Victoria's Secret & Co. (VSXY)

Item 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with GAAP. The following information should be read in conjunction with our financial statements and the related notes included in Item 1. Financial Statements. References to “we,” “us,” “our,” or the “Company” mean Victoria’s Secret & Co. together with its subsidiaries.

Our operating results are generally impacted by economic changes. Accordingly, we monitor the retail environment using certain key industry performance indicators including competitor performance and mall traffic data. These metrics can provide insight into consumer spending patterns and shopping behavior in the current retail environment and assist us in assessing our performance as well as the potential impact of industry trends on our future operating results. Additionally, we evaluate a number of key performance indicators including comparable sales, gross profit, operating income and other performance metrics such as sales per average selling square foot in assessing our performance. To evaluate our net sales, we utilize traffic, conversion (which we define as the percentage of customers who visit our stores or digital sites and make a purchase), units per transaction, average unit retail (which we define as the average price per unit purchased) and average transaction value (which we define as units per transaction multiplied by average unit retail).

Executive Overview

Victoria’s Secret & Co. operates two market-leading intimate apparel brands, Victoria’s Secret and PINK, complemented by an industry-leading beauty business, and Adore Me:

•Victoria’s Secret – A sexy, glamorous and luxurious brand and global leader in women’s intimate apparel, renowned for its innovative, fashion-inspired collections for women around the world.

•PINK – A playful, bold and irreverent lifestyle intimates and apparel brand for young women.

•Adore Me – A direct-to-consumer lingerie and apparel brand focused on serving women across all budgets and phases of life. DailyLook, acquired through the Adore Me transaction, operates as a digitally-based, premium subscription styling service for women’s apparel and accessories.

Our merchandise is available in our company-operated retail stores across the U.S., Canada and China, through our company-owned digital channels, and internationally through stores, websites and mobile applications operated by our partners. With a presence in approximately 70 countries, we benefit from strong global brand recognition, a compelling product assortment and a deep, lasting connection with our customers.

We are dedicated to continuous growth and operational excellence, focusing on execution of our strategic plan to drive long-term, sustainable value for our stockholders.

Net sales in the first quarter of 2026 increased 15%, to $1.560 billion, compared to the first quarter of 2025. In North America, net sales increased 11% in the stores channel and increased 8% in the direct channel compared to the first quarter of 2025. Traffic and average unit retail increased in our stores and direct channels compared to the first quarter of 2025. Net sales in our international channel increased 45% compared to the first quarter of 2025.

Our operating income in the first quarter of 2026 increased $56 million, to $76 million, compared to the first quarter of 2025 and our operating income rate (expressed as a percentage of net sales) increased to 4.9% from 1.5% in the first quarter of 2025. The increase in operating income compared to the first quarter of 2025 was primarily driven by an increase in net sales and improved merchandise margins.

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We continue to focus on the key priorities of our Path to Potential growth plan: Supercharge our Bra Authority; Recommit to PINK; Fuel Growth in Beauty; and Evolve Our Brand Projection and Go-To-Market Strategy. We remain focused on managing costs, while continuing to invest in product innovation, brand strength and the customer experience. Together with the solid operational foundation we have built, we believe these efforts position us to scale effectively and give us confidence in our ability to drive sustainable long‑term value for our stockholders.

For additional information related to our first quarter of 2026 financial performance, see “Results of Operations.”

Tariffs and Macro Environment

Beginning in February 2025, the U.S. administration imposed tariffs on a broad range of imported goods under the International Emergency Economic Powers Act (“IEEPA”). On February 20, 2026, the U.S. Supreme Court ruled tariffs imposed under the IEEPA were not authorized, and on March 4, 2026, the U.S. Court of International Trade directed U.S. Customs and Border Protection (“CBP”) to refund amounts previously collected, including applicable interest. The CBP has established a phased administrative process for submitting refund claims for certain IEEPA tariffs. We are in the process of requesting refunds for the IEEPA tariffs paid, however, the amount and timing of recoveries remain uncertain. As a result, as of May 2, 2026, we did not record a receivable related to potential IEEPA tariff refunds.

Following the Supreme Court’s decision relating to the IEEPA tariffs, the U.S. administration announced a new 10% global tariff under Section 122 of the Trade Act of 1974, subject to certain exceptions. We estimate tariffs, net of mitigation efforts, negatively impacted operating income by approximately $85 million in fiscal year 2025. We estimate tariffs, net of mitigation efforts, negatively impacted operating income by an incremental approximately $14 million in the first quarter of 2026 compared to the first quarter of 2025. It is unclear at this time what impact these decisions will have on our future results of operations, including the amount of refunds for the IEEPA tariffs previously paid, any changes in tariff levels or the imposition of new tariffs through other means. We continue to identify and execute mitigation strategies as the tariff environment evolves.

Proxy Contest

Subsequent to the end of the first quarter of 2026, BBRC and its Chairman Brett Blundy initiated a proxy contest seeking to withhold votes against directors nominated for re-election at our upcoming 2026 Annual Meeting of Shareholders. We expect to incur additional professional and legal fees associated with the proxy contest in the second quarter of 2026.

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Non-GAAP Financial Information

In addition to our results provided in accordance with GAAP above and throughout this Quarterly Report on Form 10-Q, provided below are non-GAAP financial measures that present operating income, net income (loss) attributable to Victoria’s Secret & Co. and net income (loss) per diluted share attributable to Victoria’s Secret & Co. on an adjusted basis, which remove certain non-recurring, infrequent or unusual items that we believe are not indicative of the results of our ongoing operations due to their size and nature. The intangible asset amortization excluded in the first quarter of 2025 from these non-GAAP financial measures is excluded because the amortization, unlike the related revenue, is not affected by operations of any particular period unless an intangible asset becomes impaired or the estimated useful life of an intangible asset is revised. We use adjusted financial information as key performance measures of our results of operations for the purpose of evaluating performance internally. These non-GAAP measurements are not intended to replace the presentation of our financial results in accordance with GAAP. Instead, we believe that the presentation of adjusted financial information provides additional information to investors to facilitate the comparison of past and present operations. Further, our definition of non-GAAP financial measures may differ from similarly titled measures used by other companies. The table below reconciles the most directly comparable GAAP financial measure to each non-GAAP financial measure.

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(a)In the first quarter of 2026 and 2025, we recognized pre-tax net expense of $4 million and $6 million ($3 million and $4 million after-tax, respectively), $2 million and $2 million included in buying and occupancy expense and $2 million and $4 million included in general, administrative and store operating expense, related to activities to continue to restructure our executive leadership team and organizational structure, as well as other one-time items.

(b)In the first quarter of 2025, we recognized amortization expense of $6 million ($5 million after-tax) included in general, administrative and store operating expense, related to our definite-lived intangible assets.

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Store Data

The following table compares U.S. company-operated store data for the first quarter of 2026 to the first quarter of 2025:

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(a)Sales per average selling square foot and sales per average store, which are indicators of store productivity, are calculated based on store sales for the period divided by the average, including the beginning and end of period, of total square footage and store count, respectively.

The following table represents store data for the first quarter of 2026:

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

We caution that any forward-looking statements (as such term is defined in the U.S. Private Securities Litigation Reform Act of 1995) contained in this Annual Report on Form 10-K or made by us, our management, or our spokespeople involve risks and uncertainties and are subject to change based on various factors, many of which are beyond our control. Accordingly, our future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements, and any future performance or financial results expressed or implied by such forward-looking statements are not guarantees of future performance. Forward-looking statements include, without limitation, statements regarding our future operating results, the implementation and impact of our strategic plans, and our goals, intentions, beliefs and expectations. Words such as “estimate,” “commit,” “will,” “target,” “goal,” “project,” “plan,” “believe,” “seek,” “strive,” “expect,” “anticipate,” “intend,” “continue,” “potential” or the negative of these words and any similar expressions are intended to identify forward-looking statements. Risks associated with the following factors, among others, could affect our results of operations and financial performance and cause actual results to differ materially from those expressed or implied in any forward-looking statements:

•general economic conditions, inflation and changes in consumer confidence and consumer spending patterns;

•market disruptions including pandemics or significant health hazards, severe weather conditions, natural disasters, terrorist activities, financial crises, political crises or other major events, or the prospect of these events;

•uncertainty in the global trade environment, including the imposition or threatened imposition of tariffs or other trade policies;

•our ability to successfully implement our strategic plan;

•difficulties arising from changes and turnover in company leadership or other key positions;

•our ability to attract, develop and retain qualified associates and manage labor-related costs;

•our dependence on traffic to our stores and the availability of suitable store locations on satisfactory terms;

•our ability to successfully operate and expand internationally and related risks;

•the operations and performance of our franchisees, licensees, wholesalers and joint venture partners;

•our ability to successfully operate and grow our direct channel business;

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•our ability to protect our reputation and the image and value of our brands;

•our ability to attract customers with marketing, advertising and promotional programs;

•the highly competitive nature of the retail industry and the segments in which we operate;

•consumer acceptance of our products and our ability to manage the life cycle of our brands, remain current with fashion trends, and develop and launch new merchandise and product lines successfully;

•our ability to integrate acquired businesses and realize the benefits and synergies sought with such acquisitions;

•our ability to incorporate artificial intelligence and other emerging technologies into our business operations successfully and ethically while effectively managing the associated risks;

•our ability to source materials and produce, distribute and sell merchandise on a global basis, including risks related to:

•political instability and geopolitical conflicts;

•environmental hazards and natural disasters;

•significant health hazards and pandemics;

•delays or disruptions in shipping and transportation and related pricing impacts;

•foreign currency exchange rate fluctuations; and

•disruption due to labor disputes;

•our geographic concentration of production and distribution facilities in central Ohio and Southeast Asia;

•the ability of our vendors to manufacture and deliver products in a timely manner, meet quality standards and comply with applicable laws and regulations;

•fluctuations in freight, product input and energy costs;

•our and our third-party service providers’ ability to implement and maintain information technology systems and to protect associated data and system availability;

•our ability to maintain the security and privacy of customer, associate, third-party and company information;

•stock price volatility;

•shareholder activism matters;

•our ability to maintain our credit ratings;

•our ability to comply with legal and regulatory requirements; and

•legal, tax, trade and other regulatory matters.

All forward-looking statements are made only as of the date of this Annual Report on Form 10-K. Except as may be required by law, we assume no obligation and do not intend to make publicly available any update or other revisions to any of the forward-looking statements contained in this Annual Report on Form 10-K to reflect circumstances existing after the date of this report or to reflect the occurrence of future events, even if experience or future events make it clear that any expected results expressed or implied by those forward-looking statements will not be realized. Additional information regarding these and other factors can be found in “Item 1A. Risk Factors” in this Annual Report on Form 10-K.

The following discussion and analysis of financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) as codified in the Accounting Standards Codification (“ASC”). The following information should be read in conjunction with our financial statements and the related notes included in Item 8. Financial Statements and Supplementary Data.

Our operating results are generally impacted by economic changes. Accordingly, we monitor the retail environment using certain key industry performance indicators including competitor performance and mall traffic data. These metrics can provide insight into consumer spending patterns and shopping behavior in the current retail environment and assist us in assessing our performance as well as the potential impact of industry trends on our future operating results. Additionally, we evaluate a number of key performance indicators including comparable sales, gross profit, operating income and other performance metrics such as sales per average selling square foot in assessing our performance. To evaluate our net sales, we utilize traffic, conversion (which we define as the percentage of customers who visit our stores or digital sites and make a purchase), units per transaction, average unit retail (which we define as the average price per unit purchased) and average transaction value (which we define as units per transaction multiplied by average unit retail).

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Executive Overview

Victoria’s Secret & Co. operates two market-leading intimate apparel brands, Victoria’s Secret and PINK, complemented by an industry-leading beauty business, and Adore Me:

•Victoria’s Secret – A sexy, glamorous and luxurious brand and global leader in women’s intimate apparel, renowned for its innovative, fashion-inspired collections for women around the world.

•PINK – A playful, bold and irreverent lifestyle intimates and apparel brand for young women.

•Adore Me – A direct-to-consumer lingerie and apparel brand focused on serving women across all budgets and phases of life. DailyLook, acquired through the Adore Me transaction, operates as a digitally-based, premium subscription styling service for women’s apparel and accessories.

Our merchandise is available in our company-operated retail stores across the U.S., Canada and China, through our company-owned digital channels, and internationally through stores, websites and mobile applications operated by our partners. With a presence in approximately 70 countries, we benefit from strong global brand recognition, a compelling product assortment and a deep, lasting connection with our customers.

We are dedicated to continuous growth and operational excellence, focusing on execution of our strategic plan to drive long-term, sustainable value for our stockholders.

Tariffs and Macro Environment

We face some near-term headwinds and ongoing uncertainty in the global trade environment, which we have and will continue to manage aggressively. We estimate tariffs, net of mitigation efforts, negatively impacted operating income by approximately $85 million in 2025.

On February 20, 2026, the U.S. Supreme Court struck down certain tariffs imposed under the IEEPA. Following the Supreme Court’s decision, the U.S. administration announced a new 10% global tariff under Section 122 of the Trade Act of 1974, subject to certain exceptions. It is unclear at this time what impact these decisions will have on our results of operations, including whether we will be able to obtain refunds for amounts previously paid for the IEEPA tariffs, any changes in tariff levels, or the imposition of new tariffs through other means. We continue to identify and execute mitigation strategies as the tariff environment evolves.

Security Incident Involving Information Technology Systems

As previously disclosed, on May 24, 2025, we detected a security incident involving our information technology systems. We immediately enacted our response protocols and the incident has been resolved. All systems were restored and fully operational in the second quarter of 2025.

We conducted an investigation to ascertain the full scope and impact of the incident. This incident did not cause a material disruption to our operations or material adverse impact to our financial results. We estimate the security incident negatively impacted 2025 net sales by approximately $20 million and operating income by approximately $14 million, which does not consider the impact of any potential insurance recoveries in future periods. We maintain cybersecurity insurance and the claim process for potential insurance recoveries related to this incident is ongoing.

Growth Strategies

Path to Potential: Strength, Innovation and Growth

We are operating from a position of strength. As the world’s largest intimate apparel company, we have a powerful foundation for growth with a leading market share, tens of millions of active and loyal customers and one of the most engaged brand communities on social media.

We build on this strength by evolving our business, leading the industry and unlocking new opportunities. Our growth plan, which we call “Path to Potential,” is built around four key priorities that we believe will allow us to strengthen Victoria’s Secret and PINK and evolve how we go to market and connect with our customers. These priorities are designed to accelerate growth, differentiate our brands and reinforce our authority in North America and internationally.

1.Supercharge Our Bra Authority

We will build on our industry-leading bra authority to be her number one destination for all bras:

•Bras are at the center of the Victoria’s Secret brand. We are focused on delivering a compelling bra assortment that meets her evolving and diverse lifestyle needs through a consistent pipeline of fashion and innovation and industry-leading fit and function.

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•We are strengthening our marketing message and elevating the omnichannel experience to educate our customer with authority, anchored through our in-store bra fitting expertise. This expertise is a key differentiator, enabling us to deepen emotional connections and build long-term customer relationships.

•When we win in bras, we strengthen the Victoria’s Secret brand overall, which extends into adjacent categories like sport, swim and sleep, allowing us to serve her across more occasions in her li

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