Victoria's Secret & Co.'s Q3 2026: Contradictions Emerge on Promotional Strategies, Marketing Investments, and Beauty Segment Growth

Date of Call: December 5, 2025

Financials Results

• Revenue: $1.472B net sales for Q3, up $125M or 9% YOY (comps +8%)
• EPS: ($0.27) per diluted share (adjusted net loss), improved from ($0.50) prior year; better than guidance of ($0.55)-($0.75)
• Gross Margin: 36.5% adjusted gross margin, up 170 bps YOY and 250 bps above guidance
• Operating Margin: Breakeven adjusted operating income (0%), vs. adjusted operating loss of $28M prior year; materially above guidance of ($35M)-($55M)

Guidance:

• Raising FY2025 net sales to $6.45B–$6.48B (prior $6.33B–$6.41B), ~4% growth excluding 2024 breakage.
• Raising FY2025 adjusted operating income to $350M–$375M (prior $270M–$320M).
• FY2025 adjusted EPS $2.40–$2.65 (prior $1.80–$2.20); weighted average diluted shares ~83M.
• FY capex ~ $200M; adjusted free cash flow ~$170M–$210M.
• Q4 sales guidance $2.17B–$2.20B; Q4 adj. operating income $265M–$290M; Q4 adj. EPS $2.20–$2.45.
• Expect FY tariffs ~ $90M (≈$65M hitting Q4); Q4 gross margin ~37%–38% (down 90–190 bps YoY).
• Inventories expected up mid‑teens; plan to pay down ABL and end year with full availability.

Business Commentary:

* Strong Third Quarter Performance: - Victoria's Secret reported net sales of $1.47 billion for Q3, an increase of 9% year-on-year, with adjusted gross margin and earnings growing by 170 basis points and 45%, respectively. - The growth was driven by robust performance across Victoria's Secret, PINK, and Beauty segments and international sales, particularly in China.

• Market Share and Customer Acquisition:
• The company gained over 1% share in the U.S. intimates market, with the intimates business returning to growth.
• Growth in customer acquisition, especially among the 18- to 24-year-old demographic, contributed significantly to the results. The brand's digital and social presence, as well as partnerships like the Victoria's Secret Fashion Show, helped attract new customers and increase market share.

• Beauty Segment Growth:
• The Beauty segment demonstrated low single-digit sales growth, continuing the mid-teens increase from the previous year.

• Investments in product innovation and brand strength, such as the introduction of new fragrances and collaborations, contributed to the growth.

• Operational Efficiency and Margin Expansion:

• Adjusted operating income was breakeven for the quarter, improving from a projected loss of $35 million to $55 million.
• This improvement was driven by strong sales, disciplined expense management, and favorable margin leverage on buying and occupancy expenses despite tariff pressures.

Sentiment Analysis:

Overall Tone: Positive

• Management: "delivered standout third quarter results" that "far exceeded the high end of our guidance," and said they are "raising our outlook" with strong Fashion Show-driven momentum, international digital strength and margin expansion (+170 bps).

Q&A:

• Question from Mauricio Serna Vega (UBS Investment Bank, Research Division): Could you elaborate on how you are maintaining momentum post the Fashion Show, initiatives for early 2026 to sustain brand momentum, and where you see market share opportunities in bras and beauty given PINK intimates returning to growth?
  Response: The Fashion Show halo plus execution of the Path to Potential (bras, PINK, Beauty, go‑to‑market) is sustaining momentum; management has a pipeline of bra and beauty innovation and sees continued market‑share runway, especially in bras and international digital.

• Question from Mauricio Serna Vega (UBS Investment Bank, Research Division): Could you elaborate on strategies to keep pulling back on promotions and how much this lever contributed to gross margin expansion?
  Response: They're reducing traditional promotions by leveraging GWPs (raising thresholds) and driving more regular‑price selling, which materially aided Q3 gross margin even after roughly $15M of tariff headwinds.

• Question from Brooke Roach (Goldman Sachs Group, Inc., Research Division): On the change in rate of new customer acquisition this quarter, what's the profile of those customers (age, income) and how does that inform your 2026 marketing plans?
  Response: New and reactivated customers skew 18–24 and are coming in at higher AURs across income cohorts, so marketing will remain digital/social‑first to acquire higher‑quality customers drawn to product and brand rather than discounts.

• Question from Brooke Roach (Goldman Sachs Group, Inc., Research Division): Historically you targeted a low double‑digit EBIT margin—do you still view that as achievable and at what pace given reinvestments?
  Response: Yes—management still views a low double‑digit operating margin as achievable over the next couple of years, driven by sales growth and operational leverage while making select reinvestments (notably marketing).

• Question from Adrienne Yih (Barclays PLC): What do you have in the pipeline for 2026 to keep bra launches momentum, and what are your thoughts on PINK trends (retro/juicy) and the merch/margin journey?
  Response: Multiple bra franchise launches and collaborations are planned next year; PINK is regaining momentum (apparel and unexpectedly intimates) and, together with rising AURs and promotional discipline, supports multi‑year margin expansion.

• Question from Matthew Boss (JPMorgan Chase & Co, Research Division): Can you speak to the inflection relative to intimates category growth and break down the monthly cadence in Q3 and the strong start to Q4?
  Response: Q3 momentum accelerated in October with the Fashion Show and sustained into Black Friday/Cyber Monday, driving share gains in bras and panties despite a soft overall intimates market.

• Question from Matthew Boss (JPMorgan Chase & Co, Research Division): How much of the margin benefit from lower promotions is embedded into Q4 and how should we think about the innings of promo reduction versus SG&A/buying leverage to reach double‑digit margins?
  Response: Q4 is a heavier promotional quarter so near‑term promo benefit will be muted, but over the medium term the primary margin driver will be scale and operational leverage (buying, occupancy, SG&A) with promo pullback in the early‑to‑middle innings.

• Question from Dana Telsey (Telsey Advisory Group LLC): On Beauty's opportunity next year/top‑line and margins, customer demographics from effective marketing, and any changes to Store of the Future for next year?
  Response: Beauty has clear near‑term optimization (only ~40% of customers buy beauty) and long‑term innovation upside; marketing will continue acquiring younger customers while driving cross‑cohort growth; Store of the Future will be incrementally optimized for bras, PINK assortments and cross‑shop with beauty.

• Question from Jungwon Kim (TD Cowen, Research Division): What's the apparel mix now and trend over time, and what is the lead time on apparel and opportunity to expedite further?
  Response: PINK apparel is above 40% and trending toward a 50–60% steady state; lead times have shortened (e.g., LoveShackFancy in 26 weeks) with continued opportunities for faster, agile production and localized quick turns.

• Question from Marni Shapiro (The Retail Tracker): On Beauty and Home (e.g., candles) opportunity, PINK beauty positioning for a more sophisticated youth consumer, and marketing spend as a percent of sales into 2026?
  Response: They've added senior beauty/PINK hires to pursue a more sophisticated youth‑facing beauty and will continue refining home assortments; expect marketing dollars and percent of sales to tick up modestly, shifting more to working media with positive ROAS.

• Question from Irwin Boruchow (Wells Fargo Securities, LLC, Research Division): Is it accurate that ex‑gift‑card breakage gross margin is up ~200 bps, and how should we think about tariff headwinds into next year and their effect on margin trajectory?
  Response: Yes—Q3 ex‑breakage gross margin is roughly +200 bps; tariffs will pressure early next year but mitigation (sourcing, price, freight mix) ramps through the year to offset much of the impact.

Contradiction Point 1

Promotional Strategy and Margin Expansion

It highlights a shift in Victoria's Secret & Co.'s promotional strategy and its impact on margin expansion, which are critical for revenue and profitability.

Can you explain the strategies to reduce promotions? - Mauricio Serna Vega (UBS Investment Bank, Research Division)

2026Q3: Continuing to pull back on promotions while increasing GWP triggers. Good demand for GWPs at higher AURs. Promotions will be gradual over multiple years. Margin expansion will be driven by operational leverage, rather than solely from promotional adjustments. - Scott Sekella(COO)

What is your marketing strategy for the year, and how are promotional changes impacting revenue vs. profits? - Simeon Siegel (BMO Capital Markets)

2023Q4: ...we've engaged with all of our partners on not just what's the promotional activity but really when it should happen, and we're really strategizing that in a much more thoughtful way than we had ever done in the past. - Martin Waters(CEO)

Contradiction Point 2

Marketing Investment and Strategy

It involves changes in marketing investment and strategy, which are crucial for brand perception and customer engagement.

Are you planning to increase marketing spend as a percentage of sales into 2026? - Marni Shapiro (The Retail Tracker)

2026Q3: Marketing spend will tick up in dollars and percent of sales. Shift towards consumer-facing media is increasing. Positive ROAS opportunities drive investments. - Scott Sekella(COO)

How are you planning to allocate marketing resources this year, and how do promotional changes impact revenue versus profit margins? - Simeon Siegel (BMO Capital Markets)

2023Q4: Marketing investment will maintain similar percentage of sales to last year, focusing on customer understanding, brand relevance, and entertainment. - Martin Waters(CEO)

Contradiction Point 3

Beauty and PINK Beauty Product Strategy

It pertains to the company's strategic focus on beauty and PINK beauty products, which could impact customer engagement and revenue growth.

How do you plan to advance beauty initiatives and attract new customers next year? - Dana Telsey (Telsey Advisory Group LLC)

2026Q3: Beauty focus on innovation and talent. Near-term opportunities include customer conversion and beauty integration. Long-term innovation pipeline is key. New customers excited about product and brand, not promotions. - Hillary Super(CEO)

Customer response to the Body by Victoria bra launch and any consumer trends? - Matthew Boss (JPMorgan)

2023Q4: We launched a new product called So Sexy, which has not only been successful from a sales standpoint but also continues to attract new customers into the brand. - Martin Waters(CEO)

Contradiction Point 4

Promotional Strategies and Margin Expansion

It involves the company's approach to promotional activities and their impact on gross margins, which are crucial for financial performance and investor expectations.

What strategies are in place to reduce promotions? - Mauricio Serna Vega (UBS Investment Bank, Research Division)

2026Q3: Continuing to pull back on promotions while increasing GWP triggers. Good demand for GWPs at higher AURs. Promotions will be gradual over multiple years. Margin expansion will be driven by operational leverage, rather than solely from promotional adjustments. - Scott Sekella(CFO)

What price increases are included in your guidance due to tariffs, and how do you assess demand elasticity with strategic price increases? - Brooke Roach (Goldman Sachs Group, Inc., Research Division)

2025Q1: We are being strategic with pricing to optimize promotions and limit the impact of GWPs. We're planning targeted price adjustments across categories, focusing on opening and not-to-exceed price points to maintain value. This strategy includes a pullback on traditional promos and a shift towards GWPs, acknowledging some impact on gross margin but driving higher basket sizes. - Scott Sekella(CFO)

Contradiction Point 5

Beauty Segment Growth and Strategy

It involves the company's strategic focus on the Beauty segment and its growth prospects, which are central to the company's expansion plans.

How do you plan to advance the beauty business and attract new customers over the next year? - Dana Telsey (Telsey Advisory Group LLC)

2026Q3: Beauty focus on innovation and talent. Near-term opportunities include customer conversion and beauty integration. Long-term innovation pipeline is key. New customers excited about product and brand, not promotions. - Hillary Super(CEO)

Where have you seen the most progress with the brands and goals you started with? - Alexandra Ann Straton (Morgan Stanley, Research Division)

2025Q1: Beauty continues to grow, and VSX bras have seen strong performance. We are excited about the back half of the year with new product launches and innovations. - Hillary Super(CEO)