On September 3, Victoria's Secret & Co. (NYSE:VSXY) reported second-quarter results that blew past its own guidance on nearly every line. Net sales climbed 10% to $1.611 billion, adjusted diluted earnings per share nearly tripled to $0.95 from $0.33, and the company marked its fifth straight quarter of positive comparable sales. Two years into a turnaround plan called Path to Potential, the numbers finally look less like a recovery story and more like a growth story. But the stock's own market signals suggest not everyone is convinced yet.
The clearest driver of this quarter was the bra business, which grew in the mid-teens and accounted for roughly half of the total brand's growth. New product innovation, including the Very Sexy Envy bra tied to the franchise's 25th anniversary and the Flex Factor balcony frame, gave the company reasons to sell at full price rather than lean on discounts. That shift showed up directly in the numbers: regular price selling rose in the low double digits, and average unit retail accelerated to high single-digit growth, up from mid single digits in the first quarter. PINK contributed its own momentum, growing high single digits behind the launch of Marshmallow, its first new bra pillar in two years. Beauty extended its streak to 12 consecutive quarters of growth.
Underneath all three brands sat a customer file that grew for a fourth straight quarter, with new customer acquisition up high single digits and particularly strong among shoppers aged 18 to 24. International sales jumped 20% to $273.4 million, powered by digital and store performance in China. On the strength of the first half, management raised full-year guidance across sales, operating income and earnings per share.
Not every part of the story was clean. The semiannual sale in June stumbled after the company deliberately entered the period with less discounted inventory, and management admitted that decision pressured the month's top line before growth returned to double digits in July. Looking ahead, the third quarter forecast calls for adjusted earnings per share of a loss of $0.09 to a gain of $0.01, a sharp step down from the quarter just reported.
Sekella pointed to rising transportation costs cutting into gross margin gains, and the company is also ramping up marketing investment, including behind the Angels Among Us docuseries premiering September 27 on YouTube, which pushes the expected SG&A rate up to roughly 37.5% from 36.5% a year ago. Tariffs add another layer of uncertainty. The third quarter guidance assumes rates of 10% to 12.5%, but Sekella said the fourth quarter forecast assumes those rates jump back to approximately 20%. A $140.3 million tariff refund helped cash climb to $522 million this quarter, but that is a one-time benefit rather than a repeatable one.
Hedge fund ownership slipped from 44 funds to 43 last quarter, a modest pullback rather than a rush for the exits. Short interest sits at 16.29% of the float, a level that points to a real and sizable bear camp still betting against the stock. Meanwhile, the forward price-to-earnings ratio of 17.01, as of September 11, looks reasonable, even modest, for a company posting triple-digit operating income growth. That combination is the tension here: the valuation is not pricing in much optimism, yet short sellers remain heavily positioned against a shift in sentiment.
Victoria's Secret has now strung together five quarters of comp sales growth and a customer file that keeps expanding across age and income groups, which is hard to dismiss as a fluke. But the third quarter guidance shows margins compressing just as the company leans harder into marketing spend and prepares for tariffs to climb back toward 20%. For the bulls, the bra and PINK innovation pipeline needs to keep translating into full-price sales through the heavier promotional months ahead.
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