Victoria’s Secret & Co. (NYSE:VSXY) reported fiscal second-quarter net sales of $1.611 billion, up 10%, while comparable sales increased 9%. The retailer also recorded $140.3 million of pre-tax income from IEEPA tariff-refund recoveries, including interest received and net of related costs and other items.
Those recoveries added $135.8 million to GAAP operating income, but Victoria’s Secret & Co. excluded them from company-defined non-GAAP adjusted results. The company-defined measure also excludes restructuring and other one-time items and, in the prior-year comparison, intangible-asset amortization. On that basis, adjusted operating income rose to $124 million from $55 million, and the adjusted operating margin expanded to 7.7% from 3.8%.
The refund exclusion makes the improvement more credible. The next test is whether demand remains profitable as Victoria’s Secret & Co. spends more to sustain brand attention.
Bull Case
The quarter showed improvement beyond the refund. Company-defined non-GAAP adjusted gross margin increased 320 basis points to 38.8%, while the adjusted general, administrative, and store operating expense rate declined 70 basis points to 31.1%. Management attributed the progress partly to stronger regular-price selling and disciplined promotions.
Product and customer indicators also broadened the case. Bras delivered mid-teens sales growth, panties grew in the high teens, and PINK posted mid-teens growth after adjusting for the timing of its PINK Friday event. Victoria’s Secret & Co. reported mid-single-digit growth in its customer file, led by high-single-digit growth among new customers, while traffic increased across stores and digital channels.
Victoria’s Secret & Co. raised full-year net-sales guidance to $7.10 billion to $7.18 billion from $7.03 billion to $7.13 billion. It also increased company-defined non-GAAP adjusted operating-income guidance to $560 million to $590 million from $550 million to $580 million. Inventory rose about 8% to $1.146 billion, slower than quarterly sales, which provides some support for the quality of the sales growth.
Bear Case
The third-quarter outlook shows how quickly operating leverage can narrow. Victoria’s Secret & Co. expects sales of $1.57 billion to $1.60 billion but operating income of only $10 million to $20 million. The forecast calls for gross margin of approximately 38.0%, up 150 basis points from the prior-year adjusted rate, yet an SG&A rate of approximately 37.5%, up 100 basis points.
Customer-facing spending, including the Angels Among Us docuseries and broader marketing, is expected to contribute to the higher SG&A rate. Higher assumed incentive compensation also adds to SG&A, while rising transportation costs pressure gross margin. The spending supports customer acquisition and the Victoria’s Secret Fashion Show, but the financial return depends on whether attention converts into repeat purchases and regular-price sales.
Fashion momentum can also reverse quickly. The second-quarter gains set a higher comparison base, while holiday demand will test whether product newness and marketing can preserve lower promotional intensity.
Hedge Fund Sentiment
The filings available so far reflect positions held before Victoria’s Secret & Co. reported its fiscal second-quarter results. Insider Monkey’s database showed 43 hedge funds holding Victoria’s Secret & Co. at the end of 2Q2026, down from 44 funds three months earlier.
Conclusion
Victoria’s Secret & Co. produced genuine operating improvement after removing the tariff-refund benefit. Comparable-sales growth, stronger regular-price selling and margin expansion support the turnaround case. However, the third-quarter expense plan shifts the focus to marketing efficiency. Sustained traffic, repeat-customer growth, promotional discipline and refund-excluded margins will show whether the brand can convert renewed attention into durable profit.
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This article is originally published at Insider Monkey.
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