Victoria’s Secret & (VSCO) - 2024 Q4 - Annual Report

Workforce and Diversity - As of February 3, 2024, Victoria's Secret & Co. employed approximately 30,000 associates, with about 73% working in stores and 12% in distribution centers[75]. - The company is committed to increasing diversity within its workforce and aims to retain associates from underrepresented groups[76]. - Victoria's Secret & Co. offers competitive compensation, including 14 weeks paid maternity leave and 6 weeks paid paternity leave, along with tuition reimbursement of up to $5,250 per calendar year[86]. - The company conducts an annual review of 100% of its workforce to ensure pay equity, making upward adjustments if disparities are found[89]. - Victoria's Secret & Co. emphasizes the importance of health and safety, striving to provide safe facilities and comply with workplace safety laws[90]. - The company has a strategic focus on diversity, equity, and inclusion (DEI), with measurable goals centered on People, Experience, and Purpose[72]. - The company aims to enhance associate engagement and well-being as key components of its culture and strategic priorities[81]. - Victoria's Secret & Co. is committed to ethical conduct, providing an Ethics Hotline for associates to report potential violations anonymously[84]. Financial Performance - Net sales for Victoria's Secret & Co. in 2023 were$ 6,182 million, a decrease of 2.5% from $6,344 million in 2022[367]. - Gross profit for 2023 was$ 2,242 million, slightly down from $2,258 million in 2022, resulting in a gross margin of approximately 36.2%[367]. - Operating income decreased significantly to$ 246 million in 2023 from $478 million in 2022, reflecting a decline of 48.6%[367]. - Net income attributable to Victoria's Secret & Co. was$ 109 million in 2023, down 68.7% from $348 million in 2022[367]. - The company reported a total inventory of$ 985 million as of February 3, 2024, which included finished goods valued at $929 million[361]. - Current assets decreased to$ 1,533 million in 2024 from $1,737 million in 2023, primarily due to a reduction in cash and cash equivalents[372]. - Total liabilities decreased to$ 4,162 million in 2024 from $4,310 million in 2023, indicating improved financial leverage[372]. - The company’s net income per diluted share decreased to$ 1.39 in 2023 from $4.14 in 2022, reflecting the overall decline in profitability[367]. - Total comprehensive income for 2023 was$ 113 million, down from $334 million in 2022, indicating a significant reduction in overall financial performance[370]. - Net income for 2023 was$ 116 million, a decrease of 65.6% compared to $338 million in 2022[377]. - Net cash provided by operating activities was$ 389 million in 2023, down from $437 million in 2022[377]. - Capital expenditures increased to$ 256 million in 2023 from $164 million in 2022[377]. - Advertising and marketing costs rose to$ 454 million in 2023, compared to $344 million in 2022, reflecting a 32% increase[397]. Strategic Initiatives and Acquisitions - The company is executing a long-term strategic plan aimed at accelerating core business performance and expanding its global footprint, though success is not guaranteed[108]. - The company acquired Adore Me in 2022 as part of its strategic plan, aiming to leverage its expertise and technology to enhance the customer shopping experience and modernize its digital platform[124]. - The company completed the acquisition of Adore Me on December 30, 2022, enhancing its digital presence in the intimates market[380]. - The success of the Adore Me acquisition will depend on the company's ability to integrate the business effectively and realize anticipated benefits and synergies, which may take longer than expected[125]. Risks and Challenges - Adverse economic conditions, including inflation and supply chain challenges, have negatively impacted consumer confidence and spending patterns, affecting the company's financial condition[103]. - The company faces risks related to its ability to attract and retain qualified associates, which is critical for maintaining customer satisfaction and operational efficiency[113]. - The company may not realize the anticipated benefits from the acquisition of Adore Me, which could impact its overall performance[1]. - The company's financial performance is sensitive to fluctuations in freight, product input, and energy costs, which have been exacerbated by inflation[1]. - The company is exposed to risks from cybersecurity breaches that could materially affect its reputation and financial results[103]. - The company must manage its internal controls effectively to ensure accurate financial reporting and prevent fraud, as failures could lead to significant negative consequences[111]. - The company faces risks associated with international expansion, including difficulties in attracting customers and competition with established local brands, which could impact profitability[118]. - Fluctuations in currency exchange rates pose a risk to the company's sales, profits, and financial condition, particularly as it operates in multiple currencies[119]. - The company may face increased competition in the retail industry, particularly in the intimates and apparel markets, which could lead to price reductions and loss of market share[135]. - The company relies on third-party transportation providers for product shipments, making it vulnerable to increases in shipping costs and disruptions in delivery services[138]. - The company may not fully realize the potential benefits of strategic investments or acquisitions, which could adversely affect its financial condition and results of operations[126]. - Maintaining a strong reputation is essential for the company's brand value, and any negative publicity could lead to reduced demand for its merchandise[128]. - The company relies heavily on production and distribution facilities in close proximity to its headquarters in central Ohio, making operations susceptible to local disruptions[139]. - Significant health hazards or pandemics could lead to factory closures, reduced workforces, and scarcity of raw materials, adversely affecting operations[139]. - Energy costs may rise due to geopolitical conflicts and sanctions, adversely affecting consumer spending and increasing operating costs[145]. - Climate change and related legal responses may disrupt supply chains and increase production costs, impacting consumer confidence and discretionary spending[146]. - The company is subject to various laws and regulations regarding data privacy and security, with potential non-compliance leading to significant fines and reputational damage[159]. - Cybersecurity incidents could lead to significant legal, regulatory, and financial liabilities, adversely affecting the company's reputation and operations[155]. - The company may face increased compliance costs and operational changes due to evolving data privacy regulations, impacting business practices[163]. - The reliance on third-party vendors for product manufacturing and delivery poses risks related to quality and compliance with laws, potentially disrupting sales[140]. - The company has experienced inventory shrinkage due to theft, which could adversely affect financial performance if not effectively managed[149]. Debt and Financial Obligations - The company has entered into a$ 400 million term loan facility and a $750 million senior secured asset-based revolving credit facility, along with issuing$ 600 million of senior notes, to facilitate a cash payment of approximately $976 million to its Former Parent[170]. - The company has outstanding long-term debt of$ 391 million under the Term Loan Facility and $145 million under the ABL Facility, both with variable interest rates based on Term SOFR[332]. - As of February 3, 2024, the principal value of the company's outstanding debt is$ 991 million, with an estimated fair value of $897 million[333]. - The company’s ability to maintain its credit rating is crucial for accessing capital and managing interest expenses[102]. - The company’s common stock is subordinate to all current and future indebtedness, which may affect the residual value for common stockholders[182]. - The anticipated benefits from the Separation may not be fully realized, potentially harming the company's business and strategic focus[183]. - The company believes that the carrying values of accounts receivable, accounts payable, and accrued expenses approximate fair value due to their short maturity[334]. Operational Structure and Changes - The company operates approximately 910 stores in the U.S., Canada, and China, along with over 460 franchise stores in nearly 70 countries[379]. - The company implemented a new corporate leadership structure in July 2022, resulting in the elimination of approximately 160 management roles, or about 5% of the home office headcount[380]. - The company’s restructuring actions in 2023 aimed to improve organizational efficiency and align with shifting consumer trends[380]. - The Company leases retail space, office space, and warehouse facilities primarily under operating leases with an initial term of 10 years[400]. - Annual store rent includes a fixed minimum amount and/or variable rent based on a percentage of sales exceeding a stipulated amount[400]. - Operating lease costs are recognized on a straight-line basis over the lease term, while variable lease payments are recognized upon occurrence of the event[401]. - For leases reassessed after ASC 842 adoption, the Company accounts for all fixed consideration in a lease as a single lease component[402]. - The Company uses its incremental borrowing rate, adjusted for collateral, to determine the present value of unpaid lease payments[403]. - Store leases often include options to extend or terminate the lease, which are included in determining the initial lease term if the Company is reasonably certain to exercise them[404].