Victoria's Secret & Co.'s Q2 2025: Contradictions Emerge on Pricing Strategy, Tariff Mitigation, and Digital Growth

The above is the analysis of the conflicting points in this earnings call

Date of Call: August 28, 2025

Financials Results

• Revenue: $1.459B, up 3% YOY
• EPS: $0.33 per diluted share, significantly above the high end of guidance
• Gross Margin: 35.6%, up 20 bps YOY and 60 bps above guidance

Guidance:

• FY25 net sales raised to $6.33B–$6.41B
• FY25 adjusted operating income maintained at $270M–$320M
• FY25 adjusted EPS maintained at $1.80–$2.20
• Tariff assumptions: 30% China, 20% non-China; net impact ~$100M with ~$70M mitigation
• FY25 adjusted nonoperating expense ~ $70M; tax rate ~24%–25%
• Capex reduced to ~ $200M; adjusted FCF ~ $150M–$200M
• Q3 net sales guided to $1.39B–$1.42B (vs $1.347B LY)
• Q3 adjusted operating loss of $35M–$55M; GM ~34% (vs 34.8% LY)
• Q3 adjusted EPS: loss of $0.55–$0.75; tax rate ~22%; shares ~80M
• International system-wide retail sales planned up low teens in Q3

Business Commentary:

* Sales and Earnings Growth: - Victoria's Secret & Co. reported net sales of $1.459 billion for Q2 2025, showing a 3% increase year-over-year, and comp sales grew 4%. - The growth was driven by disciplined execution, innovation in product development, and the successful implementation of the Path to Potential strategy.

• International Market Performance:
• The company's international net sales grew 22% year-over-year, with retail comps up high single digits.

• This was attributed to strong performance in digital channels, particularly in China, and successful new store openings.

• Gross Margin and Promotional Strategy:

• Victoria's Secret & Co. achieved a gross margin rate of 35.6%, which was 20 basis points above last year, driven by a reduction in promotions and increased regular priced selling.

• The improved gross margin was due to a pullback on traditional promotions and a focus on driving regular priced sales.

• Beauty Segment Growth:

• The Beauty business delivered mid-single digit growth, with notable contributions from body care, seasonal fragrance, and the Mist Collection.
• Growth was driven by the company's product authority in Beauty, expanded marketing resources, and new franchise launches.

Sentiment Analysis:

• Management beat Q2 top- and bottom-line guidance; net sales +3% and comps +4%. Gross margin expanded 20 bps YOY and exceeded guidance by 60 bps. Adjusted operating income of $55M exceeded the high end by $20M. International sales +22% YOY. Momentum strengthened through July and into August. FY25 net sales outlook raised while maintaining operating income despite an incremental ~$50M tariff headwind.

Q&A:

• Question from Lauren Levine (Morgan Stanley): What is the impact of the end of the de minimis exemption on your business and the industry?
  Response: Minimal; VSCO’s e-commerce distribution is primarily U.S.-based (Columbus), so de minimis changes are not material.

• Question from Marni Shapiro (The Retail Tracker): How should we think about fashion and technical innovation cadence into the back half and 2026, including Beauty?
  Response: VS will increase the drumbeat of bra and sport innovation and joyful fashion drops; PINK will lean into cultural collaborations and weekly drops; expect more frequent, nimble newness.

• Question from Dana Telsey (Telsey Advisory Group): Outlook for pricing/promotion and learnings from Store of the Future on traffic and customers?
  Response: Promotions will be pulled back to drive regular-price selling; selective pricing actions where needed. Store of the Future remodels show double-digit sales lifts driven by traffic and better assortments.

• Question from Michael Vu (Barclays): What is outperforming internationally and any difference in go-to-market vs domestic?
  Response: International growth is led by Beauty and intimates; less PINK/sport/swim breadth abroad. Marketing and messaging approach is largely consistent globally.

• Question from Mauricio Serna Vega (UBS): Will the fashion show include PINK, and how do SG&A investments compare to last year?
  Response: Details forthcoming; activations will touch all businesses. Marketing spend is flat year-over-year overall, with timing shifts to amplify the show’s impact.

• Question from Juliana Duque (Wells Fargo): Are panties still pressuring intimates, and how did that trend through the quarter?
  Response: Core intimates improved from Q1 to Q2; panties were very strong across both brands. Bras saw positive full-price selling, though total bra comp was muted given a smaller semiannual sale.

• Question from Unidentified Analyst (TD Cowen): What are the key holiday plans and changes vs last year?
  Response: More consistent newness and content cadence; early focus on holiday and the fashion show, then pivot to sport and Valentine’s; PINK to capitalize on timely cultural moments.

• Question from Janet Kloppenburg (JJK Research Associates): Progress on inventory planning/flow and your pricing power, especially in panties?
  Response: Driving faster turns (esp. PINK apparel), shorter lead times, better size curves and store allocation; pricing power exists with strong product/emotion; testing higher panties multipack prices while preserving acquisition and basket.

• Question from Janet Kloppenburg (JJK Research Associates): Can you go faster than the 26-week LoveShackFancy timeline?
  Response: 26 weeks is a major improvement from 52; speed varies by category (panties 2–3 weeks; some bras 8–12 weeks). The company will continue to push faster where possible.

• Question from Evan Dorschner (Goldman Sachs): Update on FY25 tariff impact and how it evolves into FY26 with mitigation?
  Response: FY25 net tariff impact ~$100M (up ~$50M vs prior view) with ~$70M mitigation; FY26 mitigation to increase via more ocean freight, resourcing shifts, promo pullbacks, and ongoing expense control.