Victoria's Secret & Co.
09/04/2026 | Press release | Distributed by Public on 09/04/2026 05:20
Quarterly Report for Quarter Ending August 1, 2026 (Form 10-Q)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with GAAP. The following information should be read in conjunction with our financial statements and the related notes included in Item 1. Financial Statements. References to "we," "us," "our," or the "Company" mean Victoria's Secret & Co. together with its subsidiaries.
Our operating results are generally impacted by economic changes. Accordingly, we monitor the retail environment using certain key industry performance indicators including competitor performance and mall traffic data. These metrics can provide insight into consumer spending patterns and shopping behavior in the current retail environment and assist us in assessing our performance as well as the potential impact of industry trends on our future operating results. Additionally, we evaluate a number of key performance indicators including comparable sales, gross profit, operating income and other performance metrics such as sales per average selling square foot in assessing our performance. To evaluate our net sales, we utilize traffic, conversion (which we define as the percentage of customers who visit our stores or digital sites and make a purchase), units per transaction, average unit retail (which we define as the average price per unit purchased) and average transaction value (which we define as units per transaction multiplied by average unit retail).
Executive Overview
Victoria's Secret & Co. operates two market-leading intimate apparel brands, Victoria's Secret and PINK, complemented by an industry-leading beauty business, and Adore Me:
•Victoria's Secret - A sexy, glamorous and luxurious brand and global leader in women's intimate apparel, renowned for its innovative, fashion-inspired collections for women around the world.
•PINK - A playful, bold and irreverent lifestyle intimates and apparel brand for young women.
•Adore Me - A direct-to-consumer lingerie and apparel brand focused on serving women across all budgets and phases of life. DailyLook, acquired through the Adore Me transaction, operates as a digitally-based, premium subscription styling service for women's apparel and accessories.
Our merchandise is available in our company-operated retail stores across the U.S., Canada and China, through our company-owned digital channels, and internationally through stores, websites and mobile applications operated by our partners. With a presence in approximately 70 countries, we benefit from strong global brand recognition, a compelling product assortment and a deep, lasting connection with our customers.
We are dedicated to continuous growth and operational excellence, focusing on execution of our strategic plan to drive long-term, sustainable value for our stockholders.
Net sales in the second quarter of 2026 increased 10%, to $1.611 billion, compared to the second quarter of 2025. In North America, net sales increased 9% in the stores channel and increased 8% in the direct channel compared to the second quarter of 2025. Traffic and average unit retail increased in our stores and direct channels compared to the second quarter of 2025. Additionally, we estimate the website closure due to the security incident involving our information technology systems in May 2025 negatively impacted net sales in the second quarter of 2025 by approximately $20 million. Net sales in our international channel increased 20% compared to the second quarter of 2025.
Our operating income in the second quarter of 2026 increased $216 million, to $257 million, compared to the second quarter of 2025 and our operating income rate (expressed as a percentage of net sales) increased to 15.9% from 2.8% in the second quarter of 2025. The increase in operating income compared to the second quarter of 2025 was primarily driven by an increase in net sales, a $135 million benefit from the recognition of IEEPA tariff refund recoveries in costs of goods sold and improved merchandise margins.
We continue to focus on the key priorities of our Path to Potential growth plan: Supercharge our Bra Authority; Recommit to PINK; Fuel Growth in Beauty; and Evolve Our Brand Projection and Go-To-Market Strategy. We remain focused on managing costs, while continuing to invest in product innovation, brand strength and the customer experience. Together with the solid operational foundation we have built, we believe these efforts position us to scale effectively and give us confidence in our ability to drive sustainable long-term value for our stockholders.
For additional information related to our second quarter of 2026 financial performance, see "Results of Operations."
Tariffs and Macro Environment
Beginning in February 2025, the U.S. administration imposed tariffs on a broad range of imported goods under the IEEPA. On February 20, 2026, the U.S. Supreme Court ruled tariffs imposed under the IEEPA were not authorized, and on March 4, 2026, the U.S. Court of International Trade directed CBP to refund amounts previously collected, including applicable interest. The CBP established a phased administrative process for submitting refund claims for certain IEEPA tariffs.
During the second quarter of 2026, we received cash of $148 million for IEEPA tariff refund recoveries, which included $4 million of interest. We recorded $140 million of pre-tax income in the 2026 Consolidated Statements of Income, which included $135 million as a reduction of costs of goods sold, net of related costs and other items, $4 million of interest income in Other Income and $1 million as a reduction to General, Administrative and Store Operating Expenses. We also recorded $1 million as a reduction to Property and Equipment, Net in the August 1, 2026 Consolidated Balance Sheet.
As of August 1, 2026, we did not record a receivable related to any potential future IEEPA tariff refunds as the amount and timing of any future recoveries remains uncertain. The IEEPA tariff refunds received in the second quarter of 2026 represents over 95% of total IEEPA tariffs paid by us.
Following the Supreme Court's decision relating to the IEEPA tariffs, the U.S. administration announced a new 10% global tariff under Section 122 of the Trade Act of 1974, subject to certain exceptions, which commenced on February 24, 2026 and expired on July 24, 2026. In July 2026, the U.S. administration imposed new tariffs ranging from 10% to 12.5% under Section 301 of the Trade Act of 1974, effective July 24, 2026. It is unclear at this time what impact tariffs will have on our future results of operations, including any changes in tariff levels or the imposition of new tariffs or other trade policies. We continue to identify and execute mitigation strategies as the tariff environment evolves.
Security Incident Involving Information Technology Systems
As previously disclosed, we estimate the May 2025 security incident involving our information technology systems negatively impacted net sales in the second quarter of 2025 by approximately $20 million and operating income by approximately $14 million, which does not consider the impact of any potential insurance recoveries in future periods. We maintain cybersecurity insurance and the claim process for potential insurance recoveries related to this incident is ongoing.
Non-GAAP Financial Information
In addition to our results provided in accordance with GAAP above and throughout this Quarterly Report on Form 10-Q, provided below are non-GAAP financial measures that present operating income, net income attributable to Victoria's Secret & Co. and net income per diluted share attributable to Victoria's Secret & Co. on an adjusted basis, which remove certain non-recurring, infrequent or unusual items that we believe are not indicative of the results of our ongoing operations due to their size and nature. The intangible asset amortization excluded in the second quarter and year-to-date 2025 from these non-GAAP financial measures is excluded because the amortization, unlike the related revenue, is not affected by operations of any particular period unless an intangible asset becomes impaired or the estimated useful life of an intangible asset is revised. We use adjusted financial information as key performance measures of our results of operations for the purpose of evaluating performance internally. These non-GAAP measurements are not intended to replace the presentation of our financial results in accordance with GAAP. Instead, we believe that the presentation of adjusted financial information provides additional information to investors to facilitate the comparison of past and present operations. Further, our definition of non-GAAP financial measures may differ from similarly titled measures used by other companies. The table below reconciles the most directly comparable GAAP financial measure to each non-GAAP financial measure.
| Second Quarter | Year-to-Date | ||||||||||||||||||||||
| (in millions, except per share amounts) | 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||
| Reconciliation of Reported to Adjusted Operating Income | |||||||||||||||||||||||
| Reported Operating Income - GAAP | $ | 257 | $ | 41 | $ | 333 | $ | 61 | |||||||||||||||
| Tariff Refund Recoveries, Net of Related Costs and Other Items (a) | (136) | - | (136) | - | |||||||||||||||||||
| Organizational Restructuring and Other One-time Items (b) | 3 | 8 | 7 | 13 | |||||||||||||||||||
| Amortization of Intangible Assets (c) | - | 6 | - | 13 | |||||||||||||||||||
| Adjusted Operating Income | $ | 124 | $ | 55 | $ | 204 | $ | 87 | |||||||||||||||
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Reconciliation of Reported to Adjusted Net Income Attributable to Victoria's Secret & Co.
|
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Reported Net Income Attributable to Victoria's Secret & Co. - GAAP
|
$ | 183 | $ | 16 | $ | 231 | $ | 14 | |||||||||||||||
| Tariff Refund Recoveries, Net of Related Costs and Other Items (a) | (140) | - | (140) | - | |||||||||||||||||||
| Organizational Restructuring and Other One-time Items (b) | 3 | 8 | 7 | 13 | |||||||||||||||||||
| Amortization of Intangible Assets (c) | - | 6 | - | 13 | |||||||||||||||||||
| Tax Effect of Adjusted Items | 34 | (3) | 33 | (7) | |||||||||||||||||||
|
Adjusted Net Income Attributable to Victoria's Secret & Co.
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$ | 80 | $ | 27 | $ | 131 | $ | 34 | |||||||||||||||
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Reconciliation of Reported to Adjusted Net Income Per Diluted Share Attributable to Victoria's Secret & Co.
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Reported Net Income Per Diluted Share Attributable to Victoria's Secret & Co. - GAAP
|
$ | 2.18 | $ | 0.20 | $ | 2.73 | $ | 0.18 | |||||||||||||||
| Tariff Refund Recoveries, Net of Related Costs and Other Items (a) | (1.25) | - | (1.25) | - | |||||||||||||||||||
| Organizational Restructuring and Other One-time Items (b) | 0.03 | 0.07 | 0.06 | 0.12 | |||||||||||||||||||
| Amortization of Intangible Assets (c) | - | 0.06 | - | 0.11 | |||||||||||||||||||
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Adjusted Net Income Per Diluted Share Attributable to Victoria's Secret & Co.
|
$ | 0.95 | $ | 0.33 | $ | 1.55 | $ | 0.42 | |||||||||||||||
________________
(a)In the second quarter of 2026, we recognized pre-tax income of $140 million ($105 million after-tax), $135 million included in costs of goods sold, $4 million included in other income and $1 million included in general, administrative and store operating expense, related to IEEPA tariff refund recoveries, including interest received, net of related costs and other items.
(b)In the second quarter of 2026 and 2025, we recognized pre-tax net expense of $3 million and $8 million ($2 million and $6 million after-tax, respectively), $2 million and $8 million included in general, administrative and store operating expense and $1 million and less than $1 million included in costs of goods sold, buying and occupancy expense, related to activities to continue to restructure our executive leadership team and organizational structure, as well as other one-time items. Year-to-date 2026 and 2025, we recognized pre-tax net expense of $7 million and $13 million ($5 million and $10 million after-tax, respectively), $4 million and $11 million included in general, administrative and store operating expense and $3 million and $2 million included in costs of goods sold, buying and occupancy expense, related to activities to continue to restructure our executive leadership team and organizational structure, as well as other one-time items.
(c)In the second quarter and year-to-date 2025, we recognized amortization expense of $6 million and $13 million ($5 million and $9 million after-tax, respectively) included in general, administrative and store operating expense, related to our definite-lived intangible assets.
Store Data
The following table compares U.S. company-operated store data for the second quarter of 2026 to the second quarter of 2025 and year-to-date 2026 to year-to-date 2025:
| Second Quarter | Year-to-Date | ||||||||||||||||||||||||||||||||||
| 2026 | 2025 | % Change | 2026 | 2025 | % Change | ||||||||||||||||||||||||||||||
| Sales per Average Selling Square Foot (a) | $ | 160 | $ | 145 | 10 | % | $ | 303 | $ | 273 | 11 | % | |||||||||||||||||||||||
| Sales per Average Store (in thousands) (a) | $ | 1,104 | $ | 1,004 | 10 | % | $ | 2,098 | $ | 1,883 | 11 | % | |||||||||||||||||||||||
| Average Store Size (selling square feet) | 6,930 | 6,907 | - | % | |||||||||||||||||||||||||||||||
| Total Selling Square Feet (in thousands) | 5,302 | 5,305 | - | % | |||||||||||||||||||||||||||||||
________________
(a)Sales per average selling square foot and sales per average store, which are indicators of store productivity, are calculated based on store sales for the period divided by the average, including the beginning and end of period, of total square footage and store count, respectively.
The following table represents store data for year-to-date 2026:
| Stores at | Stores at | ||||||||||||||||||||||
| January 31, 2026 | Opened | Closed | August 1, 2026 | ||||||||||||||||||||
| Company-Operated: | |||||||||||||||||||||||
| U.S. | 766 | 9 | (13) | 762 | |||||||||||||||||||
| Canada | 24 | 2 | - | 26 | |||||||||||||||||||
| Subtotal Company-Operated | 790 | 11 | (13) | 788 | |||||||||||||||||||
| China Joint Venture: | |||||||||||||||||||||||
| Beauty & Accessories (a) | 20 | - | (6) | 14 | |||||||||||||||||||
| Full Assortment | 45 | 6 | (4) | 47 | |||||||||||||||||||
| Subtotal China Joint Venture | 65 | 6 | (10) | 61 | |||||||||||||||||||
| Partner-Operated: | |||||||||||||||||||||||
| Beauty & Accessories | 350 | 13 | (13) | 350 | |||||||||||||||||||
| Full Assortment | 212 | 18 | (2) | 228 | |||||||||||||||||||
| Subtotal Partner-Operated | 562 | 31 | (15) | 578 | |||||||||||||||||||
| Adore Me | 3 | - | - | 3 | |||||||||||||||||||
| Total | 1,420 | 48 | (38) | 1,430 | |||||||||||||||||||
________________
(a)Includes three partner-operated stores as of August 1, 2026.
The following table represents store data for year-to-date 2025:
| Stores at | Stores at | ||||||||||||||||||||||
| February 1, 2025 | Opened | Closed | August 2, 2025 | ||||||||||||||||||||
| Company-Operated: | |||||||||||||||||||||||
| U.S. | 782 | 5 | (24) | 763 | |||||||||||||||||||
| Canada | 24 | 1 | (1) | 24 | |||||||||||||||||||
| Subtotal Company-Operated | 806 | 6 | (25) | 787 | |||||||||||||||||||
| China Joint Venture: | |||||||||||||||||||||||
| Beauty & Accessories (a) | 30 | - | (7) | 23 | |||||||||||||||||||
| Full Assortment | 40 | - | - | 40 | |||||||||||||||||||
| Subtotal China Joint Venture | 70 | - | (7) | 63 | |||||||||||||||||||
| Partner-Operated: | |||||||||||||||||||||||
| Beauty & Accessories | 324 | 16 | (15) | 325 | |||||||||||||||||||
| Full Assortment | 181 | 19 | (4) | 196 | |||||||||||||||||||
| Subtotal Partner-Operated | 505 | 35 | (19) | 521 | |||||||||||||||||||
| Adore Me | 6 | - | (1) | 5 | |||||||||||||||||||
| Total | 1,387 | 41 | (52) | 1,376 | |||||||||||||||||||
________________
(a)Includes nine partner-operated stores as of August 2, 2025.
Results of Operations
Second Quarter of 2026 Compared to Second Quarter of 2025
Operating Income
For the second quarter of 2026, our operating income increased $216 million, to $257 million, compared to operating income of $41 million in the second quarter of 2025, and the operating income rate (expressed as a percentage of net sales) increased to 15.9% from 2.8%. The drivers of our operating income results are discussed in the following sections.
Net Sales
The following table provides net sales for the second quarter of 2026 in comparison to the second quarter of 2025:
| 2026 | 2025 | % Change | |||||||||||||||
| Second Quarter | (in millions) | ||||||||||||||||
|
Stores - North America
|
$ | 898 | $ | 825 | 9 | % | |||||||||||
| Direct | 439 | 406 | 8 | % | |||||||||||||
| International (a) | 274 | 228 | 20 | % | |||||||||||||
| Total Net Sales | $ | 1,611 | $ | 1,459 | 10 | % | |||||||||||
_______________
(a)Results include consolidated China Joint Venture sales, royalties associated with franchise partners' sales, wholesale sales, and beginning in the third quarter of 2025 direct sales in the European Union. Prior to the third quarter of 2025, direct sales in the European Union are reported in our Direct channel. Direct sales in the European Union reported in the International channel were $22 million in the second quarter of 2026.
The following table compares the second quarter of 2026 comparable sales to the second quarter of 2025:
| 2026 | 2025 | ||||||||||
| Comparable Sales (Stores and Direct) (a) | 9 | % | 4 | % | |||||||
| Comparable Store Sales (a) | 7 | % | 4 | % | |||||||
_______________
(a)Comparable sales results for the second quarter of 2026 and 2025 exclude the impact from lost sales from our direct channels during the period of time the direct channels were closed as a result of the May 2025 security incident involving our information technology systems. The percentage change in comparable sales represents comparable store and direct sales. The percentage change in comparable store sales represents the change in sales at comparable stores only and excludes the change in sales from our direct channels. The change in comparable sales provides an indication of period over period growth (decline). A store is typically included in the calculation of comparable sales when it has been open 12 months or more and it has not had a change in selling square footage of 20% or more. Individual stores are excluded from the comparable sales calculation if they have been closed for four consecutive days or more and direct channels are excluded from the comparable sales calculation if they have been closed for 24 consecutive hours or more. Upon re-opening, the stores and direct channels are included in the calculation. Additionally, stores are excluded if total selling square footage in the mall changes by 20% or more through the opening or closing of a second store. The percentage change in comparable sales is calculated on a comparable calendar period as opposed to a fiscal basis. Comparable sales attributable to our international stores are calculated on a constant currency basis.
Net sales in the second quarter of 2026 increased $152 million, or 10%, to $1.611 billion compared to $1.459 billion in the second quarter of 2025.
In the stores channel, our North America net sales increased $73 million, or 9%, to $898 million compared to the second quarter of 2025 as increases in average unit retail and traffic were partially offset by a decrease in units per transaction. Conversion was approximately flat compared to the second quarter of 2025.
In the direct channel, net sales increased $33 million, or 8%, to $439 million compared to the second quarter of 2025 as increases in traffic and average unit retail were partially offset by decreases in conversion and units per order. Additionally, we estimate the website closure due to the May 2025 security incident negatively impacted net sales in the second quarter of 2025 by approximately $20 million.
In the international channel, net sales increased $46 million, or 20%, to $274 million compared to the second quarter of 2025. The increase in net sales in the second quarter of 2026 compared to the second quarter of 2025 was primarily driven by increases in net sales in China and royalties earned associated with franchise sales in many countries outside of North America, partially offset by a decrease in sourcing sales to our partners.
Net sales in the direct and international channels in the second quarter of 2026 compared to the second quarter of 2025 were also impacted by a $22 million shift in the reporting of net sales to the international channel due to a change of fulfillment location whereby direct sales to customers in the European Union are now fulfilled by our distribution center in Europe as opposed to our distribution center in the Columbus, Ohio area.
The following table provides a reconciliation of net sales from the second quarter of 2025 to the second quarter of 2026:
| (in millions) | |||||
| 2025 Net Sales | $ | 1,459 | |||
| Sales Associated with Stores Included in the Comparable Stores Calculation | 54 | ||||
| Sales Associated with New, Closed and Non-comparable Remodeled Stores, Net | 24 | ||||
| Direct Channels (a) | 75 | ||||
| Credit Card Programs | 4 | ||||
| International Wholesale, Royalty and Sourcing | (9) | ||||
| Foreign Currency Translation | 4 | ||||
| 2026 Net Sales | $ | 1,611 | |||
_______________
(a)Results include net sales for all direct channels operated by the Company (in North America and International) and the direct sales in China operated by our consolidated China Joint Venture.
Gross Profit
For the second quarter of 2026, our gross profit increased $240 million compared to the second quarter of 2025 to $759 million, and our gross profit rate (expressed as a percentage of net sales) increased to 47.1% from 35.6%.
The increase in gross profit dollars compared to the second quarter of 2025 was due to the increase in merchandise margin dollars which was driven by an increase in net sales, a $135 million benefit from the recognition of IEEPA tariff refund recoveries, an increase in regular-priced selling and a decrease in promotional activity. The increase in gross profit dollars was also partially offset by an increase in buying and occupancy expenses primarily driven by an increase in fulfillment costs associated with our net sales increase.
The gross profit rate increase compared to the second quarter of 2025 was primarily driven by IEEPA tariff refund recoveries, leverage in buying and occupancy expenses as a result of the increase in net sales, an increase in regular-priced selling and a decrease in promotional activity.
General, Administrative and Store Operating Expenses
For the second quarter of 2026, our general, administrative and store operating expenses increased $24 million, or 5%, to $502 million compared to the second quarter of 2025. The increase in general, administrative and store operating expenses compared to the second quarter of 2025 was primarily due to increases in store selling and marketing expenses.
The general, administrative and store operating expense rate (expressed as a percentage of net sales) decreased to 31.2% from 32.8% compared to the second quarter of 2025 primarily due to leverage as a result of the increase in net sales.
Interest Expense
For the second quarter of 2026, our interest expense decreased $3 million to $15 million compared to the second quarter of 2025 primarily due to our lower average outstanding debt under our ABL Facility and Term Loan Facility and a lower average borrowing rate for our Term Loan Facility.
Provision for Income Taxes
For the second quarter of 2026, our effective tax rate was 24.1% compared to 25.7% in the second quarter of 2025. The second quarter of 2026 rate differed from our combined estimated federal and state statutory rate primarily due to the recognition of excess tax benefits related to share-based compensation awards that vested in the period. The second quarter of 2025 rate was consistent with our combined estimated federal and state statutory rate.
Results of Operations
Year-to-Date 2026 Compared to Year-to-Date 2025
Operating Income
For year-to-date 2026, operating income increased $272 million, to $333 million, compared to operating income of $61 million year-to-date 2025, and the operating income rate (expressed as a percentage of net sales) increased to 10.5% from 2.2%. The drivers of the operating income results are discussed in the following sections.
Net Sales
The following table provides net sales for year-to-date 2026 in comparison to year-to-date 2025:
| 2026 | 2025 | % Change | |||||||||||||||
| Year-to-Date | (in millions) | ||||||||||||||||
|
Stores - North America
|
$ | 1,700 | $ | 1,546 | 10 | % | |||||||||||
| Direct | 909 | 840 | 8 | % | |||||||||||||
| International (a) | 561 | 426 | 32 | % | |||||||||||||
| Total Net Sales | $ | 3,170 | $ | 2,812 | 13 | % | |||||||||||
_______________
(a)Results include consolidated China Joint Venture sales, royalties associated with franchise partners' sales, wholesale sales, and beginning in the third quarter of 2025 direct sales in the European Union. Prior to the third quarter of 2025, direct sales in the European Union are reported in our Direct channel. Direct sales in the European Union reported in the International channel were $39 million year-to-date 2026.
The following table compares year-to-date 2026 comparable sales to year-to-date 2025:
| 2026 | 2025 | ||||||||||
| Comparable Sales (Stores and Direct) (a) | 11 | % | 1 | % | |||||||
| Comparable Store Sales (a) | 9 | % | 2 | % | |||||||
________
(a)Comparable sales results for year-to-date 2026 and 2025 exclude the impact from lost sales from our direct channels during the period of time the direct channels were closed as a result of the May 2025 security incident involving our information technology systems. The percentage change in comparable sales represents direct and comparable store sales. The percentage change in comparable store sales represents the change in sales at comparable stores only and excludes the change in sales from our direct channels. The change in comparable sales provides an indication of period over period growth (decline). A store is typically included in the calculation of comparable sales when it has been open 12 months or more and it has not had a change in selling square footage of 20% or more. Individual stores are excluded from the comparable sales calculation if they have been closed for four consecutive days or more and direct channels are excluded from the comparable sales calculation if they have been closed for 24 consecutive hours or more. Upon re-opening, the stores and direct channels are included in the calculation. Additionally, stores are excluded if total selling square footage in the mall changes by 20% or more through the opening or closing of a second store. The percentage change in comparable sales is calculated on a comparable calendar period as opposed to a fiscal basis. Comparable sales attributable to our international stores are calculated on a constant currency basis.
Net sales year-to-date 2026 increased $358 million, or 13%, to $3.170 billion compared to $2.812 billion year-to-date 2025.
In the stores channel, our North America net sales increased $154 million, or 10%, to $1.700 billion, compared to year-to-date 2025 as increases in average unit retail and traffic were partially offset by a decrease in units per transaction. Conversion was flat compared to year-to-date 2025.
In the direct channel, net sales increased $69 million, or 8%, to $909 million compared to year-to-date 2025 as increases in traffic and average unit retail were partially offset by decreases in conversion and units per order. Additionally, we estimate the website closure due to the May 2025 security incident negatively impacted net sales year-to-date 2025 by approximately $20 million.
In the international channel, net sales increased $135 million, or 32%, to $561 million compared to year-to-date 2025. The increase in net sales year-to-date 2026 compared to year-to-date 2025 was primarily driven by increases in net sales in China, sourcing sales to our partners and royalties earned associated with franchise sales in many countries outside of North America.
Net sales in the direct and international channels year-to-date 2026 compared to year-to-date 2025 were also impacted by a $39 million shift in the reporting of net sales to the international channel due to a change of fulfillment location whereby direct sales to customers in the European Union are now fulfilled by our distribution center in Europe as opposed to our distribution center in the Columbus, Ohio area.
The following table provides a reconciliation of net sales from year-to-date 2025 to year-to-date 2026:
| (in millions) | |||||
| 2025 Net Sales | $ | 2,812 | |||
| Sales Associated with Stores Included in the Comparable Stores Calculation | 120 | ||||
| Sales Associated with New, Closed and Non-comparable Remodeled Stores, Net | 42 | ||||
| Direct Channels (a) | 159 | ||||
| Credit Card Programs | 9 | ||||
| International Wholesale, Royalty and Sourcing | 17 | ||||
| Foreign Currency Translation | 11 | ||||
| 2026 Net Sales | $ | 3,170 | |||
_______________
(a)Results include net sales for all direct channels operated by the Company (in North America and International) and the direct channel in China operated by our consolidated China Joint Venture.
Gross Profit
For year-to-date 2026, our gross profit increased $351 million compared to year-to-date 2025 to $1.344 billion, and our gross profit rate (expressed as a percentage of net sales) increased to 42.4% from 35.3%.
The increase in gross profit dollars compared to year-to-date 2025 was primarily due to the increase in merchandise margin dollars which was driven by an increase in net sales, a $135 million benefit from the recognition of IEEPA tariff refund recoveries, an increase in regular-priced selling and a decrease in promotional activity. The increase in gross profit dollars was also partially offset by an increase in buying and occupancy expenses primarily driven by increases in fulfillment costs associated with our net sales increase and incentive compensation expenses associated with our improved results.
The gross profit rate increase compared to year-to-date 2025 was primarily driven by IEEPA tariff refund recoveries, leverage in buying and occupancy expenses as a result of the increase in net sales, an increase in regular-priced selling and a decrease in promotional activity.
General, Administrative and Store Operating Expenses
For year-to-date 2026, our general, administrative and store operating expenses increased $79 million, or 8%, to $1.011 billion compared to year-to-date 2025. The increase in general, administrative and store operating expenses compared to year-to-date 2025 was primarily due to increases in store selling and marketing expenses and an increase in incentive compensation expenses associated with our improved results.
The general, administrative and store operating expense rate (expressed as a percentage of net sales) decreased to 31.9% from 33.2% compared to year-to-date 2025 primarily due to leverage as a result of the increase in net sales.
Interest Expense
For year-to-date 2026, our interest expense decreased $5 million to $30 million compared to year-to-date 2025 primarily due to our lower average outstanding debt under our ABL Facility and Term Loan Facility and a lower average borrowing rate for our Term Loan Facility.
Provision for Income Taxes
For year-to-date 2026, our effective tax rate was 21.5% compared to 30.5% year-to-date 2025. The year-to-date 2026 rate differed from our combined estimated federal and state statutory rate primarily due to the recognition of excess tax benefits related to share-based compensation awards that vested in the period. The year-to-date 2025 rate differed from our combined estimated federal and state statutory rate primarily due to additional tax expense related to share-based compensation awards that vested in the period.
FINANCIAL CONDITION
Liquidity and Capital Resources
Liquidity, or access to cash, is an important factor in determining our financial stability. We are committed to maintaining adequate liquidity. Cash generated from our operating activities provides the primary resources to support current operations, growth initiatives, seasonal funding requirements and capital expenditures. Net cash provided by operating activities is impacted by our net income and working capital changes. Our net income is impacted by, among other things, sales volume, seasonal sales patterns, success of new product introductions, profit margins and income taxes. Historically, sales are higher during the fourth quarter of the fiscal year due to seasonal and holiday-related sales patterns. Generally, our need for working capital peaks during the summer and fall months as inventory builds in anticipation of the holiday season.
Our ability to fund our operating needs is primarily dependent upon our ability to continue to generate positive cash flow from operations, as well as borrowing capacity under our ABL Facility, which we rely on to supplement cash generated by our operating activities, particularly when our need for working capital peaks in the summer and fall months as discussed above. Management believes that our cash balances and funds provided by operating activities, along with the borrowing capacity under our ABL Facility, taken as a whole, provide (i) adequate liquidity to meet all of our current and long-term obligations when due, (ii) adequate liquidity to fund capital expenditures, and (iii) flexibility to consider investment opportunities that may arise. However, certain investment opportunities or seasonal funding requirements may require us to seek additional debt or equity financing, and there can be no assurance that we will be able to obtain additional debt or equity financing on acceptable terms, if at all, in the future.
We expect to utilize our cash flows to continue to invest in our brands, talent, capabilities and growth strategies as well as to repay our indebtedness over time. We believe that our available short-term and long-term capital resources are sufficient to fund our working capital and other cash flow requirements over the next 12 months.
Working Capital and Capitalization
Based upon our cash balances and cash provided by our operating activities, along with the borrowing capacity under our ABL Facility, we believe we will be able to continue to meet our working capital needs.
The following table provides a summary of our working capital position and capitalization as of August 1, 2026, January 31, 2026 and August 2, 2025:
|
August 1, 2026 |
January 31, 2026 |
August 2, 2025 |
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| (in millions) | |||||||||||||||||
| Net Cash Provided by Operating Activities (a) | $ | 265 | $ | 499 | $ | 6 | |||||||||||
| Capital Expenditures (a) | 128 | 187 | 111 | ||||||||||||||
| Working Capital | 519 | 376 | 194 | ||||||||||||||
| Capitalization: | |||||||||||||||||
| Long-term Debt | 971 | 971 | 1,048 | ||||||||||||||
| Victoria's Secret & Co. Shareholders' Equity | 990 | 856 | 680 | ||||||||||||||
| Total Capitalization | $ | 1,961 | $ | 1,827 | $ | 1,728 | |||||||||||
| Amounts Available Under the ABL Facility (b) | $ | 649 | $ | 589 | $ | 524 | |||||||||||
(a)The August 1, 2026 and August 2, 2025 amounts represent twenty-six-week periods and the January 31, 2026 amounts represent a fifty-two-week period.
(b)For the reporting period ended August 1, 2026, the availability under the ABL Facility was limited by our borrowing base of $666 million, less letters of credit of $17 million. For the reporting period ended January 31, 2026, the availability was limited by our borrowing base of $606 million, less letters of credit of $17 million. For the reporting period ended August 2, 2025, the availability under the ABL Facility was limited by our borrowing base of $616 million, less outstanding borrowings of $75 million and letters of credit of $17 million.
Cash Flow
The following table provides a summary of our cash flow activity for year-to-date 2026 and 2025:
| Year-to-Date | |||||||||||
| 2026 | 2025 | ||||||||||
| (in millions) | |||||||||||
| Cash and Cash Equivalents, Beginning of Period | $ | 518 | $ | 227 | |||||||
| Net Cash Provided by Operating Activities | 265 | 6 | |||||||||
| Net Cash Used for Investing Activities | (128) | (111) | |||||||||
| Net Cash Provided by (Used for) Financing Activities | (136) | 67 | |||||||||
| Effects of Exchange Rate Changes on Cash and Cash Equivalents | 3 | (1) | |||||||||
| Net Increase (Decrease) in Cash and Cash Equivalents | 4 | (39) | |||||||||
| Cash and Cash Equivalents, End of Period | $ | 522 | $ | 188 | |||||||
Operating Activities
Net cash provided by operating activities reflects net income adjusted for non-cash items, including depreciation and amortization, share-based compensation expense and deferred tax expense, as well as changes in working capital. Net cash provided by operating activities year-to-date 2026 was $265 million, an increase in net cash flows provided by operating activities of $259 million compared to year-to-date 2025. The increase in net cash flows provided by operating activities year-to-date 2026 was primarily driven by an increase in net income of $224 million, net of the non-cash items noted above, and lower net operating cash outflows associated with working capital changes of $45 million. The most significant driver resulting in the increase in net cash flows provided by operating activities year-to-date 2026 was the $148 million of IEEPA tariff refund recoveries, which included $4 million of interest received, in year-to-date 2026. The most significant working capital driver resulting in the increase in net operating cash flows year-to-date 2026 compared to year-to-date 2025 was related to the timing of payments for the increase in inventory levels. The increase in inventory levels was primarily related to supporting our net sales growth.
Investing Activities
Net cash used for investing activities was $128 million and $111 million for year-to-date 2026 and 2025, respectively, consisting solely of capital expenditures for both periods. The capital expenditures were primarily related to our store capital program and improving the customer experience, along with investments in technology and logistics to support our strategic initiatives to drive growth and operating efficiencies.
We estimate capital expenditures in the range of $220 million to $240 million in fiscal year 2026. We expect that our capital expenditures will be focused on investing in our store capital program and improving the customer experience, along with investments in technology and logistics to support our strategic initiatives to drive growth and operating efficiencies.
Financing Activities
Net cash used for financing activities year-to-date 2026 was $136 million, consisting primarily of $100 million of share repurchases, $55 million of repayments under the ABL Facility and $30 million of payments for taxes on share-based compensation awards issued, partially offset by borrowings of $55 million under the ABL Facility.
Net cash provided by financing activities year-to-date 2025 was $67 million, consisting primarily of borrowings of $245 million under the ABL Facility, partially offset by $170 million of repayments under the ABL Facility.
Common Stock Share Repurchases
Our Board determines share repurchase authorizations, giving consideration to our levels of profit and cash flows, capital requirements, current and forecasted liquidity, and restrictions placed upon us by our borrowing arrangements, as well as financial and other conditions existing at the time. We use cash flows generated from operating activities to fund our share repurchases. Once authorized by our Board, the timing and amount of any share repurchases are made at our discretion, taking into account a number of factors, including market conditions.
In March 2024, our Board approved the March 2024 Share Repurchase Program, authorizing the repurchase of up to $250 million of our common stock, subject to market conditions and other factors, through open market, accelerated share repurchase or privately negotiated transactions, including pursuant to one or more Rule 10b5-1 trading plans. The March 2024 Share Repurchase Program is open-ended in term and will continue until exhausted.
We repurchased the following shares of our common stock under the March 2024 Share Repurchase Program during year-to-date 2026:
| Amount Authorized | Shares Repurchased | Amount Repurchased | Average Stock Price | ||||||||||||||||||||
| (in millions) | (in thousands) | (in millions) | |||||||||||||||||||||
| March 2024 Share Repurchase Program | $ | 250 | 2,208 | $ | 100 | $ | 45.27 | ||||||||||||||||
Shares repurchased under the March 2024 Share Repurchase Program were retired upon repurchase. As a result, year-to-date 2026 we retired 2.2 million shares repurchased under the March 2024 Share Repurchase Program, which resulted in reductions of less than $1 million in the par value of Common Stock, $9 million in Paid-in Capital and $91 million in Retained Earnings.
We did not repurchase any shares of our common stock under the March 2024 Share Repurchase Program in the second quarter of 2026. As of August 1, 2026, we were authorized to repurchase up to $150 million of our common stock under the March 2024 Share Repurchase Program.
Dividend Policy and Procedures
We have not paid any cash dividends since becoming an independent, publicly traded company. We cannot guarantee that we will pay a dividend in the future or continue to pay any dividends if and when we commence paying dividends. The declaration and amount of any dividends to holders of our common stock will be at the discretion of our Board and will depend upon many factors, including our financial condition, earnings, cash flows, capital requirements of our business, covenants associated with our debt obligations, legal requirements, regulatory constraints, industry practice and any other factors the Board deems relevant. We would use cash flow generated from operating and financing activities to fund our dividends.
Long-term Debt and Borrowing Facilities
The following table provides our outstanding Long-term Debt balance, net of unamortized debt issuance costs and discounts and any current portion, as of August 1, 2026, January 31, 2026 and August 2, 2025:
|
August 1, 2026 |
January 31, 2026 |
August 2, 2025 |
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| (in millions) | |||||||||||||||||
| Senior Secured Debt with Subsidiary Guarantee | |||||||||||||||||
|
$381 million Term Loan due August 2028 ("Term Loan Facility")
|
$ | 378 | $ | 379 | $ | 381 | |||||||||||
|
Asset-based Revolving Credit Facility due May 2030 ("ABL Facility")
|
- | - | 75 | ||||||||||||||
| Total Senior Secured Debt with Subsidiary Guarantee | 378 | 379 | 456 | ||||||||||||||
| Senior Debt with Subsidiary Guarantee | |||||||||||||||||
|
$600 million, 4.625% Fixed Interest Rate Notes due July 2029 ("2029 Notes")
|
597 | 596 | 596 | ||||||||||||||
| Total Senior Debt with Subsidiary Guarantee | 597 | 596 | 596 | ||||||||||||||
| Total | 975 | 975 | 1,052 | ||||||||||||||
| Current Debt | (4) | (4) | (4) | ||||||||||||||
| Total Long-term Debt, Net of Current Portion | $ | 971 | $ | 971 | $ | 1,048 | |||||||||||
Cash paid for interest was $28 million and $31 million for year-to-date 2026 and 2025, respectively.
Issuance of 2029 Notes
In July 2021, we issued $600 million of 4.625% notes due in July 2029 in a transaction exempt from registration under the Securities Act of 1933, as amended. The obligation to pay principal and interest on the 2029 Notes is jointly and severally guaranteed on a full and unconditional basis by certain of our wholly-owned subsidiaries. The issuance costs are being amortized through the maturity date and are included within Long-term Debt on the Consolidated Balance Sheets.
Credit Facilities
We have a senior secured term loan B credit facility with an original principal amount of $400 million, which will mature in August 2028. The discounts and issuance costs from the Term Loan Facility are being amortized through the maturity date and are included within Long-term Debt on the Consolidated Balance Sheets. We are required to make quarterly principal payments on the Term Loan Facility in an amount equal to 0.25% of the original principal amount of $400 million. We made principal payments for the Term Loan Facility of $1 million during both the second quarter of 2026 and 2025 and $2 million during both year-to-date 2026 and 2025.
Interest on the loans under the Term Loan Facility is calculated by reference to Term SOFR or an alternative base rate, plus an applicable interest rate (i) in the case of loans bearing interest based on Term SOFR, equal to 2.75% and (ii) in the case of alternate base rate loans, equal to 1.75%. The obligation to pay principal and interest on the loans under the Term Loan Facility is jointly and severally guaranteed on a full and unconditional basis by certain of our wholly-owned domestic subsidiaries. The loans under the Term Loan Facility are secured on a first-priority lien basis by certain assets of ours and our subsidiary guarantors that do not constitute priority collateral under the ABL Facility and on a second-priority lien basis by priority collateral under the ABL Facility, subject to customary exceptions. As of August 1, 2026, the interest rate on the loans under the Term Loan Facility was 6.42%.
We also have a senior secured asset-based revolving credit facility, which will mature on the earlier of (a) May 2030 and (b) the date that is 91 days prior to the scheduled maturity date of certain outstanding material indebtedness with a principal balance exceeding $50 million to the extent that certain availability and financial covenant thresholds are not met on such date. The ABL Facility allows for borrowings and letters of credit in U.S. dollars or Canadian dollars and has aggregate commitments of $750 million. The availability under the ABL Facility is equal to the lesser of (i) the borrowing base, determined primarily based on our eligible U.S. and Canadian credit card receivables, eligible accounts receivable, eligible inventory and eligible real property, and (ii) the maximum aggregate commitment amount of $750 million.
Interest on the loans under the ABL Facility is calculated by reference to Term SOFR or Term CORRA or an alternative base rate, plus an interest rate margin (i) in the case of Term SOFR or Term CORRA, ranging from 1.50% to 1.75%, and (ii) in the case of alternate base rate loans and Canadian base rate loans, ranging from 0.50% to 0.75%.
Unused commitments under the ABL Facility accrue an unused commitment fee ranging from 0.25% to 0.30%. The obligation to pay principal and interest on the loans under the ABL Facility is jointly and severally guaranteed on a full and unconditional basis by certain of our wholly-owned domestic and Canadian subsidiaries. The loans under the ABL Facility are secured on a first-priority lien basis by our eligible U.S. and Canadian credit card receivables, eligible accounts receivable, eligible inventory and eligible real property and on a second-priority lien basis on substantially all other assets of ours, subject to customary exceptions.
We borrowed $55 million and $245 million from the ABL Facility year-to-date 2026 and 2025, respectively, and made repayments of $55 million and $170 million under the ABL Facility year-to-date 2026 and 2025, respectively. As of August 1, 2026, there were no borrowings outstanding under the ABL Facility and we had $17 million of outstanding letters of credit that reduced our availability under the ABL Facility. As of August 1, 2026, our remaining availability under the ABL Facility was $649 million.
Our long-term debt and borrowing facilities contain certain financial and other covenants, including, but not limited to, the maintenance of financial ratios. The 2029 Notes and the Term Loan Facility include the maintenance of a consolidated coverage ratio and a consolidated total leverage ratio, and the ABL Facility includes the maintenance of a fixed charge coverage ratio and a debt to EBITDAR ratio. The financial covenants could, within specific predefined circumstances, limit our ability to incur additional indebtedness, make certain investments, pay dividends or repurchase shares. As of August 1, 2026, we were in compliance with all covenants under our long-term debt and borrowing facilities.
Credit Ratings
The following table provides our credit ratings as of August 1, 2026:
| Moody's | S&P | ||||||||||
| Corporate | Ba3 | BB- | |||||||||
| Senior Secured Debt with Subsidiary Guarantee | Ba2 | BB+ | |||||||||
| Senior Unsecured Debt with Subsidiary Guarantee | B1 | BB- | |||||||||
| Outlook | Stable | Positive | |||||||||
Contingent Liabilities and Contractual Obligations
Contractual Obligations
Our contractual obligations primarily consist of long-term debt and the related interest payments, operating leases, purchase orders for merchandise inventory and other long-term obligations. These contractual obligations impact our short-term and long-term liquidity and capital resource needs. There have been no material changes in our contractual obligations since January 31, 2026, as discussed in "Contingent Liabilities and Contractual Obligations" in our 2025 Annual Report on Form 10-K. Certain of our contractual obligations may fluctuate during the normal course of business (primarily changes in our merchandise inventory-related purchase obligations, which fluctuate throughout the year as a result of the seasonal nature of our operations).
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
We did not adopt any new accounting standards during the second quarter of 2026 that had a material impact on our results of operations, financial position or cash flows.
Disaggregation of Income Statement Expenses
In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which is intended to improve expense disclosures, primarily by requiring disclosure of disaggregated information about certain income statement expense line items on an annual and interim basis. This standard will be effective for annual reporting periods beginning in fiscal year 2027 and for interim periods beginning in fiscal year 2028, with early adoption permitted. The updates required by this standard should be applied prospectively, but retrospective application is permitted. We are currently evaluating the impact of adopting this standard on our disclosures.
Internal-Use Software
In September 2025, the FASB issued ASU 2025-06, Targeted Improvements to the Accounting for Internal-Use Software, which is intended to modernize the accounting for internal-use software costs, primarily by removing references to project stages from capitalization criteria and further clarifying the threshold entities apply to begin capitalizing costs. This standard will be effective for interim and annual reporting periods beginning in fiscal year 2028, with early adoption permitted. This standard may be applied prospectively, retrospectively or using a modified transition approach. We are currently evaluating the impact of adopting this standard on our consolidated financial statements and related disclosures.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with GAAP requires management to adopt accounting policies related to estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period, as well as the related disclosure of contingent assets and liabilities at the date of the financial statements. On an ongoing basis, management evaluates its accounting policies, estimates and judgments, including those related to inventories, long-lived assets, claims and contingencies, income taxes and revenue recognition. Management bases our estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.
There have been no material changes to the critical accounting policies and estimates disclosed in our 2025 Annual Report on Form 10-K.
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