Victoria’s Secret stock sinks 13% despite 10% sales growth and stronger 2026 outlook

Victoria’s Secret & Co. shares fell sharply on September 3 even after the lingerie retailer delivered 10.4% second-quarter sales growth, substantially higher adjusted earnings and another increase to its fiscal 2026 outlook. Net sales reached $1.611 billion, while comparable sales increased 9% and adjusted operating income more than doubled to $124 million from $55 million a year earlier. Adjusted earnings rose to $0.95 per diluted share from $0.33, comfortably exceeding the company’s previous guidance of $0.65 to $0.75. Yet the stock dropped about 13% to roughly $73.60 during Thursday trading as investors focused on a small revenue miss, moderating sales growth and full-year guidance that did not move far enough above market expectations after a powerful run in the shares.

The reaction creates an unusual picture for a retailer whose turnaround appears to be strengthening rather than deteriorating. Victoria’s Secret & Co. has now produced five consecutive quarters of strong top-line growth, customer numbers are increasing and regular-price selling is improving, while bras, PINK and international operations are all contributing to momentum. The problem is increasingly one of expectations: after the stock gained approximately 57% during 2026 before the latest results, investors appear to be demanding continued acceleration rather than merely solid execution.

Victoria’s Secret margin recovery suggests the turnaround is becoming more profitable, not just bigger

Second-quarter net sales increased by approximately $152 million from $1.459 billion a year earlier, landing near the upper end of Victoria’s Secret & Co.’s previous guidance range of $1.590 billion to $1.615 billion. North American store revenue increased 8.9% to approximately $898 million, direct revenue rose 8.1% to $439.4 million and reported international sales jumped 20% to $273.4 million. Comparable sales across stores and direct channels increased 9%, compared with growth of 4% during the corresponding quarter last year.

More importantly, profitability increased considerably faster than revenue. Adjusted operating income climbed approximately 125% to $124 million, while adjusted net income rose to $80 million from $27 million and adjusted diluted earnings nearly tripled to $0.95. The improvement indicates that Victoria’s Secret & Co. is not relying solely on additional promotions or discounting to produce sales growth, which was one of the weaknesses that previously pressured the business.

Adjusted gross margin expanded approximately 320 basis points to 38.8%. Management attributed roughly two-thirds of that improvement to stronger merchandise margins resulting from more regular-price selling and fewer promotions, while the remainder came from better leverage on buying and occupancy costs as revenue increased. Selling, general and administrative expenses also became more efficient relative to sales despite additional investment in marketing and customer experiences.

That margin performance arguably provides one of the strongest pieces of evidence supporting the turnaround. Retailers can temporarily create revenue growth through aggressive promotions, but growth accompanied by higher regular-price selling and improved merchandise margins generally signals healthier customer demand and better brand positioning.

Bras and PINK are regaining momentum as Victoria’s Secret attracts younger customers

Management’s Path to Potential strategy increasingly revolves around restoring authority in categories that historically defined Victoria’s Secret while making the brands more relevant to younger consumers. Bras emerged as the strongest growth category during the second quarter, with sales increasing in the mid-teens and accounting for approximately half of the growth across the main Victoria’s Secret brand.

The company reported growth among both new and existing bra customers, with particularly strong acquisition among consumers aged 18 to 24. That demographic trend is strategically important because one of Victoria’s Secret’s longer-term challenges has been maintaining cultural relevance as younger shoppers embraced newer intimate-apparel brands and different approaches to marketing, sizing and body representation.

PINK also delivered high-single-digit growth during the quarter despite the timing of its PINK Friday event shifting into the third quarter this year. Excluding that calendar change, management indicated that PINK would have grown in the mid-teens, with momentum across bras, panties and apparel rather than being concentrated in one product category.

Victoria’s Secret & Co. is supporting that product recovery with higher marketing investment. Management plans additional product launches, partnerships, holiday campaigns, an expanded Victoria’s Secret Fashion Show and the Angels Among Us docuseries during the second half. The strategy reflects a broader attempt to rebuild what management describes as brand relevance while converting that visibility into customer acquisition and regular-price purchases.

The customer file increased by a mid-single-digit percentage and has now expanded for four consecutive quarters, with growth spanning brands, channels, income groups and age groups. That matters because sustainable retail recoveries depend not only on extracting more spending from existing shoppers but also on rebuilding the pool of consumers willing to engage with the brand.

International sales jump 20% as China becomes a major Victoria’s Secret growth engine

International expansion is becoming another increasingly important component of the story. Reported international revenue rose 20% during the quarter to $273.4 million and reached $560.8 million for the first half, representing year-to-date growth of 31.6%. Part of that increase reflects a reporting change involving European digital sales, but even adjusting for that shift, management said second-quarter international sales increased approximately 10%.

China remains the largest growth market within Victoria’s Secret & Co.’s international operations. Management reported strength both online, where social commerce continues to drive customer activity, and across physical stores, where comparable sales have accelerated. The performance is noteworthy given continued concerns around discretionary consumer spending in China and mixed results reported by several international retail and luxury companies.

Victoria’s Secret & Co. expects international sales to increase approximately 20% for fiscal 2026 despite tougher comparisons during the second half. The company operates through a combination of directly controlled locations, joint ventures and franchise partners, with its overall network reaching approximately 1,430 stores across roughly 70 countries at the end of the second quarter.

The international strategy provides diversification from the mature North American lingerie market, but execution remains important because franchising, currency movements and local consumer preferences create different economics across regions. Continued momentum in China could become particularly valuable if social commerce and stronger store productivity allow Victoria’s Secret to expand without relying exclusively on aggressive physical-store growth.

$140 million tariff refund boosts reported profit but underlying earnings also improved sharply

Victoria’s Secret & Co.’s GAAP results require additional context because the company received more than $140 million of IEEPA tariff refunds during the quarter, representing more than 95% of related tariffs it had previously paid. Reported operating income consequently increased to $256.6 million from $41 million, while net income attributable to Victoria’s Secret & Co. jumped to $183 million from $16.2 million.

Management excluded the tariff refund impact from its adjusted financial results, meaning the increase in adjusted operating income to $124 million and adjusted earnings to $0.95 per share reflects improvement beyond the one-time recovery. This distinction is important because the dramatic increase in reported net income would otherwise overstate the extent of recurring profitability growth.

Tariffs nevertheless remain relevant to the forward outlook. Management expects gross tariff pressure during the third quarter to resemble the prior-year period but anticipates mitigation efforts producing a net year-over-year gross-margin benefit of approximately 60 basis points. The company expects third-quarter gross margin near 38%, approximately 150 basis points above the 36.5% recorded a year earlier.

Liquidity also appears supportive of continued investment. Victoria’s Secret & Co. ended the quarter with approximately $522 million of cash and no outstanding borrowing under its asset-based lending facility, while inventory increased 8% year over year as management prepared for continued demand during the second half.

Raised Victoria’s Secret guidance was not enough for investors after a 57% stock rally

Victoria’s Secret & Co. increased its fiscal 2026 sales forecast to between $7.10 billion and $7.18 billion from the previous range of $7.03 billion to $7.13 billion. Adjusted operating income is now expected between $560 million and $590 million, compared with the earlier forecast of $550 million to $580 million and fiscal 2025 adjusted operating income of $403 million.

Third-quarter sales are forecast between $1.57 billion and $1.60 billion, representing approximately 7% to 9% growth from $1.472 billion last year. Operating income is expected between $10 million and $20 million compared with approximately break-even adjusted operating income in the prior-year quarter, indicating that management expects the profitability recovery to continue even as growth rates normalize.

Those forecasts appear healthy in isolation, but the stock entered the report carrying much higher expectations. Victoria’s Secret & Co. shares had risen approximately 57% during 2026 before the earnings release, reflecting growing confidence that Chief Executive Officer Hillary Super’s turnaround strategy was working. That rally meant even a small disappointment could trigger a significant reassessment.

Second-quarter revenue of $1.611 billion narrowly missed Wall Street expectations near $1.62 billion, breaking a lengthy stretch of top-line outperformance. Sales growth also moderated from approximately 15% during the first quarter to 10% during the second, while comparable sales growth slowed from 13% to 9%. The guidance raise broadly brought management forecasts toward existing analyst expectations rather than substantially above them, reducing the possibility of another major upward earnings revision immediately after the report.

Shares consequently fell about 13% to approximately $73.60 during September 3 trading, marking the stock’s largest one-day decline since April 2025. The reaction appears less like a rejection of the turnaround and more like a resetting of expectations after a substantial advance, with analysts cited by The Wall Street Journal noting that the fundamental performance remained encouraging despite the selloff.

The next stage of the investment case therefore becomes more demanding. Victoria’s Secret & Co. has demonstrated that it can attract customers again, increase regular-price selling, rebuild bra momentum, revive PINK, expand internationally and improve margins, but the valuation now requires those gains to continue through the critical holiday period.

Management’s higher marketing spending could support that objective if campaigns and product innovation generate additional customer growth without reversing recent promotional discipline. If sales remain strong while gross margins continue expanding, the September 3 selloff could ultimately look more like an expectations reset than a deterioration in the operating recovery. A meaningful slowdown during the second half, however, would reinforce investor concerns that the fastest phase of the turnaround has already passed.

Key takeaways from Victoria’s Secret earnings, raised guidance and 13% stock selloff

• Victoria’s Secret & Co. second-quarter sales increased 10.4% to $1.611 billion, while comparable sales grew 9% across stores and direct channels.
• Adjusted operating income more than doubled to $124 million, and adjusted earnings rose to $0.95 per share from $0.33 a year earlier.
• Adjusted gross margin expanded approximately 320 basis points to 38.8%, supported by stronger regular-price selling and fewer promotions.
• Bras grew in the mid-teens and have re-emerged as a major growth engine, with particularly strong new customer acquisition among 18- to 24-year-olds.
• PINK generated high-single-digit growth despite a promotional calendar shift, while management continues investing in product innovation and brand marketing.
• International revenue increased 20% on a reported basis, with China remaining the company’s strongest international growth market.
• Victoria’s Secret received more than $140 million of tariff refunds, but management excluded the benefit from adjusted results to show underlying operating performance.
• Full-year sales guidance increased to $7.10 billion to $7.18 billion, while adjusted operating income is now expected between $560 million and $590 million.
• Shares fell about 13% despite the earnings beat because revenue narrowly missed expectations and the stock had already risen roughly 57% during 2026.
• The next test is whether Victoria’s Secret can sustain customer growth, regular-price selling and margin expansion through the holiday period as investor expectations remain elevated.