Victoria's Secret & Co. ($VSCO)

Good morning. My name is Amanda, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Victoria's Secret & Company's First Quarter 2026 Earnings Conference Call. Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to turn the call over to Kevin Wynk, Global Controller at Victoria's Secret & Company. Kevin, you may begin.

Thanks, Amanda. Good morning, and welcome to Victoria's Secret & Company's First Quarter Earnings Conference Call for the period ended May 2, 2026. Joining me on the call today is Chief Executive Officer, Hillary Super, and Chief Financial and Operating Officer, Scott Sekella. We are available today for approximately 30 minutes to answer any questions. I would like to remind you that any forward-looking statements we may make today are subject to our safe harbor statements found in our SEC filings and in our press releases. Certain results we discuss on the call today are adjusted results and exclude the impact of certain items described in our press release and our SEC filings. Reconciliation of these and other non-GAAP measures to the most comparable GAAP measures are included in our press release, our SEC filings and the investor presentation posted on the Investors section of our website. With that, I'll turn the call over to Hillary.

Good morning, and thank you for joining us. I am pleased to report a very strong quarter and start to 2026. The momentum we built in the back half of 2025 continued through the first quarter, and we delivered results that exceeded both our top and bottom line guidance. The strength was broad-based across the business. Victoria's Secret, PINK and Beauty all delivered double-digit sales growth. We achieved our fourth consecutive quarter of positive comps with total comp sales increasing 13% and driving total sales growth of 15%. We also saw strength across channels and geographies. We were particularly encouraged by double-digit gains in new customer acquisition and continued file growth across all age and income cohorts. In fact, we saw the strongest growth from customers and households earning under $50,000 annually and over $200,000, underscoring the broad resonance of our brands across the consumer landscape. During the quarter, we continued to gain share in intimates, particularly amongst 18- to 24-year olds. Traffic also accelerated from the fourth quarter, reinforcing the momentum we are seeing across the business. We are now a little more than a year into our Path to Potential strategy and our new management team is hitting its stride. We are executing with precision and agility, deepening connections with our customers and strengthening the foundation of the business while driving sustainable long-term value. A big part of our work is what we call World Buildings, creating distinct and emotionally resonant worlds for the VS and PINK brands. These are immersive brand ecosystems where product, marketing, customer experience and visual identity all work together to create a clear and recognizable look and feel for each brand. For Victoria's Secret, that world is sexy, glamorous and luxurious. For PINK, it is bold, playful and irreverence. When those worlds take shape with the right product and storytelling, we create a strong emotional connection with the customer that drives results. At the same time, we have remained highly disciplined in how we drive growth. A key part of that discipline has been a promo detox. We are reducing promotions and markdowns and replacing promotional offers with compelling emotional messaging. The result is a healthier, more brand-led business. The customer is responding. We are seeing strong AUR growth, reflecting the increased strength of our brand propositions. That brand strength was on full display during one of our biggest moments this quarter of Valentine's Day. Across Victoria's Secret, PINK and Beauty, we delivered double-digit growth and drove positive comps across key gifting categories during the Valentine's Day period. These results were driven by a stronger assortment, culturally relevant campaigns and a more strategic media mix. Valentine's Day is especially important for VS and we leveraged key learnings from last year and delivered a more fashion-forward colorful assortment with the breadth of newness across end users. We partnered with [indiscernible] on a modern sexy campaign that resonated with customers while also optimizing our marketing spend by investing earlier and more strategically in channels where she is most engaged. As a result, we delivered growth in the month of February for the first time in 8 years. For PINK, we leaned into agility and cultural connection following the strong response to the K-Pop group twice at the fashion show we partnered with them again for Valentine's Day. We paired that partnership with newness in our Wink franchise. The resulting campaign drove over 2 billion impressions through the Valentine's Day period more than tripling last year's levels, underscoring the power of putting ourselves at the center of the cultural conversation and untapped potential in our core business. Beauty also delivered a great Valentine's Day performance with double-digit growth across the category and continued strength in fine fragrance and Mist. This was driven in part by integrating beauty into brand storytelling and deploying strategic marketing support on the days that matter and the final lead up to the holiday. While Valentine's Day is an important moment for us, our performance was broad-based throughout the quarter. Before I dive deeper into the quarter's performance, I want to briefly acknowledge the current environment. We remain thoughtful about the consumer environment and continue to monitor it closely. Despite macro uncertainty, our first quarter results improving customer engagement and the strong resonance of our product and storytelling give us confidence in the resilience of our business and the strength of the connection we are building with our customer. In a world that can feel heavy at times, she is increasingly looking for ways to feel seen, comforted and restored. We are uniquely positioned to offer her an escape something that is just for her. Now I'll walk you through our progress during the quarter in each pillar of our Path to Potential strategy, supercharging our bra authority, recommitting to PINK, fueling growth in Beauty and evolving our brand projection and go-to-market strategy. Then I'll provide an update on our international business before turning it over to Scott to discuss our financial performance in detail and our raised 2026 outlook. I'll start with our first pillar, supercharging our bra authority. This quarter, our bra business grew low double digits, contributing significantly to overall company growth with strength broad-based across silhouettes and price tiers. When we win in bras, we create a halo across the entire VS brand. This quarter, we saw that again in panties and in sleep with sales up mid-teens in both categories. Bras also drove stronger new customer acquisition versus last year. These results reflect the cohesiveness of the brand and the strength of our execution. VS is really in its [indiscernible] at the intersection of innovation, technical expertise and fashion authority. Those elements are increasingly working in concert. As a result, we are bringing more joy, personality and fashion relevance into our assortments. At the center of this progress is a disciplined focus on our core. Over the last 18 months, we have edited and refined our top 10 bra frames strengthening fit, comfort and styling across the foundation of the business. That work has made the core stronger, healthier and more productive. This also creates room for us to introduce more innovation and adjacent offerings such as bra tops, bra [indiscernible] and unline bras. Innovation takes multiple forms for us. technical innovation to deliver real-life solutions through improved fit, comfort and performance and fashion innovation through new colors, fabrications, treatments and styles. During the quarter, we executed across both dimensions. The result is a brand with a stronger fashion point of view and a deeper connection with the customer. We saw that come to life through launches like our refresh Signature Collection and our new Invisible Strapless Collection. Following a successful Valentine's Day, we relaunched Signature, our most foundational everyday essentials, including our top-selling T-shirt bra. For the launch, we brought new energy to one of our most important franchises combining improved fit and comfort with a bold, modern expression of the brand. As we've done consistently across the business, we coupled the product with a disruptive campaign featuring many of our Angels. We also launched our Invisible Strapless Collection combining customer insight with our best technical innovations to deliver a product that is both functionally superior and culturally relevant. The campaign starting Angel Reef taps into the innerwear/outerwear trend and shows how we're pairing breakthrough innovation with standout talent to cut through exactly the right moment heading into strapless season. As we look ahead, we are encouraged by the broad-based strength across the broad portfolio. A healthier core is giving us the freedom to expand into opportunistic areas in ways that feel compelling to both loyal and new customers, supporting continued growth and deeper engagement across the business. That balance is helping us gain share in bras and gives us confidence in the durability and scalability of this category. Turning to our next pillar, recommitting to PINK. Over the past year, we have reset the foundation of the PINK brand. That work is now starting to translate into real momentum. PINK delivered low double-digit growth this quarter, driven by strength in core apparel and intimates and improved regular price selling. Across PINK, we saw meaningful engagement around fashion-led assortments, frequent newness and sharper cultural relevance. This engagement translated into strong new customer growth during the quarter, led by 18- to 24-year olds. Our PINK icons remain at the core of the business, driving both growth and frequency and giving us a consistent platform to build from as we layer in new fabrics, silhouettes and styling. At the same time, we've reestablished Intimate as another growth driver. During the quarter, we delivered a consistent drumbeat of newness in [indiscernible] patterns that contributed to new customer growth with less promotion. A key part of our progress revitalizing PINK has been aligning the brand to a modern, young customer and the moments that matter most in her life. This quarter, this included Valentine's Day, spring break and summer kickoff. For example, we channeled the spring break mindset through our second annual PINK break event, which drove strong customer acquisition, traffic and sales growth with less reliance on promotions. We also saw success reaching a younger demographic through expanded apparel offerings. We drove new customer growth by showing up in bigger louder ways with the items she needs for her every day. This includes denim, going out tops and [indiscernible] skirt that provide outfitting for every life moment. I'm particularly encouraged that PINK is beginning to stand more clearly on its own. On top of that, collaborations and partnerships will continue to play a key role in creating excitement. We see them as an important complement to the foundation built on recognizable brand codes, a clear point of view and a more confident and distinct relationship with the customer. Looking ahead, we continue to see proof points that reinforce our belief that PINK is a full lifestyle brand. We see significant opportunities both in existing and new categories, including apparel, accessories and beauty, and our progress in these areas gives us strong confidence in the runway ahead. Turning to our third pillar, fueling growth in Beauty. We were encouraged by the momentum we saw in Beauty in the first quarter. The business accelerated to low double-digit growth, driven by continued strength in Fine Fragrance and the Mist Collection. Key to our performance this quarter was increased newness, integrated brand campaigns and surgical marketing on the days that matter. Our consistent drumbeat of newness is driving connection and relevance. As an example, in March, we launched Bombshell Bouquet, a vibrant spring extension of a top-selling franchise, bringing fresh energy to Mother's Day gifting. Throughout the quarter, we amplified this newness through integrated brand campaign, which drove engagement, brand heat and increased regular price selling. This summer, our cross-category campaign featuring Angel Reese was our most integrated beauty marketing activation to date, highlighting fragrance as the final outfitting layer and driving Bombshell Bronze as our top Fine Fragrance at launch. By bringing Intimates and Fragrances together as one powerful brand story, we are building out the brand's world and deepening our connection with her. Looking ahead, we will continue to expand the world of Bombshell through product extensions building on its strength as America's #1 fragrance. At the same time, we have developed deeper insight into the customer journey to Beauty. We know where, when and through which channel she converts and we are working to optimize those touch points with the right product and message. That includes identifying specific days and times around the holidays when beauty can be a meaningful driver of incremental revenue and customer acquisition. In these moments, we are taking a surgical approach to marketing that is delivering results. This was evident this quarter as we identified and seize the Valentine's Day opportunity, driving double-digit growth in the period. Looking ahead, as we continue to build the innovation and operational agility needed to scale over time, we are excited about the combination of a strong core regular newness, continued franchise expansion and a more integrated approach. Finally, turning to our fourth pillar, evolving our brand projection and go-to-market strategy. During the quarter, we continued to propel brand heat beyond the fashion show and the holiday season with a higher frequency of emotionally connected product campaigns and media activations. To start, we own Valentine's Day by bringing together product, creative talent and media to drive accelerated growth. In April, we announced Angels Among Us to extend the excitement of our iconic fashion show Beyond a Single Moment. We launched a nationwide search for the next Angel and invited our community to apply, opening the doors to the brand with live castings in cities across America. We saw an overwhelming response to our announcement over 100,000 aspiring Angels participated in the application process, and the search drove conversations and engagement across social platforms and earned media generating more than 1.7 billion media impressions. We are excited to meet these women and capture their stories, and we plan to share those stories with our community over the next several months leading up to our fashion show this fall. The strong interest in social engagement around Angels Among Us reinforces our belief that the fashion shows more than a single moment, and we are deepening our customer engagement as we build the fashion show into an ongoing franchise. Other major brand moments from the quarter include Mother's Day, which took on a more emotional tone celebrating motherhood, while reinforcing that being sexy and being a mom are not mutually exclusive. The campaign was a success with strong sales growth versus last year that helped support our momentum into Q2. Finally, the new PINK store in Soho recently brought the brand into the cultural heartbeat of New York. Customers began lining up at 10 a.m. on the day of opening, and the response translated to strong regular price demand, especially among our 18- to 24-year-old customers as she fully immersed herself in the PINK world. As we support these initiatives, we are becoming more precise in how we reach her. Our performance marketing and customer analytics capabilities are improving, allowing us to target more effectively scale our biggest brand moments and drive more customer acquisition and engagement. The differentiated brand identities we are creating for Victoria's Secret and PINK are coming to life across product, marketing and channel experiences. When a customer enters our stores, opens our app or sees our campaign, she should feel like she is stepping into a distinct and emotionally resonant world. That consistency supported by highly effective media spend and a variety and breadth of content is helping us to drive brand heat. As a result, our customer file continues to grow in both VS and PINK and across channels, with total VS&Co growth up mid-single digits in the quarter. Our focus on new customer acquisition paid off with new customer growth accelerating from mid-single digits in Q4 to low double digits in Q1. We are also seeing market share expansion in key categories. During the quarter, we once again continued to outperform the broader intimates market and grew our share. At the same time, stronger brand relevance, trust and overall perception signal that our strategy is working. We are growing sales through customer count and higher average spend as we lead with a motion over promotion. Overall, our evolving brand projection and go-to-market strategy is strengthening customer connection, improving marketing efficiency and supporting more durable long-term growth. Before I close, I want to touch on our international business. As we continue strengthening our North America business and core brands, we are increasingly seeing the effects of that work extend globally. Growth was broad-based globally with particular strength in core bras, sleep and fine fragrance. China remained a key driver for our international business and continues to represent a meaningful growth opportunity. We are seeing strong engagement across our digital and social channels there, which is helping us deepen customer connections and build brand awareness. We are listening closely and being deliberate in how we go to market. The key franchises we are building, such as the Fashion Show and Valentine's Day are resonating globally, and we are being thoughtful about tailoring our marketing to the needs of local markets. International remains a significant long-term growth opportunity for us, and we continue to see meaningful runway ahead. In closing, we demonstrated broad-based momentum across the business in the first quarter, and that is carrying into second quarter. Our customer file continues to grow across new, active and reactivated customers. The business is growing globally, and we are delivering this growth with more efficiency. Across both VS and PINK, we are strengthening our core franchises while layering in more fashion, technical innovation and culturally relevant storytelling. We are also continuing our world-building efforts across both brands creating more distinct and immersive brand identities and leaning into our foundational heritage as an entertainment brand. The path to potential strategy is driving continued momentum in our business, giving us confidence in the remainder of the year. We continue to have a strong pipeline of product launches, including more bra launches for both brands than we had last year. We also have a robust calendar of collaborations, partnerships and high-impact brand moments ahead including the return of the fashion show, where we plan to extend the halo even further with Angel's Among Us. More people are engaging with our brands, talking about our brands and participating in our brand moments. That growing engagement is creating a multiplier effect across the business and gives us confidence in our ability to sustain growth over time. Today also marks an important milestone for the company as we begin trading under our new ticker symbol, VSXY. Our new ticker reflects our evolution into a business that is more confident in identity and clear about the opportunity ahead. We celebrate sexy in all forms not as one look or one definition, but is a feeling every woman owns for herself. We are uniquely positioned to capture and reflect that feeling in a way no one else can. VSXY reflects the strengths of our brands, the connection we are building with our customer and the work our teams have done to reposition this company for long-term value creation. Before I hand it over to Scott, I want to take a moment to thank the team for all their hard work. As our Q1 results show, we are really starting to hit our group and accelerate momentum. I'll now turn the call over to Scott.

Thanks, Hilary, and thank you, everyone, for joining today's call. We are extremely pleased to report first quarter results that well exceeded the high end of our guidance on both the top and bottom line. As Hillary discussed, the momentum we built in the back half of 2025 continued into the first quarter and we are firmly in growth mode. We remain keenly focused on prioritizing and driving investment in key customer-facing areas of the business, spanning product innovation, brand strength and customer experience. Executing with focus and discipline across our Path to Potential strategy, we delivered a very strong start to the new fiscal year, continuing into Q2 which positions us well to deliver long-term sustainable profitable growth. Now let's turn to the first quarter results in greater detail. Net sales were $1.56 billion, an increase of $207 million or 15% compared to last year. Comp sales increased 13%, adjusted operating income increased 153% to $80 million, and adjusted EPS increased over 500% to $0.60, all well above the high end of our guidance. As Hillary noted, we registered strong growth at Victoria's Secret, PINK and Beauty and the quarter's strength was broad-based across categories, channels and geographies. We saw continued momentum in key sales metrics year-over-year. Store and digital traffic both increased, which helps support our customer file growing mid-single digits, an acceleration from Q4 and our third consecutive quarter of growth. This was driven by strong new customer acquisition, combined with improved retention rates. Strong product acceptance emotional brand connection and growing brand heat at Victoria's Secret, PINK and Beauty drove another quarter of higher regular price selling. This combined with disciplined inventory management enabled us to continue pulling back on promotions, including promotional levels, number of events and number of days. First quarter AURs were up mid-single digits compared to last year. Our top line performance was strong throughout the quarter. Overall, we delivered double-digit growth in both February and the March to April period, which takes into account the timing shift in the Easter holiday and school spring breaks. Digital traffic grew at a faster rate than the growth in stores. Our stores traffic grew mid-single digits and significantly outperformed the mall. This outperformance accelerated from the fourth quarter. The strength in both channels is particularly encouraging as it demonstrates the strong and growing customer engagement across our entire retail ecosystem. As Hillary outlined in her review, from a brand perspective, Victoria's Secret, PINK and Beauty, all registered low double-digit year-over-year retail sales growth. We saw strength in both North America and international, in North America, our total intimates business across VS and PINK accelerated from Q4, registering low double-digit growth. As Hillary described, the strength was driven by increased fashion newness throughout the quarter and strong Valentine's Day performance. As Hillary also noted, our international business continued delivering outstanding results with reported sales growth of 45% in the first quarter, inclusive of retail comp sales growth up mid-teens. The growth was led by another quarter of outstanding performance in China, primarily in the digital channel, which continues to be driven by social selling. This performance builds on the momentum we established throughout 2025. As I've previously mentioned, we began fulfilling digital orders in Europe out of our new European distribution center in the third quarter last year and thus began recording these sales as part of our international channel at that time. Adjusting for the reporting shift to these European digital sales from direct sales to international sales, first quarter international sales grew 36%. First quarter adjusted gross margin dollars were $587 million, an increase of 23% over last year. Adjusted gross margin rate in the quarter was 37.6% compared to an adjusted gross margin rate of 35.2% in the first quarter last year while exceeding our guidance. We expanded our year-over-year adjusted gross margin rate by 240 basis points by approximately $14 million or 90 basis points of incremental net tariff pressure in the quarter. The strong rate expansion was a result of higher merchandise margins driven by an increased mix of regular price selling and continued reduction in promotions, reflecting the promo detox strategy Hillary outlined. Additionally, we had significant buying and occupancy leverage driven by the 15% net sales growth. When compared to our guidance for the quarter, the tariff rate changes in the quarter favorably impacted gross profit by approximately $14 million or approximately 90 basis points. Adjusted SG&A dollars were $507 million in the first quarter and our adjusted SG&A rate was 32.5% compared to 32.8% last year. The 30 basis points of SG&A leverage was better than our guidance and driven by the sales beat and continued expense management, partially offset by higher incentive compensation expense associated with our quarter outperformance and investments in store labor and other customer-facing initiatives to support growth. Adjusted operating income of $80 million was 153% above last year's adjusted operating income of $32 million. Excluding the $14 million tariff benefit relative to guidance, results were still well above the high end of our guidance of $32 million to $42 million. Nonoperating expenses, consisting principally of interest expense, were $12 million in the quarter, down from last year's $14 million, driven primarily by the lower level of weighted average borrowings. Adjusted income tax expense was $8 million, which was higher than our guidance driven by the earnings outperformance in the quarter. And our adjusted net income per diluted share was $0.60, significantly better than our guidance of net income per diluted share of $0.20 to $0.30 and last year's first quarter adjusted net income per diluted share of $0.09. During the quarter, we repurchased 2.2 million shares for $100 million at an average price of approximately $45 per share. As of the end of the first quarter, $150 million remains on our $250 million repurchase authorization approved in March of 2024. We had 85 million weighted average shares outstanding in the quarter, favorable to our guidance of 87 million shares. Turning to the balance sheet. Our inventories remain in a healthy position. First quarter total inventories were up 5% year-over-year, lower than our guidance of up high single digits, driven by lower estimated tariff impact and top line outperformance in the quarter. From a liquidity standpoint, we ended the first quarter with a cash balance of $207 million, an increase of $69 million above last year and with $15 million outstanding on our ABL compared to $105 million last year. Our cash balance and the remaining availability under our ABL leaves us in a strong financial position with ample flexibility for continued execution of our strategic priorities. Now moving to our outlook for 2026. First off, regarding tariffs. Our forecast assumes that imported goods remain at the current 10% rate under Section 122 through the end of July. Subsequently, given the uncertainty regarding what will happen following the current expiration of Section 122 tariffs, we are assuming that tariff rates return to 20% through the end of the year which is consistent with rates in place prior to Section 122. Lastly, while we are actively pursuing refunds associated with the [ IEPA ] tariffs, our outlook does not contemplate any recovery of refunds. As we discussed, we registered significant outperformance in the first quarter and the strong momentum has carried into the second quarter of 2026. For fiscal year 2026, we are raising our top and bottom line guidance. We now expect net sales to be in the range of $7.03 billion to $7.13 billion, up from the prior range of $6.85 billion to $6.95 billion and compared to net sales of $6.553 billion in fiscal year 2025. The increased net sales outlook represents year-over-year growth of 7% to 9% compared to the prior guidance of 5% to 6% and embeds an expectation that our top line strength continues through the balance of the year reflecting a low double-digit 2-year comp for the balance of the year. We now expect 2026 adjusted operating income in the range of $550 million to $580 million compared to $403 million in fiscal 2025. This represents an increase of $120 million at both ends of our prior guidance range of $430 million to $460 million. The $120 million increase comprises $55 million, driven by underlying business strength and top line expansion with the remaining $65 million, reflecting more favorable net tariff impact than previously expected. The rate guidance implies adjusted operating margin expansion of approximately 170 to 200 basis points year-over-year. We are raising our fiscal year 2026 adjusted net income per diluted share to be in the range of $4.35 to $4.60, up from the prior range of $3.20 to $3.45 and compared to adjusted net income per diluted share of $3 in fiscal year 2025. Our forecast assumes weighted average diluted shares outstanding of approximately $84 million. We continue to estimate capital expenditures in the range of $220 million to $240 million in fiscal 2026 or approximately 3% of sales. In North America, we continue to expect store counts at the end of 2026 to be flat to slightly up compared to last year, with 45% of our global fleet in our Store of the Future design including 30% in North America and 55% internationally. Turning to our outlook for the second quarter of 2026. We are forecasting net sales in the range of $1.59 billion to $1.615 billion compared to net sales of $1.459 billion in the second quarter of 2025. This outlook assumes top line growth of approximately 9% to 11% based on our continued momentum quarter-to-date in our North America business as well as strength in our international business. It is important to note that the start of PINK Friday shifts from Q2 to Q3 this year, representing its due to growth headwind of approximately 1%. We are also lapping the digital outage from last year, which is a Q2 growth tailwind of approximately 1%. With this sales outlook, we expect second quarter 2026 operating income to be in the range of $90 million to $100 million compared to an adjusted operating income of $55 million in the second quarter of 2025. We expect our second quarter 2026 gross margin rate to be about 38.5% compared to an adjusted gross margin rate of 35.6% in the second quarter of 2025, representing roughly 290 basis points of expansion. The expected rate expansion is based on the strength of our operating model, which continues to deliver leverage on buying and occupancy expenses as net sales grow as well as our disciplined promotional strategy and more regular price selling. We also expect a gross tariff headwind of approximately $15 million in the second quarter and a year-over-year net benefit of approximately 145 basis points compared to the prior year. The SG&A rate in the second quarter of 2026 is expected to be approximately 32.5% compared to the second quarter 2025's adjusted rate of 31.8%. The forecasted increase in SG&A dollars is primarily driven by store labor investments and other costs to support the customer experience and top line growth as well as approximately $7 million of proxy contest-related expenses. Given these inputs and weighted average diluted shares outstanding of approximately $84 million, we estimate second quarter earnings per diluted share to be in the range of $0.65 to $0.75 compared to adjusted earnings per diluted share of $0.33 in the second quarter of 2025. We expect to end the second quarter with inventories up high single digits compared to last year. This expected increase reflects growth to support business trends, the impact of tariffs and timing related to our operations, mostly due to our strategic shift towards ocean freight from airfreight which results in us taking ownership of inventory earlier as compared to last year. This ownership comparison dynamic will begin to normalize in the back half of the year. In closing, our Path to Potential strategy continues to deliver exceptional results. Our outstanding first quarter performance with 15% sales growth and over 500% adjusted EPS growth demonstrates accelerating momentum across Victoria's Secret, PINK and Beauty. We've raised our full year guidance, reflecting both our strong Q1 results and continuation of our momentum. Despite tariff headwinds, we're continuing to expand margin while investing in product innovation, brand strength and customer experience. Our improved financial position provides flexibility to capitalize on growth opportunities and return value to shareholders. We remain confident in our ability to drive sustainable, long-term profitable growth. I will now turn the call back over to Hillary for a moment before we get into Q&A.

Thanks, Scott. Before we get into Q&A, I want to briefly address the campaign launched by one of our shareholders ahead of our upcoming annual meeting. While we respect the perspectives of all shareholders, including BBRC, we believe this campaign is a distraction from the significant progress and momentum we are building across the business. Our focus remains on executing our Path to Potential strategy and delivering results for shareholders. Given this, we would like the Q&A to remain focused on the strong quarter, our strategy, our performance and our outlook. Operator?

[Operator Instructions] For our first question, we will go to the line of Matthew Boss with JPMorgan.

Congrats on a great quarter. So Hillary, could you break down drivers of the traffic acceleration that you saw in the first quarter despite the promotional detox? And then could you elaborate on the strong momentum that you cited to start the second quarter? Have you seen any moderation in trends? And just if you could flag assortment opportunities you see in the second quarter and back half of the year.

Sure, Matt. Okay. So first and foremost, I believe that our content and the talent in our content really resonated with the customer. So let's start there. But then from there, we also really optimized our media mix and we saw the biggest growth coming out of paid both in social and search. And then I would also add, app downloads are up over about 50%, and that's a big driver of traffic as well. And then finally, our community is powerful. Their voices and their testimonials of our product and our brand were 4x higher than last year. And that is -- we see that being a big driver. We see it in the stores where they bring their phone in and talk to us about things are looking from both the [indiscernible] it's all working together in one ecosystem, and we're really pleased with how that's turning out. In terms of the back half, we have a very loaded back half. I'm very excited about it. It includes more bra launches than last year in both brands, including a new franchise launch in PINK. We have a number of partnerships and collaborations that we're excited about throughout the year as well as amplifying our own content on our own franchises like the fashion show and extending it with Angels Among Us. So we feel fully loaded for the balance of the year, very confident. And in terms of your question about May, it had -- the trajectory has [indiscernible].

That's great. And then as a follow-up for Scott. On your raised full year operating margin forecast, could you just walk through the embedded tariff and freight assumptions versus full price selling opportunity you see this year? And then how best to think about the next leg potential for margins relative to 10% embedded in the back half of the year?

Yes, sure, Matt. So on operating income, we raised our guide on the low and the high by $120 million. About $55 million of that is from the business outperformance and about $65 million of that is tariff favorability. As we noted, we're assuming the 10% Section 122 tariffs stay in effect through Q2 through the end of July. And then in the back half with all the uncertainty, we're assuming they return to sort of the pre-Section 122 rates of about 20%. As we -- and then on the freight side, we've got roughly 30 bps of headwind plan from Q2 to Q4. So we expect this to be with us for some time. In terms of opportunities, it's a lot of what we've called out, the continued reduction in promos. We've said from the start that is a multiyear journey we continue to reduce, whether it's events, days, motional levels, there's a lot of levers we have to pull there. and we'll continue to do so. That drives our mix more into regular price selling and our AURs continue to be up. They were up mid-single digits in the quarter, and we expect to continue to be up for the balance of the year. And then as we go, the leverage we continue to see quarter after quarter on buying and occupancy and on SG&A to a lesser extent as we make some investments on the customer-facing customer [indiscernible] really, really encouraged by the performance momentum that we have.

Congrats again.

Our next question comes from Corey Tarlowe with Jefferies.

Hillary, you mentioned something really interesting and impressive, which was that you're seeing growth among kind of $50,000 and below income cohorts and then several hundred thousand dollars and above in terms of customer acquisition. So are these -- one, where do you see these share gains coming from? Two, what do you see is driving different customers into your store? And then three, what kind of products or what strategies do you have to continue to acquire and maintain the share that you gained with these customers?

Corey, yes, we really love this piece of the business. So we saw broad-based growth across all income cohorts in both customer count and customer spend, but the largest growth was as you said, under $50,000 and over $200,000. And the way I think about it is in a world full of choices, she's choosing us. And when you think about the $50,000 and below customer, she's likely [indiscernible] not to spend in other places in order to spend with us. And when you think about the over $200,000, she has lots of choices. And she's choosing us because of our brand [indiscernible] our brand [indiscernible], brand fashion, right product. And so I think it really points to brand's health, brand relevance. And at the same time, we're also seeing really, really strong performance in that 18- to 24-year-old cohort. And that, again, points to brand relevance, brand heat. And I really think that when the product -- and the marketing together, and we have the right partnerships with right talent, it's creating an ecosystem that she just wants to belong. And I think the [indiscernible] over the [indiscernible] promotional messaging, we are telling her that we are working [indiscernible].

That's great. And then I guess a follow-up for Scott. One of the main focuses for investors is not just, I think, the trajectory of the top line recently, but also really the profit opportunity. And I know that you've talked to double digits as a margin opportunity. But I think this quarter was a proof point of moving in the direction of that double-digit target that you've laid out for us. So could you maybe talk a little bit about specific to Q1, what really drove the margin outperformance versus your initial guidance? And then what you expect to perhaps be a little bit stickier in the profile as we look ahead?

Yes. Thanks, Corey. So on Q1, we beat our expectations by roughly $40 million on operating income. About $25 million of that was really the outperformance in the business and $14 million, $15 million was our expectation from tariffs as they lowered from the IEPA 20% down to 10% Section 122 tariffs, but the outperformance on the business still are the biggest driver, and that continues to come from the reduced promos, the outpaced growth and the leverage we get on buying and occupancy and SG&A, and then lastly, that more regular price selling. So it speaks to that brand heat Hillary was just referencing and how the consumer at all ends of the [indiscernible] is continuing to engage with us and what that flow through mean on the outperformance. So we've said all along that double-digit operating margin is within our sites. And it's one going to be fueled by that growth and the leverage we get on the business. We're seeing that for multiple quarters in a row now.

Our next question comes from Adrienne with Barclays.

So congratulations across the board. Hillary, I wanted to talk about sort of the testament of the product regimens and product launches, particularly in the that 18 to 24, I think you said kind of that millennial age range. What is the new customer acquisition percentage as they enter the market? And what are you doing specifically with your advertising strategy to target them specifically? Secondly, a bit of a wildcard question, how are you thinking about the GLP-1 adoption and impacted the business? And then I have a follow-up for Scott.

Adrienne, I'm not sure I totally understand your first question, but 18 to 24 is a key demographic for us, particularly in the PINK brand but also on the VS brand. And we are targeting them the way -- in the ways you would expect. So fashion-right product, a youthful sensibility incredible color and pattern, I think a really good example of that in the VS brand is the Lacy franchise [indiscernible], which we've, I think, injected a ton of youthfulness on an energy [indiscernible]. And then in the PINK brand, we are targeting a 20-year-old. And 20 is the target, it halos both ways, but we are really studying her deeply to understand how she lives her life, what the moments that matter are, what's important to her and [indiscernible]. And so we are maniacally focused on that 18- to 24-year old and that is paying back because that is where we are seeing big growth in our customer acquisition as well as in market share data. So feeling great about that. GLP-1s, so far, we have seen minimal impact to our business. We have looked at existing customers and seen a very, very modest, I'm saying, like 3% and below in smaller sizes getting even smaller. And in new customers, we are seeing a slightly smaller customer, but I do think that can also be aged. So it's a little tricky to look at, but it's something that we continue to think about, watch and sort of forecast in our size going forward.

Fantastic. And then, Scott, sort of in this promotional strategy, so obviously, we've been watching the promos and you're on your fifth consecutive quarter of incredible promotional restraints, anniversarying that and you're still getting material upside in that kind of gross margin, the margin piece of it. So we're kind of in that 38 -- high 30% range. Historically, you've been over 40% when you're kind of at your normal. I'm wondering if you can just speak to kind of the peak to trough, where you are? And how can -- what confidence do you have in anniversarying pulling back on promos and continuing to deliver 100 basis points north of that on merch margin expansion for the year?

Yes. No, absolutely. Yes, we've said all along it's a multiyear journey, and we, as you said, continue to pull back on promos. What's interesting, tacking on to the question of new customer acquisition as well, our new customers are coming in at higher AURs. So it proves that coming in on the emotion versus promotion, as Hillary likes to say, that gives us confidence that it's not being driven promos. So we continue to read and react and look at the length of events, the level of promotion, the number of days all of that to say what can we continue to pull back and still get that customer engagement. And the other thing we've seen, we saw in Q4, we saw it last year in Q2, and we expect it to continue is, semiannual sale will be less of the thing in those periods, and then we can still introduce newness. So it gives us a lot of confidence as we go forward, we can continue to pull back. And we do see a world where gross margins are again in the 40s. We'd be there if it wasn't for tariffs right now. So we feel confident on it.

Our next question comes from Ike Boruchow with Wells Fargo Securities.

Let me add my congrats. One for Hillary, one for Scott. I think, one for Hillary, one for Scott. I know you mentioned, Hillary, you really haven't had a great Valentine's Day in almost a decade. So that's a nice turn. I guess, when you look at the business or your former company, is there a correlation between a strong Valentine's Day to a strong holiday? Like is there a good read through in some respect, it gives you good line of sight. I know you're only guiding a low single-digit rev in the back half, but just kind of curious how you would align those 2 dynamics. And then, Scott, I'm sorry if I missed it. 3 months ago, you guided a tariff headwind for the year of $40 million. What is that now? I assume it's either nothing or a tailwind? And specifically, in Q4, if tariff rates go back to kind of where the -- where you're planning them to go back to that $65 million headwind that you had last Q4. What does that turn into this year in terms of like what's baked into your plan?

I'll take that first one, Ike. In terms of your question about the relationship between Valentine's Day and holiday, I haven't seen a direct correlation between Valentine's Day at the next holiday. I've really actually seen it in the inverse, where great customer acquisition in Q4 sets us up for a great Q1. But I will say that the consistency of what we're delivering, the brand heat we're creating, the product elevation that we're driving, all of this is compounding over time as the team gets in its stride as we learn as we learn from our own work and then optimize that and move forward and learn that we can tweak this a little further, push this a little higher. We're just all getting in our grove as a team. So I do think that the things that we have been learning will continue to multiply as we move into the back half of the year. So I do have do have confidence, is it based on Valentine's Day, not necessarily, but it's just based on the general overall strong execution.

In terms of your tariff question, it's a good question. So as we said versus the prior expectation [indiscernible] $65 million. So that implies that our net tariff benefit, if you will, on the full year's $25 million, but that's only a benefit because of the hard work on the mitigation side of things. Even with this tariff assumption of 10% Q2 and then returning 20% to the back half, the gross tariffs on the year is still a headwind of about $75 million. So that's kind of what we're up against and how we're doing in the business.

Our next question comes from Marni Shapiro with The Retail Tracker.

Congratulations, first half looked fantastic. The energy is great. Just 2 quick ones. If you could just give us an update on VSX because the product really has looked significantly better. The color choices have been really good. I see you've extended like the glossy collection into current colors and things like that. So if you can give us an update there, it feels like you should be owning the active wear bras. And then if you could also talk of -- and this is kind of a bigger picture, Hillary, but the younger customer loves the scarcity model that's almost as important to them as the cool factor. They love to wait online for things. Could you talk a little bit about the ability to do collaborations and drops that sell out kind of the Dot Cake Parke Sweatshirt model vis-a-vis either Victoria's Secret or PINK and how that could work?

Sure. And thanks, Marni. I always await your commentary. Okay. So VSX, we have rightsized that business. I think this time last year, it was a little over assorted and we were overinvesting in it from a marketing perspective. I think what we've learned through the path to potential is that the 4 top strategies have so much juice in them that we are doubling down on things like bras, PINK and Beauty in this first phase of the Path to Potential rightsizing VSX, standing for, as you said, bras as our [indiscernible] and as a vehicle for sports, but also as one of her options in overall bra wardrobe, reflecting the fit and the technology there. And then in future seasons, we will start building back to VSX in a bigger way. But we see that now as a slightly later activity for us based on the amount of opportunity we see in more adjacent categories like bras with panties and sleep in that ecosystem. We're seeing just much more productive in that area, right? In terms of younger customers and the scarcity model, I think that's something we think about a lot. And we're seeing it in our business right now. If you look at Victoria's Secret brand, the Lacey collection is something that we are chasing like crazy right now. And it is a bit of a like candy store environment, scarcity model. I tried to go on and buy some this week and couldn't buy my size. So we are chasing that. And I think that is creating a bit of a frenzy and it's good to have a few stockouts here and there. It does create that full price demand. And as we are [indiscernible] on, we do want customers to feel like they need to buy it now. [indiscernible] in good pockets of our business. And on the PINK side with collabs, absolutely, that's the way we're approaching it. And I will say the way we're approaching it in our core business. We have a tote bag right now that we have, I think, 115,000 back orders on and it is a PINK branded tote. And so that, to me, is a signal of brand health, that's a signal that we have an accessories business we can grow out and just a lot of exciting learnings that are happening in real time. And that's why I say this team is really getting a ride. And as we cross the 1-year mark as a team, we have [indiscernible] learnings that are happening, and we're acting on those learnings [indiscernible].

Our next question comes from Simeon Siegel of Guggenheim Partners.

So Hillary, my question is not going to be as exciting as Marni's, but really encouraging to hear about all the improvements in customer acquisition. You're clearly bringing people into the brand. Can you share a bit about how you're thinking about the retention and maybe further lifting the new customer spend as they enter year 2 and beyond? And then, Scott, sorry if I missed it, did you say what AUR was? Just how are you thinking about this quarter and then within the guidance price versus [indiscernible]?

Yes, sure. So we are -- so while we are acquiring new customers at an accelerated rate, we are also retaining and reactivating them in a really strong way as well. So we have an engine that is working really well. I would say the app is like a very key part of that and creating -- keeping that content and like entertainment engine going and engaging in the places where she lives. So I think it used to be that we had a store and we had a site and those are 2 places you came [indiscernible] with the brand at any given moment. That is just not what it is anymore. There is an ecosystem of digital content out there and we're engaging with her where she is, and then we are inviting her into our channels, and we're having a lot of success really meeting her where she is. And as she evolves, which we know she is doing very quickly in terms of discovery with LLM, et cetera, we are very, very focused on future-proofing ourselves and making sure that we are evolving with her. So top of mind for us and having a lot of success at it now and continue to move with the customer as needed.

On the AURs, yes, for Q1, we were up mid-single digits for the balance of the year, we expect that to continue in that mid-single digit, maybe low single-digit range. The caveat on that is Q4 as we know that's a heavier promotional quarter, and that's one where we need to read and react on promos even closer. So that's the only disclaimer, I would say. But we feel good about that. In terms of units, what we're seeing is slight increases in units, and that's really driven more in the regular price side and less in the sort of discount markdown sort of side of things. So we really, really like that mix.

Our next question comes from Dana Telsey with Telsey Advisory Group.

Congratulations on the progress. As you think about some categories like sport and beauty, what are you seeing there, Hillary? How do you see that growing and contributing going forward? And then just on the margin sit, anything new on with occupancy costs and what you're seeing? I saw the new PINK store on Broadway and [indiscernible], it looks terrific. Any additional thoughts for some stand-alone like that?

Dana, I'll take a crack at the Sport and Beauty, I have a few thoughts about [indiscernible] as well that I'll sneak in there and round it out. So I spoke about for a minute ago. I think it's a very saturated market. It's a market that's going through a lot right now, I think. And I do think sports bras are ours to own, and we are doubling down on that. At the same time, we are seeing so many other bigger returns in our business, primarily in bras and panties and sleep, the PINK brand, Beauty we are just prioritizing that work right now, knowing that both sport and swim are opportunities for us to grow more aggressively in the out years. So on our radar, but not as important as the big 4. So that's important. With -- Beauty continues to be a growth driver. It actually grew on par with the 2 brands. We've got a nice acceleration coming out of Q4 into Q1. We grew market share. We're feeling good about it. We are also laser-focused on newness and the frequency of newness in beauty, which we are finding to be a big driver of our success in Q1 and innovation and our pipeline in -- like making sure that our pipeline is full of innovation is the way I should say that. And the team is working fast and furious on that. They're also working on [indiscernible] beauty, which we continue to see as an opportunity. And that's really a reinvention more than an evolution. And so that's probably in mid-2027, but still feeling great about it, good about the current business and really good about the future innovation. And PINK -- so the PINK Soho store has been tremendously successful. It is now our #1 PINK store. Again, it's only about 3 weeks. It's been open about 3 weeks. But we see a number of things there that can translate into existing stores in terms of treatment, some of the visual treatments in that store that really [indiscernible] the experience. We think we can layer that into key stores that have already been remodeled. And then we're always looking for opportunistic locations where our customer is. And we prefer a short-term lease for proof of concept that moves to a longer-term lease, but we're evaluating those case by case and just feeling really optimistic about what we're learning [indiscernible].

And just to round out from a bigger picture, we did say, well, over the last few years, our North America store base has been a net decline. This year, it's flat to slightly up. And so we continue to view our store fleet is a competitive advantage to give that customer experience that others can't really provide in the same way.

Our next question comes from Mauricio Serna with UBS.

Just 2 quick follow-ups. On the Beauty business, very nice to see the acceleration in the top line. Maybe could you talk about how you're thinking about that business for the balance of the year? Like what you can do to keep that double-digit growth given that historically, this has been like a pretty strong business? So technically versus the rest, the comparison might be a little bit difficult on a multiyear basis? And then a quick one on the margins, I guess, margin top line, could you help out just Middle East, like what kind of exposure do you have in terms of like revenues? And how -- if there's any impact to bottom line or margins, just given how -- I would think that there's some franchise royalty business there. So I don't know if it's like a headwind or a tailwind to gross margin given the current situation?

Sure. I'll take the first one. Beauty, we feel good about it. We are coming up on 3 years of growth in Beauty. We still feel that Fine Fragrance is really the crown jewel of this business and in particular, Bombshell. And we think there's a lot of opportunity to build out the world of Bombshell and really own that in a more meaningful way. We also think newness is key. And so we are increasing our cadence of newness. And then thirdly, I would say, we've integrated Beauty into the campaign of the brand and really created a much more cohesive brand and world building story, and that is really working for Beauty. And then finally, I would just say there are a handful of days each quarter where Beauty really drives the business in an outsized way and making sure we're surgically spending for media on those days and marketing in a very pointed way on those days can have very outsized returns. So those are some of the shorter-term things that we're looking at. But we feel great about Beauty and strong about the months and years ahead.

In regards to the Middle East question, as you said, our business in the Middle East is a royalty business based on our franchise partner sales. And so while that business has seen some disruption, our business models largely kept us shielded. And so the impacts of that are factored into the guidance that we provided.

Congratulations on the results.

We have time for one more question. Our last question comes from Brooke Roach with Goldman Sachs.

Hillary, as you've executed the differentiated marketing and customer experiences this year such as Angels search and Valentine's, how are you thinking about your willingness to reinvest in additional marketing spend to fuel the flywheel into the back half of this year and into next year? And then Scott, maybe a related question. How are you thinking about the flow-through from here? Should you outperform the plan that you've laid out today?

Thanks, Brooke. Are you reading our minds? Are you spying on us? What's happening? We're talking a lot about that, and we have a lot of confidence, and we're kind of working on our revised LRP and starting to think about next year's budget right now, and we definitely believe there is an opportunity, and we need to massage all the numbers, but we are seeing incredible results. The more we invest, the more we generate. And we think there's more opportunity there, and we're very, very excited not only about the back half of this year, but about 2027. And so you'll hear us thinking -- you'll see us evolving on this topic, and we'll be talking about it more on future calls, but feeling really excited about what we can do in the marketing organization.

And on the flow-through question, we took the OI up $120 million, as we said, $55 million of that was related to base business performance, $65 million to the tariff assumption change. But on the $55 million coming off of taking the top line up $180 million on the low and the high, that's roughly a 30% flow-through on that. And so that's really how we kind of see this as we go forward and right around that 30% range when you factor in variable costs and things that we could reinvest in a small way as we go forward.

Thank you, does that conclude your questions?

Yes, it does.

Thank you, and thank you all for participating in the Victoria's Secret & Company's First Quarter 2026 Earnings Conference Call. That concludes today's conference. Please disconnect at this time and enjoy the rest of your day.