Victoria's Secret & Company (NYSE: VSXY) lifted its full-year net sales and adjusted operating income guidance after a second quarter that beat on both the top and bottom lines. The company now expects fiscal 2026 net sales of $7.10–$7.18 billion, up from $7.03–$7.13 billion, and adjusted operating income of $560–$590 million, up from $550–$580 million. The raises are modest in percentage terms, roughly 1–2% at the midpoint. But they follow a quarter that already ran well ahead of internal expectations, suggesting management sees enough momentum to lift the floor.
Net sales rose 10% to $1.611 billion, landing near the high end of the $1.590–$1.615 billion guidance range. Comparable sales increased 9%, with North America stores up 8.9% and the international segment surging 20%. Adjusted operating income of $124 million blew past the $90–$100 million forecast, while adjusted EPS of $0.95 beat the $0.65–$0.75 range by 26 cents. The headline GAAP numbers were far larger: operating income of $257 million and diluted EPS of $2.18. Those include a $140 million IEEPA tariff refund that management correctly stripped out for adjusted reporting.
The beat came from broad-based channel strength and what CFO Scott Sekella described as "stronger regular-price selling and disciplined execution." Gross profit jumped to $759 million from $519 million a year ago, a 46% increase that far outpaced the 10% revenue growth. Gross margin expanded to 47.1% from 35.6%. This reflects both the tariff refund, which flowed through cost of goods sold, and underlying improvement in full-price mix. Even excluding the refund, the margin story is positive: adjusted gross margin likely expanded several hundred basis points, driven by less promotional activity and better inventory management.
The guidance raise is the headline, but its magnitude matters. The full-year adjusted operating income range was lifted by only $10 million at the low end and $10 million at the high end, even though Q2 alone outperformed the prior guide by $24–$34 million. That implies management is either conservative about the back half or sees incremental costs. Likely the increased strategic marketing investments CEO Hillary Super flagged, including the Angels Among Us docuseries and an expanded Fashion Show. Q3 guidance reinforces this: net sales of $1.57–$1.60 billion would represent 7–9% growth, but operating income of just $10–$20 million suggests a heavy investment quarter. For context, Q3 last year delivered $0 million in adjusted operating income, so the guide implies modest improvement but nothing like the Q2 margin leverage.
International remains a standout. The 20% sales increase to $273 million was the fastest-growing segment. Year-to-date international revenue of $561 million is up 32% versus last year. The company added 31 partner-operated stores and 6 company-operated stores in China during the quarter, bringing the total global footprint to 1,430 locations. Direct channel sales rose 8.1% to $439 million, a solid number that looks less impressive next to the international surge. The reclassification of EU direct sales into the international segment, $22 million in Q2, makes year-over-year comparisons slightly messy. The underlying trend is clearly positive.
The tariff refund is a one-time event, but its treatment matters for how investors should think about the earnings power of the business. Excluding the refund, adjusted operating margin was roughly 7.7%, up from 3.8% a year ago. That's real operational improvement, not accounting noise. The company also bought back shares: diluted share count fell to 84.2 million from 82.2 million a year ago, a modest reduction that contributed about $0.02 to EPS.
The forward question is whether the marketing spend ramp in Q3 can sustain the momentum into holiday. The full-year adjusted EPS guide of $4.45–$4.70 implies back-half EPS of roughly $2.90–$3.15. That would require continued margin expansion even as investment spending ramps. Achievable if the brand heat Super describes translates into full-price selling. The Q3 operating income guide leaves little room for error. Investors should watch whether the Q3 print shows the marketing investment delivering measurable customer file growth, the metric management has tied most directly to the strategy.