Good morning. My name is Amanda, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Victoria's Secret & Co.'s Q3 2022 Earnings Conference Call. Please be advised that today's conference is being recorded. All parties will remain in a listen-only mode until the Q&A session of today's call. I would now like to turn the call over to Mr. Kevin Wynk, Vice President of External Financial Reporting and Investor Relations at Victoria's Secret & Co.. Kevin, you may begin. Thank you, Amanda. Good morning, welcome to Victoria's Secret & Co.'s Q3 Earnings Conference Call for the period ending October 29, 2022. As a matter of formality, I would like to remind you that any forward-looking statements we may make today are subject to our safe harbor statement found in our SEC filings and in our press releases. Joining me on the call today is CEO, Martin Waters, and CFO, Timothy Johnson. We are available today for up to 45 minutes to answer any questions. Certain results we discuss on the call today are adjusted results and exclude the special items described in our press release in our SEC filings. Reconciliations of these and other non-GAAP measures to the most comparable GAAP measures are also included in our press release, our SEC filings, and the investor presentation posted on the investor section of our website. Thanks. Now I'll turn the call over to Martin. Thanks, Kevin, and good morning, everyone. Before we dive right into the quarter, I want to first share my gratitude during this holiday season for our associates and partners around the world for their hard work and dedication. I'm especially thankful for the team's continued commitment to the revolution of our brand and our strategy, and I'm delighted by the connections we're making and deepening with our customers as we aspire to become a Victoria's Secret where everyone feels seen, respected, and valued. After nearly a year and a half as an independent company, we continue to make significant progress towards our transformation. We've created a solid financial platform with our new, more agile operating structure driven by our two category-defining brands and merchandise leadership positions in intimates and beauty. For the third consecutive quarter, we've seen growth compared to last year in our domestic market share for the intimates category. We remain energized by our customers' response to our brand repositioning, of course, recognize that this transformation is a journey, and there's still more to do. For the Q3, in what continued to be a very challenging macroeconomic environment, we were able to deliver operating income and earnings per diluted share results above our guidance. This represents our fifth consecutive quarter since the separation that we've delivered adjusted operating income and adjusted earnings per share results within or above guidance. We believe this type of performance continues to demonstrate the strength of our brand repositioning, our domestic market share leadership, and growth in the intimates category. In addition, the financial platform that we've created, supported by our team's relentless focus on execution, allow us to deliver better than expected results even in this challenging environment. We remain steadfast in our belief that we've stabilized our business model to weather difficult times and are positioned for significant operating leverage in more normal economic times. Turning to our Q3 results, our operating income of $43 million and earnings per diluted share of $0.29 were both, as I said, above our guidance range. Sales declined 9% in the quarter compared to last year, which was in line with our expectation. Traffic was up in our stores in the quarter, and AURs remained healthy and at or near record highs in most categories, enabling us to drive profitable sales. However, average basket sizes and conversion rates were down in the quarter, highlighting a customer who is very cautious and cost-conscious in this current environment. From a merchandise category perspective, beauty was our best-performing category and significantly outperformed the balance of the business, followed by bras, whose performance was in line with the overall business. Panties and apparel performance in the quarter lagged behind the balance of the business amidst an extremely promotional environment in those categories. Our international business continues to be a bright spot, with sales up more than 40% in the quarter compared to last year. The international business has been profitable in each of the last three quarters, with most lines of business and countries performing well. I'm encouraged with the rate of progress we're making in all parts of our international business. We continue to be optimistic about growth for our partners around the world. TJ and I recently visited and spent a few days with our teams, partners, and vendors in the Far East, including our partners in the China joint venture business, Regina Miracle. We've made substantial progress stabilizing our business and growing digital sales in China with Regina. After years of significant losses, I'm expecting the China business will break even in spring 2023. Aside from our financials, over the last 90 days, we've executed several key actions in support of our strategy and positioning for the long- term, including we signed a definitive agreement to acquire Adore Me, a digitally native technology-first intimates brand. We believe the deal will strategically position us for growth by allowing us to leverage Adore Me's expertise in technology to continue to improve the Victoria's Secret and PINK shopping experience and accelerate the modernization of the VS&Co digital platform. We launched our Undefinable campaign to cement the brand's continued commitment to welcoming and championing all women. We delivered newness and innovation with the launch of So Obsessed, our new push-up bra, which provides the fit and shaping of a traditional wired bra in an extremely comfortable wireless frame. We further enhanced the shopping experience by expanding our bra fit services with the launch of a new bra fit technology that will help customers more easily find their right size when shopping in the Victoria's Secret app. We continued to expand our channels of distribution and began featuring a portion of our PINK apparel assortment in our Amazon storefront. We expanded our Store of the Future fleet to 23 stores, 12 in the U.S. and 11 internationally, and we continued to make progress on our ESG journey by publishing in November our ESG materiality assessment and strategy. Looking at the balance of the year, we remain mindful of the continued economic headwinds and pressure on our customer that will likely drive a highly promotional retail environment. We expect continued sales and margin volatility. We believe we're well-positioned for the holiday season, and we're confident in our ability to navigate this shifting landscape by aggressively pursuing our share of customer spending to optimize sales and margin and at the same time being extremely diligent on costs and on inventory management. For the Q4, we expect sales to decrease in the high single-digit range compared to the Q4 last year, and we're forecasting operating income to be in the range of $240 million-$290 million. I expect you're all likely to hear my take on our holiday performance thus far. Well, here's my take. The start of November, up until the Black Friday weekend, seemed to be very much a continuation of the trend from the Q3, a reflection of a very cautious customer in a challenging economic environment. However, since Black Friday, our customers have responded positively, and we've been very pleased with an uptick in the trend in our level of performance. Our stores have been some of the busiest in the mall, and our promotional levels were appropriately aggressive with increased traffic and conversion both in stores and online. That being said, there are still many very important days ahead in the month of December where we make the overwhelming majority of our profits for the Q4. Our guidance for the quarter reflects our results to date and the expectations that we'll need to be aggressive in December to get our fair share and more of consumer spending this holiday season. For the full year, we expect sales to decrease 6%-7% and forecast adjusted operating income to be in the range of $525 million-$575 million or approximately 8%-9% of sales. Given today's challenging macroeconomic environment, we believe an adjusted operating income rate in the high single digits demonstrates stabilization of our business and represents a solid base we will leverage more when normal macro trends return in North America. We're committed to optimizing our performance in the current challenging environment by focusing on what's within our control, our brand transformation being best at bras, enhancing the customer experience, and a relentless focus on costs and inventory management. At our Investor Day in October, we discussed our strategic growth plan, which we believe outlines significant runway ahead, guided by our three principles: Number one, to strengthen the core. Number two, to ignite growth. Number three, to transform the foundation of our company. Led by our two category-defining brands, a merchandise leadership position in intimates and beauty, and a global business position to increase market share, our goal is clear: to be the world's leading fashion retailer of intimate apparel. Our focus as leaders as a company is on ensuring we're a future-facing business that becomes more and more culturally relevant in this shifting consumer environment. We're confident in our opportunities and remain committed to delivering long-term sustainable value for our shareholders. That concludes our prepared remarks, we'd be more than happy to take any questions that you might have. Operator, are there any questions? We have our first question from Lorraine Hutchinson with Bank of America. Your line is open. Thanks. Good morning. I wanted to get your view on what it is that the customers are really responding to, and your thoughts on can you drive sales with newness or does the environment require that you have to promote to really drive this conversion? Hi, Lorraine. That's a great question. I think the short answer is yes and yes. We know that when we've given the customer newness, that she's responded really well to it. The So Obsessed bra is a great example of that, which had an immediate impact and was extremely positive. The Shacket within the PINK assortment blew out within the first week of being in store. The Bare fragrance launch was an immediate hit, went straight to number one, even ahead of Bombshell, America's number one selling fragrance. Newness works, no question. That said, in these difficult times, she is looking for a deal, and she's looking for help, and she's looking at best brands in the market to recognize that times are difficult and to give her a helping hand. As customers were out over Black Friday weekend, and they're stocking up, you know, looking to buy Christmas gifts, then it's a fight. We made the decision that it was appropriate to be more promotional than we had been in the previous year, to be more promotional than we had been in the balance of Q3. In order to make sure that we were fighting as hard as we possibly could, we feel good about that choice. We were all out in stores in different markets across the U.S., everybody reported back at the end of day and on Monday morning with about the same take, which is the customer is hungry for good value on great merchandise, and that's what we're striving to do. In our guidance for the balance of the quarter, we provided for the opportunity to give her great value. I hope that helps, Lorraine. Thanks. One follow-up. Can you talk through the pace of the recovery and freight costs, and then also the pace of the additional $250 million of cost savings that you outlined at the Analyst Day? Yeah, Lorraine, this is TJ. I'll take that one. As we mentioned in the prepared remarks, you know, Q3 freight costs were relatively consistent year-over-year. What I'm referring to is the incremental supply chain costs that we have articulated really over the last 12 months. Starting in the Q3 of 2021 all the way through the spring season, we estimated about an incremental $300 million worth of supply chain costs or headwinds. That looked like higher ocean rates, higher air rates, you know, more difficult raw material price increases from an inflationary perspective, our need, so to speak, to be almost entirely dependent on airing merchandise into our stores, particularly in the holiday season last year. That was a 12-month runway, Q3 2021 through Q2 2022, of about $300 million. Through the Q3, we start to anniversary that activity, and we saw that the impact was relatively similar year-over-year at about $50 million that was embedded in our guidance and in our results. We move in the Q4, given that both ocean and air rates have now moderated significantly, given that we've been able to put more of our merchandise on boats and take less or take merchandise off of airplanes, which is a good thing for the business, we believe we'll recognize about an incremental $65 million of good news or lower supply chain costs in the Q4. We think that number gets probably closer to about $100 million as we move into the spring season. Of the $300 million, we think through, you know, the next, call it nine months, the stabilization of rates and our ability to move between airplanes and ocean containers will abate about half of the incremental cost in total. Where do costs go from there? I think from our perspective, that's a TBD. You know, how much of this is sticky long term? How far do rates continue to go down? We know we're pressing everything that we can do from an ocean perspective and less reliance on airplanes. To answer your question, about half of the $300 million of incremental costs we think coming back to us starting in the Q4 and continuing on through the spring season. Thanks. Then the $250 million of additional cost savings? Yes. Thank you for reminding me. The $250 million of incremental cost savings that we articulated at the Investor Day, that's really a forward look for the business. It started in a small way here in the fall season, will grow in 2023. But from a $250 million perspective, I would think of it as growing from 2023 to 2024 to 2025. As a reminder, there were three elements to that. The first element was really about product costs, and that looks like raw materials, finished goods, how we move goods between raw materials and finished goods from a freight perspective, lower duty opportunities, et cetera. The cost of goods sold was the biggest part of the $250 million. The second biggest cost was really, I'll call it modernizing the company or kinda transforming from being a high-cost operator to a low-cost operator. That looks like changes in terms of people and processes in our stores, distribution centers, and here in the office in Columbus, New York, and around the world. The third bucket, as you'll recall, was lower indirect procurement costs, which is really your non-merchandise costs across the business. The $250 million is different than in the supply chain headwinds that we talked about earlier. These are new initiatives for the business that have started here in the fall season, will grow in 2023 and grow in 2024 and 2025. Thank you. Thank you. Our next question comes from Ike Boruchow with Wells Fargo. Your line is open. Yes, hi. This is Kate on for Ike. I wanted to dig in a bit more on the merch margin performance in 3Q and maybe more on 4Q. Could you just, you know, parse out by category what you saw in terms of, you know, bras, panties, and apparel? Would you say that the majority of the degradation in 3Q and maybe what you're anticipating in 4Q would be in the apparel parts of the business, while maybe the intimate side is holding up better? You know, just trying to think of the performance of core lingerie versus apparel. Then I have one follow-up. Yeah, I think good question. Thank you, Kate. From a margin perspective, as Martin mentioned, it's our intention to be, you know, to get our fair share across the mall and be appropriately aggressive to make sure we're capturing our fair share of traffic, and we're doing everything we can to try to increase conversion on the traffic that's out there. You know, from a category perspective, I think when you, when you kind of look at our promotions that have transpired over the last few weeks and months, those category promotions tend to be a little more focused in apparel, a little more focused maybe in panties. And you generally, across the store, we wanna make sure that we're being appropriately aggressive on not just categories, but also giftable product this time of year, again, to get that basket started and try to build on conversion. It's less about it's not what you might be seeing at other retailers that feels more like a liquidation. This is really about how do we use the strength in our product, the strength in our margin profile to try to drive traffic and increase conversion. We feel very good about our inventory position and the glide paths that we're on. Again, I wanna underline this is not liquidation activity. This is using our product strength and product promotion to try to drive traffic and conversion. Okay, great. TJ, I guess just one follow-up. You know, as we're looking ahead to next fiscal year, understand obviously you're not gonna wanna guide, but, you know, you talked about some of the easing, you know, supply chain pressures. Is Is there a reason why we shouldn't think about gross margins being up next fiscal year as inventories are in a better place, you're lapping some of the excess promotions here in the back half and, you know, some of the freight headwinds, you know, flip the other way? I think from our perspective, you're correct. We are not giving guidance. As we think about 2023, I'll pivot back to the Investor Day and, you know, really the messaging and the story remains the same, Kate. I think we're very focused on strengthening the core, which as you'll recall, we do need some improvement in the North American side of the business, and particularly in the economic environment for our customer. We continue to be focused on growing our market share from an intimates and beauty perspective. Clearly, we had very good performance from an international perspective. You think about the ignite growth pillar that we talked about, international is strong. New business development continues to progress, particularly with our success of beauty on Amazon and increasing points of distribution. And the Store of the Future we continue to be excited about. All of those growth opportunities remain intact for 2023. However, we do believe we need some help from the economy from a North American perspective. When we think about the margin, just focusing in on your question for a moment, we do expect to have some tailwind as we go into, to spring season, particularly around freight rates and freight opportunity year-over-year. I think the overall gross margin performance and rate performance, there will be some level of impact on where do sales go, because we do anticipate that, you know, from an economic perspective, I think most people believe that the challenges in North America will continue into spring. What kind of deleverage does that create on the base? Where does the promotional environment go in the mall? I think you're correct in assuming that most retailers seem to be in much better inventory position coming out of the fall season. Does the promotional activity across the mall subside? And does it go lower than where it was in Q3 and Q4? I think that's the TBD. We'll see where that goes. We will want to be competitive in the mall, though, to continue to focus on traffic and conversion, but we do have, you know, some tailwinds from a freight perspective. We're really gonna have to wait, Kate, to see where trends go and how do we continue to remain to be competitive on the mall and continue to gain share. Great. Best of luck for holiday. Thank you. Thank you. Our next question comes from Matthew Boss with JPMorgan. Your line is open. Great, thanks. Martin, could you expand on the lower conversion rates that you're seeing in both stores and digital? I guess what gives you confidence that this is macro and not tied to product or pricing? Is there a competitive element in underwear that impacted trends this quarter? TJ to your point, as we turn the corner post-holiday, I guess what are the puts and takes to consider as it relates to revenues relative to this year? Meaning, do we need macro improvement to stem the level of revenue decline? Maybe if you could walk through the initiatives on the top line and if growth is reasonable as we think about next year. Yeah. I'll take the first part of that. Morning, Matt. Of course, it's something we think about on a daily basis as we look at our results. Are we getting our fair share? Are we overperforming or underperforming relative to the market? When conversion is down and sales are down, generally it's an extreme cause for concern, so we go to the other indicators that we can find. Market share is a good one. Not the only one, but it's a good one. Our market share was up a nudge for the Q3 relative to where it was last year in intimates. That's driven by strength in bras, so growth in bra market share and ever so slight reduction in share in panties. You know, within that, we could be satisfied with the overall performance of intimates, but look hard at the panty business and say, "Gosh, that's a really promotional category. We're losing a little bit of ground. We've gotta work harder." You know, that's just one indicator. Another indicator we look at is the Ipsos tracker, which indicates that purchase intent was higher for Victoria's than it was before. We look at our traffic relative to mall traffic to the extent we can get it, and that other retailers share with us and landlords share with us, and that looks like it's tracking. You know, we look across the dashboard and say, "Should we be satisfied? Should we be pleased? You know, should we be concerned?" I think we're holding our own. Honestly, I think we're there or thereabouts in the mix, and we've got it all to play for. December is the most important month of the year. We feel very well set up in terms of inventory, in terms of promotions, in terms of the activity we've got in the pipe. It's full focus on execution right now. That's what we get paid to do, and that's what we're focused on. TJ, do you wanna take the second part? Yeah, I think the second part, Matt, from a macro perspective, as we think about revenues going into next year, really what we talked about, I'll remind everybody what we talked about at the Investor Day. Again, the North American side of the business, we do need to see some level of improvement. We believe from a macro perspective, when does that come? Candidly, you know, we'll start to anniversary some of the challenges towards the end of the Q1. What trend unfolds in Q2 when you're comping the comp, so to speak, from a macro perspective? I think that's all in front of all of us as retailers. Do we have initiatives going on in the business to try to buck the trend? Absolutely, we do. As Martin mentioned, again, our core focus on being best at bras, a relook in terms of how do we make sure we're getting the appropriate amount of traction and growth in the panty business. Intimates in total, which is about a little over 50% of our business, that's our core, that's our best bet. How do we continue to grow market share? From a beauty perspective, clearly we continue to launch new fragrances, and all they really do is go to the top of the charts, so to speak. Feel very good about the beauty business and continued newness and refresh in that business and growing it as a percent of the mix in the store. We talked about at the Investor Day, starting to de-emphasize a little bit some of the apparel parts of our business. Focusing more into core intimates, core beauty, and growing the things that are working the best for us. I think additionally, you know, I wanna underline again the international growth in the first three quarters of 2023 as the world is starting to open back up again. We're seeing very strong performance there. We can see a pipeline of both country growth, store growth, digital growth internationally, for the foreseeable future out through 2023, 2024. We feel very good about the international part of the business. New business development, Greg and his team have done a great job starting to grow our Amazon business. We think that's an opportunity going forward. The Store of the Future. I could keep going down the list of initiatives that we talked about at Investor Day, but, you know, that was only six weeks ago. All of those are still in place. All of those are still on track. We feel very good about those. Great. Best of luck. Thanks. Thank you. Our next question comes from Simeon Siegel with BMO Capital Markets. Your line is open. Thanks. Hey, everyone. Morning. Hope you and your families had a nice Thanksgiving. Can you setting aside the $65 million, could you just speak to any of the effect of competition of the 4Q gross margin, so within guidance, so just thinking through parsing out the other levers? Martin, you said AUR was healthy. Any way to, I guess, quantify or just give us context what that means? I assume the implication is that UPTs were down. If AUR is healthy, UPT is pressured, what does that tell you about using promotions? I guess, like, it sounds like people are willing to pay what you said, they're just buying fewer units, or do you think it might be reflecting the idea that maybe they just over-purchased over the last couple years, and they're still working through the excess, and they just need fewer things? Would love your view on that. Thank you. TJ, do you wanna take the first part of the question? Yeah. I think from an AUR perspective, Simeon, we still feel very good about the AUR positioning of the business. Really what we're talking about is, you know, from a ticket perspective, we feel very good about where we are. What we're really talking about is how do we use that strength in ticket and strengthen margin profile of the business. If the net AUR needs to change a little bit here in the Q4 to continue to get the kind of conversion that we want and the kind of basket growth that we would like to see and traffic growth we would like to see, we wanna use that strength. Again, it doesn't necessarily mean that we have to be at this level of promotion for all four quarters of the year. That's not what we're talking about. Clearly in the Q4, when it's our Super Bowl, we need to do everything we can do to make sure we're getting our fair share. You know, in terms of your question around over-purchasing or overproducing in the past, I'm not necessarily sure we're thinking about it that way. I think we're thinking about it as there is a very competitive environment across the mall. There are others in our view that are in much different inventory position than we are and are more in a liquidation mode. Our position of strength from an inventory perspective is not a liquidation. It's about how do we make sure that we're getting profitable sales in a difficult environment. Yep, I'll just piggyback that a little bit, TJ. I think you covered it. Units per transaction are down. Basket size is down. Like TJ said, I don't think we were over-performing in the past, but I do recognize that the customer has different categories to choose from. You know, all of the dollars that are available shouldn't come out and say, "I'm gonna point those at the intimate apparel category." They're just dollars in the wallet. Other categories have come back stronger than they were in previous years, and that's a reflection of times changing, being more open now than we were during COVID times. You know, what I go to is looking at our performance relative to the market in which we compete, and the market's down. We're down, and the market's down. It will come back. I think the most important thing is to make sure that we're super competitive and that we're giving her the best possible offer that we can in terms of newness and in terms of value. That's, that's where we're focused right now, control what we can control. Perfect. Thanks. Yeah, I thought the AUR being healthy was the interesting point in light of all of that commentary. That's just what I was asking about. Thank you. Best luck for the holidays. Yeah. Thanks for the clarification. Thank you. Our next question comes from Alex Straton with Morgan Stanley. Your line is open. Great. Thanks so much for taking my question. I wanted to focus kind of on some of the supply chain challenges. I know Victoria's is known for its read and react strategy that's really been an advantage in the past, but has been pretty impaired over the last year. Is that contributing to some of the sales pressure, or how should we think about that? Maybe where does it stand in terms of the progress to being fully back to the read and react advantage, or when do you think that normalizes? Thanks. Yeah, happy to stay there. Thanks, Alex. We don't think about the supply chain being impaired, to be honest. We feel like we performed very well during COVID in a very difficult competitive environment, in base of supply. We got the goods that we needed. We had to pay a bit more for them because of the freight challenges, but we got more than our fair share of what was available in the base of supply. We feel that we did very well during that COVID period. As it relates to the current period where supply chain pressures are really behind us, you know, TJ mentioned this, there was some cost in the Q3 that starts to go away during the Q4. The cost is substantially behind us and the difficulty of the supply chain is substantially behind us. Where it really bites is in our ability to enter a new season open. I've said previously that when the business is at its best, we would start the fall season about 60% bought and about 40% open. We didn't get quite back to that level this fall. We were more like 70% bought, 30% open. We don't get to spend that 30% that's open because with the economic outlook the way that it is and sales, you know, being pressured, it would be unwise to spend those open dollars. We're more like 80/20, 80% committed, 20% open. When does it get back to completely normal? I would guess towards the middle of the year, we would expect to be at full capacity on read and react. There is no structural change in the base of supply or the way that we do business that indicates that it won't do. It's just a question of us being very careful in the way that we place our orders and the amount of commitment that we make and being agile in our ability to switch out of boats and into airplanes if something's checking faster than we anticipated it to do. I hope that gives you a bit more color on the question. In broad outline, I would say we would expect 2023 to be substantially normalized from a supply chain perspective. Great. That sounds like a nice tailwind for next year. Maybe just taking a step back, one more from me that's bigger picture. Can you just walk us through kind of the puts and takes around kind of that high single-digit margin this year on an EBIT level and how you see the path to kind of that mid-teen longer-term target from here? Yeah, I think, Alex, the Investor Day, we kind of stepped through this, and from our view, nothing's really changed in the last six weeks. You know, we've maintained our guidance for the current year from an operating income and rate perspective. If you think about, take the high end of the range, just to keep the math simple at 9%, what we talked about in terms of the path to 15%, the next percent, so nine plus one, the plus one is really where we're focused on strengthening the core. That's the best at bras, that's North America, that's growing intimate share, that's growing beauty share, that's starting to mix a little lighter on the apparel side, those initiatives that we talked about at the Investor Day. The next two points, so nine plus one plus two, the next two points is really the igniting growth pillar, that looks like international growth, which happened in the Q3. We feel very good about the outlook for Q4 in 2023. It looks like new business development, whether it's new partners, new channels of distribution, et cetera, or all of the above. It looks like continuing to focus on Store of the Future, growing the store base from a Store of the Future perspective, renovating stores into the Store of the Future format. That is well on track, and we're pleased with the results to date. The last three points, so nine plus one plus two plus three equals 15, the last three points is the $250 million of efficiency opportunity in that transforming the foundation bucket. I spoke about that earlier. That looks like cost of goods sold opportunity, you know, modernizing the company from an efficiency standpoint in terms of people and processes, and then also indirect procurement. Nothing's really changed in the path from 8% or 9% here in the current year to that mid-teen from an initiative perspective or anything different strategically. I do think it's important to note, you know, Martin mentioned it in his prepared remarks, you know, something that is new and different that we are waiting on approval for from an HSR perspective is the announcement of the acquisition of Adore Me. We'll have more to say about that when that happens, but clearly, that's a growth opportunity for the business and a transforming opportunity for the business that wasn't originally contemplated at the Investor Day. Thanks so much. Good luck. Thank you. To be clear, we were contemplating it today. We just couldn't talk about it. Yeah. Fair. Thank you. Our next question comes from Omar Saad with Evercore Partners Your line is open. Thanks. Good morning. Thanks for all the information. wanted to do one kind of follow-up on the near term, you know, recent acceleration. you know, I'm having a hard time figuring out is it the kind of accelerated promotionality, you know, if you guys kind of really lean into the value and seeing the customer respond to that or the Black Friday acceleration, or do you think it's more shopping, you know, consumers returning to kind of historical shopping patterns more centralized around the holiday period? I'd love just if you have any thoughts around that. I have a couple quick follow-up. Yeah. Morning, Omar. I'll take a shot at that. It's really looking in the crystal ball and guessing what's gonna happen. It logics to me that when the customer is pressured in a very tough economic environment, that she gravitates towards opportunities to save money. Black Friday and Cyber Monday are opportunities to save money. Was I surprised that it was a strong Black Friday and a strong Cyber Monday? No, I wasn't. I was not surprised about that at all. What I don't know is whether this is the beginning of a new trend, and the whole of December's gonna, you know, follow it in that way. I doubt it because I think when we look at previous patterns of difficult economic times, customers gravitate to deals, and then she spends up, and then she waits for the next round of deals. I just think we're in for a tough December all around across retail, and we need to be prepared to sharpen our elbows and fight as hard as we can. As I said before, it's not just about winning within our category, it's about taking dollars to our category rather than to somebody else's. That's about the only forecast that I can give you, Omar. You should be assured that we're taking it on a day-to-day basis. We're, you know, all over our results, even intra-day results. We're agile, and we're able to change and pivot as needed. We have strong plans, and we have contingencies in place, and we'll be prepared to make sure that we get whatever is available and out there. TJ, do you wanna add anything or? Yeah. I agree with everything that Martin mentioned there. The one add I would have is really an acknowledgment to the team, both here and across the country in our stores. You know, being prepared for Black Friday weekend, I think most reports out there, certainly where we look at from a mall perspective and mall traffic, you know, the mall was very busy. We actually think that we were one of the busier stores in the mall. I think that's been reported, and we're seeing that in the numbers. The lift in traffic that we saw, we think was a little bit better than the mall. We think that's a little. That's directly correlated to the preparedness programs that Martin mentioned on the part of the team. That's very helpful color. Yeah, that's very helpful color. You know, maybe quickly, any thoughts on why beauty is so strong? Martin, you know, quick important details on the Store of the Future for people who haven't been in one. Thanks. Yeah. Why would beauty be stronger than other categories? Well, I think it reflects the fact that the market is more open, so you're more likely to wear a fragrance when you're going out to party, or to work or, you know, out rather than being at home. The reality is that people are more out and about right now than they were this time last year. It kind of logics to me. My beauty team will be listening to this and saying, "But what about the newness? What about all the great content that we developed?" I would give a nod to that also, that we have got some terrific merchandise out there. The Bare fragrance is truly groundbreaking, innovative, and unique in some respects. Yes, it's a function of the fact that the team did a really good job, and it's also a function of the fact that beauty is a stronger category across the board this year than last. Store of the Future, thank you for asking. We feel very good about Store of the Future. We've got 12 of the 16 that we plan to open in North America open, and they're doing well. They're performing at high single digits better than the control group. The store presents as being less intimidating, easier to shop, lighter, brighter. The merchandise is the hero rather than the environment being the hero. It's less overwhelming. From a business perspective, it's lower CapEx. It's typically smaller stores. We don't need the amount of square footage that previous management thought that we needed. It's a more efficient, less intimidating, more attractive environment. There are some neat technologies in there that are really helping. The Crave technology that we have in the fitting room has been extremely well-received. That I think is the highlight of the Store of the Future, and we'll continue to evolve it as we put more down on the ground. You know, one part of that initiative is changing our dependence on malls to have a focus on off-mall locations, where we've been under-penetrated, and we're very pleased with the performance of those off-mall locations that indicate that they could be a very good backfill to downward pressure that will be on some, you know, the D and E malls across the United States. If we can replace some of that real estate with off-mall real estate, that will be a good thing for us. In many respects, from many, many perspectives, the Store of the Future is a really good initiative, and we're very pleased with the results so far. Thanks for asking. Have a great holiday. Thank you. Thank you. Our next question comes from Adrienne Yih with Barclays. Your line is open. Good morning. Martin, my first question for you is, you know, how are you assessing and measuring marketing success? How do you know that it's working to acquire sort of younger millennial Gen Z customers? That's my first one. Then for both of you. You know, inventory, you can see on the balance sheet, starts to spike last year in the Q4, right, over 35% for the next three subsequent quarters. A lot of that was safety stock and kind of the change in the modal mix, et cetera. Maybe this is TJ. How much of that was in transit? How much of that was unavailable for sale, won't be repurchased again? From a unit perspective, and I can appreciate the difficulty of this, but how do you drive kind of those positive sales, if that's what we're contemplating in this marketplace, if you don't have that unit velocity? How are you building in that flexibility to either be promotional if you need to be, or to back off and drive full price sales if you need to be? Thank you very much. Yeah, great questions. How do you know if marketing is working? That's the sort of classic question through the ages. Good news is that it's easier to tell whether marketing is working now than it was a decade ago. We will have multiple creatives out at any given point in time, and the algorithms in the system respond and push the best creative. The creative that is the best, that is the most well received, rises to the top. Spending marketing dollars is more efficient now than ever it was previously. You know... Excuse me, at this time, we are having technical difficulties. We'll place you on a brief hold, one moment. I do apologize again. At this time, we are having technical difficulties. We will be back with you in just one moment. Again, this is the operator. We are having technical difficulties. We will be right back with you. Excuse me, this is the operator. Your lines are all now open and in the main call. Hi, Adrienne. Are you still with us? I am still with you. Oh, I don't know how much you heard. I was in a monologue, and then somebody came in and said, "Oh, the line cut." It wasn't me, I promise. Let me start again. What I was saying is that marketing is now significantly more dynamic than ever it was in the past. We have multiple creatives out at any given point in time, and the algorithms work out which is the better and push those harder than others. It's a more efficient way of spending money than previously. The last big campaign that we had was the Undefinable campaign, which was really about our dedication to evolving and listening and reinforcing that beauty is in the eye of the beholder, that it's the individual's right to define, not a company's, about our commitment to welcoming and celebrating her on her terms, not on our terms. That campaign generated 500 million media impressions, which is off the charts, and was 87% positive in our readout, which is extremely strong. You know, we have metrics that indicate how successful individual campaigns are, and we adjust accordingly. We feel good about where we are. That said, you know, if you look at the 13% who are less positive, there is a significant demand in our base of consumers where people say, "Bring back the old way of doing business. We like Victoria's as was. The reality is that, as a very broad appeal brand as such that we are, that customers expect multiple things from us. They expect us to be very sexy and very provocative. They expect us to be leading in comfort. They expect us to be democratic and inclusive, and we'll be all of those things in our broad communication of the brand. We think that we're on a good track. The indicators suggest that we're on a good track, and we're determined to proceed with high energy. I hope that helps, Adrienne. It does, yes. Thank you. TJ, do you want to take the second part? Yeah. Adrienne, if I understood your question, right on inventory, let me try to address how it's been flowing. You, you are correct that, you know, coming out of last year and the timing of when we received inventory due to supply chain challenges, certainly made Q4 last year difficult. As we moved into 2022 and supply chain started to get incrementally better from a flow perspective, it gave us the confidence that we could start taking merchandise off of airplanes and start putting it on boats. That did cause some dislocation in terms of when it shows up on our balance sheet, to your point, 'cause it starts to show up and in transit before it's actually received in the distribution center as it's coming here on boats. Lead times there obviously are longer than airplanes. We've been working against that all year long from a balance sheet perspective. You know, the good news is being a financially stable company, generating our own cash, and having a strong balance sheet, it gave us the flexibility to do that and start to lower overall cost and increase our flexibility, as Martin mentioned earlier. As we think about exiting this year, we do think the majority of that timing difference on inventory receipt has started to work its way through the system. We think we will end this year with inventories on a dollar basis on the balance sheet up in the mid-single digit range. Again, from a modal mix perspective, we take that into account. We think inventories will actually be down mid-single digits. And we start to fully anniversary it as we get into early 2023. We think we have the opportunity to exit 2022 with and enter spring with inventory dollars down in the mid-single digits when we take into account modal mix. Now, having said that, we go into 2023, we do believe having that inventory flexibility, having the flexibility to chase goods or start to get back closer to that 60/40 mix, as Martin Waters mentioned, gives us the opportunity to chase winners, cut losers, and be much more efficient with our inventory. I think additionally, we have opportunity as we enter into next year to start to see incrementally a little bit of improvement on inventory turnover, as I mentioned, because of the timing of inventory and being more in position. And the ability to chase than where we've been in the last 12 months. That's extremely helpful. just 2 housekeeping. What was deleverage in the quarter, and what was digital% of sales? Thank you very much, best of luck for holiday. Thank you. What was deleveraged in the quarter on margin? What was the basis points? Yeah. What was digital? Digital, Kevin, do you wanna just call out digital% of sales? We're 3%, high 3%s. The B&O deleverage in the quarter was 80 basis points. The percent of sales, we'll have to do some math here. We'll get that. It's high 30s. Okay. Yeah, high 30s. In the high 30s percent. Perfect. Thank you, gentlemen, and, best of luck for holiday. Thank you. Thank you. Should we take one more question before we call it a morning? Perfect. Thank you. Our last question comes from Jonna Kim with Cowen. Your line is open. Hi. Thank you for taking my question. Just curious on Adore Me acquisition, congratulations on the deal, any ways you can leverage that business for next year as you think about modernizing Victoria's Secret. Any comment will be helpful. Thank you so much. Yeah, thanks for the question. We're super excited about Adore Me. It's a terrific company. You know, when TJ and I talk about it externally, we talk about it as being a two-for-one deal. It's like, it's a standalone business that is incredibly successful and growing and pointing at the value sector of the market that we don't currently compete in, and that gives us a great source of growth. Secondly, it's a technology company where we can leverage some of their great capability and skill set inside of our larger base of customers. You know, there's two very good reasons for us to be a good owner for that brand. We talked previously about there being three parts to the rationale for the deal. Number one is enhancing the customer experience in VS and PINK by leveraging the two technologies of try-on at home and subscription businesses, and we're gonna work incredibly hard to stand those both up during the early part of 2023, assuming the deal closes as we expect it will. Secondly, putting tech at the heart of everything that we do. That company has been built on a tech foundation, very different from the way that our company has been built. Working closely with Morgan and the incredible team at Adore Me, we'll find ways to bring technology to the heart of everything we do and transform the foundation of our company, modernizing for the future. The third is just the engine for growth that it provides, particularly targeting that $7 billion segment of the market that we call value, where Victoria's and PINK don't currently compete. Lots of good reasons for us to be a very good owner for that business, and I'm glad you asked. Thank you. I guess all that remains is for us to wish everybody a very healthy and happy holidays, and thank you for your interest in our business. That concludes today's conference. Thank you for participating. You may disconnect at this time.