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Victoria's Secret & Co. - Quarter Report: 2023 April (Form 10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 _________________________________
FORM 10-Q
 _________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 29, 2023
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission file number 001-40515
 _________________________________
VICTORIA'S SECRET & CO.
(Exact name of registrant as specified in its charter)
 _______________________________
Delaware86-3167653
(State or other jurisdiction of
incorporation or organization)
(IRS Employer Identification No.)
4 Limited Parkway East
Reynoldsburg,Ohio43068
(Address of principal executive offices)(Zip Code)
(614)577-7000
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 Par ValueVSCOThe New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No   
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes     No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):    Yes      No  
As of May 26, 2023, the number of outstanding shares of the Registrant’s common stock was 77,149,277 shares.


Table of Contents
VICTORIA'S SECRET & CO.
TABLE OF CONTENTS
 
 Page No.
Item 1A. Risk Factors
Item 6. Exhibits
 
*
Victoria's Secret & Co.'s fiscal year ends on the Saturday nearest to January 31. As used herein, “first quarter of 2023” and “first quarter of 2022” refer to the thirteen-week periods ended April 29, 2023 and April 30, 2022, respectively, and “fiscal year 2023” and “fiscal year 2022” refer to the 53-week period ending February 3, 2024 and the 52-week period ended January 28, 2023, respectively.

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PART I—FINANCIAL INFORMATION
 
Item 1.    FINANCIAL STATEMENTS

VICTORIA'S SECRET & CO.
CONSOLIDATED STATEMENTS OF INCOME
(in millions except per share amounts)
(Unaudited)
 
 First Quarter
 20232022
Net Sales$1,407 $1,484 
Costs of Goods Sold, Buying and Occupancy(905)(962)
Gross Profit502 522 
General, Administrative and Store Operating Expenses(474)(428)
Operating Income28 94 
Interest Expense(22)(12)
Other Loss— (4)
Income Before Income Taxes78 
Provision for Income Taxes
Net Income76 
   Less: Net Income (Loss) Attributable to Noncontrolling Interest(5)
Net Income Attributable to Victoria's Secret & Co.$$81 
Net Income Per Basic Share Attributable to Victoria's Secret & Co.$0.01 $0.96 
Net Income Per Diluted Share Attributable to Victoria's Secret & Co.$0.01 $0.93 


VICTORIA'S SECRET & CO.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions)
(Unaudited)
First Quarter
20232022
Net Income$$76 
Other Comprehensive Income (Loss), Net of Tax:
   Foreign Currency Translation(1)
   Amounts Reclassified from Accumulated Other Comprehensive Income to Paid-in Capital— 
Total Other Comprehensive Income (Loss), Net of Tax(1)
Total Comprehensive Income80 
   Less: Net Income (Loss) Attributable to Noncontrolling Interest(5)
   Less: Foreign Currency Translation Attributable to Noncontrolling Interest
Comprehensive Income (Loss) Attributable to Victoria's Secret & Co.$(1)$84 


The accompanying Notes are an integral part of these Consolidated Financial Statements.
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VICTORIA'S SECRET & CO.
CONSOLIDATED BALANCE SHEETS
(in millions except par value amounts)

 
April 29,
2023
January 28,
2023
April 30,
2022
 (Unaudited) (Unaudited)
ASSETS
Current Assets:
Cash and Cash Equivalents$132 $427 $204 
Accounts Receivable, Net126 141 152 
Inventories1,041 1,052 1,046 
Other136 117 112 
Total Current Assets1,435 1,737 1,514 
Property and Equipment, Net834 846 901 
Operating Lease Assets1,245 1,232 1,299 
Goodwill368 365 — 
Trade Names288 289 246 
Other Intangible Assets, Net132 137 — 
Deferred Income Taxes16 18 17 
Other Assets87 87 88 
Total Assets$4,405 $4,711 $4,065 
LIABILITIES AND EQUITY
Current Liabilities:
Accounts Payable$388 $481 $443 
Accrued Expenses and Other649 737 607 
Current Debt
Current Operating Lease Liabilities298 310 299 
Income Taxes30 47 98 
Total Current Liabilities1,369 1,579 1,451 
Deferred Income Taxes62 53 63 
Long-term Debt1,271 1,271 977 
Long-term Operating Lease Liabilities1,219 1,201 1,274 
Other Long-term Liabilities197 206 49 
Total Liabilities4,118 4,310 3,814 
Shareholders' Equity:
Preferred Stock — $0.01 par value; 10 shares authorized; 0 shares issued and outstanding
— — — 
Common Stock — $0.01 par value; 1,000 shares authorized; 78, 80, and 83 shares issued and outstanding, respectively
Paid-in Capital173 195 166 
Accumulated Other Comprehensive Income (Loss)(1)
Retained Earnings92 186 52 
Total Victoria's Secret & Co. Shareholders' Equity265 383 227 
Noncontrolling Interest22 18 24 
Total Equity287 401 251 
Total Liabilities and Equity$4,405 $4,711 $4,065 

The accompanying Notes are an integral part of these Consolidated Financial Statements.
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VICTORIA'S SECRET & CO.
CONSOLIDATED STATEMENTS OF EQUITY
(in millions)
(Unaudited)

First Quarter 2023
Common StockAccumulated
Other
Comprehensive
Income (Loss)
Retained EarningsTreasury StockTotal Victoria's Secret & Co. Equity
 Shares OutstandingPar ValuePaid-in CapitalNoncontrolling InterestTotal Equity
Balance, January 28, 202380 $$195 $$186 $— $383 $18 $401 
Net Income— — — — — 
Other Comprehensive Income (Loss)— — — (2)— — (2)(1)
Total Comprehensive Income (Loss)— — — (2)— (1)
Repurchases of Common Stock(2)— (25)— — (101)(126)— (126)
Treasury Share Retirements— — (6)— (95)101 — — — 
Share-based Compensation Expense— — 14 — — — 14 — 14 
Tax Payments related to Share-based Awards(1)— (9)— — — (9)— (9)
Other— — — — — 
Balance, April 29, 202378 $$173 $(1)$92 $— $265 $22 $287 

First Quarter 2022
Common StockAccumulated
Other
Comprehensive
Income
Retained EarningsTreasury StockTotal Victoria's Secret & Co. Equity
 Shares OutstandingPar ValuePaid-in CapitalNoncontrolling InterestTotal Equity
Balance, January 29, 202285 $$125 $$126 $— $257 $— $257 
Net Income (Loss)— — — — 81 — 81 (5)76 
Other Comprehensive Income— — — — — 
Total Comprehensive Income (Loss)— — — 81 — 84 (4)80 
Sale of Noncontrolling Interest— — 17 — — — 17 28 45 
Repurchases of Common Stock(3)— 50 — — (159)(109)— (109)
Treasury Share Retirements— — (4)— (155)159 — — — 
Share-based Compensation Expense— — 12 — — — 12 — 12 
Tax Payments related to Share-based Awards(1)— (38)— — — (38)— (38)
Other— — — — — 
Balance, April 30, 202283 $$166 $$52 $— $227 $24 $251 

The accompanying Notes are an integral part of these Consolidated Financial Statements.
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VICTORIA'S SECRET & CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)
 First Quarter
 20232022
Operating Activities:
Net Income$$76 
Adjustments to Reconcile Net Income to Net Cash Used for Operating Activities:
Depreciation and Amortization of Long-lived Assets73 70 
Share-based Compensation Expense14 12 
Deferred Income Taxes10 
Amortization of Fair Value Adjustment to Acquired Inventories— 
Changes in Assets and Liabilities:
Accounts Receivable14 10 
Inventories(98)
Accounts Payable, Accrued Expenses and Other(180)(200)
Income Taxes(18)(12)
Other Assets and Liabilities(36)(9)
Net Cash Used for Operating Activities(108)(146)
Investing Activities:
Capital Expenditures(55)(21)
Investment in Frankies Bikinis, LLC— (18)
Other Investing Activities— (9)
Net Cash Used for Investing Activities(55)(48)
Financing Activities:
Repurchases of Common Stock(125)(109)
Borrowings from Asset-based Revolving Credit Facility15 — 
Repayments of Borrowings from Asset-based Revolving Credit Facility(15)— 
Tax Payments related to Share-based Awards(9)(38)
Proceeds from Stock Option Exercises
Payments of Long-term Debt(1)(1)
Cash Received from Noncontrolling Interest Partner— 55 
Other Financing Activities— (1)
Net Cash Used for Financing Activities(132)(91)
Effects of Exchange Rate Changes on Cash and Cash Equivalents— (1)
Net Decrease in Cash and Cash Equivalents(295)(286)
Cash and Cash Equivalents, Beginning of Period427 490 
Cash and Cash Equivalents, End of Period$132 $204 

The accompanying Notes are an integral part of these Consolidated Financial Statements.
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VICTORIA'S SECRET & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Description of Business, Basis of Presentation and Summary of Significant Accounting Policies
Description of Business
Victoria’s Secret & Co. (together with its subsidiaries unless the context otherwise requires, the “Company”) is a specialty retailer of women's intimate and other apparel and beauty products marketed under the Victoria’s Secret, PINK and Adore Me brand names. The Company has more than 900 stores in the U.S., Canada and China as well as its own websites, www.VictoriasSecret.com, www.PINK.com and www.AdoreMe.com and other online channels worldwide. Additionally, the Company has approximately 440 stores in approximately 70 countries operating under franchise, license and wholesale arrangements. The Company also includes the merchandise sourcing and production function serving the Company and its international partners. The Company operates as a single segment designed to serve customers worldwide seamlessly through stores and online channels.
On December 30, 2022, the Company completed its acquisition of 100% of AdoreMe, Inc. (“Adore Me”), a digitally-native intimates brand. For additional information, see Note 2, “Acquisition.”
In July 2022, the Company announced a new, simplified corporate leadership structure designed to unite the Company's brands, better align its teams with a shifting consumer landscape and enable better execution of its strategy. The restructuring eliminated approximately 160 management roles, or approximately 5% of the Company's home office headcount. In the fourth quarter of 2022 and in the first quarter of 2023, the Company implemented additional restructuring actions to continue to reorganize and improve its organizational structure. For additional information, see Note 4, “Restructuring Activities.”
Fiscal Year
The Company’s fiscal year ends on the Saturday nearest to January 31. As used herein, “first quarter of 2023” and “first quarter of 2022” refer to the thirteen-week periods ended April 29, 2023 and April 30, 2022, respectively, and “fiscal year 2023” and “fiscal year 2022” refer to the 53-week period ending February 3, 2024 and the 52-week period ended January 28, 2023, respectively.
Basis of Presentation
The Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”).
Interim Financial Statements
The Consolidated Financial Statements as of and for the periods ended April 29, 2023 and April 30, 2022 are unaudited. These Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 17, 2023.
In the opinion of management, the accompanying Consolidated Financial Statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation of the results for the interim periods.
Seasonality of Business
Due to the seasonal variations in the retail industry, the results of operations for the thirteen-week period ended April 29, 2023 are not necessarily indicative of the results expected for any other interim period or the full fiscal year ending February 3, 2024.
Equity Method Investments
The Company accounts for investments in unconsolidated entities where it exercises significant influence, but does not have control, using the equity method. Under the equity method of accounting, the Company recognizes its share of the investee's net income or loss. Losses are only recognized to the extent the Company has positive carrying value related to the investee. Carrying values are only reduced below zero if the Company has an obligation to provide funding to the investee. The Company’s share of net income or loss of unconsolidated entities from which the Company purchases merchandise or merchandise components is included in Costs of Goods Sold, Buying and Occupancy in the Consolidated Statements of Income, and the Company's share of net income or loss from all other unconsolidated entities is included in General, Administrative and Store Operating Expenses in the Consolidated Statements of Income. The Company’s equity method investments are required to be reviewed for impairment when it is determined there may be an other-than-temporary loss in value.
In March 2022, the Company acquired a minority interest in swimwear brand Frankies Bikinis, LLC (“Frankies Bikinis”) in exchange for $18 million. The investment in Frankies Bikinis is accounted for using the equity method of accounting.
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The carrying values of equity method investments were $58 million as of April 29, 2023, $56 million as of January 28, 2023 and $54 million as of April 30, 2022. These investments are recorded in Other Assets on the Consolidated Balance Sheets.
Noncontrolling Interest
The Company accounts for investments in entities where it has control over the entity by consolidating the entities' assets, liabilities and results of operations and including them in the Company's Consolidated Financial Statements. The share of the investment not owned by the Company is reflected in Noncontrolling Interest in the Consolidated Balance Sheets. The Company recognizes the share of net income or loss not attributable to the Company in Net Income (Loss) Attributable to Noncontrolling Interest in the Consolidated Statements of Income. Noncontrolling interest represents the portion of equity interests in a joint venture in China that is not owned by the Company. For additional information, see Note 4, “Restructuring Activities.”
Concentration of Credit Risk
The Company maintains cash and cash equivalents with various major financial institutions. The Company monitors the relative credit standing of financial institutions with whom the Company transacts with and limits the amount of credit exposure with any one entity. As of April 29, 2023, the Company's investment portfolio is primarily comprised of bank deposits.
The Company also periodically reviews the relative credit standing of franchise, license and wholesale partners and other entities to which the Company grants credit terms in the normal course of business. The Company determines the required allowance for expected credit losses using information such as customer credit history and financial condition. Amounts are recorded to the allowance when it is determined that expected credit losses may occur.
Supplier Finance Programs
The Company has agreements with designated third-party financial institutions to provide supplier finance programs which facilitate participating suppliers’ ability to finance payment obligations of the Company. Participating suppliers may finance one or more payment obligations of the Company prior to their scheduled due dates and receive a discounted payment from participating financial institutions. The Company’s obligations to its suppliers, including amounts due and scheduled payment dates, are not impacted by suppliers’ decisions to finance amounts under these arrangements. All amounts payable to financial institutions relating to suppliers participating in these programs are recorded in Accounts Payable in the Consolidated Balance Sheets and were $155 million as of April 29, 2023, $213 million as of January 28, 2023 and $137 million as of April 30, 2022.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period, as well as the related disclosure of contingent assets and liabilities at the date of the financial statements. Actual results may differ from those estimates, and the Company revises its estimates and assumptions as new information becomes available.
Recently Issued Accounting Pronouncements
The Company did not adopt any new accounting standards during the first quarter of 2023 that had a material impact on the Company's results of operations, financial position or cash flows. In addition, there are no new accounting standards not yet adopted that are expected to have a material impact on the Company's results of operations, financial position or cash flows.
2. Acquisition
On December 30, 2022, the Company completed the acquisition of 100% of Adore Me. Adore Me is a direct-to-consumer lingerie and apparel brand with technology driven commerce service and a series of innovation-driven products. The acquisition creates the opportunity for the Company to leverage Adore Me's expertise and technology to continue to improve the Victoria's Secret and PINK customer shopping experience and accelerate the modernization of the Company's digital platform.
Under the terms of the definitive agreement setting forth the terms and conditions of the acquisition (the “Merger Agreement”), the Company made an upfront cash payment of $391 million at closing and will pay further cash consideration in an aggregate amount of at least $80 million, consisting of a fixed payment to be made on or prior to January 15, 2025, and up to $300 million based on the performance of Adore Me and achievement of specified strategic objectives and certain EBITDA and net revenue goals within the two-year period following closing of the transaction. Under the terms of the Merger Agreement, up to $60 million of the further cash consideration is subject to the continued employment of a certain Adore Me employee (“Contingent Compensation Payments”). These Contingent Compensation Payments are not included as consideration when applying the acquisition method of accounting and are recognized as compensation expense within General, Administrative and Store Operating Expenses in the Consolidated Statements of Income if and when earned in future periods.
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The total consideration when applying the acquisition method of accounting was $537 million, net of $22 million of cash acquired. The gross consideration as of the acquisition date of $559 million consists of $391 million in cash paid at closing, $98 million which represents the fair value of the contingent cash consideration and $70 million which represents the fair value of the future fixed payment.
The Company accounted for the acquisition of Adore Me using the acquisition method of accounting. Assets acquired and liabilities assumed have been recorded based on their preliminary fair values, and as a result, the estimates and assumptions are subject to change. The Company is still in the process of finalizing the valuation estimates and final purchase price allocation which includes potential adjustments related to the final working capital settlement and amounts allocated to intangible assets. The Company expects to complete this process no later than twelve months after the closing of the acquisition. In the first quarter of 2023, the Company recorded certain measurement period adjustments based on additional information, primarily related to assumed deferred income tax liabilities and acquired accounts receivable, resulting in a $3 million increase to Goodwill, a $1 million increase to Deferred Income Tax Liabilities, a $1 million increase to Accrued Expenses and Other and a $1 million decrease to Accounts Receivable.
The following is a preliminary purchase price allocation of assets acquired and liabilities assumed as of December 30, 2022 related to the Adore Me acquisition:
Initial AllocationMeasurement Period AdjustmentsAdjusted Allocation
(in millions)
Accounts Receivable
$$(1)$— 
Inventories105 — 105 
Other Current Assets— 
Property and Equipment, Net12 — 12 
Operating Lease Assets— 
Goodwill365 368 
Trade Name43 — 43 
Other Intangible Assets137 — 137 
Other Assets— 
Accounts Payable17 — 17 
Accrued Expenses and Other88 89 
Current Operating Lease Liabilities— 
Deferred Income Tax Liabilities21 22 
Long-term Operating Lease Liabilities— 
Other Long-term Liabilities— 
Net Assets Acquired and Liabilities Assumed$537 $ $537 
The following table represents the definite-lived intangible assets acquired, the preliminary fair values and respective useful lives:
Useful LifePreliminary Fair Value
(in millions)
Customer Relationships
7 years$81 
Developed Technology
6 years56 
Trade Name10 years43 
Total Definite-Lived Intangible Assets$180 
The Company used the multi-period excess earnings method to value the customer relationships intangible assets and the relief from royalty method to value the developed technology and trade name intangible assets. The significant assumptions used to estimate the fair value of customer relationships included forecasted revenues, customer attrition rates and a discount rate. The significant assumptions used to estimate the fair value of developed technology and the trade name included forecasted revenues, royalty rates and a discount rate. These significant assumptions are forward-looking and could be affected by future economic and market conditions. The estimated weighted-average useful life was 7.4 years for definite-lived intangible assets.
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Goodwill was calculated as the difference between the acquisition date fair value of the consideration transferred and the fair value of net assets recognized for Adore Me, and represents the future economic benefits, including synergies, and assembled workforce, that are expected to be achieved as a result of the consummation of the acquisition of Adore Me. The goodwill arising from the acquisition is not expected to be deductible for tax purposes.
The Company consolidates Adore Me's financial information on an approximate one-month reporting lag. Accordingly, given the acquisition closing date of December 30, 2022, the operating results of Adore Me for the three-month period subsequent to the acquisition date are recorded in the Company's consolidated financial statements in the first quarter of 2023.
In the first quarter of 2023, the Company recognized the financial impact of purchase accounting items and additional acquisition-related costs, including recognition in gross profit of the fair value adjustment to acquired inventories as it is sold, income related to changes in the estimated fair value of contingent consideration and Contingent Compensation Payments, as well as amortization of acquired intangible assets. During the first quarter of 2023, the Company recognized total related costs of $17 million, including $9 million in Costs of Goods Sold, Buying and Occupancy, $7 million in General, Administrative and Store Operating Expenses and $1 million in Interest Expense. See Note 12, “Fair Value of Financial Instruments” for further information on the contingent consideration. The deferred consideration liability for the future fixed payment is included within Other Long-term Liabilities in the Consolidated Balance Sheets and was $72 million as of April 29, 2023 and $71 million as of January 28, 2023.
3. Revenue Recognition
Accounts receivable, net from revenue-generating activities were $99 million as of April 29, 2023, $101 million as of January 28, 2023 and $100 million as of April 30, 2022. Accounts receivable primarily relate to amounts due from the Company's franchise, license and wholesale partners. Under these arrangements, payment terms are typically 60 to 90 days.
The Company records deferred revenue when cash payments are received in advance of transfer of control of goods or services. Deferred revenue primarily relates to gift cards, loyalty and credit card programs and direct channel shipments, which are all impacted by seasonal and holiday-related sales patterns. Deferred revenue was $284 million as of April 29, 2023, $309 million as of January 28, 2023 and $238 million as of April 30, 2022. The Company recognized $60 million as revenue in the first quarter of 2023 from amounts recorded as deferred revenue at the beginning of the year. As of April 29, 2023, the Company recorded deferred revenue of $266 million within Accrued Expenses and Other, and $18 million within Other Long-term Liabilities on the Consolidated Balance Sheet.
The following table provides a disaggregation of Net Sales for the first quarter of 2023 and 2022:
First Quarter
20232022
(in millions)
Stores – North America (a)
$786 $931 
Direct (a)464 421 
International (b)157 132 
Total Net Sales$1,407 $1,484 
 _______________
(a)Results for the first quarter of 2023 include Adore Me sales.
(b)Results include consolidated joint venture sales in China, royalties associated with franchised stores and wholesale sales.
In April 2022, the Company launched a new Victoria's Secret and PINK co-branded credit card through which customers can earn points on purchases of Victoria's Secret and PINK product as well as on purchases outside of the Company. The co-branded credit card is in addition to Victoria's Secret's existing U.S. private label credit card. A third-party financing company is the sole owner of the accounts and underwrites the credit issued under the credit card programs. Revenue earned in connection with the Company's credit card arrangements with the third-party is primarily recognized based on credit card sales and usage.
The Company recognized Net Sales of $23 million and $26 million for the first quarter of 2023 and 2022, respectively, related to revenue earned in connection with its credit card arrangements.
The Company’s international net sales include sales from Company-operated stores, royalty revenue from franchise and license arrangements, wholesale revenues and direct sales shipped internationally. Certain of these sales are subject to the impact of fluctuations in foreign currency. The Company’s net sales outside of the U.S. totaled $200 million and $184 million for the first quarter of 2023 and 2022, respectively.
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4. Restructuring Activities
Organizational Restructuring
In the first quarter of 2023, the Company implemented additional restructuring actions to continue to reorganize and improve its organizational structure. As a result, pre-tax severance and related costs of $11 million, of which $8 million are included in General, Administrative and Store Operating Expenses and $3 million are included in Costs of Goods Sold, Buying and Occupancy, are included in the 2023 Consolidated Statement of Income.
During the second quarter and fourth quarter of 2022, the Company implemented restructuring actions to reorganize and improve its organizational structure. As a result, during 2022, the Company incurred pre-tax severance and related costs of $35 million, of which $21 million are included in General, Administrative and Store Operating Expenses and $14 million are included in Costs of Goods Sold, Buying and Occupancy.
During the first quarter of 2023, the Company made payments of $5 million related to severance and related costs associated with these reductions. As of April 29, 2023, liabilities related to these restructuring activities of $22 million are included in the April 29, 2023 Consolidated Balance Sheet.
Victoria's Secret China
In April 2022, the Company announced the completion of the joint venture agreement with Regina Miracle International (Holdings) Limited (“Regina Miracle”), a company listed on the Hong Kong Stock Exchange, related to its existing Company-owned business in China. The Company and Regina Miracle formed a joint venture to operate Victoria's Secret stores and the related online business in China. Under the terms of the agreement, the Company owns 51% of the joint venture and Regina Miracle owns the remaining 49%. The Company received $45 million in cash from Regina Miracle during the first quarter of 2022 as consideration for its investment in the joint venture. In connection with the execution of the agreement, the Company and Regina Miracle each contributed $10 million in cash to the joint venture. The cash received from Regina Miracle is reflected within Cash Received from Noncontrolling Interest Partner in the 2022 Consolidated Statement of Cash Flows.
Since the Company has retained control over the joint venture, the joint venture's assets, liabilities and results of operations will continue to be consolidated in the Company's consolidated financial statements. Regina Miracle's interest in the joint venture is now reflected in Noncontrolling Interest in the Consolidated Balance Sheets and in Net Income (Loss) Attributable to Noncontrolling Interest in the Consolidated Statements of Income.
5. Earnings Per Share and Shareholders' Equity
Earnings Per Share
Earnings per basic share is computed based on the weighted-average number of common shares outstanding. Earnings per diluted share include the weighted-average effect of dilutive restricted stock units, performance share units and options (collectively, “Dilutive Awards”) on the weighted-average shares outstanding.
The following table provides the weighted-average shares utilized for the calculation of basic and diluted earnings per share for the first quarter of 2023 and 2022:
First Quarter
20232022
(in millions)
Common Shares78 84 
Treasury Shares— — 
Basic Shares78 84 
Effect of Dilutive Awards (a)
Diluted Shares80 87 
Anti-dilutive Awards (a)
 _______________
(a)Shares underlying certain options, restricted stock units and performance share units were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive.
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Shareholders' Equity
Common Stock Share Repurchases & Treasury Stock Retirements
January 2023 Share Repurchase Program
In January 2023, the Company's Board of Directors approved a share repurchase program (“January 2023 Share Repurchase Program”), authorizing the repurchase of up to $250 million of the Company's common stock. The $250 million authorization is expected to be utilized to repurchase shares in the open market or as otherwise authorized by the Board of Directors, subject to market conditions and other factors. Shares acquired through the January 2023 Share Repurchase Program will be available to meet obligations under the Company's equity compensation plans and for general corporate purposes. The January 2023 Share Repurchase Program began upon completion of the March 2022 Share Repurchase Program and will continue until exhausted, but no later than the end of fiscal year 2023. The Company did not repurchase any shares of its common stock under the January 2023 Share Repurchase Program during fiscal year 2022.
In February 2023, as part of the January 2023 Share Repurchase Program, the Company entered into an accelerated share repurchase agreement (“ASR Agreement”) with Goldman Sachs & Co. LLC (“Goldman Sachs”) to repurchase $125 million of the Company's common stock. In February 2023, the Company made an initial payment of $125 million to Goldman Sachs and received an initial delivery of 2.4 million shares of the Company's common stock. The final number of shares repurchased was based on the volume-weighted average price of the Company’s common stock during the term of the ASR Agreement, less a discount and subject to adjustments pursuant to the terms of the ASR Agreement. The final settlement of the ASR Agreement occurred in May 2023 subsequent to the end of the first quarter of 2023. At final settlement, the Company received an additional 1.3 million shares of the Company's common stock from Goldman Sachs.
As of April 29, 2023, the $125 million payment to Goldman Sachs is recognized as a reduction to shareholders’ equity, consisting of a $100 million increase in Treasury Stock, which reflects the value of the initial 2.4 million shares received upon initial settlement, and a $25 million decrease in Paid-in Capital, which reflects the value of the stock then held by Goldman Sachs pending final settlement of the ASR Agreement. The $25 million recorded in Paid-in Capital as of April 29, 2023 will be reclassified to Treasury Stock in the second quarter of 2023 in connection with the final settlement of the ASR Agreement. As a result of the initial share delivery, there was an additional $1 million increase in Treasury Stock, which reflects the excise tax liability recorded related to the share repurchase in accordance with the Inflation Reduction Act of 2022. In accordance with the Board of Directors' resolution, upon delivery the Company immediately retired the 2.4 million shares repurchased under the ASR Agreement in the first quarter of 2023. The retirement resulted in a reduction of $101 million in Treasury Stock, less than $1 million in the par value of Common Stock, $6 million in Paid-in Capital and $95 million in Retained Earnings in the first quarter of 2023.
As of April 29, 2023, the Company was authorized to repurchase up to $150 million of the Company's common stock under the January 2023 Share Repurchase Program. Of the remaining authorization as of April 29, 2023, $25 million represents the value of the stock then held by Goldman Sachs pending final settlement of the ASR Agreement.
March 2022 Share Repurchase Program
In March 2022, the Company's Board of Directors approved a share repurchase program (“March 2022 Share Repurchase Program”), providing for the repurchase of up to $250 million of the Company's common stock. The $250 million authorization was utilized in fiscal year 2022 to repurchase shares in the open market, subject to market conditions and other factors.
The Company repurchased the following shares of its common stock under the March 2022 Share Repurchase Program during the first quarter of 2022:
Amount AuthorizedShares RepurchasedAmount RepurchasedAverage Stock Price
(in millions)(in thousands)(in millions)
March 2022 Share Repurchase Program$250 2,162 $109 $50.43 
In accordance with the Board of Directors' resolution, shares of the Company's common stock repurchased under the March 2022 Share Repurchase Program were retired upon repurchase and are available to meet obligations under equity compensation plans and for general corporate purposes. As a result, during the first quarter of 2022 the Company retired 2.2 million shares repurchased under the March 2022 Share Repurchase Program, which resulted in reductions of less than $1 million in the par value of Common Stock, $4 million in Paid-in Capital and $105 million in Retained Earnings.
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December 2021 Accelerated Share Repurchase Agreement
In February 2022, upon final settlement of the Company's December 2021 accelerated share repurchase agreement (“December 2021 ASR Agreement”) with Goldman Sachs, the Company received an additional 0.3 million shares of the Company's common stock from Goldman Sachs. The delivery of shares resulted in an immediate reduction of the outstanding shares used to calculate the weighted-average common shares outstanding for basic and diluted net income per share. In connection with the settlement of the December 2021 ASR Agreement, $50 million previously recorded in Paid-in Capital as of January 29, 2022, was reclassified to Treasury Stock in the first quarter of 2022. In February 2022, the Company immediately retired the additional 0.3 million shares repurchased in connection with the settlement of the December 2021 ASR Agreement. The retirement resulted in a reduction of $50 million in Treasury Stock, less than $1 million in the par value of Common Stock, less than $1 million in Paid-in Capital and nearly $50 million in Retained Earnings.
6. Inventories
The following table provides details of Inventories as of April 29, 2023, January 28, 2023 and April 30, 2022:
April 29,
2023
January 28,
2023
April 30,
2022
(in millions)
Finished Goods Merchandise$983 $997 $996 
Raw Materials and Merchandise Components58 55 50 
Total Inventories$1,041 $1,052 $1,046 
Inventories are principally valued at the lower of cost or net realizable value, on an average cost basis. The above amounts are net of valuation adjustments for inventory where the cost exceeds the amount the Company expects to realize from the ultimate sale or disposal of the inventory and net of loss adjustments for estimated physical inventory losses that have occurred since the date of the last physical inventory.
7. Long-Lived Assets
The following table provides details of Property and Equipment, Net as of April 29, 2023, January 28, 2023 and April 30, 2022:
April 29,
2023
January 28,
2023
April 30,
2022
(in millions)
Property and Equipment, at Cost$3,676 $3,716 $3,675 
Accumulated Depreciation and Amortization(2,842)(2,870)(2,774)
Property and Equipment, Net$834 $846 $901 
Depreciation expense was $67 million and $70 million for the first quarter of 2023 and 2022, respectively.
8. Intangible Assets
Goodwill
The Company's goodwill was established as a result of the acquisition of Adore Me on December 30, 2022. For additional information, see Note 2, “Acquisition.” Prior to the acquisition of Adore Me, the Company did not have any goodwill.
The following table shows the change in the carrying value of goodwill:
(in millions)
Balance, January 28, 2023$365 
Adjustments (a)
Balance, April 29, 2023$368 
 _______________
(a)Includes measurement period adjustments related to the acquisition of Adore Me. For additional information, see Note 2, “Acquisition.”
Trade Name - Indefinite-Lived
The Victoria's Secret trade name, an indefinite-lived intangible asset, was $246 million as of April 29, 2023, January 28, 2023 and April 30, 2022, respectively.
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Definite-Lived Intangible Assets
The Company's definite-lived intangible assets were established as a result of the acquisition of Adore Me. Prior to the acquisition of Adore Me, the Company did not have any definite-lived intangible assets.
The following table provides details of the gross carrying amount and accumulated amortization of the Company's definite-lived intangible assets as of April 29, 2023 and January 28, 2023:
April 29,
2023
January 28,
2023
(in millions)
Gross Definite-Lived Intangible Assets
Customer Relationships
$81 $81 
Developed Technology
56 56 
Adore Me Trade Name43 43 
Total Gross Definite-Lived Intangible Assets$180 $180 
Accumulated Amortization
Customer Relationships
$(3)$— 
Developed Technology
(2)— 
Adore Me Trade Name(1)— 
Total Accumulated Amortization(6)— 
Total Definite-Lived Intangible Assets, Net$174 $180 
Amortization expense for intangible assets was $6 million for the first quarter of 2023. There was no amortization expense recorded related to these definite-lived intangible assets in fiscal year 2022.
9. Accrued Expenses and Other
The following table provides additional information about the composition of Accrued Expenses and Other as of April 29, 2023, January 28, 2023 and April 30, 2022:

April 29,
2023
January 28,
2023
April 30,
2022
(in millions)
Deferred Revenue on Gift Cards$221 $238 $181 
Compensation, Payroll Taxes and Benefits95 105 88 
Accrued Marketing42 37 34 
Taxes, Other than Income39 40 24 
Deferred Revenue on Loyalty and Credit Card Programs34 40 24 
Contingent Consideration Related to Adore Me Acquisition31 30 — 
Returns Reserve15 22 18 
Accrued Freight and Other Logistics14 16 30 
Accrued Interest14 12 
Rent12 63 65 
Deferred Revenue on Direct Shipments not yet Delivered11 13 12 
Accrued Claims on Self-insured Activities
Other113 118 115 
Total Accrued Expenses and Other$649 $737 $607 
10. Income Taxes
The provision for income taxes is based on the current estimate of the annual effective tax rate and is adjusted as necessary for quarterly events.
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For the first quarter of 2023, the Company’s effective tax rate was 34.0% compared to 2.4% in the first quarter of 2022. The first quarter of 2023 rate differed from the Company's combined estimated federal and state statutory rate primarily due to non-deductible further cash consideration liability under the terms of the Merger Agreement. The first quarter of 2022 rate was lower than the Company's combined estimated federal and state statutory rate primarily due to the recognition of excess tax benefits related to share-based compensation awards that vested in the first quarter of 2022.
The Company paid income taxes in the amount of $16 million and $10 million for the first quarter of 2023 and 2022, respectively.
11. Long-term Debt and Borrowing Facilities
The following table provides the Company's outstanding debt balance, net of unamortized debt issuance costs and discounts, as of April 29, 2023, January 28, 2023 and April 30, 2022:
April 29,
2023
January 28,
2023
April 30,
2022
(in millions)
Senior Secured Debt with Subsidiary Guarantee
$394 million Term Loan due August 2028 (“Term Loan Facility”)
$387 $387 $389 
Asset-based Revolving Credit Facility due August 2026 (“ABL Facility”)
295 295 — 
Total Senior Secured Debt with Subsidiary Guarantee682 682 389 
Senior Debt with Subsidiary Guarantee
$600 million, 4.625% Fixed Interest Rate Notes due July 2029 (“2029 Notes”)
593 593 592 
Total Senior Debt with Subsidiary Guarantee593 593 592 
Total1,275 1,275 981 
Current Debt(4)(4)(4)
Total Long-term Debt, Net of Current Portion$1,271 $1,271 $977 
Cash paid for interest was $13 million and $4 million for the first quarter of 2023 and first quarter of 2022, respectively.
Credit Facilities
On August 2, 2021, the Company entered into a term loan B credit facility in an aggregate principal amount of $400 million, which will mature in August 2028. The discounts and issuance costs from the Term Loan Facility are being amortized through the maturity date and are included within Long-term Debt on the Consolidated Balance Sheets. Commencing in December 2021, the Company is required to make quarterly principal payments on the Term Loan Facility in an amount equal to 0.25% of the original principal amount of $400 million. The Company made principal payments of $1 million for the Term Loan Facility during both the first quarter of 2023 and the first quarter of 2022.
Interest under the Term Loan Facility is calculated by reference to the London Interbank Offered Rate (“LIBOR”) or an alternative base rate, plus an interest rate margin equal to (i) in the case of LIBOR loans, 3.25% and (ii) in the case of alternate base rate loans, 2.25%. The LIBOR rate applicable to the Term Loan Facility is subject to a floor of 0.50%. The obligation to pay principal and interest on the loans under the Term Loan Facility is jointly and severally guaranteed on a full and unconditional basis by certain of the Company's wholly-owned domestic subsidiaries. The loans under the Term Loan Facility are secured on a first-priority lien basis by certain assets of the Company and guarantors that do not constitute priority collateral of the ABL Facility and on a second-priority lien basis by priority collateral of the ABL Facility, subject to customary exceptions. As of April 29, 2023, the interest rate on the loans under the Term Loan Facility was 8.24%.
On May 8, 2023, subsequent to the end of the first quarter of 2023, the Company amended its Term Loan Facility to allow for an early transition to using the Secured Overnight Financing Rate (“SOFR”) instead of LIBOR. In accordance with the amendment, interest on SOFR loans under the Term Loan Facility will be calculated by reference to SOFR, plus an interest rate margin ranging from 3.36% to 3.68%.
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On August 2, 2021, the Company also entered into a senior secured asset-based revolving credit facility. The ABL Facility allows for borrowings and letters of credit in U.S. dollars or Canadian dollars and has aggregate commitments of $750 million and an expiration date of August 2026. The availability under the ABL Facility is the lesser of (i) the borrowing base, determined primarily based on the Company's eligible U.S. and Canadian credit card receivables, eligible accounts receivable, eligible inventory and eligible real property, and (ii) the aggregate commitment. Interest on the loans under the ABL Facility is calculated by reference to (i) LIBOR or an alternative base rate and (ii) in the case of loans denominated in Canadian dollars, Canadian Dollar Offered Rate (“CDOR”) or a Canadian base rate, plus an interest rate margin based on average daily excess availability ranging from (x) in the case of LIBOR and CDOR loans, 1.50% to 2.00% and (y) in the case of alternate base rate loans and Canadian base rate loans, 0.50% to 1.00%. Unused commitments under the ABL Facility accrue an unused commitment fee ranging from 0.25% to 0.30%. The obligation to pay principal and interest on the loans under the ABL Facility is jointly and severally guaranteed on a full and unconditional basis by certain of the Company's wholly-owned domestic and Canadian subsidiaries. The loans under the ABL Facility are secured on a first-priority lien basis by the Company's eligible U.S. and Canadian credit card receivables, eligible accounts receivable, eligible inventory and eligible real property and on a second-priority lien basis on substantially all other assets of the Company, subject to customary exceptions.
During the first quarter of 2023, the Company borrowed $15 million and made payments of $15 million under the ABL Facility. As of April 29, 2023, there were borrowings of $295 million outstanding under the ABL Facility and the interest rate on the borrowings was 6.71%. The Company had $30 million of outstanding letters of credit as of April 29, 2023 that further reduced its availability under the ABL Facility. As of April 29, 2023, the Company's remaining availability under the ABL Facility was $308 million.
On May 8, 2023, subsequent to the end of the first quarter of 2023, the Company amended its ABL Facility to allow for an early transition to using SOFR instead of LIBOR. In accordance with the amendment, interest on SOFR loans under the ABL Facility will be calculated by reference to SOFR, plus an interest rate margin based on average daily excess availability ranging from 1.60% to 2.10%.
The Company's long-term debt and borrowing facilities contain certain financial and other covenants, including, but not limited to, the maintenance of financial ratios. The 2029 Notes and the Term Loan Facility include the maintenance of a consolidated coverage ratio and a consolidated total leverage ratio, and the ABL Facility includes the maintenance of a fixed charge coverage ratio and a debt to earnings before interest, income taxes, depreciation, amortization and rent (“EBITDAR”) ratio. The financial covenants could, within specific predefined circumstances, limit the Company's ability to incur additional indebtedness, make certain investments, pay dividends or repurchase shares. As of April 29, 2023, the Company was in compliance with all covenants under its long-term debt and borrowing facilities.
12. Fair Value of Financial Instruments
Cash and Cash Equivalents include cash on hand, deposits with financial institutions and highly liquid investments with original maturities of 90 days or less. The Company's Cash and Cash Equivalents are considered Level 1 fair value measurements as they are valued using unadjusted quoted prices in active markets for identical assets.
The following table provides a summary of the principal value and estimated fair value of the Company's outstanding debt as of April 29, 2023, January 28, 2023 and April 30, 2022:
April 29,
2023
January 28,
2023
April 30,
2022
(in millions)
Principal Value$994 $995 $998 
Fair Value, Estimated (a)873 894 881 
________________
(a)The estimated fair value of the Company’s publicly traded debt is based on reported transaction prices which are considered Level 2 inputs in accordance with ASC 820, Fair Value Measurement. The estimates presented are not necessarily indicative of the amounts that the Company could realize in a current market exchange.
Management believes that the carrying values of accounts receivable, accounts payable and accrued expenses approximate fair value because of their short maturity. Management further believes the principal value of the outstanding debt under the ABL Facility approximates its fair value as of April 29, 2023 based on the terms of the borrowings from the ABL Facility.
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Recurring Fair Value Measurements
The following tables provide a summary of the Company's contingent consideration recognized at fair value related to the Adore Me acquisition as of April 29, 2023 and January 28, 2023 (in millions):
Balance Sheet LocationApril 29,
2023
Level 1Level 2Level 3
Accrued Expenses and Other$31 $— $— $31 
Other Long-term Liabilities62 — — 62 
Balance Sheet LocationJanuary 28,
2023
Level 1Level 2Level 3
Accrued Expenses and Other$30 $— $— $30 
Other Long-term Liabilities70 — — 70 
The estimated fair value of the contingent consideration is valued using a Scenario-Based method and a Monte Carlo simulation which utilize inputs including discount rates, estimated probability of achievement of certain milestones, forecasted revenues, forecasted EBITDA and volatility rates. These are considered Level 3 inputs in accordance with ASC 820, Fair Value Measurement. Changes in the fair value of the contingent consideration are recorded within General, Administrative and Store Operating Expenses on the Consolidated Statements of Income. For additional information regarding the contingent consideration, see Note 2, “Acquisition.”
13. Comprehensive Income (Loss)
The following table provides the rollforward of accumulated other comprehensive income (loss) attributable to Victoria's Secret & Co. for the first quarter of 2023:
Foreign Currency TranslationAccumulated Other Comprehensive Income (Loss)
(in millions)
Balance as of January 28, 2023$$
Other Comprehensive Loss Before Reclassifications(2)(2)
Tax Effect
— — 
Current-period Other Comprehensive Loss(2)(2)
Balance as of April 29, 2023$(1)$(1)
The following table provides the rollforward of accumulated other comprehensive income attributable to Victoria's Secret & Co. for the first quarter of 2022:
Foreign Currency TranslationAccumulated Other Comprehensive Income
(in millions)
Balance as of January 29, 2022$$
Other Comprehensive Income Before Reclassifications— — 
Amounts Reclassified from Accumulated Other Comprehensive Income to Paid-in Capital
Tax Effect
— — 
Current-period Other Comprehensive Income
Balance as of April 30, 2022$$
As a result of the China joint venture agreement completed in April 2022, the Company reclassified $3 million of accumulated foreign currency translation adjustments related to the joint venture out of Accumulated Other Comprehensive Income and into Paid-in Capital in the first quarter of 2022 in order to reflect the amount attributable to the noncontrolling interest partner. For additional information see Note 4, “Restructuring Activities.”
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14. Commitments and Contingencies
The Company is subject to various claims and contingencies related to lawsuits, taxes, insurance and other matters arising out of the normal course of business. Actions filed against the Company from time to time include commercial, tort, intellectual property, customer, employment, data privacy and other claims, including purported class action lawsuits. Management believes that the ultimate liability arising from such claims and contingencies, if any, is not likely to have a material adverse effect on the Company’s results of operations, financial condition or cash flows.
Settlement of Former Parent Derivative Lawsuits
In May 2022, the U.S. District Court of the Southern District of Ohio approved a global settlement regarding certain shareholder actions against L Brands, Inc. (the “Former Parent”) that were filed in 2020 and 2021. See Note 14, “Commitments and Contingencies” in the Company's Quarterly Report on Form 10-Q for the quarter ended July 30, 2022 for additional information. The settlement terms apply to both the Former Parent and the Company. Pursuant to the settlement terms, the Company committed to, among other things, invest $45 million over at least five years to fund certain management and governance measures required under the settlement agreement.
Occupancy-related Legal Matter
The Company was a tenant of portions of a building known as Two Herald Square, New York, New York (the “Premises”) pursuant to an Agreement of Lease dated August 22, 2001 (the “Lease”) with Herald Square Owner LLC (the “Landlord”). On February 20, 2021, the Company surrendered the Premises to the Landlord. On February 16, 2021, the Landlord filed a Motion for Partial Summary Judgment seeking treble holdover damages against the Company for the period commencing June 9, 2020 through February 20, 2021, the date on which the Company vacated and surrendered the Premises. By an order dated July 21, 2021, the court granted the Landlord’s motion and awarded it damages in an amount equal to three times the aggregate of the rents and charges payable under the Lease during the last month of the term of the Lease. On August 6, 2021, judgment was entered against the Company in the amount of $23 million. On September 15, 2021, the Landlord filed a Motion for Partial Summary Judgment seeking treble holdover damages against the Company for the period commencing February 21, 2021 through September 30, 2021. By an order dated April 22, 2022, the court granted the Landlord’s motion and awarded it damages in an amount equal to three times the aggregate amount of the rents and charges payable under the Lease during the last month of the term of the Lease. On May 9, 2022, judgment was entered against the Company in the amount of $22 million. The Company appealed both judgments; on March 2, 2023, the appellate court issued a denial of the appeals. During the first quarter of 2023, the Company paid the Landlord for the judgment amount in full.
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SAFE HARBOR STATEMENT UNDER THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
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 report 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. Forward-looking statements include, without limitation, statements regarding our future operating results, the implementation and impact of our strategic plans, and our ability to meet environmental, social, and governance goals. Words such as “estimate,” “commit,” “target,” “goal,” “project,” “plan,” “believe,” “seek,” “strive,” “expect,” “anticipate,” “intend,” “potential” and any similar expressions may identify forward-looking statements. Risks associated with the following factors, among others, could affect our financial performance and cause actual results to differ materially from those expressed or implied in any forward-looking statements:
•    the spin-off from our Former Parent may not be tax-free for U.S. federal income tax purposes;
we may not realize all of the expected benefits of the spin-off;
•    general economic conditions, inflation, consumer confidence, consumer spending patterns and 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;
•    the novel coronavirus (COVID-19) global pandemic has had and may continue to have an adverse effect on our business and results of operations;
•    difficulties arising from 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 mall traffic and the availability of suitable store locations on appropriate terms;
•    our ability to successfully operate and expand internationally and related risks;
•    our independent franchise, license, wholesale, and joint venture partners;
•    our direct channel business;
•    our ability to protect our reputation and the image 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, keep up with fashion trends, develop new merchandise and launch new product lines successfully;
•    our ability to realize the potential benefits and synergies sought with the acquisition of Adore Me;
•    our ability to source, distribute and sell goods and materials on a global basis, including risks related to:
•    political instability, environmental hazards or natural disasters;
•    significant health hazards or pandemics;
•    legal and regulatory matters;
•    delays or disruptions in shipping and transportation and related pricing impacts; and
•    disruption due to labor disputes;
•    our geographic concentration of vendor and distribution facilities in central Ohio and Southeast Asia;
•    the ability of our vendors to deliver products in a timely manner, meet quality standards and comply with applicable laws and regulations;
•    fluctuations in freight, product input and energy costs, including those caused by inflation;
•    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 of customer, associate, third-party and company information;
•    stock price volatility;
•    shareholder activism matters;
•    our ability to maintain our credit rating;
•    our ability to comply with regulatory requirements; and
•    legal, tax, trade and other regulatory matters.
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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 report 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 our Annual Report on Form 10-K filed with the SEC on March 17, 2023.
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.
Executive Overview
Victoria’s Secret is an iconic global brand of women’s intimate and other apparel, personal care and beauty products. We sell our products through three brands, Victoria’s Secret, PINK and Adore Me. Victoria’s Secret is a category-defining global lingerie brand with a leading market position and a rich, over 45-year history of serving women across the globe. PINK is a lifestyle brand for the college-oriented customer, built around a strong intimates core. We also sell beauty products under both the Victoria’s Secret and PINK brands. Adore Me is a technology-led, digital first innovative intimates brand serving women of all sizes and budgets at all phases of life. Together, Victoria’s Secret, PINK, Victoria’s Secret Beauty and Adore Me support, inspire and celebrate women through every phase of their life.
Victoria’s Secret, PINK and Adore Me merchandise is sold online through e-commerce platforms, through retail stores located in the U.S., Canada and China, and through international stores and websites operated by partners under franchise, license, wholesale and joint venture arrangements. We have a presence in approximately 70 countries and we believe we benefit from global brand awareness, a wide and compelling product assortment and a powerful, deep connection with our customers.
In the first quarter of 2023, our operating income was $28 million compared to $94 million in the first quarter of 2022, and our operating income rate (expressed as a percentage of net sales) was 2.0% compared to 6.3% last year. The operating income decrease in the first quarter of 2023 compared to the first quarter of 2022 was primarily driven by a decrease in net sales and gross profit and an increase in general, administrative and store operating expense. Net sales decreased $77 million, or 5%, to $1.407 billion compared to $1.484 billion in the first quarter of 2022 and comparable sales decreased 11% in the first quarter of 2023. Our North American store sales decreased $145 million, to $786 million compared to $931 million in the first quarter of 2022 driven by a decrease in traffic results which were down compared to the first quarter of 2022. Our North American store sales were also impacted by decreases in conversion (which we define as the percentage of customers who visit our stores and make a purchase) and average unit retail (which we define as the average price per unit purchased) in the quarter compared to the first quarter of 2022. Our direct channel sales increased by 10%, or $43 million, to $464 million compared to $421 million in the first quarter of 2022, as Adore Me sales were reported in our results in 2023 for the first time. On a comparative basis, an increase in units per transaction was more than offset by a decrease in average unit retail and conversion.
Despite a macro environment that remained challenging on the customer, we continue to focus on our strategic growth plans and the three pillars of our strategy: strengthening our core, igniting growth and transforming the foundation. We are committed to optimizing our performance in the current challenging environment by focusing on what is within our control, and we are confident in our strategic growth plan and remain committed to delivering long-term sustainable value for our shareholders.
For additional information related to our first quarter of 2023 financial performance, see “Results of Operations.”
Financial Impacts of the Adore Me Acquisition
We consolidate Adore Me's financial information on an approximate one-month reporting lag. Accordingly, given the acquisition closing date of December 30, 2022, the operating results of Adore Me for the three-month period subsequent to the acquisition date are recorded in our results in the first quarter of 2023.
In the first quarter of 2023, we recognized the financial impact of purchase accounting items and additional acquisition-related costs, including recognition in gross profit of the fair value adjustment to acquired inventories as it is sold, income related to changes in the estimated fair value of contingent consideration and Contingent Compensation Payments, as well as amortization of acquired intangible assets. For additional information, see Note 2, “Acquisition.”
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Non-GAAP Financial Information
In addition to our results provided in accordance with GAAP above and throughout this Form 10-Q, provided below are non-GAAP financial measures that present operating income, net income attributable to Victoria's Secret & Co. and net income per diluted share attributable to Victoria's Secret & Co. on an adjusted basis, which remove certain special items. We believe that these special items are not indicative of our ongoing operations due to their size and nature. The intangible asset amortization excluded 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 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 adjusted financial information may differ from similarly titled measures used by other companies. The table below reconciles the GAAP financial measures to the non-GAAP financial measures.
First Quarter
(in millions, except per share amounts)20232022
Reconciliation of Reported to Adjusted Operating Income
Reported Operating Income - GAAP$28 $94 
Restructuring Charge (a)11 — 
Adore Me Acquisition-related Items (b)10 — 
Amortization of Intangible Assets (c)— 
Occupancy-related Legal Matter (d)— 22 
Adjusted Operating Income$55 $116 
Reconciliation of Reported to Adjusted Net Income Attributable to Victoria's Secret & Co.
Reported Net Income Attributable to Victoria's Secret & Co. - GAAP$$81 
Restructuring Charge (a)11 — 
Adore Me Acquisition-related Items (b)11 — 
Amortization of Intangible Assets (c)— 
Occupancy-related Legal Matter (d)— 22 
Tax Effect of Adjusted Items(7)(6)
Adjusted Net Income Attributable to Victoria's Secret & Co.$22 $97 
Reconciliation of Reported to Adjusted Net Income Per Diluted Share Attributable to Victoria's Secret & Co.
Reported Net Income Per Diluted Share Attributable to Victoria's Secret & Co. - GAAP$0.01 $0.93 
Restructuring Charge (a)0.10 — 
Adore Me Acquisition-related Items (b)0.10 — 
Amortization of Intangible Assets (c)0.06 — 
Occupancy-related Legal Matter (d)— 0.19 
Adjusted Net Income Per Diluted Share Attributable to Victoria's Secret & Co.$0.28 $1.11 
 ________________
(a)In the first quarter of 2023, we recognized a pre-tax charge of $11 million ($8 million after-tax), $8 million included in general, administrative and store operating expense and $3 million included in buying and occupancy expense, related to restructuring activities to continue to reorganize and improve our organizational structure. For additional information, see Note 4, “Restructuring Activities” included in Item 1. Financial Statements.
(b)In the first quarter of 2023, we recognized a pre-tax charge of $11 million ($8 million after-tax) within net income, $9 million included in costs of goods sold, buying and occupancy expense, $1 million included in interest expense and $1 million included in general, administrative and store operating expense, related to the financial impact of purchase accounting items and professional service costs related to the acquisition of Adore Me. For additional information, see Note 2, “Acquisition” included in Item 1. Financial Statements.
(c)In the first quarter of 2023, we recognized $6 million of amortization expense ($5 million after-tax) included in general, administrative and store operating expense related to the acquisition of Adore Me. For additional information, see Note 2, “Acquisition” and Note 8, “Intangible Assets” included in Item 1. Financial Statements.
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(d)In the first quarter of 2022, we recognized a pre-tax charge of $22 million ($16 million after-tax), included in buying and occupancy expense, related to a legal matter with a landlord regarding a high-profile store that we surrendered to the landlord prior to our separation from the Former Parent. For additional information, see Note 14, “Commitments and Contingencies” included in Item 1. Financial Statements.
Store Data
The following table compares the first quarter of 2023 U.S. company-operated store data to the first quarter of 2022:
First Quarter
20232022% Change
Sales per Average Selling Square Foot (a)$133 $158 (16 %)
Sales per Average Store (in thousands) (a)$915 $1,096 (17 %)
Average Store Size (selling square feet)6,891 6,943 (1 %)
Total Selling Square Feet (in thousands)5,600 5,589 — %
 ________________
(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 2023:
Stores atStores at
January 28, 2023OpenedClosedApril 29, 2023
Company-Operated:
U.S.812 (6)807 
Canada25 — (1)24 
Subtotal Company-Operated837 (7)831 
China Joint Venture:
Beauty & Accessories (a)39 (2)38 
Full Assortment33 — 34 
Subtotal China Joint Venture72 (2)72 
Partner-Operated:
Beauty & Accessories308 (5)305 
Full Assortment135 (6)133 
Subtotal Partner-Operated443 (11)438 
Adore Me— — 
Total1,358 9 (20)1,347 
________________
(a)Includes fourteen partner-operated stores as of April 29, 2023.
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The following table represents store data for the first quarter of 2022:
Stores atReclassed toStores at
January 29, 2022OpenedClosedJoint VentureApril 30, 2022
Company-Operated:
U.S.808 — (3)— 805 
Canada26 — — — 26 
Subtotal Company-Operated834 — (3)— 831 
China Joint Venture:
Beauty & Accessories (a)35 — (2)41 
Full Assortment30 — — — 30 
Subtotal China Joint Venture65 — (2)71 
Partner-Operated:
Beauty & Accessories335 (4)(8)324 
Full Assortment128 — — 131 
Subtotal Partner-Operated463 (4)(8)455 
Total1,362 4 (9) 1,357 
________________
(a)Includes eight partner-operated stores as of April 30, 2022.
Results of Operations
First Quarter of 2023 Compared to First Quarter of 2022
Operating Income
For the first quarter of 2023, operating income decreased $66 million, to $28 million, compared to operating income of $94 million in the first quarter of 2022, and the operating income rate (expressed as a percentage of net sales) decreased to 2.0% from 6.3%. The drivers of the operating income results are discussed in the following sections.
Net Sales
The following table provides net sales for the first quarter of 2023 in comparison to the first quarter of 2022:
20232022% Change
First Quarter(in millions) 
Stores – North America (a)
$786 $931 (16 %)
Direct (a)464 421 10 %
International (b)157 132 19 %
Total Net Sales$1,407 $1,484 (5 %)
 _______________
(a)Results for the first quarter of 2023 include Adore Me sales.
(b)Results include consolidated joint venture sales in China, royalties associated with franchised stores and wholesale sales.
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The following table provides a reconciliation of net sales from the first quarter of 2022 to the first quarter of 2023:
(in millions)
2022 Net Sales$1,484 
Comparable Store Sales(124)
Sales Associated with New, Closed and Non-comparable Remodeled Stores, Net (a)(10)
Direct Channels (a)60 
Credit Card Programs(4)
International Wholesale, Royalty and Other
Foreign Currency Translation(5)
2023 Net Sales$1,407 
 _______________
(a)Results for the first quarter of 2023 include Adore Me sales.
The following table compares the first quarter of 2023 comparable sales to the first quarter of 2022:
20232022
Comparable Sales (Stores and Direct) (a)(11 %)(8 %)
Comparable Store Sales (a)(14 %)(3 %)
_______________
(a)The percentage change in comparable sales represents direct and comparable store sales. The percentage change in comparable store sales represents the change in sales at comparable stores only and excludes the change in sales from our direct channels. The change in comparable sales provides an indication of period over period growth (decline). A store is typically included in the calculation of comparable sales when it has been open 12 months or more and it has not had a change in selling square footage of 20% or more. Closed stores are excluded from the comparable sales calculation if they have been closed for four consecutive days or more. Upon re-opening, the stores are included in the calculation. Additionally, stores are excluded if total selling square footage in the mall changes by 20% or more through the opening or closing of a second store. The percentage change in comparable sales is calculated on a comparable calendar period as opposed to a fiscal basis. Comparable sales attributable to our international stores are calculated on a constant currency basis.
Net sales in the first quarter of 2023 decreased $77 million, or 5%, to $1.407 billion compared to $1.484 billion in the first quarter of 2022.
In the stores channel, our North America net sales decreased $145 million, or 16%, to $786 million compared to the first quarter of 2022 driven by a decrease in traffic which was down compared to the first quarter last year and sequentially got worse compared to the fourth quarter of 2022. Our North American store sales were also impacted by decreases in conversion and average unit retail in the quarter compared to the first quarter of 2022.
In the direct channel, net sales increased $43 million, or 10%, to $464 million, as Adore Me sales were reported in our results in 2023 for the first time. On a comparable basis, an increase in units per transaction was more than offset by a decrease in average unit retail and conversion.
In the international channel, net sales increased $25 million, or 19%, to $157 million compared to the first quarter of 2022, as stores and online sales increased due to increased traffic in most countries outside of North America and positive customer acceptance of our product assortment.
Gross Profit
For the first quarter of 2023, our gross profit decreased $20 million compared to the first quarter of 2022 to $502 million, and our gross profit rate (expressed as a percentage of net sales) increased to 35.7% from 35.1%.
The decrease in gross profit dollars was due to the decrease in merchandise margin dollars driven by the decrease in net sales and the increase in promotional activity, partially offset by a decrease in supply chain costs compared to the first quarter of 2022. Buying and occupancy expenses were down compared to the first quarter of 2022, primarily driven by a legal reserve of $22 million related to a landlord matter in the first quarter last year, partially offset by the inclusion of Adore Me buying and occupancy expenses in the current year. Additionally, the decrease in gross profit dollars was driven by the partial recognition in gross profit of the inventory fair value step-up adjustment related to acquired inventory from Adore Me.
The gross profit rate increase was driven by a decrease in supply chain costs compared to the first quarter of 2022, partially offset by increased promotional activity and deleverage in buying and occupancy expenses in the quarter as a result of the decrease in sales compared to the first quarter of 2022.
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General, Administrative and Store Operating Expenses
For the first quarter of 2023, our general, administrative and store operating expenses increased $46 million, or 11%, compared to the first quarter of 2022 to $474 million. The increase in general, administrative and store operating expenses compared to the first quarter of 2022 was primarily due to the inclusion of Adore Me general, administrative and store operating expenses for the first time during the first quarter of 2023. The increase in general, administrative and store operating expenses was also driven by restructuring charges of $8 million and amortization of intangible assets acquired from Adore Me of $6 million in the first quarter of 2023.
The general, administrative and store operating expense rate (expressed as a percentage of net sales) increased to 33.7% from 28.8% primarily due to the inclusion of Adore Me general, administrative and store operating expenses for the first time in the first quarter of 2023.
Interest Expense
For the first quarter of 2023, our interest expense increased $10 million to $22 million compared to the first quarter of 2022, primarily driven by a higher average borrowing rate for our Term Loan Facility and the increase in our outstanding debt due to the borrowings from the ABL Facility during the third and fourth quarters of 2022.
Provision for Income Taxes
For the first quarter of 2023, the Company's effective tax rate was 34.0% compared to 2.4% in the first quarter of 2022. The first quarter of 2023 rate differed from the Company's combined estimated federal and state statutory rate primarily due to non-deductible further cash consideration liability under the terms of the Merger Agreement. The first quarter of 2022 rate was lower than the Company's combined estimated federal and state statutory rate primarily due to the recognition of excess tax related to share-based compensation awards that vested in the first quarter of 2022.
FINANCIAL CONDITION
Liquidity and Capital Resources
Liquidity, or access to cash, is an important factor in determining our financial stability. We are committed to maintaining adequate liquidity. Cash generated from our operating activities provides the primary resources to support current operations, growth initiatives, seasonal funding requirements and capital expenditures. Our cash provided by (used for) operations is impacted by our net income and working capital changes. Our net income is impacted by, among other things, sales volume, seasonal sales patterns, success of new product introductions, profit margins and income taxes. Historically, sales are higher during the fourth quarter of the fiscal year due to seasonal and holiday-related sales patterns. Generally, our need for working capital peaks during the summer and fall months as inventory builds in anticipation of the holiday period.
Our ability to fund our operating needs is primarily dependent upon our ability to continue to generate positive cash flow from operations, as well as borrowing capacity under our ABL Facility, which we rely on to supplement cash generated by our operating activities, particularly when our need for working capital peaks in the summer and fall months as discussed above. Management believes that our cash balances and funds provided by operating activities, along with the borrowing capacity under our ABL Facility, taken as a whole, provide (i) adequate liquidity to meet all of our current and long-term obligations when due, (ii) adequate liquidity to fund capital expenditures, and (iii) flexibility to consider investment opportunities that may arise. However, certain investment opportunities may require us to seek additional debt or equity financing, and there can be no assurances that we will be able to obtain additional debt or equity financing on acceptable terms, if at all, in the future.
We expect to utilize our cash flows to continue to invest in our brands, talent and capabilities, and growth strategies as well as to repay our indebtedness over time. We believe that our available short-term and long-term capital resources are sufficient to fund requirements over the next 12 months.
Working Capital and Capitalization
Based upon our cash balances and funds provided by operating activities, along with the borrowing capacity under our ABL Facility, we believe we will be able to continue to meet our working capital needs.
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The following table provides a summary of our working capital position and capitalization as of April 29, 2023, January 28, 2023 and April 30, 2022:
April 29,
2023
January 28,
2023
April 30,
2022
(in millions)
Net Cash Provided by (Used for) Operating Activities (a)$(108)$437 $(146)
Capital Expenditures (a)55 164 21 
Working Capital66 158 63 
Capitalization:
Long-term Debt1,271 1,271 977 
Victoria's Secret & Co. Shareholders' Equity265 383 227 
Total Capitalization$1,536 $1,654 $1,204 
Amounts Available Under the ABL Facility (b)$308 $259 $611 
_______________
(a)The April 29, 2023 and April 30, 2022 amounts represent thirteen-week periods and the January 28, 2023 amounts represent a fifty-two-week period.
(b)For the reporting period ended April 29, 2023, the availability under the ABL Facility was limited by our borrowing base of $633 million, less outstanding borrowings of $295 million and letters of credit of $30 million. For the reporting period ended January 28, 2023, the availability was limited by our borrowing base of $596 million, less outstanding borrowings of $295 million and letters of credit of $42 million. For the reporting period ended April 30, 2022, the availability was limited by our borrowing base of $651 million, less letters of credit of $40 million. There were no outstanding borrowings under the ABL Facility as of April 30, 2022.
Cash Flow
The following table provides a summary of our cash flow activity for the first quarter of 2023 and 2022:
 First Quarter
20232022
(in millions)
Cash and Cash Equivalents, Beginning of Period$427 $490 
Net Cash Flows Used for Operating Activities(108)(146)
Net Cash Flows Used for Investing Activities(55)(48)
Net Cash Flows Used for Financing Activities(132)(91)
Effects of Exchange Rate Changes on Cash and Cash Equivalents— (1)
Net Decrease in Cash and Cash Equivalents(295)(286)
Cash and Cash Equivalents, End of Period$132 $204 
Operating Activities
Net cash used for operating activities reflects net income adjusted for non-cash items, including depreciation and amortization, share-based compensation expense and deferred tax expense, as well as changes in working capital. Net cash used for operating activities in the first quarter of 2023 was $108 million, an increase in net cash flows from operating activities of $38 million compared to the first quarter of 2022. The increase in net cash from operating activities in the first quarter of 2023 was primarily driven by lower cash outflows associated with working capital changes, partially offset by lower net income. The most significant working capital driver resulting in the increase in operating cash flows this year compared to last year is driven by the timing of payments related to the increased inventory levels last year, which were primarily driven by modal mix changes and longer in-transit shipment times.
Investing Activities
Net cash used for investing activities in the first quarter of 2023 was $55 million, consisting solely of capital expenditures. The capital expenditures were primarily related to our store capital program, along with investments in technology, distribution and logistics to support our retail capabilities.
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Net cash used for investing activities in the first quarter of 2022 was $48 million, consisting primarily of capital expenditures of $21 million and our $18 million investment in Frankies Bikinis. The capital expenditures were primarily related to our store refresh program and technology to support our retail capabilities and general infrastructure needs as we separate into a standalone company.
We are estimating capital expenditures to be approximately $275 million for fiscal year 2023. Capital investments during 2023 will be primarily focused on our store capital program along with investments in technology related to our strategic initiatives to drive growth and technology investments relating to separation activities from our Former Parent.
Financing Activities
Net cash used for financing activities in the first quarter of 2023 was $132 million, consisting primarily of $125 million of share repurchases and $9 million of payments for taxes on share-based compensation awards issued, partially offset by $3 million of proceeds from stock option exercises.
Net cash used for financing activities in the first quarter of 2022 was $91 million, consisting primarily of $109 million of share repurchases and $38 million of payments for taxes on share-based compensation awards issued, partially offset by $55 million of cash received from Regina Miracle in connection with the joint venture agreement completed in April 2022.
Common Stock Share Repurchases & Treasury Stock Retirements
Our Board of Directors determines share repurchase authorizations, giving consideration to our levels of profit and cash flow, capital requirements, current and forecasted liquidity, the restrictions placed upon us by our borrowing arrangements and the Tax Matters Agreement with the Former Parent, as well as financial and other conditions existing at the time. We use cash flow generated from operating activities to fund our share repurchase programs. The timing and amount of any repurchases will be made at our discretion, taking into account a number of factors, including market conditions.
January 2023 Share Repurchase Program
In January 2023, our Board of Directors approved the January 2023 Share Repurchase Program, authorizing the repurchase of up to $250 million of our common stock. The $250 million authorization is expected to be utilized to repurchase shares in the open market or as otherwise authorized by the Board of Directors, subject to market conditions and other factors. Shares acquired through the January 2023 Share Repurchase Program will be available to meet obligations under our equity compensation plans and for general corporate purposes. The January 2023 Share Repurchase Program began upon completion of the March 2022 Share Repurchase Program and will continue until exhausted, but no later than the end of fiscal year 2023. We did not repurchase any shares of our common stock under the January 2023 Share Repurchase Program during fiscal year 2022.
In February 2023, as part of the January 2023 Share Repurchase Program, we entered into the ASR Agreement with Goldman Sachs to repurchase $125 million of our common stock. In February 2023, we made an initial payment of $125 million to Goldman Sachs and received an initial delivery of 2.4 million shares of our common stock. The final number of shares repurchased was based on the volume-weighted average price of our common stock during the term of the ASR Agreement, less a discount and subject to adjustments pursuant to the terms of the ASR Agreement. The final settlement of the ASR Agreement occurred in May 2023 subsequent to the end of the first quarter of 2023. At final settlement, we received an additional 1.3 million shares of our common stock from Goldman Sachs.
As of April 29, 2023, the $125 million payment to Goldman Sachs is recognized as a reduction to shareholders’ equity, consisting of a $100 million increase in Treasury Stock, which reflects the value of the initial 2.4 million shares received upon initial settlement, and a $25 million decrease in Paid-in Capital, which reflects the value of the stock then held by Goldman Sachs pending final settlement of the ASR Agreement. The $25 million recorded in Paid-in Capital as of April 29, 2023 will be reclassified to Treasury Stock in the second quarter of 2023 in connection with the final settlement of the ASR Agreement. As a result of the initial share delivery, there was an additional $1 million increase in Treasury Stock, which reflects the excise tax liability recorded related to the share repurchase in accordance with the Inflation Reduction Act of 2022. In accordance with the Board of Directors' resolution, upon delivery we immediately retired the 2.4 million shares repurchased under the ASR Agreement in the first quarter of 2023. The retirement resulted in a reduction of $101 million in Treasury Stock, less than $1 million in the par value of Common Stock, $6 million in Paid-in Capital and $95 million in Retained Earnings in the first quarter of 2023.
As of April 29, 2023, we were authorized to repurchase up to $150 million of our common stock under the January 2023 Share Repurchase Program. Of the remaining authorization as of April 29, 2023, $25 million represents the value of the stock then held by Goldman Sachs pending final settlement of the ASR Agreement.
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March 2022 Share Repurchase Program
In March 2022, our Board of Directors approved the March 2022 Share Repurchase Program, providing for the repurchase of up to $250 million of our common stock. The $250 million authorization was utilized in fiscal year 2022 to repurchase shares in the open market, subject to market conditions and other factors.
We repurchased the following shares of its common stock under the March 2022 Share Repurchase Program during the first quarter of 2022:
Amount AuthorizedShares RepurchasedAmount RepurchasedAverage Stock Price
(in millions)(in thousands)(in millions)
March 2022 Share Repurchase Program$250 2,162 $109 $50.43 
In accordance with the Board of Directors' resolution, shares of our common stock repurchased under the March 2022 Share Repurchase Program were retired upon repurchase and are available to meet obligations under equity compensation plans and for general corporate purposes. As a result, during the first quarter of 2022 we retired 2.2 million shares repurchased under the March 2022 Share Repurchase Program, which resulted in reductions of less than $1 million in the par value of Common Stock, $4 million in Paid-in Capital and $105 million in Retained Earnings.
December 2021 ASR Agreement
In February 2022, upon final settlement of our December 2021 ASR Agreement with Goldman Sachs, we received an additional 0.3 million shares of our common stock from Goldman Sachs. The delivery of shares resulted in an immediate reduction of the outstanding shares used to calculate the weighted-average common shares outstanding for basic and diluted net income per share. In connection with the settlement of the December 2021 ASR Agreement, $50 million previously recorded in Paid-in Capital as of January 29, 2022, was reclassified to Treasury Stock in the first quarter of 2022. In February 2022, we immediately retired the additional 0.3 million shares repurchased in connection with the settlement of the December 2021 ASR Agreement. The retirement resulted in a reduction of $50 million in Treasury Stock, less than $1 million in the par value of Common Stock, less than $1 million in Paid-in Capital and nearly $50 million in Retained Earnings.
Dividend Policy and Procedures
We have not paid any cash dividends since becoming an independent, publicly traded company. We cannot guarantee that we will pay a dividend in the future or continue to pay any dividends if and when we commence paying dividends. The declaration and amount of any dividends to holders of our common stock will be at the discretion of our Board of Directors and will depend upon many factors, including our financial condition, earnings, cash flows, capital requirements of our business, covenants associated with our debt obligations, legal requirements, regulatory constraints, industry practice and any other factors the Board of Directors deems relevant. We would use cash flow generated from operating and financing activities to fund our dividends.
Long-term Debt and Borrowing Facilities
The following table provides our outstanding debt balance, net of unamortized debt issuance costs and discounts, as of April 29, 2023, January 28, 2023 and April 30, 2022:
April 29,
2023
January 28,
2023
April 30,
2022
(in millions)
Senior Secured Debt with Subsidiary Guarantee
$394 million Term Loan due August 2028 (“Term Loan Facility”)
$387 $387 $389 
Asset-based Revolving Credit Facility due August 2026 (“ABL Facility”)
295 295 — 
Total Senior Secured Debt with Subsidiary Guarantee682 682 389 
Senior Debt with Subsidiary Guarantee
$600 million, 4.625% Fixed Interest Rate Notes due July 2029 (“2029 Notes”)
593 593 592 
Total Senior Debt with Subsidiary Guarantee593 593 592 
Total1,275 1,275 981 
Current Debt(4)(4)(4)
Total Long-term Debt, Net of Current Portion$1,271 $1,271 $977 
Cash paid for interest was $13 million and $4 million for the first quarter of 2023 and first quarter of 2022, respectively.
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Credit Facilities
On August 2, 2021, we entered into a term loan B credit facility in an aggregate principal amount of $400 million, which will mature in August 2028. The discounts and issuance costs from the Term Loan Facility are being amortized through the maturity date and are included within Long-term Debt on the Consolidated Balance Sheets. Commencing in December 2021, we are required to make quarterly principal payments on the Term Loan Facility in an amount equal to 0.25% of the original principal amount of $400 million. We made principal payments of $1 million for the Term Loan Facility during both the first quarter of 2023 and the first quarter of 2022.
Interest under the Term Loan Facility is calculated by reference to the LIBOR or an alternative base rate, plus an interest rate margin equal to (i) in the case of LIBOR loans, 3.25% and (ii) in the case of alternate base rate loans, 2.25%. The LIBOR rate applicable to the Term Loan Facility is subject to a floor of 0.50%. The obligation to pay principal and interest on the loans under the Term Loan Facility is jointly and severally guaranteed on a full and unconditional basis by certain of our wholly-owned domestic subsidiaries. The loans under the Term Loan Facility are secured on a first-priority lien basis by certain assets of ours and guarantors that do not constitute priority collateral of the ABL Facility and on a second-priority lien basis by priority collateral of the ABL Facility, subject to customary exceptions. As of April 29, 2023, the interest rate on the loans under the Term Loan Facility was 8.24%.
On May 8, 2023, subsequent to the end of the first quarter of 2023, we amended our Term Loan Facility to allow for an early transition to using SOFR instead of LIBOR. In accordance with the amendment, interest on SOFR loans under the Term Loan Facility will be calculated by reference to SOFR, plus an interest rate margin ranging from 3.36% to 3.68%.
On August 2, 2021, we also entered into a senior secured asset-based revolving credit facility. The ABL Facility allows for borrowings and letters of credit in U.S. dollars or Canadian dollars and has aggregate commitments of $750 million and an expiration date of August 2026. The availability under the ABL Facility is the lesser of (i) the borrowing base, determined primarily based on our eligible U.S. and Canadian credit card receivables, eligible accounts receivable, eligible inventory and eligible real property, and (ii) the aggregate commitment. Interest on the loans under the ABL Facility is calculated by reference to (i) LIBOR or an alternative base rate and (ii) in the case of loans denominated in Canadian dollars, CDOR or a Canadian base rate, plus an interest rate margin based on average daily excess availability ranging from (x) in the case of LIBOR and CDOR loans, 1.50% to 2.00% and (y) in the case of alternate base rate loans and Canadian base rate loans, 0.50% to 1.00%. Unused commitments under the ABL Facility accrue an unused commitment fee ranging from 0.25% to 0.30%. The obligation to pay principal and interest on the loans under the ABL Facility is jointly and severally guaranteed on a full and unconditional basis by certain of our wholly-owned domestic and Canadian subsidiaries. The loans under the ABL Facility are secured on a first-priority lien basis by our eligible U.S. and Canadian credit card receivables, eligible accounts receivable, eligible inventory and eligible real property and on a second-priority lien basis on substantially all other assets of ours, subject to customary exceptions.
During the first quarter of 2023, we borrowed $15 million and made payments of $15 million under the ABL Facility. As of April 29, 2023, there were borrowings of $295 million outstanding under the ABL Facility and the interest rate on the borrowings was 6.71%. We had $30 million of outstanding letters of credit as of April 29, 2023 that further reduced our availability under the ABL Facility. As of April 29, 2023, our remaining availability under the ABL Facility was $308 million.
On May 8, 2023, subsequent to the end of the first quarter of 2023, we amended our ABL Facility to allow for an early transition to using SOFR instead of LIBOR. In accordance with the amendment, interest on SOFR loans under the ABL Facility will be calculated by reference to SOFR, plus an interest rate margin based on average daily excess availability ranging from 1.60% to 2.10%.
Our long-term debt and borrowing facilities contain certain financial and other covenants, including, but not limited to, the maintenance of financial ratios. The 2029 Notes and the Term Loan Facility include the maintenance of a consolidated coverage ratio and a consolidated total leverage ratio, and the ABL Facility includes the maintenance of a fixed charge coverage ratio and a debt to EBITDAR ratio. The financial covenants could, within specific predefined circumstances, limit our ability to incur additional indebtedness, make certain investments, pay dividends or repurchase shares. As of April 29, 2023, we were in compliance with all covenants under our long-term debt and borrowing facilities.
Credit Ratings
The following table provides our credit ratings as of April 29, 2023:
 Moody’sS&P
CorporateBa3BB-
Senior Secured Debt with Subsidiary GuaranteeBa2BB+
Senior Unsecured Debt with Subsidiary GuaranteeB1BB-
OutlookStableStable
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Contingent Liabilities and Contractual Obligations
Contractual Obligations
Our contractual obligations primarily consist of long-term debt and the related interest payments, operating leases, purchase orders for merchandise inventory and other long-term obligations. These contractual obligations impact our short-term and long-term liquidity and capital resource needs. There have been no material changes in our contractual obligations since January 28, 2023, as discussed in “Contingent Liabilities and Contractual Obligations” in our Annual Report on Form 10-K filed with the SEC on March 17, 2023. Certain of our contractual obligations may fluctuate during the normal course of business (primarily changes in our merchandise inventory-related purchase obligations, which fluctuate throughout the year as a result of the seasonal nature of our operations).
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
We did not adopt any new accounting standards during the first quarter of 2023 that had a material impact on our results of operations, financial position or cash flows. In addition, there are no new accounting standards not yet adopted that are expected to have a material impact on our results of operations, financial position or cash flows.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with GAAP requires management to adopt accounting policies related to estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period, as well as the related disclosure of contingent assets and liabilities at the date of the financial statements. On an ongoing basis, management evaluates its accounting policies, estimates and judgments, including those related to inventories, long-lived assets, claims and contingencies, income taxes and revenue recognition. Management bases our estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.
There have been no material changes to the critical accounting policies and estimates disclosed in our Annual Report on Form 10-K filed with the SEC on March 17, 2023.
Item 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk
The market risk inherent in our financial instruments represents the potential loss in fair value, earnings or cash flows arising from adverse changes in foreign currency exchange rates or interest rates. We may use derivative financial instruments like foreign currency forward contracts, cross-currency swaps and interest rate swap arrangements to manage exposure to market risks. We do not use derivative financial instruments for trading purposes.
Foreign Exchange Rate Risk
We have operations and investments in unconsolidated entities in foreign countries which expose us to market risk associated with foreign currency exchange rate fluctuations. Our Canadian dollar and Chinese Yuan denominated earnings are subject to exchange rate risk as substantially all our merchandise sold in Canada and China is sourced through U.S. dollar transactions. From time to time we may adjust our exposure to foreign exchange rate risk by entering into foreign currency forward contracts, however, these measures may not succeed in offsetting all the short-term impact of foreign currency rate movements and generally may not be effective in offsetting the long-term impact of sustained shifts in foreign currency rates.
Further, although our royalty arrangements with our international partners are denominated in U.S. dollars, the royalties we receive in U.S. dollars are calculated based on sales in the local currency. As a result, our royalties in these arrangements are exposed to foreign currency exchange rate fluctuations.
Interest Rate Risk
Our investment portfolio primarily consists of interest-bearing instruments that are classified as cash and cash equivalents based on their original maturities. Our investment portfolio is maintained in accordance with our investment policy, which specifies permitted types of investments, specifies credit quality standards and maturity profiles and limits credit exposure to any single issuer. The primary objective of our investment activities is the preservation of principal, the maintenance of liquidity and the maximization of interest income while minimizing risk. As of April 29, 2023, our investment portfolio is primarily comprised of bank deposits. Given the short-term nature and quality of investments in our portfolio, we do not believe there is any material risk to principal associated with increases or decreases in interest rates.
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Our long-term debt as of April 29, 2023 consists of the 2029 Notes, which have a fixed interest rate, the $394 million in outstanding borrowing under the Term Loan Facility, which has a variable interest rate based on LIBOR, and the $295 million in outstanding borrowing under the ABL Facility, which has a variable interest rate based on LIBOR. Subsequent to the end of the first quarter of 2023, we amended our Term Loan Facility and ABL Facility to allow for an early transition to using SOFR instead of LIBOR. Our exposure to interest rate changes is limited to the fair value of the debt issued as well as the interest we pay on the Term Loan Facility and ABL Facility, which we believe would not have a material impact on our earnings or cash flows.
Fair Value of Financial Instruments
The following table provides a summary of the principal value and estimated fair value of our outstanding debt as of April 29, 2023, January 28, 2023 and April 30, 2022:
April 29,
2023
January 28,
2023
April 30,
2022
(in millions)
Principal Value$994 $995 $998 
Fair Value, Estimated (a)873 894 881 
________________
(a)The estimated fair value of our publicly traded debt is based on reported transaction prices which are considered Level 2 inputs in accordance with ASC 820, Fair Value Measurement. The estimates presented are not necessarily indicative of the amounts that we could realize in a current market exchange.
As of April 29, 2023, we believe that the carrying values of accounts receivable, accounts payable and accrued expenses approximate fair value because of their short maturity. We further believe the principal value of the outstanding debt under the ABL Facility approximates its fair value as of April 29, 2023 based on the terms of the borrowings from the ABL Facility.
Concentration of Credit Risk
We maintain cash and cash equivalents with various major financial institutions. We monitor the relative credit standing of financial institutions with whom we transact and limit the amount of credit exposure with any one entity. As of April 29, 2023, our investment portfolio is primarily comprised of bank deposits. We also periodically review the relative credit standing of franchise, license and wholesale partners and other entities to which we grant credit terms in the normal course of business.
Item 4.    CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures. As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective and designed to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Changes in internal control over financial reporting. We are integrating Adore Me into our internal controls over financial reporting beginning in fiscal year 2023. Other than the changes with regard to Adore Me, there were no changes in our internal control over financial reporting that occurred during the first quarter of 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION

Item 1.    LEGAL PROCEEDINGS

We are a defendant in a variety of lawsuits arising in the ordinary course of business. Actions filed against us from time to time include commercial, tort, intellectual property, customer, employment, data privacy, securities and other claims, including purported class action lawsuits. Although it is not possible to predict with certainty the eventual outcome of any litigation, in the opinion of management, our current legal proceedings are not expected to have a material adverse effect on our financial position or results of operations.

Item 1A.    RISK FACTORS

The risk factors that affect our business and financial results are set forth under “Item 1A. Risk Factors” in our 2022 Annual Report on Form 10-K filed with the SEC on March 17, 2023. There have been no material changes to the risk factors from those described in the 2022 Annual Report on Form 10-K. We wish to caution the reader that the risk factors discussed in “Item 1A. Risk Factors” in our 2022 Annual Report on Form 10-K and those described in this report or other SEC filings could cause actual results to differ materially from those stated in any forward-looking statements.

Item 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides our repurchases of our common stock during the first quarter of 2023:
PeriodTotal
Number of
Shares
Purchased (a)
Average Price Paid per Share (b)Total Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsMaximum Number of Shares (or Approximate Dollar Value) that May Yet be Purchased Under the Plans or Programs (c)
 (in thousands) (in thousands)
January 29, 2023 - February 25, 2023 (“February 2023”)
2,380 (b)2,372 $150,000 
February 26, 2023 - April 1, 2023 (“March 2023”)
255 $31.01 — 150,000 
April 2, 2023 - April 29, 2023 (“April 2023”)
16 $31.60 — 150,000 
Total2,651 2,372 
_______________
(a)The total number of shares repurchased includes shares repurchased as part of publicly announced programs, with the remainder relating to shares repurchased in connection with tax payments due upon vesting of employee restricted stock awards and the use of our stock to pay the exercise price on employee stock options.
(b)The amount purchased in February 2023 includes the initial delivery of 2.372 million shares pursuant to the ASR Agreement discussed in Note 5, “Earnings Per Share and Shareholders' Equity” included in Item 1. Financial Statements. The average price paid per share, including any broker commissions, in February 2023 for shares not purchased pursuant to the ASR Agreement was $44.24. The final settlement of the ASR Agreement occurred in May 2023, subsequent to the end of the first quarter of 2023. The average price paid per share pursuant to the ASR Agreement was $34.22 which was based on the volume-weighted average price of our common stock during the term of the ASR Agreement, less a discount and subject to adjustments pursuant to the terms of the ASR Agreement.
(c)The January 2023 Share Repurchase Program authorizes the purchase of up to $250 million of our common stock, subject to market conditions and other factors. The January 2023 Share Repurchase Program will continue until exhausted, but no later than the end of fiscal year 2023. Of the remaining authorization as of April 29, 2023, $25 million represents the value of the stock then held by Goldman Sachs pending final settlement of the ASR Agreement.

Item 3.    DEFAULTS UPON SENIOR SECURITIES

Not applicable.

Item 4.    MINE SAFETY DISCLOSURES

Not applicable.

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Item 5.    OTHER INFORMATION

None.

Item 6. EXHIBITS
Exhibits
  
Amended and Restated Certificate of Incorporation of Victoria’s Secret & Co. (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on August 3, 2021).
Second Amended and Restated Bylaws of Victoria’s Secret & Co. (incorporated by reference to Exhibit 3.2 to the Company’s Form 10-K filed on March 17, 2023).
Executive Severance Agreement by and between VS Service Company, LLC and Christine Rupp, dated as of June 20, 2022.
Section 302 Certification of CEO.
Section 302 Certification of CFO.
Section 906 Certification (by CEO and CFO).
101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInline XBRL Taxonomy Definition Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
________________________
* Previously filed.

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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 
VICTORIA'S SECRET & CO.
(Registrant)
By:/s/ Timothy Johnson
 Timothy Johnson
Chief Financial and Administrative Officer *
Date: June 2, 2023
*    Mr. Johnson is the principal financial officer and the principal accounting officer and has been duly authorized to sign on behalf of the Registrant.

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