Victoria’s Secret & (US:VSCO)2023-08-31 16:00Financial Performance - In Q2 2023, Victoria's Secret reported an operating income of $26 million, down from $98 million in Q2 2022, with an operating income rate of 1.8% compared to 6.4% last year [111]. - Net sales decreased by $94 million, or 6%, to $1.427 billion in Q2 2023, down from $1.521 billion in Q2 2022, with comparable sales decreasing by 11% [111]. - Adjusted net income attributable to Victoria's Secret was $19 million in Q2 2023, compared to $92 million in Q2 2022 [116]. - Gross profit for Q2 2023 decreased by $48 million to $487 million, with a gross profit rate of 34.1%, down from 35.2% [131]. - Year-to-date 2023 operating income decreased by $138 million to $54 million, with an operating income rate of 1.9%, down from 6.4% [138]. - Total net sales year-to-date 2023 decreased by $171 million, or 6%, to $2.834 billion compared to $3.005 billion in 2022 [142]. Sales Channels - North American store sales fell by $151 million to $817 million, primarily due to decreased traffic, conversion rates, and average unit retail [111]. - Direct channel sales increased by 5%, or $20 million, to $434 million, driven by the inclusion of Adore Me sales starting in fiscal year 2023 [111]. - International sales increased by 26% to $176 million in Q2 2023, compared to $139 million in Q2 2022 [123]. - North America net sales in Q2 2023 decreased by $151 million, or 16%, to $817 million, driven by decreased traffic [128]. - Direct channel net sales increased by $20 million, or 5%, to $434 million, attributed to the inclusion of Adore Me sales [129]. - International channel net sales increased by $37 million, or 26%, to $176 million, due to increased traffic and positive customer acceptance [130]. Expenses and Charges - The acquisition of Adore Me has resulted in pre-tax charges of $18 million in Q2 2023, impacting gross profit and operating expenses [116]. - General, administrative, and store operating expenses increased by $24 million, or 5%, to $461 million, primarily due to Adore Me expenses [134]. - Interest expense for Q2 2023 increased by $11 million to $24 million, driven by higher outstanding debt and borrowing rates [136]. Store Operations - The company operates in nearly 70 countries, with a total of 1,350 stores as of July 29, 2023, after opening 28 and closing 36 stores year-to-date [119]. - The average sales per store decreased by 16% to $947, and sales per average selling square foot decreased by 15% to $138 in Q2 2023 compared to Q2 2022 [118]. Cash Flow and Debt - For the reporting period ended July 29, 2023, net cash used for operating activities was $19 million, an increase of $32 million compared to the same period in 2022 [160]. - Year-to-date 2023, net cash used for investing activities was $143 million, primarily related to capital expenditures [161]. - Year-to-date 2023, net cash used for financing activities was $133 million, consisting mainly of $125 million in share repurchases [164]. - As of July 29, 2023, total long-term debt was $1,270 million, compared to $977 million as of July 30, 2022 [175]. - The company repurchased 2.4 million shares for $125 million under the ASR Agreement in February 2023, with an average price of $34.22 per share [169]. - The principal value of outstanding debt as of July 29, 2023, was $993 million, with an estimated fair value of $838 million [192]. Strategic Focus - The company remains focused on its strategic growth plans, emphasizing strengthening its core, igniting growth, and transforming its foundation despite a challenging macro environment [112]. - The company estimates capital expenditures to be approximately $255 million for fiscal year 2023, focusing on store capital programs and technology investments [163]. Financial Facilities and Compliance - The availability under the ABL Facility as of July 29, 2023, was $254 million, limited by a borrowing base of $579 million [158]. - The ABL Facility has aggregate commitments of $750 million, with borrowings of $295 million outstanding as of July 29, 2023, and an interest rate of 6.98% [179]. - The company is in compliance with all covenants under its long-term debt and borrowing facilities as of July 29, 2023 [180]. - The company amended its Term Loan Facility and ABL Facility in May 2023 to transition from LIBOR to Term SOFR as the reference rate [177]. Currency Exposure - The company has operations in foreign countries, exposing it to foreign currency exchange rate fluctuations, particularly in Canadian dollars and Chinese Yuan [188].