Good morning. My name is Fran, and I will be your conference operator today. At this time, I'd like to welcome everyone to Victoria's Secret & Company's Second Quarter 2023 Earnings Conference Call. Please be advised that today's conference is being recorded. All parties will remain in a listen-only until the question-and-answer session of today's call. I now would like to turn the call over to Mr. Kevin Wynk, Vice President of External Financial Reporting and Investor Relations at Victoria's Secret & Company. Thank you, sir. You may begin.

Thank you, Fran. Good morning, and welcome to Victoria's Secret & Company's second quarter earnings conference call for the period ending July 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 statement 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 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. We've defined and are delivering initiatives in each pillar, and we believe these will steadily provide profitable growth into the future. Now, before we dive into the details of the quarter, I want to first share my appreciation for the hard work and dedication of our associates and partners all 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. In the second quarter, we delivered sales, adjusted operating income, and adjusted diluted earnings per share within our guidance range while the macro environment continues to put pressure on our customer base and on our core intimates categories. As anticipated, and what was a continuation of first quarter trends, sales performance in the second quarter was particularly challenging in the overall stores and digital intimates market in North America, and this impacted both Victoria's Secret and PINK businesses. External market data indicates that the overall stores and digital intimates market in North America remained challenged and was down mid-single digits in the quarter compared to last year. We continue to be pleased with our international business, which experienced growth in excess of 25% and strong profit flow-through in the quarter, and our recently acquired Adore Me brand also grew sales during the quarter, highlighting the strength of their business model and unique digital strategies. Additionally, our teams were resiliently focused on what was within our control, managing selling margins, diligently controlling costs, and delivering inventory levels of Victoria's Secret and PINK that were down low-double digits compared to last year, allowing us to enter the fall season with relatively lean inventory levels. Now turning to the numbers. In the second quarter, our adjusted operating income was $49 million, and adjusted earnings per diluted share was $0.24, both near the midpoint of our guidance range. Overall, sales declined 6% in the quarter compared to last year, which was near the low end of our guidance range and down mid-single digits. Sales trends from the first quarter in North America continued throughout the second quarter in both stores and digital channels, driven by a decline in traffic and average basket size compared to the second quarter last year. While conversion rates and average unit retail in both channels were lower than last year, each of these key metrics continues to trend above pre-pandemic levels. Adore Me sales were up year-over-year again this quarter and represented about 4 percentage points of total sales growth for VS&Co in the quarter. From a merchandising perspective, sales trends for the intimates market in North America remain challenged, as I said, and decreased in the mid-single digits compared to last year. We remain the leader in market share for the intimates category in North America, including both bras and panties. On a rolling 12-month basis, our intimates market share declined slightly with our digital share up slightly and store share down slightly. From a merchandise category perspective, starting with Victoria's Secret, our beauty business continues to be our best-performing category, followed by bras, sleepwear and panties. Within PINK, intimates and sleepwear outperformed apparel, which had another difficult quarter. We estimate that the previously identified apparel challenges in PINK negatively impacted the second quarter sales results by approximately 2 to 3 points. Our new reimagined PINK merchandising assortment has begun to set and sell both online and in stores, and we're encouraged by early positive response from our customers. Back to our international business, which continued its stellar performance with sales up 26% in the quarter compared to last year. Total international system-wide sales were up in the low teens as well. The business continues to experience momentum and provide profitable growth across stores and digital. The second quarter results were driven by significant year-over-year growth in China through our joint venture with Regina Miracle and globally with partners in our franchise and travel retail networks. In the past 12 months, we have entered four new countries and opened nine new digital sites to increase our global footprint, and we have 25 to 35 net new stores planned to open in the fall season. We continue to be optimistic about sales and 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 brand positioning for the long term, which include: we announced the premiere of the Victoria's Secret World Tour, streaming on the 26th of September on Amazon Prime Video. Part spectacular fashion events, part documentary, this one-of-a-kind show promises an unrivaled viewing experience that celebrates the mission of Victoria's Secret to uplift and champion women on a global scale. The tour will be headlined by GRAMMY award-winning artist, Doja Cat. With relentless focus on Best at Bras strategy and delivering newness, innovation and fashion to our customers, we debuted the Icon by Victoria's Secret, a new collection of bras, panties and lingerie centered around the new Icon by Victoria's Secret Push-Up Demi Bra, and featured an all-star cast of talent, including the return of Gisele Bundchen, Naomi Campbell, Adriana Lima and Candice Swanepoel to the VS family. We also introduced the Featherweight Max sports bra, featuring a revolutionary super light shape design for both gym and everyday wear. We expanded our channels of distribution with the launch of Victoria's Secret lingerie and apparel in the official Victoria's Secret Amazon Fashion storefront. In June, we enhanced Victoria's Secret and PINK customer experience and rolled out our new multi-tender loyalty program to all customers. In just three months, we already have over 16 million members who are currently accounting for over 70% of our weekly sales and that's trending higher. We launched Adore Me merchandise available for sale on www.victoriassecret.com during the quarter, and we continue to leverage Adore Me's expertise and technology to improve the customer experience by further developing our launch plans for Try-on at Home and VIP membership services for the Victoria's Secret and PINK customer. We evolved our leadership structure to advance our strategic priorities with the appointment of Greg Unis as Brand President, along with welcoming back to the brand Anne Stephenson as our new Chief Merchandising Officer. Looking forward, we're focused on changing the trajectory of our sales trends, and our teams have been working tirelessly on multiple growth initiatives designed to impact the third quarter and the all-important holiday season. We're encouraged by August sales trends, which were better than July, the second quarter, and the entirety of the spring season, and believe there are early signs that our growth initiatives are beginning to be noticed by customers. For the third quarter, expect sales to decrease in the low- to mid-single digit range compared to last year, and we're forecasting an adjusted operating loss in the range of $45 million to $75 million. We expect inventory levels in our core Victoria's Secret and PINK business at the end of the third quarter to be down mid- to high-single digits compared to last year. Our guidance for the third quarter reflects an improvement in our sales trend in North America based on August results, as I just mentioned, the phased rollout of the new digital technology capabilities, the Victoria's Secret World Tour and our reimagined PINK merchandise, which, as I said, is beginning to deliver at the end of August. For the full year 2023, we're forecasting sales to decrease in the low-single digit range compared to last year, and we expect the adjusted operating income rates to be in the range of 5% to 6% compared to current analysts' consensus estimate, which reflects sales down approximately 2% compared to last year and an adjusted operating income rate of approximately 5.5%. We remain focused and continue to take important steps to evolve and innovate our business, focused on our three core pillars: strengthen the core, ignite growth, and transform the foundation. We continue to believe executing against our strategies in each of the pillars will improve business trends beginning in third quarter and accelerating into the holiday season. Strengthening the core: We have growth strategies and new customer experiences that we believe are opportunities, including new bra launches and innovation, reimagining merchandise positioning for PINK, our multi-tender loyalty program, new customer experience initiatives in digital, and further expansion of our successful store of the future format as well as the Victoria's Secret World Tour, which will be our largest marketing investment in over five years. Ignite growth: Our international business has momentum with partner expansion plans for more than 100 new stores and several new markets planned throughout the next two years. We also plan to leverage Adore Me's technology on our scaled platforms for the fall season and we're continuing to expand our channels of distribution to meet the customer where she is. Transform the foundation: We continue to take steps to drive operating margin expansion by modernizing the operating model. These initiatives are well underway and we remain committed to the total of a $250 million opportunity identified at our October Investor Day. We've begun to realize those benefits related to initiatives in 2023, and more than two-thirds of the total savings are expected to be realized in '24 and '25. Of course, we recognize that neither our brand revolution nor our strategy will return their full potential overnight. We're on a journey. We also believe there is a clear path to grow through the current turbulent environment and into the future. Our focus as leaders and as a company is on ensuring we continue to be a future-facing business that becomes more and more culturally relevant in this shifting consumer environment. We remain confident in our repositioning efforts and our strategic plans for growth. 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. Lastly, we're looking forward to our Investor Day in our office in New York City on October 12, where we plan to reflect on the previous year and provide an update on our longer-term strategy. Thank you. That concludes our pre-prepared remarks and I'm more than happy to take your questions at this time.

Thank you very much. Our first request is from Matthew Boss with JPMorgan. Your line is open.

Great. Thanks. So, Martin, I have a two-part question. Could you discuss the current brand image of Victoria's Secret and the reasoning behind the strategic shift in marketing with the World Tour? Additionally, could you explain the three pillars and specifically the initiatives you mentioned to strengthen the core, especially in light of the market share you noted in intimates this quarter?

Yeah, thank you for the question, Matt. I'm happy to take that. We are feeling good about where we are on the repositioning journey of the brand. As you know when this management team took over, we defined the challenges being a complete repositioning of the brand. And we've been dedicated to that and dedicated to the cause of championing and uplifting women on their journey through life. I don't see this next evolution of our marketing strategy as a change, I see it as the reinvention and re-imagination of what was probably the most important retail marketing device of the last decade in the Victoria's Secret Fashion Show. So, the World Tour and the announcement that we made around that is really a celebratory moment, representing the ultimate expression of our brand transformation. It kind of brings to life our commitment that I just talked about and it's already had a massive media impact. So, we feel really good about where that is. I think it gives us an opportunity, Matt, to talk about cultural relevance and to reclaim our position at the center of cultural relevance, whether that's fashion, art, music or popular culture. And we're super excited about partnering with Amazon in that endeavor. So, I see it as a natural extension of the work that we've been doing, and the early signs are certainly that the customer is noticing, and the media around the world is noticing. In terms of the three pillars of our strategy, if I kind of take them in reverse order, in transforming the foundation of the company, I feel really, really good about where we are. The progress that T.J. and Dean and the team have made on our cost base and on our supply base is really extraordinary, and we'll give further details of that at our October meeting. But suffice it to say, I'm very, very pleased with the progress that we've made there. In the ignite growth column, the same is true. International sales up 26% in the quarter. Our partnership with Amazon going from strength to strength, the success that we're seeing in our curated marketplace with exceptional growth year-over-year. So, feeling really good about all of those initiatives. As you rightly indicated, the area where we need to focus more is on the core of our company. We have seen some slight decline in our market share. The good news is that we've seen an increase in share in digital. And the work that Chris Rupp and her team are doing in digital seems to be paying off. We're definitely delivering a better customer experience there and I think that's helping us. So, when we get to the October meeting, we'll talk more about what we intend to do differently in the year ahead. But without giving the game away, I can tell you that it will be a relentless focus on the core of our company, which is innovation in bras and panties, and marketing in a way that's culturally relevant and getting stronger in some of the categories that we walked away from, particularly around sports bras and sports apparel. I hope that helps, Matt. That was a long answer to a short question. I hope that gave you some more color.

It's great color. Best of luck.

Thank you. Our next question is from Lorraine Hutchinson with Bank of America. Your line is open.

Thank you. Good morning. Martin, can you talk about the factors that caused the accelerating August trend and if you expect them to hold or continue to improve as the year goes on?

Sure can. Thanks, Lorraine, for the question. Yes, August was definitely better than July and it was better than Q2 and better than the entirety of the spring season. So, we feel good about that. What's driving the change? Well, we've had some really good green shoots of recovery. The Icon bra was good news for us, kind of a 2-for-1 deal, one that went to our number one digital brand had a 4.4 rating and a very high matchback ratio. So that was terrific. But also, it got us back into the conversation with very high media ratings. So that helped. We also had strength in Featherweight Max sports bra, where we've cashed into that, ordered another 160,000 units in the last couple of weeks. The PINK early arrival of merchandise, the Seamless Air Sports Bra was good, but also some of the new merchandise that set at the very, very end of the month is starting to look good. Within beauty, we had some strong performance. EDPs were up 5%, driven by the Heavenly restage and Bear Rose launch. So kind of all across the business, there were just some nice green shoots that are encouraging for us. And we've got a lot less carryover as we go into this season than we had in the previous year. So, I don't know that the trends from August will definitely continue, but we're optimistic that they will. And thanks for asking, Lorraine.

Thank you.

Our next question is from Adrienne Yih with Barclays. Ma'am, your line is open.

Great. Thank you very much. Martin, can you talk about the promotionality of the environment? What the expectations are for the fall season as you launch these new kind of full-price initiatives? And then T.J., can you remind us, last year, I know you did a ton of air to ocean, the modal mix was more weighted toward air. Can you remind us sort of what was the percent on air relative to normal? And then, in the guidance, what do you have in there in terms of basis points for recapture? Thank you very much.

Thank you for the question, Adrienne. In the second quarter, promotional levels in our business were slightly higher compared to the same period last year. This trend seems to reflect the overall market. Our competitors also showed a slight increase in promotions year-over-year, indicating that we are aligned with the market. Looking ahead to Q3 and Q4, we anticipate promotional levels to remain consistent with last year. We are hopeful that our full-price initiatives will succeed, which could allow us to reduce promotions and create some upside. However, our guidance reflects a flat outlook on promotionality. Regarding the air mix, it was around 35% in the second quarter, and we expect it to drop to approximately 25% for the latter half of the season, returning to more normal levels historically.

Absolutely. In addition to that, Adrienne, both air and ocean rates have certainly moderated as the year has progressed. We are hopeful that during the holiday season, we will see continued moderation compared to last year. It is a good environment for us right now, both in terms of rates and capacity.

Fantastic. Thank you very much. Best of luck.

Our next question is from Alex Straton with Morgan Stanley. Your line is open.

Perfect. Hi, Martin. Thanks for taking the question. Maybe two from me. First, just on the second quarter, international was clearly a bright spot. So, maybe how do you think about the divergence in sales performance there versus North America? Is there something different about your positioning there? Or is it just a function of a small base internationally? And then, secondly, just thinking through the guidance and then the look forward, it seems to include a bit of a step-up in profitability in the fourth quarter, perhaps bigger than usual. So maybe what gives you conviction there? Thanks a lot.

Yes. Thanks, Alex. Thanks for highlighting the international business. We are really pleased with the progress that we've been making in that business really over the last two years. The quarter was strong for sure, but it's a consistent picture over the last eight quarters of really solid progress. There are a couple of maybe three important changes that we made to the international strategy that are paying off. One is working with our partners to open smaller stores than we had previously imagined. Secondly, having a Store of the Future format that's more modern and more shoppable, more accessible at a significantly lower capital expense, enables partners to open more stores and better stores. And thirdly, we've embraced the digital area of international with supporting our partners with digital sales and progressing with digital sales ourselves. So, those three changes over the course of the last two years are really paying off in a very positive way for us. That's really what's driving the change. It's true to say that our store fleet in international is much younger than it is here. It's also true to say that we're executing extremely well. But the fundamental strategy and positioning is the same as it is here in North America. I'm optimistic that the great results we're seeing in international will be encouraging for our domestic business. The other thing I should mention on international is China, where we had a very difficult business going back pre-pandemic. Our partnership with Regina Miracle has been a real win for us. Regina is a fantastic partner. And for the second consecutive quarter, we're actually making money in China. And China is a difficult environment right now. So, for our business to be strong, and when I say strong, we doubled our digital sales in China in the quarter, we're really seeing some terrific momentum. So, all in all, pleased with how things are going. As it relates to the fourth quarter in the domestic business, all the stuff we've been talking about earlier in the year sort of really matures during the fall season. So, it's our reason to be confident and cheerful, as it were, relate to the fact that we've been working hard tirelessly all year on a whole series of initiatives. And I've listed some of them already, the launch of new bra collections; the World Tour coming in; there is fashion merchandise associated with the World Tour that will impact the full season; there's the loyalty program, which starts to give us confidence for the back half. So, all across the business, the things that we've been working on will be delivering in the back half. And so, we're just optimistic that we'll get our fair share of the upside. T.J., anything to add to that?

No, I think you touched on the significant marketing initiatives, as Martin mentioned, as well as major customer and brand initiatives. We're seeing positive early responses to some of the fall merchandise, especially on the VS side, and we're excited about the expanding range of new PINK merchandise. All of these factors lead us to believe that sales trends will improve as we progress through the fall season. Additionally, it's important to note that two of our largest marketing investments since going public are converging in the third quarter. This does create some expense pressure during this period. However, as we approach the fourth quarter, we expect that the benefits of these marketing initiatives, along with a more typical expense structure, will enhance sales and present margin opportunities as we enter the holiday season and move into next year. Overall, we are optimistic about how the second half of the year is shaping up in terms of initiatives, cost structure, and our ability to focus on successful products while reducing less effective inventory.

Thanks a lot. Good luck.

Our next question is from Ike Boruchow with Wells Fargo. And your line is open.

Hey, good morning, everyone. Two questions for me. I was going to ask about gross margin. Is there a way to kind of talk about expectations for 4Q or what's embedded in the full year in the 5% to 6% margin? And then just a follow-up is kind of on the direct business, so if you exclude Adore Me, direct is trending down high singles, low doubles, something in that range. In your back half improvement that you guys are hoping for, do you expect to see more improvement on the e-com side, more improvement on the store side, similar, as a rationale? Just kind of curious how to think about both channels. Thanks.

T.J., do you want to take the gross margin and then I'll pick up the digital question.

Yes, absolutely. In terms of margins, during the second quarter, our selling margin remained relatively stable, while our gross margin decreased by 150 basis points due to the impact of lower sales. Looking ahead to Q3 and Q4, we anticipate our selling or merchandise margins to increase year-over-year for two reasons. First, we have our 'transform the foundation' initiative underway, and we've indicated for several months that we expect to see benefits from lower costs of goods sold impacting the fourth quarter. This is one factor positively influencing merchandise margins. Second, as previously discussed, we are observing favorable developments regarding air and ocean rates. Additionally, raw material costs are beginning to stabilize, with price increases starting to decline. Overall, we feel optimistic about the trend in merchandise margins and the inventory levels we have entering the quarter and fall season. As we progress through the fall and see our strategic initiatives positively influence the North America business, we expect the impact of the lower sales to ease in Q3 and Q4 as well. This leads us to our guidance for Q3, indicating a gross margin rate similar to last year, with an improving gross margin rate anticipated in Q4.

Yes. Regarding the difference between digital and store channels for the latter half of the year, we anticipate performance improvements in both areas. Currently, our digital share is in the low 30s percentage of our total system. The industry expects this to grow over time, likely reaching around 40% in the next three years. We are ready for that and expect our digital share to increase. It's crucial for us to achieve world-class status in digital. Chris Rupp and her team have been focused on enhancing our capabilities, including streamlining product access, removing category landing pages, adding visual search, embedding shoppable videos, improving text crawlability, and enhancing our linking capabilities. We've also been investing in personalized email through Da Vinci. All of these improvements should come to maturity in the latter half of the year, which will likely enhance our digital participation. Fortunately, the profitability in both channels remains consistent for us, so we are prepared for customers in either space. Additionally, we mentioned synergies from Adore Me, particularly the important launch of Try-on at Home, which will begin testing in the fall, benefiting the digital channel. I hope that clarifies things. Thank you.

Thank you.

Our next question is from Marni Shapiro with Retail Tracker. Your line is open.

Good morning, everyone. Martin, could you provide more details about your loyalty program? It's impressive that you signed up 16 million people in just three months. Do you have any insights on whether these are new or existing shoppers, or if they are lapsed shoppers? Are you observing any changes in activity after they sign up? Additionally, what are your expectations for the loyalty program as we approach the holiday season?

Yes, thank you, Marni. Good morning. We're excited to have over 16 million members within three months, which is a strong adoption rate. In the past few weeks, around 72% to 73% of our sales have come through that device, providing us valuable data that aids in marketing and personalization. About 50% of those 16 million members are new customers, defined as individuals we haven't seen in the last 24 months. This is a solid adoption rate. The demographics and segmentation of these new customers are largely consistent with what we've observed previously. The major advantage for us is shifting from a one-size-fits-all marketing approach to more tailored campaigns that cater to the individual’s preferences and needs. We're just beginning this process, but we'll enhance our capabilities as the system learns from the data and as we become more adept at personalization. Externally, customers will receive marketing that our systems and artificial intelligence determine to be most appropriate for them. They won’t see all the marketing aimed at various people; they'll need to trust that multiple campaigns are targeting different audiences at different times.

Great. Thank you so much.

Thank you. Now our next question is from Jonna Kim with TD Cowen. Ma'am, your line is open.

Thank you for taking my questions. Just curious on the beauty side, it seems like it's really growing nicely. What is sort of the growth driver behind the beauty? And how big do you think the segment could grow over time? Thank you.

Yes, thanks for the question. Beauty has always been a really important part of our business. It's a natural adjacency to lingerie. It's a really, really beautiful partner, both in store and in digital to our lingerie business. What's been driving the strength in performance recently, let's say this year is a couple of things. One, the EDP strength of performance, particularly the Heavenly restage was very good. The Bare Rose launch was terrific for us. But also, Body Fragrance Mist, I think, was up in the mid- to high-single digits in the second quarter. And that's at a very accessible price point; it's a good entry into the brand. We do, on occasion, see a different customer coming into the brand through beauty. That gives us an opportunity to talk to her about other things that we sell. So, beauty is a terrific business for us. We're excited about what's coming in the back half of the year and it's a very important strategic business for us. Thanks for asking.

Thank you.

And now our next question from Corey Tarlowe with Jefferies. Your line is open.

Great. Thanks. I was wondering if you could talk a little bit about some of the newer initiatives at PINK. How that business is trending? And then maybe just an update on how PINK is doing into back-to-school? Thanks.

Yes, thank you for the question. PINK is still in its early stages; we just launched the first new merchandise on August 29, so it's just a couple of days in. However, early feedback from tests of some merchandise in select stores and online has been positive, and we're seeing a good response. It's important to note that we haven't yet seen a significant impact from the PINK turnaround in the second half of the year. Our strategy is to observe, learn, and actively pursue successful products. We've already identified chase opportunities, especially with the Seamless Air Bra, and expect more to arise soon. Our focus is on redefining the PINK brand to better resonate with Gen Z, but that will take time. Early indicators are encouraging, but we haven't anticipated a major turnaround for the latter half of the year. We'll keep you informed as we progress, and by our investor meeting on October 12, we should have more insights and will share details about the trending merchandise.

Yes, I think on the second part of the question, Corey, around back-to-school, given the transition we're in, in PINK, it's more difficult to kind of isolate into PINK-only back-to-school. So I'll pivot back to Martin's earlier commentary around the month of August. And that's really about merchandise green shoots, particularly on the VS side, strong beauty, significant marketing launch with Icon, significantly more marketing dollars, visual online, all in relative to the launch last year of So Obsessed. You're seeing good early signs of us utilizing the strength of our new loyalty program with the successful Beat the Clock event in August. So, if August is a proxy for back-to-school, it was our best month of the year really driven by some of the merchandising green shoots and marketing efforts on the part of the team.

Yes. One other thing on PINK that I forgot to mention, which we're really pleased about is the collaboration with Chloe and Halle, which has had fabulous media pickup, particularly in social media. The product looks amazing. And early indications on that are that it's going to sell out and sell out quickly. So that's a good indication of a green shoot on PINK that I should have mentioned earlier. Well, next?

Great. Thank you.

Now our next question from Carla Casella with JPMorgan. Your line is open.

Hi. My question is around the heavy marketing spend you talked about for third quarter and the tour. Is that completely additive or some of that pull forward from the spend you would normally spend in 4Q?

Yes. Good question. I think we took the approach of really leaning into the investment here from a marketing perspective with two of our largest marketing spends since we've become a public company with the World Tour and the launch of the Icon Bra all happening in the same quarter and our lowest volume quarter of the year. So, we really are taking the longer-term view here and expect that the halo of both Icon and World Tour will carry on with customers through the holiday season and will also present for us a lot of marketing collateral to utilize in our stores and on our digital sites for a number of weeks to come. While the expense, Carla, hits largely in the third quarter, we do see benefits of the marketing spend for stores and digital all the way through the fourth quarter season. But to answer your question specifically, we did not go out to fourth quarter and make significant reductions to fund the third quarter. This is really additive to the fall season and was in our original plans and guidance for the year. So, we are helping you calendarize the season better. But the marketing spend here in the third quarter is not a surprise to us; it's been planned all year. The teams have been working on it for months and months, and we're excited about the reception that we're seeing from customers and the media.

Fran, I think we have time for one more question.

Thank you so much. So, our last question of the day is from William Reuter with Bank of America. Sir, your line is now open.

Hi. I have two questions. The first is with the loss in market share, do you think this is to lower-priced options as consumers are just having constrained budgets? Or do you think that there have been competition that's been introduced near your price points? And then secondarily, any comments from a dollar or margin basis point standpoint in terms of what the tailwind of lower freight is in the second half of the year? Thank you.

I'll address the first part, and then T.J. will handle the second. To clarify on market share, it reflects a minor change that includes several factors I'll explain. Our digital share has increased, partly due to new competitors entering the market that are digitally focused. We're performing reasonably well in digital; our share has grown. However, we’ve seen a slight decline in physical stores and a more significant drop in the panties category, which is challenging to maintain due to its lower price point and easier market entry. The companies gaining share are Walmart, Amazon, and off-price retailers. This isn’t surprising given the current economic climate, but it’s not an excuse. We need to find ways to increase revenue from our customers and create more innovative merchandise that justifies higher prices, so consumers are willing to invest in this category instead of settling for generic, low-cost options. Ultimately, it’s our responsibility to react to these changes, but the direct answer to your question is that lower-priced and off-price options are capturing our market share. T.J.?

And I think, William, to the second part of your question around supply chain and big round numbers in both the third and the fourth quarter, we're probably seeing a tailwind in our forecasting of about $15 million to $20 million, but I think more importantly than the tailwind, accentuating the good work the teams are doing around the cost of goods sold initiatives as part of the transformative foundation will be equally important, if not more in the fourth quarter in particular. So yes, there are some favorable trends in the marketplace we're benefiting from like many others. But there's also a number of good initiatives underway on cost of goods starting in the fourth quarter that will have a benefit going on into 2024. And that's work our teams are doing, specifically on our product and in our business.

Okay. Thank you, everyone. That concludes our call this morning. We appreciate your continuing interest in Victoria's Secret & Company. Thank you.

Thanks, everybody.

As we are concluded, please go ahead and disconnect. Have a wonderful day. Thank you.