Victoria's Secret & Co. (NYSE: VSXY) stock fell Thursday after the company reported mixed second-quarter results and issued full-year sales guidance below Wall Street expectations. Earnings Beat, Sales Miss Estimates
Adjusted diluted earnings nearly tripled to 95 cents per share, beating the consensus estimate of 77 cents.
Sales rose 10% year over year to $1.611 billion but missed the $1.619 billion estimate.
Comparable sales increased 9%, while two-year comparable sales rose 13%. Store and digital traffic both increased, with digital traffic growing faster.
Margins And Operating Income Improve
Adjusted gross margin expanded 320 basis points to 38.8%. That was 30 basis points above the high end of the company's guidance.
About two-thirds of the improvement came from higher merchandise margins. Buying and occupancy leverage drove the remainder.
The incremental gross tariff headwind totaled about $10 million. However, mitigation efforts produced a net benefit of about $20 million.
Adjusted operating income jumped 125% to $124 million. That topped the high end of the company's $90 million-$100 million guidance range by $24 million.
Tariff Refunds And Cash Position
Victoria's Secret received more than $140 million in IEEPA tariff refunds during the quarter. The refunds covered more than 95% of tariffs paid and were excluded from non-GAAP results.
The company did not repurchase shares during the quarter. Year to date, it bought back 2.2 million shares for $100 million, leaving $150 million under its authorization.
Inventory increased 8% year over year, while cash rose $334 million to $522 million.
Business Performance
Victoria's Secret retail sales grew in the mid-teens. Pink sales increased in the high single digits, while Beauty sales rose in the mid-single digits.
The Victoria's Secret bra business and VS Intimates in North America both grew in the mid-teens. Pink Intimates increased in the high single digits.
Beauty recorded its 12th consecutive quarter of sales growth. International sales jumped 20%, helped by strength in China and European digital channels.
Customer Growth And Regular-Price Sales
The customer file grew in the mid-single digits for the fourth straight quarter. New customer acquisition increased in the high single digits and continued to outpace overall customer growth.
Regular-price average unit retail, or AUR, increased in the high single digits. Total units rose in the low single digits, while regular-price units climbed in the high single digits.
Full-Year Sales Outlook Trails Estimates
During the earnings call, Victoria's Secret warned that margin expansion will slow in the second half as heavier holiday promotions and higher costs pressure profitability.
Chief Financial and Operating Officer Scott Sikella said promotional favorability had contributed nearly 100 basis points to margins in each quarter through the third quarter.
However, the company expects that benefit to fade in the heavily promotional fourth quarter, while cost pressures create an additional headwind.
For the third quarter, Victoria's Secret expects sales of $1.57 billion to $1.60 billion, compared with the $1.568 billion analyst estimate.
The company expects adjusted results ranging from a loss of 9 cents per share to earnings of 1 cent per share. That compares with a loss of 27 cents per share a year earlier.
Third-quarter operating income is expected to range from $10 million to $20 million, down sharply from $124 million in the second quarter.
Victoria's Secret raised its fiscal 2026 sales outlook to $7.10 billion-$7.18 billion from $7.03 billion-$7.13 billion. However, the new range remains below the $7.201 billion analyst estimate.
VSXY Stock Price Action
VSXY Price Action: Victoria's Secret shares were down 10.58% to $77.59 at the time of publication on Thursday, according to Benzinga Pro data.