Victoria's Secret & Co. (VSXY) Q1 2024 Earnings Call Transcript

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

Thank you, Ivy. Good morning, and welcome to Victoria's Secret & Company's first-quarter earnings conference call for the period ending May 4, 2024. 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. I'm pleased to report that first-quarter results exceeded or met our expectations for the quarter on all key financial metrics. We experienced sequential improvement in quarterly sales trends for the third consecutive quarter in North America in both our stores and digital business for both Victoria's Secret and PINK Brands. We delivered meaningful newness in merchandise and brand projection during the quarter and our customers responded, particularly in April, which was our strongest month of the quarter. In North America, the improvement in trend was evident in both our store and digital businesses. From a stores perspective, we experienced significant improvement in traffic in April, meaningfully outperforming the balance of the month. In terms of our digital business, the investments we've made to improve the customer experience resulted in digital sales performance outperforming stores. Traffic levels in our digital channels improved, with April as the strongest month. Our conversion continues to grow, driven by improving customer experience and positive customer receptivity to our improving merchandise assortments. From a market perspective, we are encouraged to see that sales trends in the intimates market in North America improved quarter-to-quarter, and we recognized a similar improvement in our intimates business performance in particular in the March and April timeframe. Our combined Victoria's Secret and PINK market share in the intimates category remained at about 20%. We were also encouraged to see our digital market share in both bras and panties, along with our sports bra market share. From a merchandise category perspective, Victoria's Secret beauty business continues to be our best performing category with year-over-year growth for the third consecutive quarter and was followed by improving performance in panties and bras. The combined intimates and beauty business for Victoria's Secret was about flat in the quarter compared to last year. PINK experienced improving sales trends throughout the quarter, and April was the strongest month for the brand in the last several quarters, with bras, sleep, and apparel as the best performing categories, helping to offset a slow start to the quarter. The retail environment in North America was challenging, and the promotional environment was very competitive. But importantly, our gross margin rate in the quarter was above last year, and we were disciplined with traffic-driving offerings for our customers and managed our inventories well, which were down 5% compared to last year. In addition to improving North American trends, our international business continues to have real momentum, with net sales up 16% in the first quarter compared to last year. International system-wide retail sales increased low-double digits in the first quarter, and we continue to deliver profitable growth across stores and digital as compared to last year. International sales in the first quarter were driven by significant year-over-year growth in China and globally with our franchise and travel retail partners. We're optimistic about sales, profit and growth opportunities for all of our partners around the world and remain on track with the growth plans we discussed at our Investor Day in October 2023. Our adjusted SG&A rate in the quarter was better than our guidance, primarily due to disciplined and proactive expense management initiatives to drive incremental efficiency within our operating model. The combination of SG&A and buying and occupancy dollars were down slightly compared to last year. At our Investor Day in 2022, we committed to transforming the foundation of our company and established a $250 million three-year goal, and we're on track to meet that goal, and we believe we've demonstrated our commitment to continually focusing on efficiencies within our operating model and improving the cost structure of our business. Aside from the financials, over the last 90 days, we have executed several key actions in support of our strategy and brand positioning for the long term. For example: We continue to develop our understanding of the Victoria's Secret and PINK customer through our multi-tender loyalty program, which has now been active for one year. We have 30 million members who drive about 80% of our sales on a weekly basis. Through insights and data, we're focused on turning our understanding of our customer into world-class seamless customer experiences. We continued to introduce newness in bras with the relaunch of our number one bra collection, Body by Victoria, with all-new styles and our latest innovation offering lightweight design that smooths, shapes, and supports without an ounce of padding. In March, we launched a campaign focused on our top-rating sports bra, Featherweight Max, available in a variety of new colorways, and also featured our Flex Sports Bra and Flex Leggings with Invisible Lift technology, as well as our Elevate Compression Leggings. In April, we launched our Escape to Summer collection featuring all new swim, intimates and sun-ready pieces to wear day or night, as well as our iconic archive swim styles that are beloved by our customers. The new swim collection has been designed to celebrate our heritage in a fresh and modern way. As part of our commitment to expand our categories, we continue to introduce new swim products under the collaborative label PINK x Frankies Bikinis that celebrates the iconic PINK brand reimagined through the lens of founder and creative director of Frankies, Francesca Aiello. In May, we announced the Victoria's Secret Fashion Show is coming back in 2024. The show will deliver precisely what our customers have been asking for: the glamour, runway, fashion, fun, wings, entertainment, all through a powerful modern lens reflecting who we are today. We're thrilled to share this iconic property later this year. As we look forward, albeit with some caution around the broader retail environment in North America, we're planning the business in an appropriately conservative way in the near term, but are encouraged by April and the month of May and the solid start to the second quarter. We're optimistic about the positive signs we're seeing and remain focused on accelerating our core by leveraging our market leadership position and delivering on multiple initiatives to drive growth in our business, including product innovations to enhance the Victoria's Secret brand, the reimagined merchandise strategy for PINK, new customer experience enhancements in our digital business, and of course, our multi-tender loyalty program. For the second quarter of 2024, we're forecasting sales to decrease in the low-single digit range compared to the second quarter of 2023. This forecast reflects performance to start the quarter and tracks in-line with the trajectory we've discussed for 2024, which assumes the broader intimates market in North America will remain promotional and could remain pressured throughout the first half. At this level of sales, we're forecasting second quarter adjusted operating income to be in the range of $30 million to $45 million. For fiscal year 2024, we're reaffirming our forecast and expect sales to be about $6 billion or down low-single digits to comparative 52 weeks from fiscal 2023. Our forecast assumes that trends improve throughout the back half of 2024. At this forecasted level of sales, we expect our adjusted operating income in 2024 to be about $250 million to $275 million. Lastly, as we've shared consistently inside and outside the business with the long-term health of the business in mind, we remain committed to our strategic priorities: firstly, to accelerate our core; second, to ignite growth; and thirdly, to transform the foundation of our company. As we look into the balance of the year, we're committed to the initiatives designed to leverage our market leadership position and unlock our opportunity to convert our significant cultural influence into long-term financial growth. Thank you. And that concludes our prepared comments. At this time, we'd be more than happy to take any questions you might have. Over to you, Ivy.

For our first question, we'll go to the line of Simeon Siegel from BMO Capital Markets. Please go ahead.

Thanks, good morning everyone. Martin, you mentioned the return of the Fashion Show. Can you share your thoughts on marketing this year? Please discuss the analysis that led to this decision. Are there any changes in your marketing approach, imagery, or messaging? Additionally, did your comment about strength in April include PINK as well? What are your thoughts on the stabilization and turnaround progress for PINK? Thank you.

Thank you for the question, Simeon. I'll address your second point first. Yes, PINK's performance significantly improved in April, making it the strongest month we've had for PINK in a long time. This improvement was fueled by new merchandise, especially the Wink bra, cinched corset, and successful flared bottoms. As I mentioned earlier, the PINK x Frankies collaboration was a success, and sports bras performed well too. Overall, April was a much better month for PINK. Although there's still progress to be made since it is currently underperforming compared to Victoria's Secret, we believe we are on the right track. Regarding the Fashion Show, I'm excited to share that we announced its return in May. The response was overwhelming, with 1.8 billion media impressions in just about two weeks, and 98% of the feedback was positive. It was our top TikTok video this year, and we gained 130,000 new TikTok followers from it. Our Instagram response was also strong. For the marketing and positioning of the show, it will focus on glamour, runway, fashion, fun, entertainment, and wings, all viewed through a contemporary lens. We are not returning to our past but rather highlighting the moments people enjoyed most about the Fashion Show historically. Importantly, it will kick off our holiday campaign, which is critical as it directly correlates with our sales for the holiday season. A significant change this year is that the show will be merchandise-driven, focusing on our products rather than others. It needs to be fun, less ethereal than in previous years, commercial, mainstream, and a joyful start to the holiday season. I hope this clarifies our intentions, Simeon.

That's great. Thanks, guys. Best of luck for the rest of the year.

Thank you.

Next, we'll go to the line of Dana Telsey from Telsey Group. Please go ahead.

Hi, good morning, everyone. As you think about the swim category, how did the swim category perform? Where are you on the trajectory? And obviously, you've had some new product launches, too, like the reinvigoration of Body by Victoria. What did you see in intimates and panties? And then, Store of the Future, how did that perform versus the base? Thank you.

Thank you, Dana. I think I got at least four questions there. Let me see if I can capture them all. Swim. So, swim right now if we take year-to-date, we're about flat to last year. However, we started late; we deliberately flowed swim later. So, we were playing catch up. I will tell you that April was terrific for swim. Swim has been difficult in the last couple of years across the board, which is hard to explain in the post-COVID era where people are traveling more and going on vacation more. But it's been a tough couple of years, but I'm delighted that our recent performance on swim, both in Victoria's Secret and PINK driven by the Frankies merchandise has been really strong. So that's good. Body by Victoria, very strong. I mean, perhaps the most important bra launch we've had in the last three years as it is our number one collection. And so, relaunching the entire collection across the board with some really stunning new features focused on comfort and everyday wear was a really big moment for the brand and that performed in-line or ahead of our expectations. So that was good. You asked about panties. Our panty business was very strong in April with about the strongest month we've seen in a while. It is a promotional category, as you know. We're not embarrassed to be promotional in panties, far from it. It's a traffic driver for the business. We've worked very hard on the quality of our panties, and there have been significant structural improvements to that business over the last six months or so. It was one of the key priorities for Greg Unis and his team when they took their leadership together about a year ago; one of the key focuses was to make the panty business as strong as it could be. So that's been a really big area of focus. And I might go to rest my voice; I might go to Store of the Future with you, TJ, if that's okay.

Absolutely. Thanks for the question, Dana. We continue to be encouraged by Store of the Future performance in stores that have been recently remodeled and in many of the stores that have been opened as new. We have not opened as many new stores yet in 2024, so we're really monitoring those stores that we touched, remodeled, or opened in 2023. We are confident that those stores are outperforming the fleet. We're confident that we're getting the work done and getting our messaging across and creating a better shopping experience for the customer and doing it at a lower cost. So, our cost on Store of the Future continues to improve. In fact, we'll do as many activities this year or as many stores touched this year as last year, but do it for several million less. So, feel very good about the progress that we're making with Store of the Future. As we exit this year, we'll have about 17% or 18% of our fleet in North America in the new Store of the Future format and equally as impressive, as we exit the year, in our international business, we'll have about 30% of our stores in the new Store of the Future format. So, a significant amount of work has been done well in a very short period of time. Thanks for the question.

Thank you.

Next, we'll go to the line of Lorraine Hutchinson from Bank of America. Please go ahead.

Thanks. Good morning. TJ, I wanted to ask about the SG&A outperformance in the first quarter, and if these cost savings are something that we can count on as we start to model growth for the rest of the year?

Yeah. Thanks for the question, Lorraine. I think you're taking a big step back. Really, we started on the cost journey probably 18 months or more ago, you may recall. So, in 2022 really all four quarters of the year were down from a cost perspective. Front half of 2023, same story in our VS and PINK businesses. It really wasn't until the third quarter when we reimagined the Fashion Show with the World Tour and brought that back that costs were up slightly year-over-year. So, we've been on this journey for an extended period of time. And the importance in mentioning that is, we in our prepared comments, mentioned that when we think about buying and occupancy along with SG&A dollars, they were down compared to last year. So really that's the first quarter that's down on '23 which is down on '22. It's been a long runway of good work and really keeping costs in check has been somewhat cultural across the organization now. So, I feel very comfortable that we'll continue to be very diligent on cost as we move through the balance of the year on both the SG&A line and on the buying and occupancy line. And this is separate or in addition to the great work that's been done by the merchant and product sourcing teams in terms of the cost of goods sold initiatives and lowering average unit cost in partnership with our vendors. So, feel very comfortable about the trajectory of keeping costs in check and really setting the business up nicely for the improving trends that we expect in North America as the year goes on setting the business up nicely for a very strong flow through.

Thanks, TJ.

Thank you. And then, if I could just follow-up on the Fashion Show; as you think about the cost of that versus the cost of the World Tour last year, is it similar in magnitude or would we see an increase or decrease in that third-quarter marketing expense?

Yeah. I think it's fair to assume that the Fashion Show cost this year will be lower than the World Tour cost last year. Again, keeping in mind the World Tour spanned many countries, many different cultures and a significant amount of work that took probably in round numbers 15 to 18 months to all come together. So, it's fair to assume that, if you just look at Fashion Show versus World Tour, the Fashion Show should come in at a lower cost. Having said that, it will come in at a lower cost. Having said that, we also make trade-offs in our business. So, I wouldn't want you to expect that all of those dollars, Lorraine, should flow through to the bottom line. We'll want to make sure that, to Martin's point, we're supporting the Fashion Show with both top-of-funnel and lower-funnel as the support for kicking off holiday and really launching holiday performance probably earlier than in a prior year in the third quarter. So, it's not a dollar-for-dollar trade-off or dollar-for-dollar flow-through just because one's lower than the other. We'll be looking at the marketing spend in total, which we think will still across the year be down a little bit to last year, but we want to make sure we're doing everything we can to get the word out on some of the merchandise assortment changes, expansions, and newness that we have coming. So, it's a holistic picture from a marketing perspective.

Thank you.

Next, we'll go to line up Brooke Roach from Goldman Sachs. Please go ahead.

Good morning, and thank you for taking our question. Can you speak to the level of customer engagement you're seeing in response to promotions relative to the full-price assortment? And as you do get these customer-driving traffic initiatives, are they beginning to cross-shop the rest of the store?

Thank you for that question. Our level of promotionality is up slightly year-over-year, keeping pace with how we see the market in total. What we experience with promotions is that it's a good way to bring people into the business as a whole, and yes, they do cross-shop. It's rare for us to have customers who've just come in, take advantage of the promotion and nothing else. Generally, the promotion drivers impact the box as a whole. They're a great way of bringing new customers into the file. At any given time, about 40% to 50% of the customers that are coming into the business are new or reconverted, meaning we haven't seen them in the last 18 months to two years. So, promotions are an important part of the overall mix. I think that's probably about as much as I can say in response to that question.

Yeah. I think in addition to that, Brooke, I think it's important to understand we have a pretty rigorous test and control environment in the business. So, we are testing stores that have promotion, stores that don't have promotion to make sure that it's a good do and drives both sales and gross margin dollars. I think that's one point. And I think the second point is you're kind of following along in traveling stores; you probably noticed that we did use our beauty business and some promotions from a beauty perspective to help get people across the leased line. And as Martin mentioned, particularly in the month of April where we did see more promotions year-over-year, you saw the whole box get better. You saw all three lines of business, both brands get better and perform as evidenced by PINK having its best month in several quarters. So, it wasn't necessarily always the promotion in PINK as an example, but just the way that we are using the traffic-driver mentality across the business to make the whole box rise.

Great. Thank you. And then one other question for you. Can you talk to the customer reaction to the marketing campaigns behind the sport business that you executed this quarter? How does that inform your plans for sport in the back half of the year?

Thank you for your question about our involvement in the sport business. The feedback we've received has been incredibly positive, which we see in a few ways. First, our sales compared to last year have increased significantly, primarily due to sports bras. Secondly, our social media engagement and marketing response have been among the best we’ve experienced. Lastly, as I mentioned with promotions, there's a positive impact on our overall business. A key part of our strategy is to expand into broader categories to attract more customers, and sport is a popular category. We recognize that leaving this market was a mistake, and it has taken us longer than expected to return, but we are now fully committed. Our current initiatives will guide our plans for July and August as we strengthen our focus on sports. Notably, we have already observed an increase in market share for sports bras, which is very encouraging. I believe we will continue on this path for the remainder of the year.

Great, thanks so much. I'll pass it on.

Next, we'll go to the line of Ike Boruchow from Wells Fargo. Please go ahead.

Hey, good morning, everyone. I guess, just wanted to understand a little bit more of the promotional environment. TJ, can you just talk about the intensity you're seeing? And then, I'm really most interested in what's embedded in your plan for the second quarter and remainder of the year? Are you planning to pull back on promo at any time? Is that baked into your guide? Or again, just trying to understand how you're kind of level-setting these. Thank you.

Thank you for the question, Ike. There has been significant discussion about promotions in retail lately. From our viewpoint, the promotion levels compared to last year in the first quarter had a slight effect on our gross margin rate but proved beneficial for business, as shown by our sales exceeding the initial guidance and the robust performance of our brands. Therefore, we believe it was a wise decision in the first quarter. As we progress through the second and third quarters, we'll begin to compare against what we considered a more promotional period last year. Consequently, the year-over-year comparisons in gross margin rates may not stand out as they did in the first quarter. However, I believe it's premature to consider reducing promotions at this time. As we approach the fall season, it's reasonable to expect a challenging consumer environment, especially with the upcoming national election cycle, which could complicate our media strategies and affect retail overall. Moreover, heading into the fourth quarter, we have a notably shorter time between Thanksgiving and Christmas this year, making each shopping day increasingly critical. Therefore, it’s hard to envision easing up on promotions given the anticipated market conditions. That said, we feel confident that our current strategies are driving additional sales and gross margin dollars. We have validated our approach and are satisfied with our inventory management, as illustrated by meeting our inventory guidance in the first quarter. Moving forward, we are optimistic about the introduction of new products and how that will influence pricing and promotional strategies. I am confident in how we are handling margins and inventory management in our business.

Thanks a lot.

Next, we will go to the line of Warren Cheng from Evercore ISI. Please go ahead.

Hey, good morning. Thanks for taking my question here. I was wondering if you can give a little bit of a deeper diagnostic on why the international business is outperforming so significantly here, especially in China. I know there are some key structural differences. Is it something structural, or are there lessons that you could learn from and apply to the US?

Yeah, thank you for that question. Maybe I'll give some context to international as a whole and then go a little deeper on China. So, our international business continues to be extremely strong. It has been strong for a decade, but for two markets where we had challenges; one was the UK, one was China. When this management team took over, we changed the structure of both of those businesses to eradicate the losses that we were seeing. And so, the business has gone from strength to strength in all five areas of the business. We're now at nearly 550 stores around the world. We have more digital sites than I can remember to count, multiple tens of digital sites. And we've seen excellent growth in retail sales and system-wide sales. I think we're in 65 countries with a physical presence, and we're shipping to over 200 countries. And we're super excited about the response that we see. Just a couple of weeks ago, we launched a new store in Madrid. Fantastic response. So, just about all around the world, wherever the brand is popping up, we are seeing strong performance. We are also seeing strong performance on a like-for-like basis, which is very encouraging. So, we will continue to focus on both physical retail and digital, about 90 new stores this year through our partner network. You're right to point out China as being very important. The big structural change that we made there, which was a fantastic decision, was to partner with Regina Miracle, experts in China, experts in intimate apparel, long-standing partners of ours. We've been in business with them for over two decades, and we're fantastic partners both in the domestic business and in the international business. That was the biggest single change. We market the brand around the world in an elevated way. We find that we can be slightly less promotional in our international markets. We command a higher retail price than we do in the domestic market. And generally, working from a base of low-single digit share is much easier than working from a base of 20% or 25% market share. So that's a big thing to remember in the difference. The overall presentation of the brand is substantially similar, and I think to the untrained eye, most people would say it's exactly the same, but under the covers, there are some important differences, particularly around size curve, around mix of merchandise, some color variations, some category focus. We have less of a focus on PINK in our international markets, more of a focus on glamour. So, there are definitely differences, and that team is now 15 years old with many members of that team being there from the beginning. So, very skilled, very practiced in how to market internationally, and the team just gets better and better. So, big shout out to them and the China team for everything they're doing. I'd be remiss not to mention the UK as well, where our partner Next is a fantastic partner. They know that market better than we do. They buy real estate better than we do. And we've moved that business from being loss making to being nicely profitable. We had to close our flagship store on Bond Street because the lease was up after about 13 years of occupation. And we'll be delighted to open a new flagship store in London next year. So, that's an exciting milestone for the brand. So, all in all, international is a very, very positive story. Thank you for asking.

Thank you, Martin. That's a really useful color. And then, as my follow-up, you talked a little bit in the prepared remarks about utilizing the new customer data you're getting from the multi-tender loyalty rollout. What's in the hopper there in terms of how we may see you leverage those insights?

Yeah, that's a great question about insights. Chris Rupp joined our team about 18 months ago, focusing on insights, data, and customer experience. We've made remarkable advancements in these areas. For instance, in digital enhancements, closely related to data, we've launched 75 new customer-facing releases and 45 non-customer-facing releases since the start of Q1. This level of activity surpasses anything we've done before and is yielding valuable insights for our customers and boosting our digital performance, helping us gain market share in a predominantly digital competitive landscape. Regarding loyalty, we transitioned from a credit card model to a multi-tender system, which now accounts for approximately 80% of our sales and engages around 30 million customers. This provides a significant platform for us to learn from. We're just starting to explore personalized marketing for this audience, but the future of marketing both in this country and globally will be about personalization. Building a solid data foundation and understanding customer preferences enables us to deliver tailored experiences, which represents a new frontier for us. I believe there is significant potential in this area, and I’m thankful for the strong team we've assembled; we've greatly improved our capabilities here over the past 18 months.

Thanks, Martin. Good luck.

Next, we will go to the line of Jonna Kim from TD Cowen. Please go ahead.

Thank you for taking my question. It was nice to see. What are your expectations for the remainder of that particular business? Also, could you provide an update on the Adore Me business? How is it performing compared to your expectations? Thank you.

Yeah, we got the Adore Me question, but we didn't get the first question. Sorry, could you repeat the first question?

Yeah. Just on the PINK business, you've seen improvement there. What's your expectations for the remainder of the year? How that business will evolve?

Sorry, none of us got which business you're talking about. Could you say it again slowly? What business you're talking about?

Sorry, it's the PINK business.

PINK, got it. Okay, I'll take the Adore Me question first. So yeah, Adore Me is going well. For the year, we're on track for growth in sales and operating income. We continue to work very closely with the team on technology and marketing synergies. Reminder, we set out at the beginning of the year to pursue three synergies. The first was to sell Adore Me on VictoriaSecret.com and to do so in a dropship environment, so we don't carry inventory; done. Very strong performance in that arena. Adds to our curated marketplace. Gives us broader size inclusivity than we've had before. Gives us access to different kind of fashion and price point than we've had before. So, pleased with that. Second synergy was around Try-On at Home, very important marketing initiative. And I should have mentioned that when we were talking about data in the previous question, we have been in test mode for the last couple of months on Try-On at Home that we hope will go live later this year and will be a very exciting and interesting marketing innovation driven off of the Adore Me platform. And then thirdly, other loyalty-based features like subscription and other member services, which will come in 2025. So, whether it's in the core standalone business where we're seeing good performance from Adore Me and from Dailylook, or whether it's on the technology side, we're very pleased with the way that things are going. And as we get to the end of the year, we'll anniversary the second year of our ownership of that business. The other thing that's interesting about Adore Me is that they provide an incubator opportunity for us. So, as we think about AI and GenAI in particular, Adore Me is the tip of the sphere there. They're a small, agile, technology-led business who can test and tiptoe into that kind of environment for us, and Victoria's Secret can pick up the learnings on the back end. So, we're very pleased to have Adore Me as part of our family and delighted with how things are going. In PINK, as we repeatedly say, it's a turnaround strategy. It could not have been more off-color. If we think about two years ago when we identified the problems in that business, the business had got away from the core of who the customer is. We want that customer to be collegiate, youthful, evolving, confident, optimistic, and the assortments that we had two years ago didn't look like that at all. So, the team has been rebuilding. We have new talent in place who've been in place for the last 12, 18 months, and they're really getting after it and re-energizing the entirety of the company. I would say the four watchwords that I would give you around PINK are youthful, evolving, confident, and optimistic. That's what you should see from us. And that shows up in the categories that are performing best for us, which are, to repeat myself, the Frankies collaboration, Flare bottoms, the Natalia Bryant collaboration was very strong. We see good growth in sleep, in sports bras, in corset tops, across the board where we have merchandise that points that youthful, evolving, confident, and optimistic we're doing well. So, very pleased with the team and how they're doing in that environment. More to do, no question. It remains a drag on the company as a whole, but cautiously optimistic as we go into the rest of the year.

Thank you so much.

Next, we'll go to the line of Alex Straton from Morgan Stanley. Please go ahead.

Perfect. Thanks so much for taking the question. Maybe one for Martin and one for TJ. So, Martin, you noted some intimates market improvement in North America. Any sense for what enabled that trend change and then the magnitude? I'm wondering if it impacts your view from here. And then, TJ, just a pretty upbeat assessment on the digital result, though I did notice the sales declined year-over-year after growing throughout last year. So, can you help me just understand the change in trends there? Thanks so much.

Thanks, Alex. I appreciate the question. I'll address the market share issue. There are three key points I'd like to highlight regarding market share. First, the overall market decline we've experienced over the past five quarters has improved. There was some disruption in the first quarter due to the 53rd week and the Easter shift, so it doesn't compare brilliantly to last year, but the overall market performance in the first quarter was definitely better. It's not a huge turnaround, but it's a positive change. Second, as mentioned earlier, our market share has remained fairly stable at 20%. There are some variations, with digital showing a slight increase, store performance dipping a bit, and growth in sports bras for the first time in quite a while, along with solid results in bras and panties. The third point is about what we refer to as Marpril, which includes March and April, where we saw our strongest performance in some time. While I prefer not to analyze month-to-month changes in market share due to the short time frame, we are encouraged by the positive performance in both the market and our own results during the Marpril period. It's still early, but we're hopeful that this marks a turnaround that we didn't expect to see until late this year. As for the reasons behind it, I'm unsure. It was surprising to see a decline at all, given my 16 years in this business without witnessing a decline in the intimates market. It feels unusual, and I hope we are returning to a normal situation. From what we can observe, there doesn't appear to be any significant structural issues in the wider world, so it likely represents a normalization and a correction.

Your second question, Alex, regarding digital performance reveals a positive trend throughout the quarter, particularly supporting the significant month of April and outperforming physical stores. We are observing digital growth as a larger part of our mix. As Martin noted, the cumulative effect of customer-facing changes has been building throughout Q1, which positions us favorably for Q2. From a reporting perspective, we recognize sales based on when the customer receives their order. As the business strengthened throughout the quarter, we saw sales occurring at the end of April, which may be recorded in May when customers receive their products, creating a slight timing discrepancy. Feedback on enhancements to the site—including features like fewer clicks, removing category landing pages, visual search, shoppable video, and Try-On at Home—shows that our investments are starting to yield positive results. We are noticing better traffic trends and improved conversion rates week-on-week and month-on-month. This is the optimism we express regarding our digital business: the current performance and the ongoing cumulative effect that will aid us through the rest of the year.

Thanks, Alex. Ivy, let's go with one more question. I think we have time for one more, please.

Our final question will go to the line of Marni Shapiro from The Retail Tracker. Please go ahead.

Hey, congratulations. PINK is clearly different now, and I appreciated your comment about the colors looking much better. Could you elaborate more on PINK? Are you attracting lapsed shoppers? Are you bringing in new ones? I'm also interested in your thoughts on the apparel inventory, which has been a key topic. How do you view the balance of apparel versus intimates at PINK, and what should we expect for that balance in the latter half of the year?

Thank you, Marni. We truly appreciate your support. For those who may not be familiar, Marni manages an excellent tracker that provides us with real-time feedback from other brands. You are mostly right, Marni, and we are pleased with the performance of PINK across all categories. Our intimates business is doing well, while our apparel business is improving even more. You are right to point out that we may need to rebalance our focus between the two. We tended to invest too heavily in intimates while underinvesting in apparel because our previous efforts in apparel were not successful, which led to reduced inventory and less purchasing. We need to address this. PINK is primarily a brand for young shoppers who engage with multiple categories, and they are entering our franchise through apparel. It is crucial for us to excel in this area. We still recognize the significance of intimates but aim to shift the focus towards apparel. The customer we are targeting is mainly Gen Z. The positive news for Victoria's Secret & Co. is that we have a strong presence among this demographic, particularly with Victoria's Secret. This gives us an edge because if a customer is drawn to Victoria's Secret, we have an opportunity to attract her to PINK as well. It all comes down to the quality of our merchandise. The interest from customers is there, and they are curious about our offerings. We just need to provide appealing merchandise assortments. I am confident that our team is dedicated to this effort. We are becoming more optimistic and allocating more of our inventory towards the brand as we build our confidence and observe positive results. Thank you again, Marni, for your support, and thanks to everyone for your calls this morning. We appreciate it.

Thanks, everyone. That concludes the call this morning. We appreciate your continuing interest in Victoria's Secret. Have a great day.

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