand, where we saw major trend improvements from the first and second quarter across both bras and panties. Contributing to this improvement was strong demand and regular price selling through the quarter for our full assortment across casual to sexy and glamor bras, with the latter accelerating post fashion show. Additionally, PINK intimates returned to growth for the first time in years, a real positive trend shift and a key learning going forward.

For the quarter, we grew our market share in U.S. intimates by over 1% compared to last year, driven by increases in our bra business. Beauty again delivered top line growth with sales up low single digits over last year on top of the exceptional results in the third quarter of 2024.

Our international business also continued to perform exceptionally well during the quarter. Reported third quarter sales grew 34% to $265 million, reflecting an improvement over a strong second quarter. Approximately 6 points of this sales increase reflect a shift in the reporting of European digital sales, which were previously fulfilled from our U.S. distribution center and recorded in North America direct sales. They are now being fulfilled from our European distribution center as part of our ongoing efforts to enhance international operations and will be reported as part of our international sales.

International retail sales grew in the high teens during the quarter driven by exceptional performance in China, primarily in the digital channel. In late October, we also saw a strong start to the 11.11 Singles Day selling period. International results included low double-digit retail comparable sales gains across both stores and digital, combined with continued new store openings.

Third quarter adjusted gross margin dollars were $537 million with an adjusted gross margin rate of 36.5%, which was 170 basis points above last year and 250 basis points above our guidance. We've built a solid operational foundation, creating a business model that enables us to scale effectively and support the company's growth. This was evident in the significant leverage on our buying and occupancy expenses, which contributed nicely to margin expansion.

Additional favorable drivers versus last year included continued strength in regular price selling and a pullback in traditional promotions, resulting in lower discounting throughout the quarter. Altogether, these factors allowed us to more than offset approximately $15 million or 100 basis points in tariffs in the quarter. This operational foundation positions us well for long-term success.

Adjusted SG&A dollars were $537 million in the third quarter and our adjusted SG&A rate was 36.5%, which was 30 basis points better than our guidance and leveraging 30 basis points versus the prior year rate of 36.8%. Our better-than-expected adjusted SG&A rate in the quarter was driven by the sales beat, along with continued disciplined expense management across all aspects of the business. We did make additional strategic marketing investments in the quarter, where we saw positive ROAS opportunities.

Driven by the sales beat as well as the disciplined expense management, adjusted operating income for the third quarter was breakeven, which was better than our guidance of an adjusted operating loss of $35 million to $55 million. This result compares to last year's third quarter adjusted operating loss of $28 million. Adjusted nonoperating expenses, consisting principally of interest expense, were $18 million in the quarter, in line with our guidance and down from last year, driven by a lower level of weighted average borrowings and lower interest rates.

Our third quarter adjusted tax rate was 15%. And our adjusted net loss per share came in at $0.27, significantly better than our guidance of an adjusted net loss per diluted share of $0.55 to $0.75 and last year's adjusted net loss of $0.50 per share.

Turning to the balance sheet. Total inventories ended the third quarter up 7% compared to last year and in line with our guidance. From a liquidity standpoint, we ended the third quarter with a cash balance of $249 million, which is $88 million above last year. And our outstanding balance under our $750 million ABL credit facility was $375 million, which was down $65 million from last year. Since the end of the quarter, we have paid off approximately $165 million and expect to fully pay off the outstanding balance this quarter and end the year with full availability under the ABL. Our liquidity position is strong and provides us financial flexibility for continued execution of our strategic pillars.

Now let's turn to our updated outlook for fiscal year 2025. We are raising our full year outlook for net sales and are now forecasting net sales in the range of $6.45 billion to $6.48 billion compared to our prior guidance calling for net sales in the range of $6.33 billion to $6.41 billion. This compares to net sales of $6.23 billion in fiscal 2024 or approximately $6.204 billion excluding the previously disclosed benefit of the approximately $26 million cumulative adjustment related to the gift card [ break ] exchange an accounting estimate recognized in the fourth quarter of 2024. This adjustment increased net sales, gross margin and operating income by approximately $26 million in the fourth quarter and full year 2024. Adjusting for this benefit in 2024, our raised sales outlook anticipates a growth of approximately 4%.

As we discussed, we saw significant outperformance in the third quarter. Additionally, we continue to see momentum into the fourth quarter, tailored by the Fashion Show, and our holiday offering is resonating well. We are winning in big moments like Black Friday and Cyber Monday, and we also have a robust gifting assortment across key categories like beauty, sleep and PINK and continued brand moments planned through the holiday season. Post holidays, we will be ready with the Valentine's Day floor set, giving us confidence in our ability to deliver a strong finish to fiscal 2025.

We are also raising our full year guidance for adjusted operating income, which is now expected to be in the range of $350 million to $375 million for fiscal year 2025 compared to our previous guidance of $270 million to $320 million. This compares to last year's adjusted operating income of $373 million in 2024 or approximately $347 million excluding the $26 million gift card breakage benefit.

Our guidance for the full year 2025 now assumes net tariff impact of approximately $90 million, with approximately $65 million impacting the fourth quarter. Our mitigation efforts include optimizing costs with vendors, further diversifying our sourcing, ensuring we have a more efficient air versus ocean freight mix and implementing a combination of select pricing adjustments through more targeted promotions and strategic price modifications, where we see a value proposition gap in the marketplace.

Adjusted nonoperating expenses, consisting principally of interest expense, are projected to be about $65 million for fiscal year 2025, down from $84 million in fiscal year 2024 and lower than the previous guidance, driven by expected lower levels of weighted average borrowings along with lower interest rates. We estimate our adjusted tax rate will be approximately 24% to 25% for fiscal year 2025, in line with guidance last quarter. We estimate weighted average diluted shares outstanding of approximately $83 million for fiscal year 2025.

Given these inputs, we are raising our fiscal year 2025 adjusted net income per diluted share to be in the range of $2.40 to $2.65 compared to our previous guidance of $1.80 to $2.20 and $2.69 in fiscal year 2024. Fiscal 2024 EPS would have been approximately $2.45 excluding the $26 million gift card breakage benefit.

We continue to be prudent with planning capital expenditures and still expect approximately $200 million in fiscal year 2025. Capital investments will primarily focus on investing in stores and the customer experience, along with investments in technology and logistics related to our strategic initiatives to drive growth and support productivity. We are also increasing our forecast of adjusted free cash flow to approximately $170 million to $210 million in fiscal year 2025.

Store counts and renovation plans in North America in 2025 continue to be similar to what we discussed in our previous calls. Square footage in our North American stores this year is still expected to decrease approximately 2% compared to 2024. By the end of the year, we estimate our Store of the Future presence in North America will be nearly 200 stores or approximately 25% of the fleet. Internationally, we estimate our Store of the Future presence end of 2025 will be approximately 40% of the fleet.

Turning to our outlook for the fourth quarter. We are forecasting net sales in the range of $2.17 billion to $2.2 billion compared to last year's fourth quarter net sales of $2.106 billion or approximately $2.08 billion excluding the $26 million gift card breakage benefit. Excluding last year's breakage benefit, our forecast assumes an approximate 4% to 6% top line growth based on continued momentum we are seeing quarter-to-date in our North America business as well as strength in our international business.

At this forecasted level of sales, we expect fourth quarter 2025 adjusted operating income to be in the range of $265 million to $290 million compared to an adjusted operating income of $299 million in the fourth quarter of 2024 or approximately $273 million excluding the $26 million gift card breakage benefit.

We expect fourth quarter 2025 adjusted gross margin rate to be about 37% to 38%. For comparison, last year's fourth quarter gross margin rate was 39.7% or approximately 38.9% excluding the $26 million gift card breakage benefit. This means we anticipate the fourth quarter 2025 gross margin rate to be down between 90 to 190 basis points year-over-year. The decline reflects estimated net tariff pressure of approximately 300 basis points, partially offset by our disciplined promotional strategy and the strength of our operational model, which continues to deliver leverage on buying and occupancy expenses as net sales grow.

The adjusted SG&A rate in the fourth quarter 2025 is expected to lever slightly compared to the fourth quarter 2024's adjusted rate of 25.4% or approximately 25.8% excluding the $26 million gift card breakage benefit. The forecasted increase in SG&A dollars is primarily driven by store labor and other costs that drive top line.

We expect total inventories to be up mid-teens percent compared to last year. This increase is driven by growth to support business trends, the impact of tariffs and timing related to our operations mostly as we strategically shift towards ocean freight from airfreight, which results us in taking ownership of inventory earlier as compared to last year.

Given these inputs, we are forecasting fourth quarter adjusted earnings per diluted share to be in the range of $2.20 to $2.45 compared to $2.60 in the fourth quarter of 2024 or approximately $2.35 excluding the $26 million gift card breakage benefit.

In closing, I want to reiterate a few key points. Our Path to Potential strategy is producing tangible results. We remain focused on managing costs while prioritizing investments in product innovation, brand strength and customer experience. These efforts, along with the solid operational foundation we have built, enables us to scale effectively and support the company's future growth. We feel confident in our ability to execute but are being thoughtful about the consumer, particularly post holiday.

Despite the uncertain macro environment, our fundamentals remain strong and resilient. Our outperformance in the third quarter, along with our market share gains and momentum into the fourth quarter, give us confidence in delivering the raised outlook for 2025 and positioning us for long-term success.

I would now like to open it up for questions. Operator?

[Operator Instructions] For our first question, we will go to the line of Mauricio Serna with UBS.

Great. First, could you elaborate a little bit more on how are you maintaining the momentum so far post the Fashion Show? And just give a little more detail on initiatives that you're thinking as you look into the startup of '26 just to maintain like the momentum around the brand. And generally speaking, I guess, where do you see the market share opportunities in bras and beauty, particularly with the comment about PINK intimates returning to [ equal ].

Mauricio, I'll take that one. Momentum post Fashion Show, we are still in the halo of the Fashion Show. We see it in our traffic, which has been very, very strong in both channels. Particularly in stores, we're seeing it much stronger than the balance of the mall. And internationally, we're seeing just incredible momentum. That is led and grounded by bras and sexy and glamor. And so the messaging from the Fashion Show and the work that we've done to really build a sharp brand point of view is paying off.

The initiatives are the initiatives and the Path to Potential. We continue to focus on those categories. We are incredibly pleased with the progress we've made in top and bottom line, in increased market share and in the growth of our customer file, particularly from new and reactivated customers and customers that are coming in on higher AURs and are being compelled by brand and product and not necessarily by deals. So all of that feels really good and feels like things we can continue to play forward and double down on in the future.

As we enter 2026, we have a full pipeline of innovation in the bra world in particular as well as in the beauty world. We are building on what we've learned from partnerships and collaborations in PINK, PINK, we did well, as we said, with LoveShackFancy. Very, very pleased with that. And there are many things that we have in the future that we can apply those learnings to as well as PINK in the Fashion Show was a big surprise for us. The partnership with TWICE and the virality of that moment and how it impacted our PINK business, it was new news for us. And we quickly played that forward and impacted the first quarter of next year.

So lots to be excited about here. And with all cylinders firing on our four key pillars, we feel very well positioned for 2026.

Got it. Just a quick follow-up on the part of promotions. Maybe could you elaborate on strategies in place to keep pulling back on promotions? And how much is this lever contributing to gross margin expansion?

Mauricio, it's Scott. I'll take that one. So yes, we continue to pull back on promotions. We saw a good benefit to our gross margin in Q3, and that's even net of some increases in GWPs. And as we've talked on prior calls, having GWPs as a lever to provide value for customers as we pull back on promos, we've had a lot of success through that. While our promotional level is going to be much more similar in Q4 year-over-year, we have utilized the GWPs in a way where we've increased the amount that triggers the GWP, and we've seen great success in the Q4 and the Black Friday period with that. The demand through our stores was very, very strong for those GWPs and giving customers to come in with a much higher average order value. And as we've talked, promotions will be a multiyear journey. So we'll continue to find these opportunities to drive more regular price selling, pull back on full box promotions and continue to be more about emotion versus promotion, as Hillary said.

Great. Congratulations on the results.

Thank you.

Thank you.

Our next question comes from Brooke Roach with Goldman Sachs.

Hillary, I wanted to talk a little bit more about the change in rate of new customer acquisition that you're seeing this quarter. Can you talk a little bit about the profile of those customers? Are they younger? Are they higher income? What are you seeing across your brands, particularly in North America? And what drives your plans for marketing as a result as you look ahead into '26?

Brooke, happy to answer that question. So customer acquisition and reactivation is something that we are extremely focused on and very excited about. And happy to report that we are seeing it distorted to 18- to 24-year-olds. So that was our goal. We are seeing that come to life. I would also add that they're coming in on a higher AUR. So we feel like the quality -- and we [ noticed ] anecdotally from interactions in stores that customers are coming in with their phones and showing videos and content, whether it's Love Shack, whether it's Better than Braless, whether it's Fashion Show content, they're bringing their phones in and saying, "I need this. And that is the ultimate goal rather than, I want this price point.

And so we feel really good about that. In terms of the cohorts, we're seeing growth across all cohorts, maybe a slight uptick in higher income customers on the growth side. But I do want to just add that I know a big question has been how are all income cohorts doing. I'll just take this moment to say that we are seeing consistent positive performance across all income cohorts. And we're really pleased with that and feel like that's a real proof point as we move forward.

Great. And then just a follow-up for Scott. Historically, the business had targeted a low double-digit EBIT margin profile. Is this rate achievable in your view? And how are you thinking about the potential pace of expansion, offset by any reinvestment to continue the positive comp momentum?

Yes. So we definitely still see a low double-digit operating margin as achievable. I think the question is when over the next couple of years. The margin has continued to expand, number one, as we grow. And we've talked about we have that low leverage point for both our buying and occupancy expenses but also our SG&A. So as we grow north of 1% to 2%, we're going to expand margin. That's still going to allow us to make select investments back into the business, in particular, in marketing. We've had success with some of that where we've seen positive ROAS opportunities. And we'll continue to take advantage of those. But even taking advantage of those, we feel like we can get back to that low double-digit operating margin over the next couple of years through our Path to Potential growth strategy.

Our next question comes from Adrienne Yih with Barclays.

Great. And really great to see the stores, the product, the brands really turning. Hillary, I guess on that, the fall of this year, we really started to see that bra focus and the franchise bra focus is kind of calling out those products. And it kind of reminded me of kind of historically when Victoria's Secret would regularly come to market with bra launches. And so I'm wondering kind of what do you have in the pipeline for 2026 to keep that going?

And then on PINK, sort of more at the high level kind of from a trend perspective, it does feel like -- and maybe I'm wrong here, but it does feel like we're kind of in a little bit of a retro, maybe like with the tracksuits coming back, some of that kind of [ juicy ] look that's sort of like very good for PINK. So I'm wondering if you can talk about some of that, that's happening.

And then, Scott, really kind of want to talk about kind of the multiyear opportunity. We're sitting at a mid-single-digit op margin. You just talked about a 10% opportunity. Promos are inflecting. And really wanted to just kind of understand where we are in that merch margin journey. It seems like we're in the very, very early signs of that with some good underpinnings for long term.

Okay. I will take those first couple of questions. So bras, bras franchises and launches, yes, you're right. Extremely important. And we have been uber, uber focused on our innovation pipeline and our strategy around bra launches and have several in the pipeline next year for both brands. But the point that I want to make here is an unlock that we had with the FlexFactor launch and throughout Q3 was that we were able to have a successful launch and continued growth across all bras. And that was a change for us.

We, in recent history, have had a number of successful bra launches but often with a softening of the bras around it. And that was not the case this quarter. And I really credit our full funnel marketing strategy for that, that was able to talk about multiple things at one time and communicate our full breadth of range and wearing occasions. And we saw major payback for that. And we creatively and emotionally connected to the customer in a way that just drove outsized traffic. So feeling great about the learnings there, feeling great about what's in the pipeline and very confident that this is just the beginning of bra growth for us as a total company.

PINK and trend, yes, I think, well, trends are cyclical. We're definitely seeing a number of trends that harken back to those early days of PINK. We always want to put a modern spin on it. But that's just one part of PINK's opportunity. We are seeing outsized growth in apparel but also saw incredible improvement in both panties and bras, and that was a bit of a surprise to me. I was thinking that the opportunity was primarily in apparel, accessories and beauty for PINK. But we've seen that with the right cadence of fashion newness, we can drive growth across all categories in PINK, which is an extremely exciting learning and something that we're running with.

I would also point to partnerships and collaborations as a lever that we have across the entire brand. And those take various forms, sometimes as big as LoveShack, sometimes much smaller with an influential person that we're collaborating with. Sometimes it's an item rather than an entire collection. So you'll see us dipping our toe into a lot of those different things, but we have clearly seen the power of getting the product right, getting the brand heat right. And having the right media strategy to get that in front of the right audiences is the winning ticket here, and we intend to run with those strategies forward.

Adrienne, it's Scott. Taking the last part of your question and building upon Brooke's question as well, you mentioned promos inflecting, and that's absolutely the case we've been seeing and going to continue to see. But a couple of points to just solidify that. AURs in Q2, we talked about we're up 1%. But when you include panties, they were up 8%. This quarter, as I mentioned on the call, AURs were up 3% and, excluding panties, they're up 6%. So that's both pulling back in promotions but also driving more full-price selling.

In Q4, I do expect AURs to be up probably not to the same degree because it's a heavier promotion quarter, as you know. But that sort of momentum from Q2, Q3 will definitely carry into next year. And again, it's not just promos coming, but it's driving more of our mix into regular price selling. And one sort of anecdote on that, building about the momentum we have with PINK and as Hillary was talking about, particularly PINK apparel. PINK apparel, we're seeing double-digit increases in AURs right now because we're driving that newness in that more regular price selling. And so that's going to help build these margins getting back to that double-digit operating margin over the long term.

Our next question comes from Matt Boss with JPMorgan.

Congrats on a nice quarter. So Hillary, could you speak to the inflection in your performance relative to intimates category growth as we think about market share capture relative to larger picture category trends in the U.S. or globally? And then near term, could you just help break down the cadence of your monthly comps like you saw in the third quarter, particularly October, or the exit rate and just elaborate on the strong start that you cited to the fourth quarter, maybe relative to 8% comps in the third quarter or relative to second half of the quarter or October? Have you seen any change in momentum or demand?

You want to take that one first?

Yes, I'll take the last one first. So we saw a strong performance through the entire third quarter, started off with PINK Friday in the LoveShackFancy collab. That momentum sustained into September, particularly as we had a Very Sexy launch later in August and then a sort of a sport reset in September. But then the comps really amplified in October with the Fashion Show, particularly in the back half and sort of the virality of both shoppable collections, but also even the PINK and the Wear Everywhere bra. So that momentum we've seen sustained into November through the Black Friday selling period.

We are, though, cautious as we get sort of post holiday, will we see a broader consumer pullback. And so that's contemplated sort of in our nq4 thinking right now. But the momentum from the Fashion Show has definitely carried through November into this early December selling period. But I'll let Hillary take the first couple.

Okay. So bra performance, intimates performance versus total market share performance, I think what we have learned is that we can continue to perform and grow market share despite the market. And just as a point of reference, we are the #1 market shareholder. We all know that. But the next closest is about 8 points less than us. So we really have a hold on this market. And when we execute well and when we connect emotionally with the customer and really talk about our innovation and the value we add to her life, we win. And we're seeing that. Bras and panties both grew market share in the quarter and panties to a really impressive degree. And we're proud of that. And we see a long runway, and we're excited to keep that going.

Got it. Maybe just as a follow-up. Relative to the benefit from lower promotional activity in the third quarter, I mean, to what extent did you embed opportunity in the fourth quarter? And maybe just what inning overall do you see this opportunity on the promotional front? Or is there a way to kind of bifurcate the margin to get to double digits relative to where we're at today? How much of this is promotional activity? How much of this is SG&A? Maybe just any way to break down that delta.

Yes. So tackling the Q4 piece first. There's less promotional benefit in our Q4 margins right now just because it's a heavier promotional quarter, as you know. But there is still a shift to more, I would say, regular price selling, which is a bit different than just a straight pullback in promo. So an example is really we, just this week, had our second collab on LoveShackFancy and PINK. And so that's going to be more regular price selling sort of mix than what we've had in the past.

And then as you think longer term, the promo piece, I think we're still in sort of the early middle innings, I would say, on the promotional pullback. It is going to be a multiyear journey. But the #1 lever as we think about margin expansion is just how we're going to leverage our solid operational foundation, and that's both on buying and occupancy and SG&A as we grow north of 1% to 2%. That flow through to the bottom line will far outweigh the promotional pullback over the next couple of years.

Our next question comes from Dana Telsey with Telsey Group.

Congratulations on the nice progress. Two things. As you think about beauty, which I think you've always mentioned is the bigger market than intimates, how do you think about the beauty progress over the next year, what it could do on the top line and how it could impact margins? And then also the marketing being as effective as it is in attracting new customers, any framework of those customers' age, income levels? Anything that you're noticing and what you'd do differently next year at all to keep the active customer growth going? And then just lastly, Store of the Future. Thoughts on next year for Store of the Future. Any changes or enhancements that you want to make?

Thanks, Dana. I'll start out with the question around Beauty. So as you know, Beauty has been our stronger business for the last couple of years and has like a very impressive 2-year stack. We have just started really reinvesting in Beauty, reinvesting in the innovation pipeline, investing in talent and thinking about how can we really supercharge this business.

So as I think about 2026 and 2027, in 2026, there are a number of insights that we have that are known to us that we can go after, whether it's the fact that only 40% of our current customer base is shopping beauty, and there's a lot within our own internal file that can be claimed and converted and then continued customer acquisition and really integration of beauty within each brand to be an extension and more connected to each brand. And then PINK beauty, we've only just very much scratched the surface of.

So we think there's a lot of near-term known opportunities for optimization in Beauty. In 2027 and beyond, it's really about what's unknown today and the innovation pipeline and reaching into the future and bringing that to market to really excite and delight our customers. So short term, double down on what we know the opportunities are and optimize the business. Slightly longer term, it's really about reaching into the unknown and innovating.

Your second question is about marketing and new customers. Okay. So we're very excited about it, both in the new and reactivated. We are seeing an uptick in 18- to 24-year-olds, which is extremely exciting. We're seeing growth across all income cohorts with a slightly larger uptick in high-income customers, but growth across all of them. And I would say most importantly, they were coming into the brand based on product, brand and emotion and not on promotions.

They're coming into the stores, they're showing associates photographs and videos and saying they need this, they want this. And that's exactly the place that we want to be. And so as we continue to fine-tune our brand heat initiatives, as we continue to fine-tune our creative, we're really going hard at what is culturally inspiring in this moment and how do we engage with that new customer.

And then I'll tackle the Store of the Future. We're continuing to look at our Store of the Future concept and how do we optimize it with the Path to Potential strategy. So how do we better assort as we continue to to supercharge bras, as we continue to drive PINK, particularly PINK apparel. But now with some of the learnings around PINK intimates that we had in the quarter, how do we better optimize and assort PINK in the stores and differentiate PINK in the stores.

So I think those are things we're taking away, these learnings, and applying them real time. And it will impact not only next year but, I would say, the next couple of years. And then I think the last opportunity we're looking at with Store of the Future is how do we drive that cross-shop with beauty even better. And so when we have a Very Sexy launch not only on the intimates side, how do we tie in Beauty with that sort of stuff? And so you won't see a wholesale change to Store in the Future, but you'll see these enhancements to help better drive our Path to potential Strategy.

Our next question comes from Jungwon Kim with TD Cowen.

Just curious on the apparel side, what's the mix now and where you see that trending over time. And also, I know you've been working on your lead time on the apparel side. What is the lead time now? And is there further opportunities to expedite that?

Sure. So when we first started talking about the PINK apparel opportunity, we had shared that, at one point, it was about 70-ish percent of the business and it had gone all the way down to mid-30s. It's now above 40% and climbing. We think ultimately it's somewhere in between 50% and 60% of the total PINK business. And we are extremely pleased. It was the leading category in the PINK business in Q3. We saw that, as Scott mentioned, much higher AUR, a lower discount rate. It was just a very solid business. So lots of optimism about that.

We also shared previously that we did the LoveShackFancy collaboration in 26 weeks. We continue to look for opportunities to shorten time lines and gain that agility. We have a wide range of ways to chase into and make product and get to the market more quickly. And I think we have even further room that we can go. In some cases, we're doing things like making T-shirts in LA and get those very, very quickly. And we have core raw materials in all of our top iconic items. We can get into those quickly sub-26 weeks. And we continue to work on it.

So I would say we are early to mid-innings on our optimization of how we go to market in PINK apparel, and lots of opportunity to optimize that in the future.

Our next question comes from Marni Shapiro with The Retail Tracker.

Congratulations. The stores have had so much energy. It's been a pleasure to shop. So I'm so curious, I want to dig into Beauty a little bit, dovetailing on what everybody has said. I really liked your home launch in Victoria's Secret. And I'm curious, I guess, what you're thinking about in the future. Specifically candles are a big opportunity in general in the market. I thought it was really beautiful.

And then just also in PINK beauty, with this brand coming back and the younger customer coming back in, the younger customer today is much more sophisticated than they were when PINK first launched. And there's a lot of good youth-facing brands that have come to market. So are you seeing a different kind of PINK beauty? And I would assume, like [ isn't ] there room for real PINK beauty business out there in light of the way the customer has changed?

Yes. The short answer is yes. We have recently just made some key hires in this area, a senior leader to oversee VS beauty and merchandising and another senior leader to oversee PINK. They were once a combined role. And as with everything, you focus on the bigger piece. So we see the opportunity. We're going to go after the opportunity. And I couldn't agree more that this is a much more sophisticated consumer than 20 years ago, and I think there is a significant prize ahead for that business. And what a fun job that is.

So I think we can't wait to roll our sleeves up and get into that. And then in home, we also think it's beautiful and are excited about it and we continue to believe it's an opportunity. In hindsight, I think we went very broad and very large for relatively unknown for us. So we've gotten very key learnings that are honing in on the best of the best and pushing that forward. And so we're going to continue to iterate on that category. And we feel good about it. We're proud of it.

And then can I just ask one quick follow-up on marketing? You've done a lot of collaborations, a lot of fun things this year. As we think about marketing as a percentage of sales into '26, are you guys going to play up? Or as sales increase, you're going to keep the percentage falling? What's just the thinking, I guess, behind where marketing spend should be?

Yes. I think you'll see the marketing tick up both in dollars and percent of sales. I don't know that it's going to be a massive jump, but we'll keep inching it up. And as we saw positive ROAS opportunities, we continue to invest in the quarter. So there are even real-time decisions we can make there. And our work in media, as a percent of total, last year was closer to 70%. It's increasing more to 75% this year. And so even as the spend stays the same, we are shifting more spend into sort of consumer-facing areas.

Our last question will come from Ike Boruchow, Wells Fargo Securities.

Scott, a couple of ones on the gross margin I was hoping to ask. So just the way you're talking about ex the gift card breakage last year, the gross margin you're planning ex tariffs is up 200 basis points. Is that an accurate ballpark?

Yes. That's a good description, yes.

Okay. And that's a little bit lower than the ex tariff gross margin in 3Q because you're not planning as much as you are. So I guess that makes sense. .

I guess the other follow-up question I would have to that is, is this kind of run rate the way we should think about the first half assuming tariffs stay in place? And then obviously, your margin trajectory is now starting to move up. Does next year kind of act as a buffer year to that just because of the first couple of quarters of the year where you have to kind of like embed these tariff headwinds into the business? Just kind of curious like how much that throws you off, your trajectory. Like can you take margins up next year despite those pressures that you guys have in front of you?

Yes. And we're still working through our plan specifically for next year. But as you said, tariffs will be a headwind through the first half as they continue to come on. But the other thing we do have is our mitigation efforts will increase through next year because a big chunk of them really aren't taking hold here until Q4. So we'll be able to anniversary that, plus some of the select price increases we took in back half of this year will help offset in in the first part of next year. So there will be some headwinds continued with tariffs, but the mitigation efforts will be ramping through the year as well. So that's the color right now.

Thank you. I will now turn the call back to Hillary Super for closing remarks.

Thank you, operator. I want to end by expressing my sincere thanks to all of our associates for their passion and hard work and to our partners our customers and our shareholders for their support. We're energized heading into holiday and excited about what's ahead for our brands. I'd like to wish everyone a happy holidays, and we will see you in March.

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

Good afternoon, and welcome to another session of our 32nd Annual Global Retailing Conference. My name is Brooke Roach, and I cover the apparel brands and softline sector here at GS. And I'm thrilled to introduce our next session with Victoria's Secret. Here with me today are Hillary Super, CEO; and Scott Sekella, CFO. Welcome, Hillary and Scott.

Thank you.

Thank you.

Before we get started, I think we're going to play a brief sizzle reel.

[Presentation]

Great. Well, with that, Hillary, you're about to reach your first year milestone in about a week as CEO of the company. Stepping back, what are the most important changes that you've implemented so far to the business? And what do you see as the biggest opportunities ahead?

Well, first, I'll just start by saying when I got the call for the job, which was a move across country. The question for me was, do I want to disrupt my life and move across the country? And it was just a resounding, yes, because of what these brands represent in culture, the reach, the power, the market share, there's just no more interesting transformation in the industry, and I was so excited about that. And I know Scott felt the same way when I called him.

And in terms of the changes we've made, there are many, but I would say it really starts with what our focus is. And our focus is on 2 distinct and compelling growth brands. And when I arrived, I felt like we weren't -- we didn't feel like a creative company. And so we've put creativity and customer back at the center of everything that we do. Every decision we make, every conversation we have is centered around creativity and the customer, and what does she want and what will make her heart race. So that's number one. I like to say that we're creatively led, customer-focused and technology enabled. And so that's the first one.

Second is really evaluating the talent for this next chapter. And who is the leadership team and what are the capabilities that I need to round out me and also to drive for the future and drive the future success of the company. And so we've made meaningful changes to the leadership team. We are a primarily women-led team for a female consumer brand, Scott excluded, he's our honorary male. But the team is a world-class team. And it starts with dedicated brand presidents who each have a different specialty tailored to the brand or product category they lead.

And then secondly, Elizabeth Preis in marketing and Adam Selman in creative are just industry-leading creatives and strategists who are going to take us to the next level. So I would say that along with the early days of execution of our path to potential. When I looked at the strategies coming into the business, almost none of them are really grounded in the brands. And so we refocused on 4 brand and product strategies that everyone, all 25,000-plus customers are focused on and know their piece of delivery.

And so that is really reasserting our bra authority, recommitting to PINK, growing beauty and revolutionizing our go-to-market strategy, and we're seeing green shoots. So as I think about the last year, the fact that in a year, we've been able to do all that work, we've been able to start to get back into growth mode. We're starting to grow new customers and grow our customer base, and we're growing our market share, that feels like a really good year.

That's a great introduction. Let's dive into each of those. Starting with supercharging your authority in bras. There's a lot of different pieces to this, whether that's the new FlexFactor launch, whether that's the sport bra initiative. How should we be thinking about what might be changing in your bra business go-to-market into 2026? How does your strategy with sport and swim fit into this? And what do you think is a sustainable growth rate for the bras business as you look ahead?

Sure. So I guess I would just start by saying that like bras is -- it's like the center of our universe. And for a while, I'm not sure we were putting the resources towards it that would enable it to continue to be the center of our universe. And so we have reestablished a much deeper innovation pipeline. We have put dedicated teams who are bra experts back in the business. We have Anne Stephenson, who is running the business, who is a lifelong intimates and bra expert. So we really, really focused on the expertise there.

We have a pipeline, an innovation pipeline that is 2 to 3 years old -- 2 to 3 years long. We constantly test and iterate bras. We take consumer insights. We work them into the development pipeline. And we're really taking consumer insights and bringing big ideas to life, FlexFactor being one of them. We had an insight that wireless was a big demand in the market. We had an insight that she wants to be comfortable about above all else. And this bra really walks the line of that because it is a sexy bra, but you can -- you barely feel it wearing it. And the wire, you can actually tie it a knot. That's how flexible it is. So it molds to your body in a way that you just feel like you're not wearing anything.

So the product is there. The product has been there. It continues to evolve. We're matching it more closely with customer insights. But then we're also bringing the experience and the marketing and creative together all at one time. And I think that's what was really missing here was that we weren't bring -- delivering the entire 360 experience. We may have had one element, but not the other. And finally, we have the entire ecosystem working together. So we've invested in store labor and bra specialists. That's really working for us. We're getting feedback that customers are feeling more served. We're seeing results in stores that support that. We sold -- we sell -- for all of Victoria's Secret, we sell 2 bras every second. And in Body by Victoria, we sell 1 every 5 seconds.

So this is a big, big business. And we're just getting better and just getting started. With the FlexFactor bra, we were able to quickly adjust our marketing optimization. And what we saw was we grew market share. We launched a bra and for the first time, saw all bras lift, which was a big breakthrough, and I really attest to that being a more optimized lower funnel strategy. And we continue to grow market share and grow bras for the first time in a long time. So really seeing lots of green shoots there.

And we've learned that we don't have to be just about big bra launches. We can also have more of a constant drumbeat of fashion, and that is really working for us as well. So it's still signing up for the big moments, really leaning with innovation, but then bringing her back on fashion iterations of the styles we know she loves and that formula is working.

Very clear. Let's pivot to the second strategy, which is recommitting to PINK. What is it about the PINK business and the opportunity that you see that excites you the most? And what changes should we expect this holiday season versus what might be longer dated from an adjustment perspective?

I think what excites me most about PINK is that it once was double the size. And when you look back at how we got from there to here, it was really primarily self-inflicted. And so we know what those action items are. We know what things we need to either put back in the business or change, and we have a very clear path to doing that, and we're already seeing the results.

I would also say that we just diluted the brand. We didn't spend -- we distorted our spend in marketing to VS. We distorted our spend to content creation versus content dissemination. We consolidated a team. And when you have a team -- one team working on all the brands, they're going to focus on the big one first. And so it just sort of got slided all the way along. They also very critically shifted from being over time, a special -- lifestyle brand grounded in apparel to being more of an intimates brand and really flipping that mix.

And I think the apparel opportunity, the accessory opportunity and the beauty opportunity in PINK and just making it a full lifestyle brand, super important. And then having its own brand message. So it has really been comingled with VS. And if you -- your question about the back half of the year, when we had the fashion show last year, all PINK was really talking about on its social was the VS Fashion Show. It didn't have its own story. And so it's really important that both of these brands have their own story, but they live in one ecosystem, and we can do things like leverage traffic between the two. We can leverage different seasonality between the two. There's a lot in one ecosystem that gives us a competitive advantage, but it needs to stand on its own. So I'd say marketing that stands on its own, marketing spend that is targeted to a very segmented 18 to 24 customer and more frequent flows being the big levers in the back half.

Very clear. You recently had a very exciting collaboration with LoveShackFancy for the PINK brand. And you talked about some new customer acquisition that you're getting. How are you thinking about the new customers that you're acquiring today, either through your core or through collaboration and launches? What's the demographic? And how do you keep and reengage with those customers?

Yes. It is that we are definitely acquiring a younger customer in both brands. So that's very exciting for us. In some cases, we are also -- in the case of LoveShackFancy, a little bit more affluent customer. So that's an interesting data point. And I think what's really interesting about LoveShackFancy is some of those new customers to our brand are gravitating towards the things that are most iconic about PINK. So logo, the dog, those sorts of things are popping to the top, which tells me there's a lot of brand equity there.

We have all sorts of mechanisms to continue to reengage. I think this drumbeat of cultural moments, the drumbeat of more frequent deliveries, we used to really just set a quarter and minimally change it over the course of a quarter. And we know that she has information coming to her on her phone on a daily basis, and we need to connect with her emotionally, culturally and it's a really compelling product at a pace that we weren't in the past.

Very clear. Let's shift to beauty, where you have been demonstrating very strong growth. What about your beauty business is working so well? And how does beauty fit into the overall strategy? What does the opportunity look like?

Yes. Beauty is sort of our secret assassin. It's -- it really is a very powerful business. I think it really -- so I like to say that Victoria's Secret is about sexy, glamorous accessible luxury. And I think more than any other area, it really delivers on that accessible luxury piece of our brand promise. And there is such deep brand love.

Very interestingly, only about less than 40% of our file -- our customer file shops beauty. So we actually have a big opportunity to bring these customers together and make them more valuable customers. We just delivered a new campaign for Very Sexy, which was both fragrance and intimates at the same time. So we are really working to bring the world together, so the world of all of VS together, including beauty and the world of PINK altogether, including beauty to tell one compelling brand story.

So I think we have a lot we can do with our existing customer file. We have relatively low share in a market that's -- the beauty business is 4x bigger than the intimates business, and we have single-digit share. So lots of room to grow in North America, and we have an incredibly robust international business in beauty and one that I think we can learn a lot from and continue to expand as we expand doors and regions.

Very clear. Your final strategy is in evolving your brand projection and go-to-market strategy. And recently, you've brought on a new Chief Marketing and Customer Officer. And you've just talked -- now talked about differentiating the VS and PINK brands. As you think about that in the context of your fashion show coming up on October 15, how should we be thinking about your vision for each of these brands? Who's the target customer? And what changes might we expect to see? And is there anything exciting that you can preview for us about the fashion show?

I'm not going to tell you much about the fashion show. But what I will say is, so VS, sexy glamorous accessible luxury. She's -- the target is 25 to 35, but we know we serve a very wide range of demographics, but the target is 25 to 35. What you -- what we are -- what I want you to take away that's different is that we believe in sexy. We believe that is in our DNA.

And I think much has been sort of speculated about this, and I like to say that we're entering a new era of sexy. And that is one that expresses sexy on a number of levels. We're not here to define one version of sexy. We're not here to say one look is only sexy. We serve a very broad range of customers, both in the United States and globally, and we are here to create an inspiration to reflect all of the occasions of her life and to give you a mood and a vibe. But we are not going to dictate beauty standards, and I think that's a big difference. And I think it's really about her feeling great and her is the subject of her own story.

Very clear. Scott, let's turn to you and talk about the store base and the store of the future. What changes to the store base do you expect as you execute the path to potential strategy? And how does the store of future concepts fit into this opportunity?

Yes. I really think our store footprint sets us apart and gives us a competitive advantage to execute this strategy. We've got an 800 store fleet in North America, nearly a 1,400 store footprint globally and taking advantage of that to execute this through expansion, through changing the size of the assortment to fit as we focus on intimates, we focus on PINK apparel, modifying that, and then we continue to grow beauty, whether it's smaller store footprints and learning from what our international partners do to continuing to drive the Store of the Future success that we've had.

So we -- by the end of this year, we'll have converted about 25% of our North America store fleet into the Store of the Future concept. We see increased traffic, increased conversion, nearly a double-digit increase in sales when we do those conversions. And by the end of the year, our international fleet will be about 40% converted. As we continue to invest in that in the future, we -- by the end of '27, we'll probably have about 50% of the global footprint converted to the Store of the Future concept.

As a follow-up, is there anything else you can add regarding other potential uses of free cash flow and how you're thinking about capital allocation?

Yes. So we're going to continue, as I said, first and foremost, to invest in the Store of the Future. We see those increase in sales. We see the profitability exceed our internal hurdle rates. So that's first and foremost. But as we go, we've got to look at how do we evolve our supply chain network to take out some noncustomer-facing costs. But then also, it's going to give us an opportunity to look at share buybacks and debt paydown as we go forward.

Very clear. Hillary, let's switch back to you. As you look at the competitive backdrop and the consumer today, how would you describe your positioning? And how are you viewing the current health of the consumer?

I described our positioning as accessible luxury in VS in particular. And the state of our consumer is very strong. I think that -- but it goes back to that compelling creating want and creating an emotional connection and making her feel something. So the intimates market has been soft for some period of time. And we have proven, I think, recently that with strong product execution, listening to the customer, strong and modern creative and then a marketing strategy that really optimizes the full funnel, we can connect with her and we can claim that traffic and market share through our own full price efforts. And it's really exciting to see those green shoots coming.

That's really great to hear. Let's shift to your international business, Scott, you mentioned this earlier. Victoria's Secret has seen very strong international growth in recent years. Where is the largest opportunity ahead for continued international growth?

Yes. I mean I think we have like enormous opportunity. We have opportunity in digital growth. We have opportunity in store growth in regions that we already operate in. A little bit -- little fun fact from last week, there was an event in China on TikTok called the Super Brand event, and we were the #1 brand in China. And it was an incredible -- I was looking at the selling reports, like, wow.

So I think the power of the opportunity in China, I know we have competitors who have $1 billion businesses in China. So I think there's a big runway there. We still have markets that are untapped. And we actually have a lot we can learn from international for U.S. They have very productive smaller footprint that we're interested in experimenting with in North America. They distort towards the beauty customer. And we have seen both same-store sales and total growth be very strong. Our comp sales were about 22% last quarter. So very strong business that we think we continue to grow on.

Very clear. Let's turn to Scott and talk about one of the biggest topics of the year, which is tariffs. You recently updated your assumptions for that impact of tariffs on your latest call. How should we be thinking about the time line to fully mitigate these headwinds? And what proportion of the offset will be driven by pricing versus other mitigating factors to the extent that you've taken any price, are you seeing any elasticity?

Yes. So just to set the stage. Recently, we've had updated our guidance to account for 30% tariffs in China, 20% rest of world. So that for our fiscal year 2025 is about a net $100 million impact. That includes about $70 million of mitigation efforts this years. As we go forward into next year, our mitigation efforts will definitely ramp up. There's an opportunity for us to lower our air mix that really is coming into play in Q4 of this year. So we'll get a larger proportion of that savings next year.

The other big lever we have next year versus this year is sourcing diversification, where can we source out of higher tariff countries into lower tariff countries. As you know, those things take time. We need to evaluate them, assess them for quality, raw materials, labor and manufacturing capacity. So that work is underway. So we don't have a number for 2026 or how fully mitigated we will be yet. But what we have done is usually at this time of the year, we've had more orders placed for next year than what we do right now. We've held those back as we evaluate these sourcing opportunities so we could stay nimble.

And as we know, tariffs are constantly evolving. So we need to stay nimble because if things even do shift from this, we need to be prepared to move with that. So on top of that then, the biggest sort of pricing lever we have is a pullback of promotions. And we've been having success with that through the first part of this year, that will continue through the balance of the year and into next year. That really is a multiyear journey when we think about it. We have to be very strategic and surgical with how we address those promotions.

And then lastly, we have taken some strategic price increases in the back half being mindful of entry price points, traffic-driving categories. But even before tariffs, we're always evaluating pricing and where we see value proposition in the marketplace. And so we'll continue to be selective as we go forward if we think there's value there. On the strategic price increases we've taken this year, we have not seen the customer really pull back yet, but that's something we constantly are reading and reacting and monitoring and we'll continue as we go.

Is there any contextualization that you can give to us about the magnitude of the benefit from promotion reduction and what that might mean into next year? I know you mentioned it could continue to be a benefit, but...

Yes. So in terms of magnitude, in Q2, it was about a net 40 bps benefit from pullback on promo and a little bit more gifts with purchase to offer that customer some value back. But we saw an even greater benefit as we drove more full price sales. And so our semiannual clearance inventory was in a much healthier position in Q2. We introduced a lot of the newness that Hillary touched on, and that drove more of a mix into our full price selling. So those combined is actually quite considerable north of 100 bps when you look at the magnitude of the margin benefit.

Very clear. Hillary, you've talked about needing a more differentiated and agile production cycle and calendar. And you've recently talked about the PINK and LoveShackFancy collab, which we talked about earlier and how that was executed on a new 26-week production calendar. Can you talk about what you're doing to evolve the production cycle today?

Sure. I think it's really about decoupling the categories and businesses to make sure that we have a supply chain product development calendar that really is catered to the category versus anchored on bras. So historically, the company, really all of our processes were anchored around bras. Bras are an extremely technical fit-oriented category. We don't want to speed those up too much. We want rapid response and reorder. But when you're creating a bras from scratch, you want to make sure you got it just right and you have it tested, et cetera. So bras will stay at about 52 weeks, and we have an innovation pipeline that goes -- it's almost 3 years out at this point where we pull things up when we see a need.

So bras will not change. We are increasing our amount of response capabilities in bras. So really in every category, we can get reorders where we have raw materials in place in 8 to 12 weeks. And in panties and mist, we can get it in more like 2 to 3. So our reaction time is really, really good and in a strong place. Where I have a desire to speed up is more on the fashion side of the business. And it's primarily PINK apparel where we're focusing, and that's the 26-week time line that I'm talking about. It does require -- you have to be strategic with capacity. You have to be strategic with raw materials, but it allows us to get closer to the customer.

And we know that there are things like the foldover legging, like our fleece category. She loves the base fabric. It's about a new shape or treatment. And the closer in we can make that after being out on campuses or being out shopping, the more accurate we get, and we are seeing a ton of success with that. So PINK will be leading that charge, and we -- I'm sure we will be applying that to other categories. We do have a capsule coming in Victoria's Secret right on the fashion show. It's called Supermodel Essentials. And that was done in 33 weeks, also much faster than the bra time line. So we're making a ton of progress there. I'm proud of the work the team is doing, and I think we'll just continue to get smarter and more agile.

And Scott, as you think about some of those things that are happening in the business, can you discuss your expectations for inventory growth into the back half? Do you expect any disruption or change in the timing as a result of what's happening in the environment?

Yes, we're not seeing any disruption right now, something we watch closely. But as inventory goes in the back half with tariffs coming on, we do think the inventory dollars will be up sort of high single digits, but the inventory units will only be up low single digits in line with sales. So we're pacing that inventory to match quite consistently.

Maybe sticking with you. As we put this all together, how are you thinking about the path to return to Victoria's Secret's historical margin levels? What's possible in the current environment? And what are the drivers that will deliver the improvement?

Yes. Our main focus is finding efficiencies and reductions in noncustomer-facing areas. And so think about our supply chain network and our transportation model, how do we get closer to the customer, especially on the international side. An example of that is late last year, we opened our European distribution center. That cuts down the transportation, that cuts down the lead time, that gets the product to the customer that much faster.

So where do we have those opportunities as we go forward, both domestically and internationally? How do we continue to partner with our vendors to find cost optimization with them, not so much on a product quality standpoint, but there are things that we could do to find cost efficiencies for them that thereby allow us to reduce costs. And we think getting back to our historical margin levels is quite possible. Tariffs aside is the only disclaimer as those continue to evolve.

Very clear. And then as you think about those SG&A efficiencies, you just discussed a lot of different options. But as we drill a little bit deeper into SG&A, how much more optionality is there on that line item? And then how should we be thinking about the leverage point?

Yes. So coming in, there was -- over the last couple of years, there was a lot of great cost takeout work that was done. So our leverage point is quite low. It's basically if we grow sales 1% to 2%, we're going to be leveraging both buying and occupancy and SG&A. So as that sales ticks low single to mid-single sort of digit growth rates, we're going to get great leverage as it goes. We are being mindful, though, on protecting product and customer experience investment. So you'll see us continue to invest in those areas, but we will do that while maintaining that low leverage point.

Very clear. Hillary, earlier in the session, you noted that you're looking to bring the company into a new era of sexy, particularly for the Victoria's Secret brand. As you think about what that represents to the consumer and this evolving idea of sexiness, how are you translating that understanding into brand expression and consumer engagement?

I think at the highest level, we're here to make her feel and we're here to make her feel good. And we want to make sure that we are addressing like every occasion in her life. I think we had a pretty singular look and feel in the past, and then we kind of moved to a different singular look and feel. And I think that neither of those is right.

I think that sexy comes in all forms, and it's in the eye of the beholder, and we want to be a mere back in some ways. And so it will be a creative platform. You'll see lots of different types of talent. The Angel is a huge part of our DNA and one that we're going to think a lot about what is the definition of an Angel going forward? What is a modern angel and what makes a modern Angel? And so I think expansion of some of these iconic pieces of the brands and a refinement of that is going to be very important. And I think more than anything, it's just a women's lens on what is sexy today, and we're here to connect deeply with her.

And if I could give you one example, it would be a FlexFactor bra on the tagline. We had the customer insight. We had the technology. It was our first new creative campaign and the tagline better than braless was said in the meeting, and I just immediately said, yes, because intuitively, women like that's -- you're saying the quiet part out loud, right? And you're connecting with an emotion that all women, I think, have on some level.

And so I thought it was really brilliant. And that's the kind of emotional connection we need to have. We're taking an everyday item and bringing like real resonance to it. And I think that's the challenge ahead, and we have a team in place that I believe can do it.

That's really great to hear. We're about out of time. Hillary, any closing comments or thoughts that you'd like to leave with the audience?

I mean I'd just like to say that we are entering a new era of sexy. That our past potential is in the early green shoot stages. We're back to growth. We're back to acquiring new customers and total file growth, and we're stealing share, and we're really headed down an exciting path, and it's a great time to be part of the brand.

Well, thank you so much, Hillary. Thank you, Scott, and thanks for everyone in the audience for tuning in.

Thank you.

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 in Company'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 & Company. Kevin, you may begin.

Thanks, Amanda. Good morning, and welcome to Victoria's Secret & Company's second quarter ingest 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 past 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 an 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 that 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 digital outage in May and grew comp sales 4% and both sequential improvements over the prior quarter and above our expectations.

We delivered comp growth in both Victoria's Secret and PINK across our digital and in-store channels in all geographies. In Q2, we relied less on our semiannual sale than prior years as we had less inventory to mark down and a more compelling regular price offering. This drove lower discounts and higher AURs compared to last year. Going forward, we see an opportunity to further optimize unit inventory levels and continue to drive higher AURs. International remains a standout and helped drive the quarter's growth. Q2 net sales grew 22% year-over-year, while retail comps were up high single digits, reflecting the strength of our global partnership and growing brand relevance.

A good example of how the team is delivering with sharper execution and more high emotion storytelling is last month's launch of our Body by Victoria Collections new flex factor raw which connected deeply with women and how they view wearing bras. The launch was a success, and we saw double-digit new customer growth at Victoria's Secret in the last week of the month when the campaign began. Momentum in the second quarter grew steadily as the quarter progressed, culminating in July, which was our strongest month of the quarter in terms of sales and new customer growth. We're pleased to share that this momentum continues into August.

Importantly, growth in the second quarter was accompanied by improving gross margins, which were up year-over-year, even with the headwind from the evolving tariffs. We delivered gross margins of 35.6% for the quarter, 20 basis points above last year and 60 basis points above our guidance. This reflects our evolving approach to promotions and more thoughtful discounting cadence which together drove increased regular price selling. Adjusted operating income of $55 million exceeded the high end of our second quarter guidance by $20 million. During the quarter, store traffic significantly outpaced overall mall traffic, providing an additional lift to our performance that has continued into August.

This strong foot traffic was driven by a combination of innovative products, as well as improved marketing and enhanced visual merchandising. In the quarter, we made continued progress against the 4 pillars of our path to potential strategy. supercharging our bra authority, recommitting to Pink, fueling growth in beauty and evolving our brand projection and go-to-market strategy. First and foremost, we are supercharging our bra authority by focusing on reinforcing and building upon our leadership in bras. We're leaning on our unparalleled bra experience to drive innovation first product development, ensuring we lead the industry in fit, function and fashion.

We are also expanding our bra assortment to serve a wider range of customer needs. Our efforts are beginning to deliver results. During the quarter, while North America bra sales were down low single digits, showed sequential improvement over Q1. And in Q2, according to third-party data, we grew market share by approximately 0.5 point in total bras, including almost a full point of share in traditional bras. Importantly, Bras also saw growth in regular price selling. While we're encouraged by this progress, we still see meaningful upside as we continue to innovate and refresh the assortment with a focus on comfort.

We're excited about upcoming product launches in broad. In September, we're debuting the world's best sports bras featuring the starting 5 as well as the Dream share Wicked bra, a sexy online balconabra that we anticipate will be a top performer. We saw a strong response to our Body by Victoria's launch on July 23. This is the first time in years that a bra launch has driven growth in other bra franchises driving growth in bras overall. This was a breakthrough and a testament to our ability to meet customer needs across core performance and lifestyle categories, driving deeper connections and sustained growth.

We're also seeing very strong results in the broader intimates category. Notably, for the 18- to 44-year-old segment, a key demographic for us. VS & Co gained market share in Q2 in intimates across the total industry and across the specialty market compared to last year, with total intimate dollar share growth coming from total bras sales. Our next pillar is recommitting to PINK and winning the next generation of consumers. While PINK has long been a brand with deep emotional connections to young women, we recognize it lost some of its Spark. The assortment shifted to intimates and its offerings saw too much overlap with Victoria's Secret. Being strayed from its roots as a lifestyle brand grounded in apparel designed to meet the needs of customers aged 18 to 24.

We believe PINK is more than just a product line, and we're committed to putting it back into focus with a digital and social first approach designed to meet the next generation where they are. From product design to brand storytelling, we're redefining how PINK shows up, and we're excited about the momentum already starting to build. Today, we are focused on reestablishing the brand's magic and market position. We will deepen our relationship with the PINK customer understanding her like never before and meeting her where she is in the way she wants.

We're feeling the buzz build, and nowhere is it clearer than in our new Love Shack fancy collaboration launched this quarter. Earlier this month, we dropped the limited edition Pink Love Shack fancy collection, a joyful collision of Pastel romance and playful Edge. Our customers didn't just shop it, they lit up our social channels, share their looks and turned it into a full-on moment. engagement sword and energy is still going strong. This was a record breaking collaboration for both PINK and Love Shack fancy. Our best sellers were pink icons, including logo styles, our signature dog and our top-performing item, the $200 Letterman jacket.

Strong traffic and exceptionally large basket sizes drove outsized results, all achieved with 0 discounting. These factors underscore the brand's pricing power, product desirability and the effectiveness of our assortment strategy. This collaboration came about as an idea at last year's fashion show and was executed on our new 26-week production lead time calendar. This speaks to our team's disciplined approach in a dynamic environment and our ability to make agile business decisions when we see an opportunity. Our momentum was also evident by the strong response to our Pink Friday event, which launched at the end of the second quarter.

The in-store activation drove a significant increase in new customers that we get ran. Since most of the digital activation associated with the event falls in Q3, the second quarter results only reflect a partial benefit from the event. PINK was up low single digits in the second quarter, a clear improvement from Q1. Growth was led by double-digit increases in apparel with margin expansion driven by regular priced sales. We also saw a healthier quality of sales with regular price sales up 5% in the PINK brand including up 18% specifically in apparel, reflecting our focus on rebalancing our assortments.

We are pleased to see significant improvement in new customer acquisition at PINK with double-digit improvement in new customer accounts during the quarter, showing that our efforts are resonating with customers. Turning to the next pillar of our strategy, fueling growth in beauty. We have a powerhouse beauty business. representing approximately $1 billion of sales domestically and approaching $2 billion at retail globally. Our customers love Victoria's Secret Beauty, and we are accelerating beauty categories by leaning into our product authority building on our industry-leading fragrance business, expanding into new opportunities and helping drive traffic into our 2 brands.

In the second quarter, beauty remained a standout as we delivered our eighth consecutive quarter of growth. Sales in our beauty business were up mid-single digits with growth across all major categories, led by body care, seasonal fragrance and our miss collection, which delivered low teens growth. We see a significant opportunity in Beauty, which is a much larger market than intimates, about 4x the size of the intimate market in the U.S. according to third-party data and offers a clear runway for growth. We already have gained real traction and with a newly hired brand president in place, along with expanded marketing resources, we are poised to continue to build on our momentum.

Looking ahead, we have a strong pipeline of newness and franchise amplification. This includes our very sexy restage that set this week, [indiscernible] franchise expansion the Bombshell seasonal launch and category expansion through the launch of home fragrance. We're also focused on sustaining growth in mist and body. On to our final pillar, we're evolving our brand projection and go-to-market strategy to reflect shifts in culture, technology and shopping behaviors. By staying true to our brand DNA while adapting to how we engage, inspire and serve we are deepening connections with existing customers and attracting new ones while strengthening loyalty and driving long-term growth.

We are starting to see positive momentum in rebalancing our marketing funnel and driving incremental traffic across both our digital and store channels. During the quarter, according to third-party data, one of the strongest customer growth segment at BS & Co was the 18 to 24 age group, and these efforts drove improved customer acquisition and growth in our customer file which positions us well as we move into the back half of the year. We saw sequential improvement during the quarter and in July, growing our total customer file, which was up 5% with growth across new, existing and reactivated customers. Going forward, we are laser-focused on continuing to grow our customer file with a focus on new customers between 18 to 44.

It's clear that our new Chief Marketing and Customer Officer, Elizabeth Price, is leading a compelling shift in how we show up, more purposeful, more provocative and more aligned with who our customer is today. This is just the beginning, and there's much more to come. I'd now like to take a moment to give more details on key initiatives for the second half of the year and share why we are excited. There is real momentum in our business. we are focused on executing and delivering results in our core businesses.

We continue to navigate a complex macro environment, and we are taking several steps to mitigate tariff impacts by operating more efficiently, which Scott will address later, while continuing to invest in our brands, our products and the customer experience. Fundamentally, we believe that the investments we're making in brand building and innovative marketing are even more impactful during uncertain times. In a business driven by emotion, our ability to spark connection with our customers enables our brands to stand out and remain a top choice.

We remain focused on growth in intimates with bras as the center of our universe. We are committed to leading in both everyday Comfort and bold feminine style, ensuring we can meet her wide range of needs for her multifaceted life. Our July Body by Victoria launch was a step forward and we'll continue to bring newness, comfort and innovation in wireless, sports and core bras while also leaning into the sexier side of our assortment with collections like very sexy and the upcoming [indiscernible] refresh. We're excited about the return of the Victoria's Secret Fashion Show on October 15. The event will build on last year's success serve as a key brand moment that both honors our heritage and solidifies our position as a brand that shapes not just follows the future of fashion.

Looking ahead to the holiday season, we're committed to being the destination for gifting. Last year, we saw how much our customers value accessible luxury that feels personal and truly special. Over the past year, our teams have poured their creativity and passion into expanding our comfortable gifting assortment, offering a thoughtfully tiered, good, better, best selection across key categories, including beauty, sleep and pink apparel. This holiday, we're ready to help our customers celebrate the moments and people that matter the most.

Beyond holiday, we see Valentine's Day as another significant growth opportunity and a key moment to deepen our customer engagement. We look forward to sharing more about our Valentine's Day plans in the months to come. Before concluding, I want to take a moment to reflect on what this business and the Victoria's Secret brand have the potential to represent to our consumer. At its core, we're in the business of feelings of sparking connection and confidence. Our opportunity goes far beyond product. It's about helping our customers feel [indiscernible], celebrated and comfortable in their own skin.

We believe deeply in this promise, and we're committed to doing it better moving forward. That promise, celebrating how our customer feels is central to how we're evolving the brand. We know there's no single definition of sexy. Beauty standards are different for every person and so does what makes her heart race. Sexy isn't a singular look, it's a feeling. You know it when you feel it, you respond to it. Our future brand expression will honor that. It won't be confined to one image or ideal. It will be a creative platform that embraces the many ways, women and body confidence, centrality and strength.

You're already seeing the first expression of this with our recently launched very sexy campaign. The message is clear. We continue to embrace sexiness, but we're evolving to serve our customers more holistically and provide the full spectrum of what she wants and needs from us. And we are seeing this show up with an acceleration in Victoria's Secret sales trends through this week. You'll see our vision further take shape as we continue a steady drumbeat of brand moments in the coming months, including our fashion show this fall and then more significantly in our spring line.

We are firmly in growth mode. We achieved growth last year, and we are continuing to improve our performance this year when product brand emotion and market come together, it creates a powerful cycle that deepens customer engagement and drive strong, sustained results. While we have more work to do, we're building momentum, and we intend to keep going.

I'll now turn it over to Scott.

Thanks, Hilary, 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 Hilary 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 [indiscernible]. 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 through the quarter, and we are encouraged that this momentum has continued so far in the third quarter. Both PINK and [ BS ] saw sales up low single digits during the quarter compared to last year, with growth in North America and across the globe. While we were also pleased with our performance and intimates, where we saw major trend improvements from Q1 to Q2 across both pennies and broth. Contributing to this improvement was strong regular price selling. And as Hilary mentioned, an example of this was our successful Body by Victoria launch on July 23, which along with a new marketing approach around the event drove notable increases in customer engagement and acquisition.

Beauty again delivered strong top line growth with sales up mid-single digits year-over-year. This marks our Beauty business' eighth consecutive quarter of growth. As Hillary also noted, BS and Pink had broad-based strength in North America, where we grew comp sales in both stores and digital channels. Performance in the region improved sequentially throughout the quarter with July delivering exceptional results in part driven by the Body by Victoria Bra launch and associated marketing activities. This was the first time in years that a bra launch has driven growth in other bra franchises. Traffic during the quarter significantly outpaced the broader mall, reflecting both our enhanced product offerings and expanded marketing region effectiveness.

Our international business continued to perform exceptionally well during the quarter. Reported second quarter sales grew 22% to $228 million, reflecting an improvement over a strong first quarter. system-wide retail sales were up low double digits again in the second quarter. International growth was fueled by healthy high single-digit retail comparable sales gains across our store and digital channels on a combined basis as well as continued new store openings. We again saw particular strength in our China business, primarily driven by the digital channel. AURs were up 1% in the quarter. When you exclude panties, which is a low AUR category, AURs were up 8%, driven by increases in bras and beauty.

Second quarter adjusted gross margin dollars were $519 million our adjusted gross margin rate was 35.6%, 20 basis points above last year and 60 basis points above our guidance. Favorable gross margin rate drivers in the quarter versus last year included a continued pullback in traditional promotions, resulting in lower discounting throughout the quarter, coupled with strong regular price selling, booked during the semiannual sale in the weeks outside of the event. Our healthier inventory position during the semiannual sale period along with a stronger regular-priced product offering enabled margin expansion this year.

We continue to use GWPs in the quarter, which, while slightly impacting margin rate, drove higher basket size and acted as a brand-building marketing vehicle. Importantly, Overall, our promotional strategy in the quarter drove margin rate and margin dollar expansion compared to last year. Our focus on driving stronger regular price selling continues to gain traction. We also achieved leverage on buying and occupancy expenses in the quarter, driven by rent savings and our robust comp growth. Meanwhile, as expected, higher air freight rates and tariffs resulted in approximately 80 basis points of pressure in total in the quarter versus last year, evenly split between the 2.

Adjusted SG&A dollars were $464 million in the second quarter, and our adjusted SG&A rate was 31.8%, better than our guidance of approximately 33% in deleveraging versus the prior year rate of 31%. Our better-than-expected adjusted SG&A rate in the quarter was driven by the sales beat along with continued disciplined expense management across all aspects of the business. Our rate deleveraged from last year as a result of a strategic shift in marketing spend from Q1 into Q2 along with higher incentive compensation expense in the quarter tied to our outperformance. Adjusted nonoperating expenses, consisting principally of interest expense, were $17 million in the quarter in line with our guidance and down from last year, driven by a lower level of weighted average borrowings and interest rates.

Our second quarter adjusted tax rate was 25%. Turning to the balance sheet. Total inventories ended the second quarter up 4% compared to last year and in line with our guidance. From a liquidity standpoint, we ended the second quarter with a cash balance of $188 million which is $19 million above last year and our outstanding balance under our $750 million ABL credit facility was $75 million, which is down $70 million from last year. We successfully renewed our ABL credit facility in May and secured a 5-year term extension with favorable enhancements and lower interest rates that will generate annual savings. Our liquidity position is strong and provides us financial flexibility for continued execution of our strategic growth pillars.

Turning to our updated outlook for fiscal year 2025 and our outlook for the third quarter. We are raising our full year outlook for net sales and are now forecasting net sales in the range of $6.33 billion to $6.41 billion, compared to our prior guidance calling for net sales in the range of $6.2 billion to $6.3 billion. While we faced tough year-over-year sales comparisons in the back half of the year, we are pleased with the momentum we saw in Q2 with notable acceleration in July. We expect to drive performance through elevated product assortments and planned initiatives designed to sustain momentum between major traffic-driving events. We are winning with big moments like Pink Friday, which performed exceptionally well this year.

As Hilary mentioned, the fashion show this fall represents a defining brand moment, both commercially and culturally. Last year, the event helped drive incremental traffic, customer acquisition and sustained sales momentum into January. This year, we are building on those learnings to further amplify its impact while continuing with the steady cadence of brand moments through the holiday and Valentine's Day season to engage both new and returning customers. In addition to our brand moments, we are well positioned to capture demand in holiday periods such as Black Friday and Cyber Monday with an expanded and more tiered gifting assortment across key categories like beauty, sleep and pink.

Given the outperformance during the second quarter was offset by incremental tariff exposure, we are maintaining our adjusted operating income range for fiscal year 2025 of $270 million to $320 million. Our full year 2025 guidance now reflects tariff levels of 30% for China and 20% for non-China imports as compared to our previous guidance, which assumed 30% for China, and 10% for non-China. Our guidance for the full year 2025 now assumes net tariff impact of approximately $100 million, which reflects tariff mitigation of approximately $70 million. Our projected net tariff impact of $100 million in 2025 is up $50 million versus our assumption embedded in our previous guidance. With approximately $10 million of net tariff impact already recognized in the first half of the year, our guidance assumes approximately $20 million of net tariff pressure in the third quarter with $70 million impact in Q4.

Importantly, given the strength and momentum we are seeing in the business, we are maintaining our adjusted operating income guidance for the year despite estimated incremental net tariff pressure of $50 million. Our impact and mitigation efforts include optimizing costs with vendors, further diversifying our sourcing, ensuring we have the most efficient air versus ocean freight mix possible and implementing a combination of select pricing adjustments through more targeted promotions and strategic price modifications where we see a value proposition gap in the marketplace. Adjusted nonoperating expenses, consisting principally of interest expense, are projected to be about $70 million for fiscal year 2025, down from $84 million in fiscal year 2024 and in line with previous guidance, driven by expected lower levels of weighted average borrowings, along with lower interest rates.

We estimate our adjusted tax rate will be approximately 24% to 25% for fiscal year 2025, in line with guidance last quarter. We estimate weighted average diluted shares outstanding of approximately $83 million for fiscal year 2025. Given these inputs, we are maintaining our fiscal year 2025 adjusted net income per diluted share to be in the range of $1.80 to $2.20 compared to adjusted net income per diluted share of $2.69 in fiscal year 2024. We continue to be prudent with planning capital expenditures, which are now expected to be approximately $200 million in fiscal year 2025, down from our previous expectation of $220 million. Capital investments will primarily focus on our store capital program, along with investments in technology and logistics related to our strategic initiatives to drive growth and support productivity.

Depreciation expense is estimated to be approximately $220 million this year. We are maintaining our forecast of adjusted free cash flow of approximately $150 million to $200 million in fiscal year 2025. Store counts and renovation plans in North America in 2025 continue to be similar to what we discussed on our first quarter call. Square footage in our North American stores this year is still expected to decrease approximately 2% compared to 2024. By the end of the year, we estimate our Store of the Future presence in North America will be approximately 190 stores or approximately 25% of the fleet. Internationally, we estimate our Store of the Future presence at the end of 2025 will be approximately 240 to 260 stores or approximately 40% of the international fleet.

Turning to our outlook for the third quarter. We are forecasting net sales in the range of $1.39 billion to $1.42 billion compared to net sales of $1.347 billion in the third quarter of 2024. Our forecast assumes low single-digit top line performance in our North American business based on the continued momentum we're seeing quarter-to-date. Our forecast also assumes continued strength in the international business with system-wide retail sales planned up low teens in the third quarter. At this forecasted level of sales, we expect third quarter 2025 adjusted operating loss to be in the range of $35 million to $55 million compared to an adjusted operating loss $28 million in the third quarter of 2024.

We expect third quarter 2025 adjusted gross margin rate of approximately 34%, down compared to an adjusted rate of 34.8% last year, which includes estimated net tariff pressure of approximately 140 basis points, partially offset by continued focus on our promotional strategy in buying -- and occupancy expense leverage on the sales growth. The adjusted SG&A rate in the third quarter of 2025 is expected to be flat to up approximately 100 basis points compared to the third quarter 2024s adjusted rate of 36.8%. The forecasted increase in SG&A dollars is driven by normal wage rate increases along with strategic investments in marketing and store labor to enhance the customer experience and to drive top line growth.

We anticipate net adjusted nonoperating expense again, consisting principally of interest expense of approximately $19 million in the third quarter 2025, down from $21 million in the third quarter of 2024 and driven by expected lower levels of weighted average borrowings along with lower interest rates. We estimate our adjusted tax rate will be approximately 22% for the third quarter. We estimate weighted average shares outstanding of approximately $80 million for the third quarter. We expect total inventories to be up high single digits compared to last year, driven by the impact of tariffs. Given these inputs, we are forecasting third quarter adjusted net loss per share to be in the range of $0.55 to $0.75 compared to adjusted net loss per share of $0.50 in the third quarter of 2024.

In closing, I want to reiterate a few key points. Despite the uncertain macro environment, our fundamentals remain strong and resilient, and our path to potential strategy is gaining momentum. We are maintaining our disciplined approach, focusing on operational excellence, strategic capital allocation and continued investment in the capabilities that differentiate us in the marketplace. We remain committed to delivering value for our shareholders while building the foundation for sustained long-term profitable growth.

Operator?

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

This is Lauren Lavin 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 our -- 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 similarly 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 Brad, that shiny active set, love Shack, some of it is fashion innovation, some of it's a 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, and 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 agree. I really agree with everything you say. It is absolutely about fashion innovation and then technical innovation. I'll start with -- in VS, we have a very deep pipeline of innovation, primarily focused on bras but also [indiscernible] 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've -- 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 -- as we move in -- especially as we move into 2026.

On the [indiscernible] side, it's really more about cultural connection and fashion drops and collaborations and this Wednesday drop phenomenon that we have and pink is doing really well. And we want to build on that. But also what we have unlocked not only first and foremost with Frankie's and our collaboration and partnership with Frankie's, but now with Love Shack fancy 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.

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

Hillary. 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 in 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 price 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 in a 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 a improvement to customer experience as we go forward.

Our next question comes from Adrienne Yih with Barclays.

This is Michael Wu on for Adrian. 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 court core categories of beauty as well as Internet, 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's that 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, maybe I think I recall that you mentioned that you wanted to do something [indiscernible], 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 does 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 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, I'd be happy to. Actually -- so let me just start and talk about what really sort of changed between Q1 and Q2 at a total. So after Q1, I talked about strength in beauty, strengthen in 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 price 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 Swanson 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 the -- for Q4, and I didn't catch the -- for fashion. Is that what you said? .

Yes. Yes, in 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 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 -- 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 the front half of the quarter will be focused on holiday and fashion show and really building up that incredible gifting designation 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 and the Hill that the newness and iteration that you've introduced has been put it down compelling. I wanted to ask you to 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 cents. So I think -- it was being used as a loss leader and to drive traffic, but also to meet competitive headwinds.

Janet, 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. Love Shack Fancy collaboration. We brought to market in 26 weeks. That is a wild improvement from where we were a year ago. I think 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 -- 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 in beauty as well sleep. -- no resistance to that. I think when the 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 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 [indiscernible], 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 something we're definitely looking at. And actually, we have one running this weekend that is at a lower -- actually, it's 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 bucket size. So hopefully, that answers your question.

You did -- and I have 1 last, which is just on the 26-week lead time, love Shack, which was really well done. Is that by as good as it gets silly. 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 -- 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 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...

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

We have time for 1 more question, Brooke Roach with Goldman Sachs.

This is Evan Doscher on for Brook. 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 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 and Co. Have a great day.

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