Earnings Call Transcript - VSCO Q4 2024

Operator, Operator

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 Fourth Quarter 2024 Earnings Conference Call. Please be advised that today's conference is being recorded. All parties will remain in a listen-only mode until the question-and-answer session of today's call. I would now like to turn the call over to Mr. Kevin Wynk, Vice President of External Financial Reporting and Investor Relations at Victoria's Secret & Company. Kevin, you may begin.

Kevin Wynk, Vice President of External Financial Reporting and Investor Relations

Thank you, Amanda. Good morning and welcome to Victoria's Secret & Company's fourth quarter earnings conference call for the period ended February 1st, 2025. As a matter of formality, I would like to remind you that any forward-looking statements we may make today are subject to our Safe Harbor statement found in our SEC filings and in our press releases. Joining me on the call today is CEO, Hillary Super; CFO, Scott Sekella; and retiring and former CFO, Tim Johnson. We are available today for up to 45 minutes to answer any questions. Certain results we discuss on the call today are adjusted results and exclude the impact of certain items described in our press release and SEC filings. Reconciliations of these and other non-GAAP measures to the most comparable GAAP measures are included in our press release, SEC filings, and the investor presentation posted on the Investors section of our website. Thanks. And now I'll turn the call over to Scott.

Scott Sekella, CFO

Thanks, Kevin. Good morning, everyone. Before we turn the call over to Hillary, I wanted to take a moment to say hello and how excited I am to be here. I joined VS&Co about a month ago, and I want to thank the team for the warm welcome. Joining during the year-end financial close cycle certainly makes the first days on the job exciting. I'm grateful for the opportunity to work alongside Hillary, our leadership team, and our passionate associates and for the opportunity to support our customers, our brands, and our company. I'm excited about our future and I look forward to meeting and working with you all. That's all for now. I'll go ahead and turn the call over to Hillary.

Hillary Super, CEO

Thanks, Scott. Good morning, everyone, and thank you for joining us. During the last call, I shared insights from my first 90 days as well as my excitement and optimism for our future. I'm happy to be back together today to continue that conversation. First, I want to talk about our Q4 results and outlook for 2025. Then, I'll share details on our strategies for growth that we believe will unlock the full potential of our brands. But before I discuss Q4, I want to take a moment to thank TJ for his support during my first several months and for staying on with us to ensure a smooth transition with Scott. Thank you for your partnership, TJ, and the role you played in helping drive the results we'll talk about today. Speaking of results, I'm pleased to say they were strong in Q4 with sales up compared to last year across VS, PINK, and our powerhouse Beauty business. We won in the big moments and with a focus on execution, our teams drove healthy margins, controlled costs, and managed inventory very well, leading to Q4 operating income and EPS that exceeded our expectations. Sales growth was driven by broad-based strength across our business, with sales up in all three brands in all channels and all markets. In North America, VS and PINK both had positive year-over-year sales growth in stores and digital. We were able to achieve this growth with fewer promotional days and offerings than last year, which is especially encouraging as we continue to test and learn our way to lower promotional activity in the business. From a merchandise perspective for VS, our giftable holiday product assortments driven by Sleep and Beauty across both brands were big winners, with casual sleep as our top-performing category. We were excited to see that products that are quintessentially VS, heritage, stripe, and logo all performed well, which I view as an indication of strong brand health. We also had success with shimmer and shine products. PINK apparel had a significant trend change at the beginning of the fall season, and its strong performance continued in Q4. Along with sleep, apparel drove the business during the holiday. As you know, we've been working to evolve PINK product positioning, and we're starting to see some positive signs of customer acceptance. Both our modern reinventions of iconic heritage pieces and our most feminine styles featuring sparkle and shine were top performers this holiday. As I mentioned, our Beauty business was a standout in the fourth quarter as we pushed the boundaries of accessible luxury with higher AUR items that were must-have gifts of the season. With compelling products and strategic promotional activity, our basket sizes and traffic were up compared to last year, with traffic outperforming them all. Supported by our best-in-mall store experience and dozens of digital enhancements, we had solid conversion on those increased traffic levels with strong product acceptance. Third-party data shows that North American intimates market declined slightly this quarter. However, for the second quarter in a row, we outperformed the market, an encouraging sign of our growing strength and momentum. Our studies again this quarter showed that Gen Z is feeling much more positively about our brands, a testament to our focused efforts to engage her. It's exciting to see that she's not only noticing us but connecting with what we stand for. Outside of North America, our international business continued its strong performance with retail sales up double-digits in the quarter, driven by growth with our franchise and travel retail partners, along with strong performance in our joint ventures in China and the UK. Our brand is strong around the world, and our global partners and vendors are not only partners but incredible advocates. After my first holiday season with the business, I remain optimistic about what's ahead for VS&Co, including what we're focused on for Q1. Across every brand within our business, Spring is anchored by our icons. We're inspiring our loyal customers with modern takes on all of her favorites and introducing them to a new generation of customers. In February, we reimagined our very sexy collection, expanding the iconic franchise to connect with more women. With a broadened range of lift levels, we're offering a more personalized fit, delivering sexy for everybody. Our teams are always listening and responding to customer feedback, as evidenced by the new lightly lined demi, which was designed for women who love glamour, but prefer a more natural lift. And we continue to have momentum in sport and swim, both categories in which our authority and expertise in bra fit and innovation give us the competitive edge. In what is a highly competitive market, we have leveraged our best-at-bras positioning to be the authority for on-trend sexy swim that she feels incredible wearing. We are excited about the newness in swim this spring, which includes styles from PINK by Frankies, one of our strategic collaborations that has over-indexed with the Gen Z customer. In our most recent drop, the collaboration also drove almost triple the average acquisition rate versus the core PINK business, a promising indicator as we build our go-forward collaboration strategy. Doubling down on PINK apparel, we are excited about the ongoing improvement in product execution. We continue to build on the momentum with modern takes on PINK icons, plus we've added a new layer of lifestyle outfitting that is resonating with customers. As we are seeing with early spring, our fashion content is becoming more compelling with every effort, and I'm looking forward to the continued progress within the PINK business. Turning to Beauty, our icon is Bombshell, America's number one fragrance. In March, we will be celebrating Bombshell's 15th anniversary by unveiling a bottle redesign and delivering activations we know will engage and excite our loyalists. I'm pleased by our movement back into major cultural moments alongside global stars. We are focused on driving relevance with today's consumer by meeting her in the moments and spaces that matter. Victoria's Secret products played a prominent role in Charli XCX's performance that closed out the Grammys. Tate McRae wore our product in her newest music video, and we recently partnered with Teyana Taylor on an exclusive product edit. All of these moments resonated deeply with consumers and drove significant social media engagement. As we transition from the holiday season to spring '25, we recognize there are challenges, including shifting consumer confidence, a volatile economy, and unseasonal weather impacting mall traffic. While we're actively managing today's headwinds, we're also building for the future. With a strong foundation and globally recognized brands, we're positioned to navigate the present while unlocking the full potential of VS&Co for the long term. And now I'd like to talk about how we plan to realize that potential. First, I think it's important to acknowledge that we are building from a position of strength as the largest intimate apparel company in the world. In North America, we have approximately 20% market share, 25 million active customers, and 38 million loyalty members. We have the second largest brand following in the world on social media, with 88 million followers on Instagram alone. Our growth plan, which we are calling the path to potential, will ensure we put the best of who we are back at the center of how we work. We are playing offense, leaning into our core strengths, and unlocking new opportunities. Our objective is clear, to drive value for all stakeholders by supercharging our two distinct compelling growth brands, Victoria's Secret and PINK, complemented by a powerhouse Beauty business and a strong digital-first Adore Me brands. Our path to potential is built around four key strategies that will allow us to accelerate growth, differentiate our brands, and reinforce our authority in the market. First, we are recommitting to PINK and winning the next generation of consumers. PINK has long been a brand with deep emotional connections to young women. Today, we are focused on reestablishing the brand's magic and market position. We will deepen our relationship with the customer, understanding her like never before and meeting her where she is in the way she wants. We are working to reclaim our position as a full lifestyle brand anchored in intimates but extending into more apparel, accessories, and beauty. We must clarify and elevate the brand by sharpening our identity, thinking, and operating as a social-first brand, and treating PINK as the high-potential growth engine that it is. Our second strategy is supercharging bras and reasserting our authority. We will lean on our industry-leading bra experience to drive innovation-first product development, ensuring we lead the industry in fit, function, and fashion. We will also expand our bra assortment to serve a wider range of customer needs, and we will strengthen our marketing voice and channel experience to serve her better. Our third strategy is fueling growth in lifestyle categories, beauty, sport, and swim. We have a powerhouse Beauty business and strong lifestyle brands that customers love, and we will accelerate these categories by leaning into our beauty authority, building on our industry-leading fragrance business, and expanding into new opportunities, which include Beauty and PINK. We will reclaim key adjacencies by applying our expertise in broad innovation, quality, and fit to revitalize our sport and swim businesses. Our fourth focus is on evolving our brand projection and go-to-market strategy. As culture, technology, and shopping behaviors shift, so must our go-to-market strategy. By staying true to our brand DNA while adapting how we engage, inspire, and serve, we will deepen connections with existing customers and attract new customers while strengthening loyalty and driving long-term growth. One of the ways we will do that is by creating stronger differentiation between Victoria's Secret and PINK in everything from product to marketing to experience. Today, the lines between the two brands are blurred. Moving forward, we will ensure that each brand is distinct but that they complement one another in a single ecosystem. We will elevate Victoria's Secret as sexy, glamorous, accessible luxury while modernizing PINK's brand identity and evolving the way we communicate with the customer. By becoming more agile and culturally connected, we will create real-time moments that resonate with our customers and keep us at the center of the conversation. Finally, we will leverage the full funnel and build a brand-centric, best-in-class omnichannel experience to engage with her on her terms. And as I've emphasized, we see significant growth potential internationally, and these strategies transcend our global footprint. To ensure that our strategy is not just aspirational, it's actionable, sustainable, and built to drive results, we are focused on three critical enablers. First, a customer-centric performance culture. By deeply understanding our customers, how they shop, what they value, and what inspires their loyalty, we create stronger connections, drive repeat engagement, and fuel sustainable growth. A culture centered on the customer empowers associates to innovate and deliver experiences that not only meet expectations but exceed them, turning transactions into lasting relationships. To accelerate customer impact, drive results, and gain share, we are moving to a leadership structure with brand presidents leading product-facing functions for Victoria's Secret, PINK, and Beauty. This change will ensure we have the leadership focus, clarity, and expertise needed to accelerate growth. We are also currently searching for a CMO to evolve our global go-to-market strategy, help build deeper customer connections, elevate storytelling, and drive more data-driven marketing optimized across the full funnel. The second enabler is an evolved product development process. We are moving beyond a bra-centric approach, implementing multiple tracks tailored to each category, making our teams faster, more agile, and more innovative, not just in bra development but in apparel as well. Our third enabler is an efficient operating model. We are focused on doing fewer things better, investing where it matters most to our customers, and streamlining costs in non-customer facing areas. In closing, we face some near-term headwinds and ongoing uncertainty in the macro environment, which we will manage aggressively as we do the work I just outlined to unlock the full potential of our brands and business. I'm confident and energized because we have clear strategies for growth, we are moving swiftly to a leadership structure to execute with focus and impact, and we are positioning ourselves for long-term sustainable growth. This is our moment to build the future for VS&Co to be stronger, more innovative, more connected to the customer than ever, and I'm confident in our plan, our team, and the opportunities ahead. Thank you. That concludes our prepared comments. And at this time, we'd be happy to take any questions you might have.

Operator, Operator

Thank you. Our first question will come from Matthew Boss at JPMorgan. Your line is open.

Matthew Boss, Analyst

Great. Thanks. Hillary, could you elaborate on the factors contributing to the gradual improvement you've integrated throughout the year? What do you identify as transitory within some of your near-term trends? Additionally, could you discuss the product pipeline for the latter half of the year at both VS and PINK?

Hillary Super, CEO

Sure thing. I'm not going to speak too specifically about product launches because we want to keep those under wraps. But I would say embedded in our forecast is, number one, first and foremost, getting teams in place and getting leaders in place. And so I would say a major, major driver of the improvement will be through marketing, through the full funnel and the differentiation of the two brands. So, I would say that is a major driver. The second is incremental improvement in both PINK and the Victoria's Secret brands as we apply our learnings. And then third is a number of tentpole moments that we have planned really beginning in the August timeframe. So you will see us pace those out across the back half of the year. And really in the front half of the year, we are a little more quiet in terms of our marketing, building out that muscle, getting ready for the back half, and you'll start to see those types of moments really accelerate in the back half as well as product launches and some fun collaborations.

Matthew Boss, Analyst

Great. Best of luck.

Operator, Operator

Thank you. Our next question comes from the line of Adrienne Yih with Barclays. Adrienne, your line is open.

Adrienne Yih, Analyst

Great. Thank you very much. Hillary, I'm interested to note that you arrived in September and you've made some changes very quickly on inventory and new product. Wondering over what horizon you just mentioned August, do you think that you will have your full imprint on kind of the product? And then secondarily, a couple of things that you had said, I think, on the October meet and greet was that the inventory productivity was being hampered by the production lead times. So if you can talk about some efforts on that front. And my last quick one is, it's clear that you're pulling back on promotions. That sometimes leads to a slowdown or sluggishness in inventory velocity, but the profitability is better. So can you talk about how shaping and how the margins before you get that acceleration in sales? Thank you very much.

Hillary Super, CEO

Sure. First question around full imprint. It will be iterative. I don't envision a big curtains moment. For each brand, you will see incremental improvement each month. I would say the impact on the first half of the year is really on optimization. It's on narrowing focus, maximizing the big ideas, neutralizing some of the things that we're more worried about, actually focusing a little bit more on the lower funnel and marketing. And then we are buying fall as we speak. So I've had more involvement in that, and we'll have more increasing involvement in future seasons after that. But I would say, based on product development timelines, really spring '26 would be the season that I would have been here through the entire process. Second question around inventory.

Adrienne Yih, Analyst

The lead times, yes.

Scott Sekella, CFO

Production lead times.

Hillary Super, CEO

Production lead times. I would say we're in pretty good shape. There are places where we have incredible agility, underwear being a big area around that. I would say some of the PINK apparel areas we've been able to make real headway with. And then I would say the new leadership structure is really designed to enable us to pull apart those product development processes so that we can cater to a specific customer in the specific categories. So that's a big piece of this work. We actually have a tiger team devoted who have stepped out of their roles for a short period of time to really engineer this new process. So I would say we have a little bit of one foot in the old world and a little bit of one foot in the new world, but we're making progress on the areas where we see we need to be much more agile. And in terms of promotions, we have just started that work. And I think it's a delicate balance. The brand, the product, and the story has to be very strong in order for us to be able to do that. And we were able to start proving that out in holiday. We were able to forego a full box promo in mid-December that we were up against from last year, and we were also able to reduce the amount of days in other events across the quarter. Did we give up a little bit of top line? I think we probably gave up a little, but we're really pleased that we were able to take that out of our base. And we're looking for opportunities going forward to do that as well. I would say most recent traffic and weather patterns have made that a little bit more difficult to do, but we will continue to be relentless in looking for those opportunities as we move through the year.

Adrienne Yih, Analyst

Fantastic. Best of luck and thank you.

Operator, Operator

Thank you. Our next question comes from Simeon Siegel with BMO Capital Markets. Simeon, your line is open.

Simeon Siegel, Analyst

Thanks. Hey, everyone. Good morning. Scott, welcome. TJ, it's been great working with you. Thanks. Best of luck on your next chapter. Hey, Hillary. Thanks for the path to potential detail. Any way to quantify the top-line opportunity within those various pillars? Just maybe thinking about how you're viewing various opportunities across brands, categories, and regions maybe in quantitative detail? And then just given the comment about expanding beyond bra-centric, could you share how much of the opportunity as you see it to grow is rooted in recapturing lost revenue in each segment versus expecting maybe the go-forward company revenues composition to look different than the past? Thank you.

Hillary Super, CEO

Okay. There were a lot of questions in there. Let me see if I can take a crack at that. We are at the beginning of our LRP work. So this is the beginning of the strategy rollout. So I do not have exact numbers. We will plan to share that in the back half of the year. But I will say there is a tremendous amount of opportunity in PINK, and that is where my eyes are set right now. That is where I'm spending a lot of time thinking about how we invest in that business, how we resource that business, how we talk about that business, and pull it apart from VS. So that would be my first. I would say in the intimates category, knowing that it is a category that has been struggling in the overall market, our goal there is really to defend in the short term as we build our innovation pipeline on a longer-term view. And then the lifestyle categories are really very strong for us. And if you look back to history in these categories, they were a very significant amount of volume in the past and we feel very confident that we can recapture a lot of that. And I think that will help our customer file. It will help us with acquisition. It will help us with attracting younger customers. And there's a lot to like about the lifestyle piece of this. And I put a lot of focus on that as we move forward.

Simeon Siegel, Analyst

All right. That's great. Thank you. And then just one quick follow-up. Any meaningful divergence in regions or customer demographic profiles in January and February that you guys have seen?

Scott Sekella, CFO

Yes, in terms of regions, the warmer weather areas were definitely several points above the colder regions. This reflects the impact of weather from the latter part of January through February. When we experienced warmer weeks, all regions showed an upward trend. So, from a regional perspective, we noticed noticeable differences.

Simeon Siegel, Analyst

Perfect. Thanks a lot guys. Best of luck for the year.

Operator, Operator

Thank you. Our next question comes from Corey Tarlowe with Jefferies. Corey, your line is open.

Corey Tarlowe, Analyst

Great. Thanks and good morning. So I was wondering if you could talk about the opportunity that you see in creating some of these separate tracks for product lines in terms of your strategy and how this interplays with the opportunity in particular categories that have been historically very important for the company like swim and athletic. And then also if you could also just comment on Valentine's Day and anything that was working during that timeframe that would also be very helpful too. Thank you so much.

Hillary Super, CEO

Sure. Multiple tracks. I think this is essential. We are currently on a 52-ish week calendar really anchored in the lead times around bras. We have made progress on having chase calendars to really supplement that in key categories, but I fundamentally believe that apparel should not be on a 52-week calendar. And so we're looking to drastically reduce that through a raw material strategy, partnering with our vendors, different ways of working in our product development process. And the goal would be in things like, I'll just use PINK apparel as an example, we should be going like 26 weeks for that. And that will be a big shift and a big unlock to bring decision-making closer to the customer. And I'm very excited about the potential of what that will add to our business. And you mentioned swim and sport, both very technical, both have nuances in the product development process that are very different from other categories. And so separating that out in swim and sport, maybe a little less about the speed and a little bit more about the technical product engineering piece of it. And so having experts dedicated to that on different tracks should really enable much better product execution; and number two, should enable agility in the places where we need it the most. Valentine's Day, I'll take that opportunity to just talk a little bit about January into February in general. So we definitely saw a macro shift in the environment as it relates to traffic sort of mid-January into mid-February. We know what the macro factors are there. We know it was weather. We know it's consumer confidence. We know that in our business, we see a big uptick in cash and debit purchases coming from tax returns that were delayed this year. We see in our regional selling that the warm weather climates did considerably better than the cold weather climates. That being said, there's an opportunity to really look in the mirror as well and make sure that we are playing forward every single learning possible. And so when I think about that sort of mid-January to mid-February timing, I would say there are a couple of things we could have done better. One is that we pulled marketing spend into Q3 for the fashion show. And I think one of the insights coming out of the fashion show is that that halo effect in terms of traffic was about eight to ten weeks. So in hindsight, I think we pulled back a little too far on marketing, and we should have had some other event, whether it was around sport or Valentine's Day in January to really drive that heat and awareness and traffic. So that would be the first. The second is that we didn't buy Valentine's Day big enough. So we blew through sleep, which was one of the big drivers of holiday. We blew through it in a couple of weeks and basically sold out by the time we got to the beginning of February. So I think that's a big one. And then the third is really thinking about launch strategies in bras and that's something we've done for many, many, many years. And I think in the new environment, one of the things we're learning is that when we go hard against one thing, it isn't always necessarily lifting everything. And so we need to find a way to talk about a launch in a powerful way and also talk about all the other bra offerings that we have at the same time. And that will be a new thing for us that we're working to implement very quickly. So that would be my diagnosis of the three weeks. And I would just add that three weeks doesn't make a quarter and it doesn't make a year, and we're working tirelessly to make that up as we move forward into the balance of the year.

Corey Tarlowe, Analyst

Great. Thank you, Hillary. Best of luck.

Operator, Operator

Thank you. Our next question comes from Jonna Kim with TD Cowen. Jonna, your line is open.

Jonna Kim, Analyst

Thank you for taking my question. Just thinking about the guide for the year, what could potentially drive upside or downside to your guide as you look forward? And then just a follow-up on the store of the future formats and sort of what are you seeing at this point with your concepts that have been live? And what are you baking in terms of potential lift from those concepts as you continue to roll them out? Thank you so much.

Scott Sekella, CFO

Jonna, can you repeat the first part? We think we heard something about guide. We think we caught the store of the future.

Jonna Kim, Analyst

Yes, sorry, I'm glad I'm in a cold. So, yes, the voice is somewhat gone. But yes, just potential upside and downside to your guide for the full year like what are the key factors that could potentially drive upside or downside to your current year guide?

Scott Sekella, CFO

Yes. So Jonna, it's Scott. So for the guide for the year, as we've already talked about Q1 and some of the near-term headwinds we're facing, we do see the guide improving throughout the year, especially around a lot of the product and strategy changes that Hillary has already outlined. In terms of cost and whatnot, right now, we're faced with some higher transportation costs, both in ocean and air, in the first part of the year. We do expect to start lapping that in the back half of the year. In the back half of the year, right now though, is where we've got the impact of the tariffs plan that we called out. So we've got a 10% assumed on China for the balance of the year, and that's going to be worth about 10 million to 20 million. And so those are the sort of bigger inputs influencing the guide for the year. So when you think about that gradual improvement, that's where we see the year going. In terms of store of the future, the early results are quite positive. We are ramping that up throughout the year. We've got more full and partial store of the futures in the works this year than last year. By year-end, we should have about 95% of our top 100 doors converted, and we look to continue that into the out years as the early returns have been very positive.

Tim Johnson, Former CFO

Yes, Jonna, if I could, just one additional thought on the guide because I think it's important. We've seen some of the sell-side notes this morning. And just to clarify, if you look at our guide for the year at $6.2 billion to $6.3 billion, you're looking at really flattish to maybe up $100 million or up one or two points for the year. We gave you the guide for Q1, which was essentially down two to down four. So where I'm going, Jonna, is the balance of the year in our guide, we're really saying up low-single-digits, plus one to plus two or three. So not necessarily the same trend that we saw in the fall, but definitely improvement from spring. So we think that's something that's attainable for the business for the reasons that Hillary just mentioned around product and marketing changes that you should expect going forward. And then similarly from an OI perspective, we're guiding OI essentially flat to down close to $50 million year-over-year. The bulk of that decrease is guided to in the first quarter. So you are seeing OI or operating income improvement in Q2 through Q4. So I want to make sure that that's well understood. This is not a significant hockey stick in the back half of the year or anything like that. It's really an expectation that over time we'll return back to that plus one plus two in North America, which again, clearly we were trending much stronger than that in the fall season.

Jonna Kim, Analyst

Got it. Thank you.

Operator, Operator

Thank you. Our next question comes from Alex Straton with Morgan Stanley. Alex, your line is open.

Alex Straton, Analyst

Perfect. Thanks for taking the question. Maybe first for Hillary, it's clear you're super focused on PINK more so than the other banners and other parts of the business right now. Can you just elaborate on what's telling you that that's the right banner to focus on compared to Victoria's? And then just a second question either for Scott or Hillary is just, can you dive into the biggest category pain points at Victoria's and PINK right now and sort of plans to improve those in '25? Thanks a lot.

Hillary Super, CEO

Sure, I'll take that. I'll just start by saying I wouldn't categorize that I'm much more focused on PINK than VS. I think they're at two different trajectories in their business. So first on the PINK side. When you really dig in and look at the history of PINK, what it used to be, what it is today, there is just enormous opportunity. When you look at the market landscape, there is enormous opportunity. And when you look at some of the decisions made over time, it's a little bit of a death by a thousand paper cuts. And so when I stand back and look at that, I see opportunity. And I see opportunity in apparel specifically, and you can get at that faster. And so there's a lot of work to do with PINK. There's a lot of scrubbing of the total brand position. There's a carving out of this brand that needs to happen. There's a reimagining of it to make it as magical to this generation as it once was to a previous generation. And I think that is within our grasp. So I'm passionate about that. At the same time, I'm so passionate about Victoria's Secret, and I believe there is tremendous opportunity there. I think Victoria's Secret is farther along in its product development and sort of product resonance path. I think the work in VS is about supercharging the lifestyle piece of the business that I believe will ultimately buoy the core business. And I think it's about brand voice, how we go-to-market, how we utilize full funnel, a little bit more slanted to marketing where PINK is work across the entire business. So I hope that clarifies that. In terms of categories, what's working and driving the business right now, it is lifestyle categories. That is driving the business right now, where we're seeing the growth. We're seeing it in sport, we're seeing it in swim, we're seeing it in accessories, and we're seeing it in PINK apparel. So that is where we are seeing strength right now. I would say that in bras, as an example, very sexy is good. But as I just mentioned in the last question, I think the unlock for us is making sure that when we launch a bra, it lifts all boats. And that's the work that we have to do in that area.

Alex Straton, Analyst

Thanks so much. Good luck.

Operator, Operator

Thank you. Our next question comes from Mauricio Serna with UBS. Mauricio, your line is open.

Mauricio Serna, Analyst

Good morning, and thank you for my question. I wanted to follow up on something from the Investor Day a couple of years ago regarding the $40 million in savings expected to materialize in 2025. Is that still accurate, and where should we expect to see those savings? Additionally, could you provide more details about your marketing efforts to differentiate PINK from Victoria's Secret? Lastly, could you highlight any recent product launches that you believe are noteworthy for both brands? Thank you.

Tim Johnson, Former CFO

Yes, I think on the savings goal, you're referring to the $250 million Transform the Foundation goal that the company set back in October 2022 is when we first introduced it. We saw about $90 million of savings in 2023 that we communicated. I would suggest to you that the company saw closer to almost $200 million of cost savings in 2024, and we think that we've largely completed that three-year goal here in the first two years. Now having said that, we're confident that there are opportunities to continue to be more efficient in the model going forward, and we are confident that the leverage point still remains in that 1% to 2% range, or said differently, we need a 1% to 2% growth number in North America sales to generate leverage in the model. I think if you take a look at how the year progressed in 2024, we're confident we saw gross margin or average unit cost reductions that saved money and showed up in our margin rate performance for the year. And then from an SG&A standpoint, I hope it's not lost on the group that SG&A dollars on a 52-week basis were actually down year-over-year even though sales were up and incentive compensation was up for the year. So there was a lot of good work that's already been done by the team. Having said that, we think there's opportunity going forward. I think your other two questions, if we caught them right, were around marketing and product launches that have already been completed and if there's any dialogue on those.

Hillary Super, CEO

Sure. I'll take that. So in marketing, I would say the focus for the two brands is a little bit different. So in VS, we already have very, very high awareness. So the goal is really consideration. We are doing very, very well with our existing and reactivated customers, highest retention rates in many, many years, highest spend, highest margin per customer, higher retention rates, so much good going on there. We're a little slow on acquisitions. And so that's about consideration for VS. And as we double down on sexy, glamorous, accessible luxury, that doesn't change. But I think what is sexy in 2025 is something different than what it was a few years ago and how do we evolve with culture and connect with the consumer and make her see us in a different light to introduce new consumers to this brand? That is the goal in VS. I would say, in addition to that, we have an opportunity to rebalance the spend across the funnel, focus more in the mid to lower funnel, and be much more thoughtful about when we're spending in the upper funnel, so we can reach more consumers. In PINK, it's different. It's more about awareness. We have not been aggressively marketing PINK. We need to evolve our look and feel there. And when we feel the look and feel is right, when we feel we have the right partnership strategies, when we feel we have the right collaboration strategies, which we are aggressively working towards, we will turn that on, and it's just a different tactic for that brand. And then you have to stand back and say, okay, we have an ecosystem of our loyalty program, of our store real estate, how do we leverage the two together for the power of the entire enterprise. And so, you have to have your foot, one foot in the brands and the special needs of the brands and then the other foot in how do you optimize the entire file. And that's the work that's ahead of us.

Mauricio Serna, Analyst

And the product, sorry?

Hillary Super, CEO

Product launches. Q4 is not really a time for product launches. It's all about gifting. So we don't typically launch a lot in Q4. I would say that sport is probably the most recent place where we've launched. We relaunched VSX in a big way in October, very successfully. We followed up with a relaunch of the knockout bra in January, also very successfully. I think our positioning on best-at-bras in sport is a real competitive differentiator and something that we plan to lean into, and we're having a lot of success there.

Mauricio Serna, Analyst

Great. And just one quick follow-up. In your guidance, how should we think about the promotional activity like is it going to be more promotional versus last year, flat, or slightly lower? Just wanted to get a sense of that.

Scott Sekella, CFO

Yes, Mauricio, it's Scott. Yes, for the year, we're planning promos to be down. So Hillary touched on it. It's more about some of the big-box promos that we'll be pulling back on. We still will be promoting, especially in the traffic driving categories. But throughout the year, we do expect less promotions to be sort of a tailwind on gross margin.

Mauricio Serna, Analyst

Got it. Thank you so much and good luck.

Operator, Operator

Thank you. Our next question comes from Ike Boruchow with Wells Fargo. Ike, your line is open.

Juliana Duque, Analyst

Good morning, everyone. This is Juliana on for Ike. Just a quick question on international. Wondering if we could get some more color on what's going on there with the shifts we saw from 3Q to 4Q and maybe in growth expectations for 1Q and the rest of the year, if possible? Thank you.

Tim Johnson, Former CFO

Yes. I'll begin, and others can chime in. From our viewpoint, we had another successful fourth quarter and holiday season for the international team. We mentioned in our prepared comments that we achieved double-digit growth from a retail perspective globally, with all markets contributing, particularly strong performance in our franchise and travel retail sectors in collaboration with our UK partners at Next. Our business in China also demonstrated solid performance during the fourth quarter, despite some volume being shifted to Q3 due to the calendar change on singles days. Overall, we believe the business performed very well internationally. It's worth noting that we launched in new countries, especially Vietnam and Argentina, with more expansions planned for 2025. As we enter 2025, we anticipate positive impacts from our European distribution center, which the teams have been developing. This third-party distribution center in the Netherlands will enhance our ability to support growth within European countries and improve our digital business. We will be able to fulfill orders much faster for digital customers from the Netherlands rather than from Columbus. There is a great deal of potential in the international digital landscape, as well as in international growth in general. As we progress through 2025, we will continue to expand our physical presence into new countries such as Serbia, Slovenia, Slovakia, and others planned for the New Year. Additionally, the chance to be closer to customers with our products is a significant advantage as we move forward.

Scott Sekella, CFO

And it's Scott. The only thing I would add is beyond the new country growth, the other thing that's exciting is we are comping mid-single digits as well. So it's both the white space new opportunity growth, but positive comps as well.

Juliana Duque, Analyst

Great. Thank you so much.

Operator, Operator

Thank you. Our next question comes from Brooke Roach with Goldman Sachs. Brooke, your line is open.

Brooke Roach, Analyst

Good morning and thank you for taking our question. Hillary, I'm hoping you could speak to the size of your sport and swim businesses today as well as the growth opportunity that you see this year and medium term as you establish those larger businesses. And then for Scott, there's been a lot of discussion about marketing today on the call. I was hoping that you could contextualize your expectations for SG&A for the year and how that item might trend as a percent of sales as we move throughout the rest of the year. Thank you.

Hillary Super, CEO

I will start with sport and swim. Compared to the total VS&Co business, they are still relatively small but are growing nicely throughout last year and into this year. We see it as a significant growth opportunity. Even when we look back at past performance, it hasn't reached its full potential. I believe there’s a long runway ahead and we have real expertise in this category to leverage. Additionally, early indicators for spring are looking very good. The momentum continues, and we plan to build on it.

Scott Sekella, CFO

Yes. From a marketing and SG&A perspective, marketing is expected to remain mostly unchanged from last year. The main focus will be on how, where, and when we allocate our spending. While the actual dollar amount will remain relatively stable, we anticipate a need for 1 to 2 points of growth in North America to achieve leverage. This guidance indicates a slight increase in SG&A due to wage hikes and other expenses. However, as we aim for that 1% to 2% growth, we expect to start leveraging SG&A more effectively.

Brooke Roach, Analyst

Great. Thanks so much. Best of luck going forward.

Operator, Operator

Thank you. Our next question comes from Marni Shapiro with The Retail Tracker. Marni, your line is open.

Marni Shapiro, Analyst

Thanks, guys, and congratulations on some of the progress at PINK that Valentine's Day set, I think was the best I've seen in five years, maybe longer than that even. It's fantastic. So I want to dig in just a little bit on PINK. You gave a pretty clear indication of what your goal is marketing-wise on VS with sexy, glamorous, lux. I'm curious what those three words are for PINK. And if you're not there yet and you're still working on it, that's okay. But I'm curious what you're thinking about it today because that shopper, that young girl is different today than that young girl was when this brand was born? And then just also curious, we've talked a lot about marketing here. You talked a lot about the success of the fashion show and the halo it gave. Should we assume that the fashion show is going to be a thing in '25? And what should the marketing look like across the quarters? Will it be a little less lumpy than this year than it was last year?

Hillary Super, CEO

Are you spying on me, Marni? I've been talking about those three words quite a bit. The reality is, I think we need to go and do a lot of studies about this consumer before we nail those three words. So we're in the process of putting together a research plan to really reconnect with this customer before landing it. Certainly, we have ideas around this. We know it has been at the heart of this brand. We have a good idea of where we're going, but I think we need to study this customer very carefully before putting that line in the sand. You asked about the Fashion Show. So yes, the Fashion Show, I'm glad you asked about that actually because it's a really great story. I think all-in-all, the Fashion Show was a huge success. We know that it improved brand sentiment, especially with our target younger audiences. We saw continued strength in our retained and reactivated customer file. We sustained positive traffic, and it looks like it's about eight to ten weeks of tailwinds coming off of the Fashion Show at the most important time of the year. So I think that's a very important learning. But I think we needed to follow it up with something in that sort of late December into January time period, and that was the opportunity. So to answer your question, yes, we should see marketing be more leveled out. There will be a spike with the Fashion Show, but it won't be to the same degree.

Marni Shapiro, Analyst

So the show will be back though in '25.

Hillary Super, CEO

We are still working through that. There will be some activation of some sort that is significant in the back half of the year and we're working through a number of options around that. So there'll be more to share in future earnings calls.

Marni Shapiro, Analyst

Excellent. Thank you, guys.

Operator, Operator

Thank you. That is all the time we have for questions. Kevin, I'll hand the call back to you.

Kevin Wynk, Vice President of External Financial Reporting and Investor Relations

Okay. Great. Thanks, Amanda. That concludes our call this morning. Thank you for your interest in VS&Co. Thanks, everyone. Have a great day.

Operator, Operator

Thank you all for participating in the Victoria's Secret & Company's fourth quarter 2024 earnings call. That concludes today's conference. Please disconnect at this time and enjoy the rest of your day.