Victoria's Secret & Co. (VSXY) Q1 2023 Earnings Call Transcript

Good morning. My name is Sue, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Victoria's Secret & Co. First Quarter 2023 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 & Co. Kevin, you may begin.

Thank you, Sue. Good morning, and welcome to Victoria's Secret & Co.'s first quarter earnings conference call for the period ending April 29, 2023. 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 statements found in our SEC filings and in our press releases. Joining me on the call today is CEO, Martin Waters; and 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 our SEC filings. Reconciliations 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. Thanks. And now, I'll turn the call over to Martin.

Thanks, Kevin, and good morning, everyone. As we've shared consistently inside and outside of the business, we're laser-focused on the three pillars of our long-term strategy. Number one, to strengthen the core; number two, to ignite growth; and number three, to transform the foundation of our company. And we have defined and are delivering initiatives in each pillar that we believe will steadily provide profitable growth into the future. And before we dive right into the quarter, I want to share my appreciation for the hard work and dedication of our associates and partners around the world. I'm especially thankful for the team's continued commitment and for all they're doing as we push forward with our strategy. We entered the year clear about the pressure customers across the world are feeling and prepared for the challenging macro environment. And as anticipated, the first quarter overall continued to be volatile and difficult for our customers. Sales performance was particularly challenged in our core categories where external market data indicates that the overall stores and digital intimates market as a whole in North America was down mid to high-single digits compared to last year. As the quarter progressed, our business in North America became increasingly more challenging, and while we ended the quarter with sales in line with our original expectations, we were more promotional than planned as we continued to pursue our share of consumer spending. As a result, the quarter ended at the lower end of our adjusted operating income guidance. On a positive note for the quarter, inventory levels of Victoria's Secret and PINK ended the quarter down low double-digits compared to last year, and we're prudently positioned as we move forward. Our international business continued its stellar growth around the globe with China being a particular bright spot. Adore Me met our expectations during the first quarter as part of VS&Co. Now turning to the numbers for a few minutes. In the first quarter, our adjusted operating income was $55 million, and adjusted earnings per diluted share was $0.28. Overall, sales declined 5% in the quarter compared to last year, which was in line with our expectations. Adore Me represented about 5 percentage points of sales growth in the first quarter. After a solid fourth quarter, sales trends softened throughout the first quarter, particularly in North America stores, where traffic finished below last year. In contrast, traffic online was flat compared to the first quarter last year. Conversion rates and average unit retail in both channels were lower than last year but remained above pre-pandemic levels. From a merchandising perspective, we remain the leader in domestic market share for the intimates category. On a rolling 12-month basis, our domestic market share in bras was relatively flat to last year, while in contrast, our market share in the panties category was down year-over-year. Again, from a category perspective, starting with Victoria's Secret, our casual sleep and beauty businesses continue to be our best performing categories both in-stores and online, followed by bras. Within PINK, casual sleep and intimates outperformed apparel, which had another difficult quarter. We estimate that the previously identified apparel challenges in PINK negatively impacted the first quarter sales by approximately 2 to 3 points. As I said earlier, our international business continued its stellar performance with reported sales up 19% for the first quarter compared to last year, and total international system-wide retail sales were up in the mid-teens as well. The business continues to experience momentum and provide profitable growth across stores and digital around the globe. In particular, our China business experienced outsized growth in digital and strengthened our stores as they lacked COVID-related restrictions last year. We achieved profitability in our China business for the first quarter and continue to leverage the strength and capability of our excellent partner Regina Miracle. We continue to be optimistic about sales, profit, and store growth opportunities for all of our partners around the world. Aside from the financials, over the last 90 days, we've executed several key actions in support of our strategy and positioning for the long term, including we are relentlessly focused on best-at-bras strategy and delivering newness, innovation, solutions, and inclusivity to our customers. We recently launched our solutions bra campaign focused on a comprehensive collection of product solutions to cover a broad range of outfitting needs. We are enhancing Victoria's Secret and PINK customer experience with the pilot of our new customer multi-tender loyalty program in February, with a full rollout to all of our customers planned for later this week. We launched our newest heavenly campaign with a new look and feel featuring the return of the beloved brand icon Adriana Lima. We're about to kick off a test of having Adore Me products on our online platform and continue to leverage Adore Me’s expertise and technology to improve the customer experience by developing our launch plans for Try On at Home and membership services for the Victoria's Secret and PINK customers in the third and fourth quarters, respectively. We took actions to advance the transformation of our foundation by further reorganizing and streamlining our organizational structure, focusing on efficiencies to yield more profitable growth. We continued to make progress on our ESG journey and published our 2022 ESG Report in April. I can't overstate how excited we are about the World Tour coming later this fall; it will be an epic reimagining of our iconic fashion show celebrating women from around the world and an ultimate expression of our brand transformation. Looking forward to the balance of the year, with a difficult environment we experienced in the first quarter now continuing into the second quarter, we’ve updated financial outlook for the second quarter and balance of the year. We expect sales in the second quarter to decrease in the mid-single digit range compared to last year, consistent with the first quarter result, and we are forecasting adjusted operating income to be in the range of $35 million to $65 million. We expect inventory levels in our core Victoria's Secret and PINK business at the end of the second quarter of 2023 to be down mid-teens compared to last year. For the full year, we're now assuming current sales trends in North America will continue throughout the second quarter with moderate improvement in the second half of the year as we anniversary softer sales trends and as we begin to benefit from our new growth strategies and new customer experience initiatives, which are being rolled out this year. Our forecast assumes overall sales will be flat to down mid-single digits compared to last year, with the Victoria's Secret and PINK business down mid to high-single digits for 52 weeks, approximately 4 to 5 points of growth from Adore Me, which is new to our results in 2023, and approximately 1 to 2 points of growth due to the 53-week in fiscal 2023. At this level of sales, we now expect our adjusted operating income rate for the full year 2023 to be ultimately 5% to 6%. While we believe our customers will continue to face challenges for the balance of the year, we remain steadfast and focused on the three pillars of our long-term strategy, and we're executing initiatives in each pillar to position us for sustainable growth over the long term. To highlight a few, under strengthening the core, new customer experiences include bra launches and innovation, reimagining our merchandise positioning and strategy for PINK, a full company rollout of our new loyalty program, new customer experience initiatives in our digital technology, further expansion of the successful store of the future format, and of course, the World Tour coming later this fall. Within igniting growth, our international business has momentum with partner expansion plans for over 100 new stores and several new markets planned over the next two years. We also plan to leverage Adore Me's technology on our scale platform, starting in the third quarter and continuing through the fall season. And we're continuing to expand our channels of distribution, for example, on Amazon, to meet customers where they are. Finally, under transforming the foundation, in the first quarter, we took additional measures to reorganize our home office and organizational structure for efficiency and continue to take steps to drive operating margin expansion by modernizing the operating model. These initiatives with future benefits are well underway, and we remain committed to the total $250 million opportunity identified at our October Investor Day. We've begun to realize the benefits related to these initiatives in 2023, with more than two-thirds of the total savings expected to be realized in '24 and '25. Of course, we recognize that neither our brand evolution nor our strategy will return their full potential overnight; they are a journey. We also believe they are a clear path to growth through the current turbulent environment and into the future. Our focus as leaders and as a company is on ensuring we continue to be future-facing and become more culturally relevant in this shifting consumer environment. We understand there could be volatility in our results this year; however, we remain committed to delivering our long-term financial targets and returning value to shareholders. Thank you. And that concludes our prepared comments. At this time, we'd be more than happy to take any questions that you might have.

Thank you. Our first question is from Simeon Siegel with BMO Capital Markets. You may go ahead.

Thanks. Hey, guys. Good morning. Martin, with inventory now cleaner, if the environment doesn't improve, can you just speak to how you plan to think through balancing revenue goals versus margin goals because you don't need to clear? And then, TJ, what was the impact of Adore Me on gross margins? What should it add for the rest of the year? And then just what's the implied fixed cost deleverage in gross and SG&A embedded in the 2Q and full year top line guidance? Thanks, guys.

Good morning, Simeon. Yes. As I mentioned in my pre-prepared remarks, our inventory positioning is prudent. We are being cautious in our outlook. We approached the full system, the fall season about 50% bought, about 50% open. So we have the ability to chase into the things that are working. Obviously, the intent is to switch from being as promotional as we have been and to be more focused on newness, particularly excited about new bra launches, two within Sport in the second quarter. A big bra launch in the fall season in the non-full category. And of course, we got the relaunch of PINK as well as many other initiatives I talked about in my pre-prepared remarks. That said, if we continue to see market share pressure, particularly in the panties environment, we will promote as hard as we need to in order to ensure we get our fair share. And as you know, as well as anybody, it's a balancing act. We review it on a day-to-day basis; we're very thoughtful about our plans, and we are agile and able to pivot if need be. But the main thing to say, Simeon, is that we're being prudent and cautious in our outlook. Thank you. TJ?

Yeah. I think the second part of your question, Simeon, from a gross margin perspective, you are spot on. Adore Me does operate at a higher gross margin than the VS&Co Company; I think we've commented before in probably the low-50s to mid-50s depending on the quarter or time of year. Relative to the big company, VS&Co in total, that would have had a positive impact on gross margins in the first quarter of about 20 basis points or 30 basis points. So not overly material, but certainly, we appreciate the health of that sale and the health of that business. I think taking a big step back from a gross margin perspective, gross margin rate in the first quarter was down about 10 basis points in the VS and PINK side of the business because of some of the benefits from supply chain, et cetera. Selling margin was actually up in the quarter for VS and PINK. And the gross margin rate for VS and PINK was down slightly for the quarter, really because of the buying and occupancy deleverage in the first quarter. From an expense standpoint, it's difficult to speak to a fixed hurdle rate given the level of sales that we're talking about and the different impacts. I guess I would answer the question slightly differently. Simeon, actually, from a dollars perspective, SG&A dollars similar to first quarter. For VS and PINK, we are forecasting SG&A dollars down year-over-year. So that is down in the second quarter, down in the first quarter compared to the prior year. You may recall that throughout last year, each of the four quarters from an expense standpoint were down in the range of $30 million to $40 million a quarter year-on-year. So multi-year good management of the cost structure from a VS and PINK perspective. No reason to expect that, that won't continue through the balance of the year. Last point, I would make on cost and then open it up to the next question would be we continue to make progress on our transform the foundation initiatives around cost both from an expense standpoint and a margin standpoint. Expenses in the first and second quarters are positively impacted by those initiatives, and we're confident as we move into the fourth quarter and holiday season, we'll start to see the margin side of that or the lower cost of goods impact that the team is working on. So everything is moving along as planned from a cost perspective. I hope that helps. Thanks.

Thanks, guys. Have a nice summer and best of luck.

Thank you. The next question is from Alex Straton with Morgan Stanley. You may go ahead.

Great. Thanks so much for taking the question. I just have a couple for you. The first is kind of in relation to the top line. So I'm just wondering, how do you think about the divergence between the North America and international performance? Are you doing something different internationally on a micro level there, or is there something else driving that difference? And then secondly, on Adore Me and the technology that you guys are benefiting from, can you just remind us what capabilities they bring with them and kind of what that unlocks for Victoria's? Thank you.

Yeah, I'll take that one, Alex. Thank you for that. So the divergence in performance between international, which was very strong, mid-teens system-wide sales growth versus North America, I think, is due to a number of things. One, I will point to the outstanding execution of our partners around the world who are truly world-class and performing in a very strong way. Secondly, there are some easier compares to last year where COVID had a slightly more delayed impact than in North America. The economic impact that our customers are feeling, where a large number of our customers have a household income in North America below $100,000 a year, is more acute than it is elsewhere in the world. Our positioning is at a more premium level. So there are a number of factors there. But overall, I would say that there is very strong execution internationally. I will just point out China, where we are doing something different to your point. Our partner, Regina Miracle, has built capability for us to be able to read and react and also develop products specifically for the China market, which is working extremely well. We are developing influencer strategies that work really well online and in digital forums. So we're developing a different model in China that is definitely delivering benefits, and we plan to expand that throughout the Asia region. So there's lots of optimism in international. As it relates to Adore Me, we often say that in buying Adore Me, we acquired two companies. One, we bought a company that is growing and profitable and pointing at the value sector of the market where we don't have Victoria's and PINK pointing, and that's a very good rationale for the purchase of the company. The second is that it's a technology company, and there are many, many synergies that Adore Me can bring to our larger platform in Victoria's and PINK. We've decided to focus on three for the first year, just three, even though we've identified many, many more. These are number one, selling Adore Me products on the VS.com system, and that will begin later this month in June. We're excited about that; we'll be testing it. So if you don't see it on your screen, it's because you're not in a test sale. So that's number one. Number two is borrowing the excellent capability they have on the Try On at Home system, which will launch Victoria's and PINK again on a test basis during Q3. Then beginning to develop member services, which Adore Me has perfected over many years with great technology, including AI, that will be launched throughout the fourth season as part of our loyalty program. So a lot going on with Adore Me. We continue to be very pleased with that acquisition. The management team is fantastic, and the integration is going very well so far. So thanks for the question, Alex.

Thanks. Good luck.

Thank you. The next question is from Matthew Boss with JPMorgan. You may go ahead.

Great. Thanks. So two-part question. Maybe first, Martin, could you elaborate on the cadence of traffic that you saw in the quarter? Have you seen any change in trends, so far in May against the easier comparisons? And then secondly, could you elaborate on the balancing act that you mentioned between promotion and market share? I guess, what are you watching on the competitive front to dictate your potential actions?

Thanks, Matt. I'll pass it to TJ for the traffic details, but regarding the broader issue of balancing, our goal is to be a premium retailer with a strong emotional connection and added value. We aim to introduce compelling new products that stand out, reducing our reliance on promotions. This strategy has proven effective, especially in the bra category, where major launches like Love Cloud have contributed to growth in market share in the non-sport bra segment over the past year. However, it's more challenging in the panties category, which is quite generic. Despite holding a strong market share of over 26% in this segment, we face intense competition from retailers like Amazon, Walmart, and Target, who offer these products at commodity prices, making it difficult for us to compete solely on newness, quality, and innovation. This has led us to engage in more promotional activities in those areas. Similarly, in sleepwear, our focus is on providing the highest quality products, which we believe we offer. However, during the fall season, we face a competitive market, and maintaining the right balance is crucial. We are committed to achieving both goals and carefully tracking market share across subcategories. In sports, we recognize that we have underperformed due to previous management's lack of focus in this area, resulting in a considerable loss in market share. We are eager to re-enter that market and have two exciting launches planned for Q2 that we believe will help us regain traction. TJ, would you like to discuss traffic?

Yeah. I think from a traffic perspective, Matt, as we commented in our prepared remarks, we were very pleased with traffic during the fourth quarter, particularly at store level. So during the holiday time period when there was significant opportunity with the customer, and it was a very promotional environment, we were able to cut through, and store traffic was very strong. It was one of our bright points, if you recall. So once we move through the semiannual sale in January, really end of January into February is when we started to see traffic at store level start to slow, and we started to lag the mall from a traffic perspective as we went into March and April. So we do think there's some level of connectedness between store traffic and the challenge in terms of the intimates market, where it was relatively flat domestically in the intimates market, including bras and panties, during the fourth quarter. We saw a dip to being roughly down high-single digits in the first quarter. We do believe to Martin's point, particularly in panties and to a certain extent in bras, that's the biggest part of our business. We have to assume that that drives traffic to our stores when the overall market was challenged. We think there is a connectedness between that and store-level traffic. So we're working to do our best. As Martin mentioned, there are a number of things planned for the second quarter around newness and launches, particularly in the bra category. And as we move into the balance of the year, as we talked about in our prepared remarks, there's probably a half a dozen things that are new and different that we're not present in our business in the first quarter that we think can have a positive impact. But we recognize that near-term, the spring is going to be a challenge.

Thank you. The next question is from Lorraine Hutchinson with Bank of America. You may go ahead.

Thanks. Good morning. Martin, I was hoping you could give us a state of the union on the intimates business in North America. Have you been able to diagnose why there was such a significant trend change in the first quarter? And then how are your competitors reacting to this? Is it simply promotions, or is anybody launching any interesting newness to try to compete and take share?

Good question, Lorraine. Good morning. I don't think we have a clear answer for why the market changed so dramatically between Q4 and Q1, but the numbers show a significant decrease in the market. There is some belief that women are moving away from tops that don't require bras, to some extent. Additionally, it seems that during COVID, our categories performed particularly well, and now the trend has shifted a bit. With spending pressures, consumers are allocating their budgets to other areas such as beauty, outerwear, holidays, vacations, food, and beverages. So, there isn't a single or structural reason for the overall decline in the category, but we recognize it is happening. We have to focus on driving traffic to stores in this challenging environment. Our approach will rely on innovation. We need to give consumers reasons to choose our category over others, and that is our primary focus. We aim to utilize technology to enhance customer spending and loyalty. The launch of our loyalty program tomorrow and testing Try On at Home are part of this strategy; we are really trying to engage our best customers to maximize our returns. I wish I had a better answer for you, Lorraine, but I don't at this moment.

Thank you.

Thank you. The next question is from Irwin Boruchow with Wells Fargo. You may go ahead.

Good morning. I have two questions regarding the overall market. I understand you may not have a definitive answer, but we've generally believed that the intimates or underwear categories remain resilient during economic downturns since people still need to buy bras and underwear. Can you provide any insights on why the trend has shifted from flat to a decline in high-single digits? That seems quite drastic and counterintuitive compared to our previous understanding. Additionally, within those categories, what do you think is causing the loss of market share in panties compared to bras, which appear to be performing slightly better? Thank you.

Yeah. Hi. It's kind of the same question that Lorraine answered, so I won't repeat everything that I said in response to Lorraine's question, but I might just add that if the category is under pressure and if the consumer is feeling less affluent, and we know both of those things to be true, it logically skews to a lower price environment. So as we track who is gaining share or who is doing best or losing the least share, it tends to be at the lower end of the market. So volume overall is down, but dollars are down more than units. This doesn't play to our advantage when we're added value, high emotional content players. So we've got to find strategies to overcome that. It behooves us to find ways to cut through that and to be more differentiated than we've ever been previously. I will tell you, as I said earlier, that in the non-sports bra category, that's working for us, and we've gained some share, albeit in a market that's down. Panties have been the most challenged. I go back to what I just said; in a market like panties, it's easier to default to a generic and a low-priced when the economic environment is tough. That doesn't mean we're waving the white flag and saying there can be no innovation and no quality improvements and no emotional content. There can be, and we'll get after it. The other area where we can do better, frankly, is in our Match Back business. So making sure that we always have at least one choice, ideally two choices of coverage in a Match Back to the bra. We know that if we don't have that Match Back panty in store, it can impact our bra business; that's a nightmare for us. So being maniacally focused on making sure the Match Back business is as strong as it can be both online and in stores is really important. We weren't at our strongest during the last quarter, so there's definitely room for improvement there.

Thank you.

Thank you. The next question is from Mauricio Serna with UBS. You may go ahead.

Great. Good morning, and thanks for taking my question. I just wanted to get a little bit more detail on what were the puts and takes on gross margin. If I think about it from the promotional and freight perspectives, how much higher promotions affected the gross margin versus the freight contribution to the expansion? And how are you thinking about that for the second quarter? And then maybe just a second, a follow-up on the AUR. I think you mentioned in your prepared remarks that those were up versus pre-pandemic levels. Could you give us a little bit more detail on how much higher these are versus pre-pandemic? Thank you.

Yeah. I'll take the first one on the margin perspective, Mauricio. From a supply chain and freight perspective, as we called out in our prior guidance, I think we had estimated a potential benefit to the quarter of around about $60 million. Everything from our perspective came in, in or around that number very closely. So that was a tailwind, an expected tailwind that we've been looking forward to for many, many months now. Partially offsetting that was increased promotions year-over-year; as we mentioned in our prepared comments, I would just remind that first quarter a year ago, retailers like us were talking about price up. So first quarter last year was not a very promotional quarter for our business or in retail. The increase in promotions we saw this year was kind of more to the trend that we saw in the back half of the year. So if I think selling margin in total, Mauricio, selling margin for the VS and PINK brands was up year-over-year, with the supply chain benefits being only partially offset by higher promotions. From selling margin to gross margin is really where you see the impact or the pressure from buying and occupancy deleverage on the lower sales. So I would think about it as selling margin up in Q1, offset by B&O deleverage. Selling margin in Q2, relatively flat or up slightly, but the decline in gross margin is all about the buying and occupancy deleverage. Think from an AUR perspective, Martin?

I can take that. I don't want to provide exact numbers, but regarding the bra category, AURs last year were significantly higher than in 2019, around 25% to 30% ahead. We have seen a decline in the high single digits this year compared to last year. Currently, compared to 2019, we are still over 20% ahead, following a similar trend in intimates overall, although it's not as pronounced. We have given back a bit in the mid-single digits relative to last year. I hope that clarifies things.

Thank you very much.

Thank you. The next question is from Adrienne Yih with Barclays. You may go ahead.

Great. Thank you very much. Just on that last comment, Martin. So given that the AURs are still significantly higher, what is your level of confidence that, that level continues to be sticky going forward? And then TJ, for the relaunch of the Fashion Show, well, I guess for both of you, Martin, can you talk about that? How is it different? And then, TJ, can you talk about, is that incremental to advertising spend in the back half, or is it redirected spend from elsewhere? Thank you very much.

I'll provide some comments regarding the fashion show and then you can add your thoughts. Regarding our confidence in maintaining or increasing average unit retails, I'm confident in high-end bras due to their emotional appeal and technical excellence. We are surpassing our competitors in this area because we have access to top innovations, high-quality vendors, and outstanding design. Thus, I feel optimistic about that segment, though I have less confidence in panties as it is a more generic category. We believe we also have an advantage in sleepwear. Additionally, in the Beauty segment, we've seen positive results even in challenging times. Our Beauty business has shown positive comparable sales, particularly with the Victoria's Secret EDP, and strong performance from the Bombshell and bear fragrances. The heavenly campaign, featuring Adriana Lima, reinforces our belief in our ability to increase average unit retails over time. The three categories where I feel most confident are bras, sleepwear, and Beauty. Regarding the fashion show, we recently announced a reinvention, calling it the Victoria's Secret World Tour. Despite being a minor announcement, it garnered over 2.8 billion media impressions, reflecting the excitement around the show. We're transitioning from a single event in North America to a global entertainment experience that unites fashion and culture while embodying our transformation. This effort highlights our dedication to uplifting women, showcasing their voices, and presenting diverse perspectives on womanhood globally. It celebrates our iconic heritage with a fresh, modern approach. We will share more details as the year progresses, but we're genuinely excited about its potential impact on our brand positioning. Early tests indicate that it resonates particularly well with Gen Z consumers, who are our primary target alongside millennials. TJ?

I think the last part of the question, Adrienne, from a cost perspective, we were careful to maintain what we felt was an appropriate marketing budget for the year to drive the core business throughout the year. So from a World Tour perspective, in large part, the cost, as we talked about on our last call, will be incremental to the prior year, predominantly in fall. So very little to no impact from a cost perspective is included in our Q2 guidance, but certainly embedded in our fall, the majority of the World Tour would be incremental relative to the prior year to preserve the marketing budget to drive the balance of the year.

Great. Thank you very much and best of luck.

Thank you. Our next question is from Jungwon Kim with TD Cowen. You may go ahead.

Thanks for taking my question. Just curious about progress with the PINK apparel segment. What’s being done now? And when do you expect to see some improvement in terms of the merchandise? And you commented on this a little bit before, but any further color on different spending patterns by various income levels that you're seeing would be helpful. Thank you so much.

I'm glad to address that. The PINK brand needed a complete transformation, which we identified back in November. The required changes in the non-intimates category are quite substantial. The intimates segment for PINK has been performing well and continues to do so, so we don't anticipate major changes there, aside from expanding into the sport sector, which has been a significant gap for us. Our main focus is on apparel, specifically casual sleepwear, which has also shown strength. However, the area that needs serious improvement is outerwear, including hoodies, T-shirts, and bottoms, where we've relied too heavily on a particular logo approach that needs a thorough update. We expect to see the impact during the fall season, with the first new merchandise drop at the end of Q2. Preliminary results from some of the new products have been encouraging, but we haven't factored a major turnaround into our guidance. We're committed to this effort and have marketing campaigns planned to support the fall relaunch, and we're hopeful that the new products will resonate well. You can expect more updates on PINK as the fall season approaches. Additionally, PINK Beauty has been relaunched, and we're seeing positive signs there as well. As for spending trends, we haven't encountered any major surprises; customers facing economic challenges are finding it difficult to spend on discretionary items, especially at higher price points. This poses a challenge for us in North America, where a significant part of our market share comes from this demographic, whereas our international positioning is more premium. I hope that provides clarity.

Got it. Thank you.

Thank you. Our last question is from Marni Shapiro with Retail Tracker. You may go ahead.

Hey, guys. I'm actually very much looking forward to a PINK relaunch. Martin, can we dive in a little bit to the sports area? You've talked about it in relation to PINK and VS. Many of us on this call have been through your launches in sport before, so you see a pull and relaunch the same with swim. So I guess, could you talk us through a little bit why is it different this time? What are you doing differently? Because I've long felt you guys should be in this business; your own bras, how do you not own sport bras? So can you just talk a little bit about what's different? What are you doing differently to make it work this time?

Yeah. Thanks, Marni. Good morning. Thank you for the question. You and I have lived through the demise of sport within Victoria's Secret and PINK. At the peak market share in 2016, we had 19% share of the sport bra market. Today, we have less than 4% share of the sport bra market. It was not an area of focus for the company. When the company did think about being in the sport business, it went first to apparel and leggings and last to bras, and that's completely the wrong way around. We need to be in the sport bra business. If that comes with leggings and other tops as well, that's great, but the primary focus is bras. The place that we want to win is bras. So 90% of our focus in the sport needs to be in sport bras and making sure we have innovative solutions and launches in that arena that are different from other things that are available in the market. We know who the best vendors are. We work with them on a regular basis. We need to prioritize it. Will it be an instant turnaround? No, we've spent years ignoring that category and training the customer to go elsewhere for that product that we know has a very significant share of her bra wardrobe. So we've got to get after it, and it's not a flash in the pan; if it doesn't work, we have to stick to it. We have to take a multi-year approach to building back a position where we can be dominant. We can be proud of the products that we stand for. We'll do that in both PINK and Victoria’s. Victoria's will be more added value; PINK will be more competitively priced. More to come, Marni.

And can I just ask a quick follow-up as well on the solutions launch, the solutions bra that you launched? It didn't feel like the marketing push behind that was the same as what you did with, say, Love Cloud. As we think about the back half of the year on bra launches that you're going to put forth, should they look more like Love Cloud or more like solutions? What's the plan behind getting it out there?

Hey. Great questions. I would say not all bra launches are born equally. Love Cloud was a very significant launch for us. It had a very broad impact. The sales expectation was significantly higher than we had for solutions. Solutions category is just smaller. But the solutions speak more to us being a specialist and providing things that other people who sell in our category can't provide. It was strategically very important for us to be dominant in that, but it didn't deserve. I use that term advisedly. It didn't deserve the level of expenditure that we would have for Love Cloud. I will tell you without giving too much away competitively that what we have planned for the fall season is a fashion launch that is bigger than solutions. Therefore, the marketing that supports that will be more like what you saw with Love Cloud unless like what you saw with solutions. I hope that helps, Marni. Thank you for bringing up the rear with the last question, Kevin.

Yeah. So that concludes our call this morning. Thank you all for your continuing interest in VS&Co. We appreciate your time.

Thanks, everybody.

Thank you. That does conclude today's conference. Thank you all for participating. You may disconnect at this time.