维多利亚的秘密 (VSXY) 2026财年第二季度业绩电话会：利润率扩张及上调业绩指引

核心要点

• 2026财年第二季度净销售额同比增长10%至16.11亿美元，可比销售额增长9%。这是维多利亚的秘密（Victoria’s Secret & Co.）连续第五个季度实现可比销售额正增长。
• 调整后营业利润增长125%至1.24亿美元。调整后稀释每股收益（EPS）从0.33美元几乎翻了三倍至0.95美元，超出公司给出的0.65美元至0.75美元的指引区间。
• 受商品毛利率提高、促销活动减少以及采购与门店租金费用杠杆效应的推动，调整后毛利率扩大320个基点至38.8%。
• 增长具备广泛性：维多利亚的秘密零售销售额增长15%左右，PINK增长高单位数，美妆业务增长中单位数，报告的国际业务销售额增长20%。
• 管理层上调了2026财年指引：净销售额调至71.0亿至71.8亿美元，调整后营业利润调至5.60亿至5.90亿美元，调整后稀释每股收益调至4.45至4.70美元。
• 客户总量增长中单位数，其中新客户获取量增长高单位数。管理层特别指出，在18至24岁的客户群中新客获取势头尤为强劲。

关键财务数据

公司在本季度收到了超过1.40亿美元的《国际紧急经济权力法案》（IEEPA）关税退款，占其已缴纳相关关税的95%以上。这些退款已排除在非GAAP业绩之外。

业务与运营表现

维多利亚的秘密文胸业务增长15%左右，继续成为公司的核心增长引擎。管理层提到核心系列和新产品的强劲表现，包括Flex Factor Balconette和Very Sexy Envy文胸。文胸业务的强劲势头还推动内裤业务实现18%左右的高段增长，睡衣业务实现15%左右的增长。

PINK实现了连续第五个季度的增长，零售销售额增长高单位数。若排除PINK Friday活动时间从去年第二季度移至今年第三季度的影响，增长率则达到15%左右。文胸、内裤和服装均做出了贡献，而Marshmallow新品的推出被描述为对现有系列带来了增量。PINK服装连续第八个季度录得增长。

美妆业务增长中单位数，创下连续第12个季度销售额增长的纪录。正价美妆销售额增长高单位数。高级香水、香氛喷雾、六款新增香型以及Strawberry Bisou等新品的推出为该品类提供了有力支撑。重新推出的PINK方形瓶香水系列在上线不到一天时间内便在线上售罄。

公司继续减少促销活动。平均零售单价增长高单位数，总件数增长低单位数，正价商品件数增长高单位数。管理层表示，在半年度大促期间，折扣存货较少限制了6月份的营收，但随着客户对文胸创新的积极反响，7月份重新恢复双位数增长。

报告的国际业务销售额增长20%，主要由中国市场和欧洲数字业务推动。在对欧洲数字业务销售额从直营渠道调整至国际业务报告渠道进行调整后，国际业务销售额增长10%。管理层预计全年国际业务增长约20%，尽管随着基数提高，增速预计将有所放缓。

管理层指引

管理层上调了2026财年业绩展望：

对于2026财年第三季度，管理层预计：

• 净销售额为15.7亿至16.0亿美元，相当于增长约7%至9%。
• 调整后营业利润为1000万至2000万美元，而2025财年第三季度约为盈亏平衡。
• 毛利率约为38%，扩大约150个基点。
• 销售、一般及管理费用（SG&A）约占销售额的37.5%，由于面向客户的投资以及假设的绩效薪酬提高，上升约100个基点。
• 稀释后每股收益范围在亏损0.09美元至盈利0.01美元之间，上年同期调整后亏损为0.27美元。
• 期末存货同比增长高单位数。

该预测假设第三季度相关采购国家的关税税率约为10%和12.5%，随后在第四季度恢复至约20%的税率。管理层还将上半年超预期表现的部分利润重新投资于市场营销，包括“Angels Among Us”活动和时装秀（Fashion Show）。

风险与关注领域

• 管理层对第三季度和第四季度的关税假设有所不同，给采购成本和毛利率带来了不确定性。
• 运输成本上升预计将使第三季度毛利率降低约30个基点。
• 鉴于假期购物季的促销强度，预计第四季度的促销减少幅度将小于此前几个季度。
• 随着公司面临中国及其他国际市场加速增长的对比基数，国际业务增长预计将有所放缓。
• 半年度大促起步强劲，但促销存货有限对6月份营收造成压力，这凸显出平衡清仓活动与正价新品的必要性。
• 由于市场营销投资以及更高的绩效薪酬，第三季度销售、一般及管理费用（SG&A）占销售额的比例预计将上升。

分析师问答亮点

管理层表示，随着促销活动减少，PINK的增长继续来自正价销售（包括服装品类）。管理层预计随着时间推移，PINK的文胸和服装业务占比将趋向约50:50。

据管理层称，新客户的回购速度更快，且回购时的消费金额更高。付费社交媒体是本季度最强劲的新客获取渠道，而在上年同期双位数增长的基础上，App增长达到了30%。

目前市场营销支出略高于销售额的7%。在客户增长、客流量和品牌健康度业绩的支持下，管理层认为未来几年有空间将其提升至高单位数占比。

对于第三季度，管理层预计平均零售单价将增长低单位数，销量件数将增长中至高单位数。管理层将第三季度营业利润有望重回正值归因于正价商品销量增长和更强的产品售罄率，尽管市场营销投资有所增加。

管理层继续将实体门店视为重要的竞争优势，特别是在文胸尺码测算和服务方面。公司正在考虑有选择地扩张PINK独立门店，并在北美及国际市场进行更广泛的门店扩张。

管理层表示，在排除关税不确定性的情况下，在更高的正价销售以及高毛利核心产品更大贡献的支持下，毛利率正朝着以“4”开头的轨道迈进。

业绩电话会议完整转录

---

完整财报电话会议逐字稿

管理层陈述

Operator

Thank you. Good morning. My name is Amanda Douglas, and I will be your conference operator today. At this time, I'd like to welcome everyone to Victoria's Secret & Company's second quarter 2026 earnings conference call. Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to turn the call over to Kevin Wynk, Global Controller at Victoria's Secret & Company. Kevin, you may begin.

Kevin Wynk

Thanks, Amanda. Good morning, and welcome to Victoria's Secret & Company's second quarter earnings conference call for the period ended August 1st, 2026. Joining me on the call today is Chief Executive Officer Hillary Super, Chief Financial and Operating Officer Scott Sekella, and Chief Marketing and Customer Officer Elizabeth Preis. We are available today for approximately 30 minutes to answer any questions. 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. Certain results we discuss on the call today are adjusted results and exclude the impact of certain items described in our press release and our SEC filings. Reconciliations of these and other non-GAAP measures to the most comparable GAAP measures are included in our press release, our SEC filings, and the investor presentation posted on the investor section of our website. With that, I'll turn the call over to Hillary.

Hillary Super

Good morning, and thank you for joining us. Q2 was another strong quarter for Victoria's Secret. Net sales increased 10% year-over-year, near the high end of our guidance, and operating income and earnings per share exceeded the high end of our guidance. This marked our fifth consecutive quarter of positive comps, giving us further confidence in the progress we are making. The bigger story is what sits underneath those results. When I joined Victoria's Secret two years ago, I saw iconic brands with deep emotional connection but significant untapped potential. Today, we are attracting more customers, winning market share, and strengthening the value proposition for both brands. Product, brand identity, storytelling, and execution are all working together.

We have made meaningful progress, but we are not done. As part of the Path to Potential strategy, we are working to build Victoria's Secret and PINK into two distinct world-class growth brands, supported by a powerhouse beauty business. This quarter, we continued to make tangible progress towards that goal. Strength in the quarter was broad-based, with continued growth across Victoria's Secret, PINK, and Beauty, and across channels. We also delivered continued momentum in our international business. Our customer file continues to grow, increasing mid-single digits versus last year and marking our fourth consecutive quarter of growth. Growth spanned both brands and channels, as well as all age and income groups, led by strong new customer acquisition and improving retention.

At the same time, we continued to improve the quality of our sales. Regular price selling increased in the low double digits, accompanied by strong unit and AUR growth. Within that broad-based performance, two areas stood out: ROSS and PINK. Both are central to our Path to Potential strategy, and both are showing that our work is gaining traction. Our bra business grew in the mid-teens, driven by strength in core franchises and by new innovation, contributing to both VS and PINK's performance. PINK delivered another quarter of growth with strength in bras, panties, and apparel. Beauty also continued to grow, delivering its 12th consecutive quarter of sales growth.

Importantly, we are not standing still and are continuing to learn and adjust quickly. Semi-annual sale is a good example. We have made a deliberate decision to reduce our reliance on promotion and increase regular price selling. As a part of that shift, we entered the period with less sale inventory. Initial demand and sell-through exceeded our expectations, demonstrating that the event continues to resonate, but as the sale process progressed, lower inventory pressured the June top line. That gives us a clear opportunity going forward. June has historically been a sale-heavy month, but we increasingly see it as buy-now, wear-now fashion window.

We'll continue to use semi-annual sale to clear seasonal inventory while bringing more newness, innovation, and seasonal fashion into the month. We saw the potential of that approach in July, when growth returned to double digits as customers responded to new bra innovation across both VS and PINK. All altogether Q2 reinforced that our Path to Potential strategy is working. We are entering Q3 with a larger customer file, strong brand relevance, and a full brand and marketing calendar ahead. I will now walk through the progress we made against each of our Path to Potential pillars: supercharging our bra authority, recommitting to PINK, fueling growth and beauty, and evolving our brand projection and go-to-market strategy. I'll start with bras, where we have firmly re-established the category as our #1 growth driver. Bras are the foundation of Victoria's Secret.

They're where our authority begins, often the starting point of her relationship with us, and an important driver of the business. This quarter, our bra business grew in the mid-teens. That strength was a major contributor to the VS brand, which also grew in the mid-teens during the quarter, with bras driving a performance of over 1. approximately half of its growth. What is encouraging is how broad-based the growth is. We are growing both new and existing bra customers with particularly strong new customer growth among 18 to 24 year olds. That strength also spans the assortment from wardrobe staples to more fashion driven styles. That includes functional and seasonally relevant solutions like strapless, as well as lacy where bright colors, fabrication, and styling give her another way to make intimates part of her overall look.

Importantly, our core franchises continue to grow alongside more frequent newness. We have established a more consistent cadence of innovation and fashion updates that gives her more reasons to come back while growing the core. A good example was the 25th anniversary of Very Sexy. We celebrated the franchise with an iconic campaign set in Rome for the launch of our new Very Sexy Envy bra. While the campaign was anchored in Very Sexy, the impact extended across the bra assortment. That is exactly what we want our big brand moments to do: create heat, deepen emotional connection, and lift the total business. We also continue to see a strong response to innovation across key silhouettes.

One example this quarter was the Flex Factor Balconette. This new frame is a shape she loves and builds on the Flex Factor innovation that is already resonating. The launch drove incremental growth in both Body by Victoria and the broader Balconette business while driving demand across the collection. This quarter proved once again that when we win in bras, we create a halo across the broader Victoria's Secret business. Momentum and bras help drive high teens' growth in panties and mid-teens' growth in sleep. We amplified that momentum through both marketing and sharper execution. We are reaching new audiences while fine-tuning assortments, size curves, and in-stock to put the right product in the right places and execute with greater precision.

As we move into Q3 and holiday, we will continue to build on what is working, maintaining a healthy core while bringing her more innovation, fashion, and powerful storytelling. We see significant opportunity to build on this momentum through the back half and beyond. We are seeing similar progress in PINK, the focus of our next pillar. The work to sharpen PINK's identity is taking hold. The brand is standing more confidently on its own with a clear personality, stronger brand codes, and a deep emotional connection. PINK grew high single digits and delivered its fifth consecutive quarter of growth, within increasing strength from the heart of the brand: bras, panties, and apparel. That gives us further confidence in the renewed resonance we are seeing with the PINK customer.

We have a clearer read on what she wants from PINK: product that is comfortable, expressive, and tied to the moments that matter. It starts with the icons she knows and loves. We are keeping those franchises fresh with new silhouettes, fabrics, color, and fashion so the core feels familiar but never static. At the same time, we are using customer insights to create new growth opportunities. Marshmallow is a great example. It is our first new bra pillar in two years, and it came from a very clear customer need: an all day, every activity comfort bra that still feels fun, fashionable, and uniquely PINK. We paired that insight with our expertise in bras to deliver four new frames with easy sizing, wireless support, and soft fabrication.

We brought it to life digitally through a broad network of creators, making Marshmallow feel like it was everywhere she was. That combination drove outsized results following the launch, reinforcing our belief that bras can become an increasingly important growth engine for PINK. As the core fueled growth, we also continue to build PINK as a lifestyle brand. Apparel, which has now delivered eight consecutive quarters of growth, remains an important part of the strategy and one of PINK's largest customer growth vehicles. Denim, linen, and sleep all performed well this quarter, giving us new ways to outfit her and showing us where we have additional opportunity to scale. The Soho store continues to be an important physical expression of the PINK world. It brings together product, merchandising, and experience in a way that feels unmistakably PINK, and it gives us new ways to interact with our customers.

We are taking what resonates in Soho and thinking about how to apply those learnings more broadly across the fleet. PINK Friday is another example of how we are bringing the PINK World to life. This August, we evolved the event from one largely focused on promotion into an immersive experience, bringing together great product, playful moments, and the viral return of PINK's Square Fragrance Bottle. By leading with emotion over promotion, we created a fun and engaging experience for our customers. We are also showing up in ways that feel most relevant to her. As part of PINK Friday, we launched our first TikTok Live from the store, taking the in-store experience she loves and bringing it to her phone through our social channels. This is another example of how we are leaning into our heritage as an entertainment brand and creating more ways to engage through content and experiences.

We are also expanding brand heat through collaborations and partnerships, such as with Jansport and most recently Hydrojug and the NFL. These remain important ways to create excitement, reach new customers, and give her new reasons to engage. As PINK increasingly stands on its own, those collaborations become the icing on a much stronger foundation built on recognizable brand codes, compelling core product, and a clear point of view. As we head into fall, we are listening to her, understanding the moments that matter, and responding in ways that feel uniquely PINK. We are bringing that focus to moments like back to school while continuing to build opportunities in categories like accessories. We see significant runway to continue building from here. Turning to beauty. Beauty grew mid-single digits in Q2 and delivered its 12th consecutive quarter of sales growth.

Importantly, the quality of that growth remained strong, with regular price selling up high single digits. Growth was driven by strength in the core, especially fine fragrance and mist, while a consistent cadence of innovation gave her new reasons to engage. This year, we introduced six incremental scents, creating a steady flow of newness. And when customers tell us they've found something they love, we're extending many of those fragrances beyond their original launch windows. We are integrating beauty more fully into the broader Victoria's Secret world. We increasingly think about fragrance as the final outfitting layer, connecting scent to the product, campaigns, and moments she is already engaging with across the brand. Mother's Day was a great example. Bombshell Bouquet was at the center of an integrated campaign that brought together fragrance, emotional storytelling, and gifting.

We were also more surgical about where, when, and how we deployed our marketing investment, focusing on key days and channels leading into the holiday. Over Mother's Day weekend, beauty sales further accelerated, which reinforced an important learning. When we win in the moments that matter, we win in beauty. We're becoming more disciplined about identifying those moments, aligning product, marketing, and experience around them, and showing up in a more focused way. We're also getting better at identifying what is resonating with her and bringing those trends into beauty in ways that feel distinctly Victoria's Secret. Shimmer is a good example. We introduced shimmer across both core and seasonal mist offerings and have seen continued growth. Looking ahead, we see an opportunity to build on that response by expanding into additional shimmer forms within Bombshell.

We're also tapping into the nostalgia trend through archive drops. When we brought back the original PINK square bottle scents for PINK Friday, the collection sold out digitally in less than 1 day. More importantly, it reinforced the deep emotional connection our customers have with our fragrance heritage. We have decades of iconic scents and formats across Victoria's Secret and PINK, and we are bringing them back in ways that feel relevant today. We are applying all of the learnings and our integrated marketing approach to one of our biggest beauty launches this year, Strawberry Bisou, which continues to accelerate. Along with the customer response to PINK Friday, this gives us further confidence in our momentum going forward. Looking ahead, we continue to see meaningful runway in beauty through innovation, franchise expansion, archived storytelling, strategic media investment, and stronger integration across the brands. Turning to our fourth pillar, evolving brand projection and go-to-market strategy. And relevance, awareness, and emotional connection are translating into customer growth.

We continue to gain share in Intimates, outpacing the market. That momentum is supported by emotionally resonant campaigns, better customer engagement online and in-store, and much fuller utilization of the marketing funnel. We delivered our first-hand experience fourth consecutive quarter of overall customer growth with gains across new, active, and reactivated customers, as well as all income and age cohorts. That growth was broad-based across all channels, brands, and key categories. New customer acquisition grew high single digits and continues to outpace total file growth with particularly strong acquisition among 18 to 24 year olds, an encouraging sign of our growing relevance with younger customers. Customers are returning at a higher rate and spending more, supported by a more integrated marketing ecosystem, including digital, social, app push, and CRM, all working together to reach new audiences and retain our loyal customer base. As part of our strategic rebalance of marketing investment, we are engaging her in new and exciting ways.

Alongside our bigger campaigns, we have significantly increased our work with influencers, become more agile with social-first content, and experimented with new formats like TikTok Live. Our app and own channels are also helping us create a more connected customer journey. As we create more opportunities for her to engage, we are seeing a growing sense of community around our brands. Customers want to engage. They want to participate. They want to be part of the VS and PINK worlds. That is an important part of how we deepen our relationship with her and build fandom over time. We have significant opportunities to build on that engagement and sense of community in the back half.

One of the biggest is the Fashion Show, which we are continuing to evolve from a single event into an ongoing franchise. Last year gave us important insights into the show's potential. What stood out most was the excitement and fandom that emerged from our community, people through watch parties, gathered with friends, and engaged across social. That engagement helped drive customer acquisition and product demand that exceeded our expectations and gives us confidence to increase our marketing investment behind the opportunity this year. We are also applying learnings from last year by creating dedicated watch parties around the country, making the show more accessible with distribution across YouTube and live streaming on social platforms and building more excitement in the lead up to the show. Angels Among Us, a nationwide search for the next angel, is an important part of that strategy. Building on the overwhelming response, we recently announced a special docu-series produced by Boardwalk Pictures.

Premiering globally on YouTube on September 27th, the series will follow the aspiring angels on their journey all the way up to the Fashion Show where the newest angel will be revealed. Angels Among Us is a great example of how we are leveraging our strength as an entertainment brand by giving our community a more active role in the Victoria's Secret world and celebrating the fans who have always been the heart of the brand. Through the docuseries and the Fashion Show, we have an exciting and packed calendar ahead. We have more product innovation, partnerships, and emotionally connected campaigns coming through fall and holiday as we continue giving customers more reasons to engage with both brands. Finally, I want to touch on international. Our international business continued to grow in Q2, led once again by China and our European digital business. The growth was broad-based, with strength across channels and geographies. Importantly, we are delivering this growth on top of strong performance last year.

We're continuing to expand the brand's global presence through new flagship openings in key markets, local content and marketing, and through the Fashion Show, which is resonating with customers all over the world. Our strategic priorities are translating globally and we continue to see significant runway ahead. In closing, next week will mark two years since I joined Victoria's Secret. When I arrived, I knew there was meaningful work ahead, but I also knew what these brands could become. Two years later, I have even greater conviction in the opportunity in front of us. Our customer file is larger and healthier. We are gaining market share, and customers are responding to stronger product, more fashion, and more culturally relevant storytelling. We're winning from the core. We're amplifying those wins through fashion, innovation, and emotional connection.

And we're seeing that translate into more customers, stronger brands, and higher quality growth. Our Path to Potential strategy is delivering results. Despite a challenging macro environment, we are firmly in growth mode. For all the progress we have made, we still see tremendous runway ahead. We're getting better and faster at turning customer insight into action, helping us target more effectively and drive increased customer engagement. We enter the back half with a strong pipeline of product innovation and brand moments to build on this momentum. We will continue investing behind the growing brand heat in both VS and PINK to expand our reach and deepen engagement.

Two years in, I am incredibly proud of what our teams have accomplished. Their energy and commitment to putting our customers' and Brands First continue to impress me. I want to thank them for their passion and dedication, which have driven the progress we have made. Our teams are one of the biggest reasons I am even more excited about what is ahead. We have bold ambitions for this company, significant opportunities still to capture, and we are not slowing down. With that, I will turn the call over to Scott to walk through our results in more detail.

Scott Sekella

Thanks, Hillary, and thank you, everyone, for joining today's call. We are very pleased to report second quarter results with operating income and earnings per share well above the high end of our guidance and net sales near the high end of our expectations fueled by strong North America and international performance. As Hillary mentioned, our Path to Potential strategy continues to deliver. Accelerating brand heat is translating into customer growth across the portfolio, and we are seeing healthy, regular price selling in our core categories. Our continued execution and discipline drove exceptional first half performance, keeping us firmly in growth mode. We enter the back half well-positioned with a high-quality inventory position and elevated product innovation across Victoria's Secret, PINK, and Beauty. We're also energized by our marketing activations, including the Angels Among Us docu-series and an extended Fashion Show presence, all of which give us confidence as we head into the second half of the year. 1 note before jumping in the second quarter results. In the quarter, we received IEEPA tariff refunds of over $140 million, representing over 95% of the IEEPA tariffs paid by the company. We have excluded the refunds from our non-GAAP results, and thus the results discussed on today's call exclude the impact of the refunds. Now, turning to second quarter results in greater detail. Net sales were $1.611 billion, an increase of $152 million, or 10%, compared to last year. This was our fifth consecutive quarter of strong top line growth.

Q2 comp sales increased 9% and 13% on a 2-year basis, consistent with our Q1 trend. Adjusted operating income increased a strong 125% to $124 million. Adjusted net income per diluted share increased almost threefold to $0.95 from $0.33 in the second quarter of last year. As Hillary highlighted, the quarter performance was broad-based with strength across Victoria's Secret, PINK, and Beauty, and across channels. Thank you. For the quarter, store and digital traffic both increased compared to last year, with digital traffic outpacing stores. We registered our fourth consecutive quarter of customer file growth up mid-single digits over last year. And as Hillary noted, new customer growth continued to outpace the total file, growing high single digits. Regular price selling continued to strengthen in the second quarter, supported by product innovation wins and expanding brand heat across Victoria's Secret, PINK, and Beauty.

We remained disciplined on inventory, allowing us to further reduce promotional activity across levels, event count, and duration. As a result, second quarter AURs accelerated to up high single digits compared to last year, of the mid-single-digit growth we saw in the first quarter. We also grew total units low single digits in the quarter, including regular price units, which were up high single digits. From a top, we saw outside strength in May and July, both up double digits year-over-year. June was up mid-single digits, with strong performance during the initial weeks of our semi-annual sale event. Hillary noted we have gained valuable insight into the opportunities to strengthen next year's semi-annual sale, and that work is already underway. By brand, we registered year-over-year retail sales growth across the portfolio, with Victoria's Secret up mid-teens, PINK up high single digits, mid-teens, excluding a shift in the timing of the PINK Friday event from Q2 last year into Q3 this year, and beauty up mid-single digits. We saw another quarter of strength in North America, with VS Intimates accelerating from Q1, growing mid-teens compared to last year, with PINK Intimates up high single digits, which reflected a headwind from the timing shift of the PINK Friday event.

As Hillary reviewed product innovation, marketing execution, an integrated gifting approach around Mother's Day, and strong initial semi-annual sale performance all contributed to another quarter of strong North American results. Our international business delivered another quarter of strong year-over-year growth. International reported net sales growth was 20% in the second quarter, inclusive of retail comp sales growth up low teens. The growth was led by another quarter of outstanding performance in China in both the digital channel and the digital market, which continues to be driven by social selling, as well as in stores where we are seeing very impressive comp sales results. The continued growth in the quarter was partially offset by fewer merchandise sourcing sales to our franchise partners in Q2 compared to last year as a result of order and shipment timing. For the full year, we continue to forecast international net sales up approximately 20% on top of strong results last year. As Hillary mentioned, our strategic priorities are translating globally, and we continue to see significant runway ahead.

As a reminder, we began fulfilling digital orders in Europe out of our new European distribution center in the third quarter last year, thus began recording these sales as part of our international channel at that time. Adjusting for the reporting shift to these European digital sales, from direct sales to international sales, second quarter international sales grew 10%. Turning to margins, second quarter adjusted gross margin dollars were $626 million, an increase of $106 million or 20% over last year. The adjusted gross margin rate in the quarter was 38.8% compared to 35.6% in the second quarter last year, an expansion of 320 basis points and 30 basis points above the high end of our external guidance of 38.5%. Of the 320 basis points of year-over-year expansion, approximately two-thirds was driven by higher merchandise margin, reflecting increased mix of regular price selling and continued reduction in promotions, with the remainder driven by buying and occupancy leverage on the 10% increase in net sales. The incremental gross tariff headwind in the quarter compared to last year was approximately $10 million, slightly better than our expectation, and the net benefit factoring in mitigation was approximately $20 million, consistent with our guidance. The adjusted SG&A dollars were $502 million in the second quarter, and our adjusted SG&A rate was 31.1% compared to 31.8% last year, a 70 basis point improvement and 140 basis points better than our guidance of 32.5%.

SG&A rate leverage on higher sales was achieved despite increased expense from North America flex costs related to higher demand trends. Adjusted SG&A dollars continue to grow slower than net sales in the quarter, reflecting ongoing leverage, even as we made thoughtful investments in customer-facing initiatives, including marketing and the in-store customer experience, a trend we expect to continue for the balance of the year. Adjusted operating income of $124 million was 125% above last year's adjusted operating income of $55 million, an increase of $69 million and exceeded the high end of our guidance range of $90 million to $100 million by $24 million. Adjusted non-operating expenses, consisting principally of interest expense, were $13 million in the quarter, consistent with our guidance and compared to $17 million last year. Our adjusted tax rate was 22.9% in line with our guidance. Adjusted net income was $80 million compared to $27 million last year. Our adjusted net income per diluted share was $0.95, above the high end of our guidance range of $0.65 to $0.75, and compared to $0.33 in the second quarter of last year.

In the second quarter, we did not repurchase any shares under our $250 million repurchase authorization approved in March of 2024. Year-to-date, we have repurchased 2.2 million shares, totaling $100 million at an average price of approximately $45, leaving $150 million remaining under our current authorization. We had 84 million weighted average diluted shares outstanding in the quarter in line with our guidance. Now, turning to the balance sheet, our inventories remain in a healthy position. Second quarter total inventories were up 8% year-over-year, in line with our guidance of up high single digits. From a liquidity standpoint, we ended the second quarter with a cash balance of $522 million, an increase of $334 million above last year, and with no outstanding borrowings on our ABL compared to $75 million last year. Cash balance and the remaining availability under our ABL leaves us in a strong financial position with ample flexibility for continued execution of our strategic priorities.

Now, let's turn to our outlook for the remainder of fiscal 2026. 1 note regarding tariffs. Our third quarter forecast assumes current tariff rates of approximately 10% and 12.5% for the respective countries in which we source products. The fourth quarter, our forecast assumes a return to an approximate 20% tariff rate. For fiscal year 2026, we are raising our top and bottom line guidance. Now expect net sales to be in the range of $7.10 billion to $7.18 billion, up from our prior range of $7.03 billion to $7.13 billion, and compared to net sales of $6.553 billion in fiscal year 2025. The increased net sales outlook represents year-over-year growth of 8% to 10% compared to prior guidance of 7% to 9%. We now expect fiscal 2026 adjusted operating income in the range of $560 million to $590 million, compared to $403 million in fiscal 2025.

This represents an increase of $10 million at both ends of our prior guidance range of $550 million to $580 million. This outlook, in part, reflects our decision to reinvest a portion of the outperformance into marketing to accelerate short and long-term growth. We are raising our fiscal year 2026 adjusted net income per diluted share to be in the range of $4.45 to $4.70, up from our prior range of $4.35 to $4.60, and compared to adjusted net income per diluted share of $3 in fiscal year 2025. Our forecast assumes weighted average diluted shares outstanding of approximately 85 million. We continue to estimate capital expenditures in the range of $220 million to $240 million in fiscal 2026, or approximately 3% of sales. In North America, we continue to expect store counts at the end of 2026 to be flat to slightly up compared to last year, with 45% of our global fleet in our store of the future design, including 30% in North America and 55% internationally. Turning to our outlook for the third quarter of 2026.

The strong first half momentum has continued in the third quarter. We are forecasting third quarter net sales in the range of $1.57 billion to $1.60 billion compared to net sales of $1.472 billion in the third quarter of 2025. As mentioned earlier, PINK Friday shifted from Q2 last year into Q3 this year, which represents a growth tailwind of approximately 1%. This outlook assumes top line growth of approximately 7% to 9% based on continued momentum quarter to date in our North American business, as well as strength in our international business. On a 2-year basis, our sales forecast for the third quarter is up 16% to 18%, reflecting an acceleration from Q2. With this sales outlook, we expect third quarter 2026 operating income to be in the range of $10 million to $20 million, compared to adjusted operating income of approximately break even in the third quarter of 2025. We expect our third quarter 2026 gross margin rate to be about 38% compared to 36.5% in the third quarter of 2025, representing approximately 150 basis points of expansion.

The expected rate expansion is based on the strength of our operating model, which continues to deliver leverage on buying and occupancy expenses as net sales grow, as well as our disciplined promotional strategy and more regular price selling. We also expect a gross tariff headwind similar to last year in the third quarter, and when factoring in mitigation efforts, a year-over-year net benefit of approximately 60 basis points compared to the prior year. Partially offsetting these gross margin tailwinds is incremental pressure this year from rising transportation costs. SG&A rate in the third quarter of 2026 is expected to be approximately 37.5% compared to an adjusted SG&A rate of 36.5% in the third quarter of 2025, an increase of approximately 100 basis points. This reflects customer-facing investments, including Angels Among Us and overall marketing spend, and higher assumed incentive compensation on improved forecasted results for the back half of the year. Non-operating expense is expected to be approximately $13 million, favorable compared to $18 million in the third quarter of last year, reflecting higher interest income on higher cash balances following the collection of tariff refunds, together with reduced borrowings under our ABL facility. Given the near break-even level of pre-tax income forecasted in the third quarter, we are forecasting income taxes to be insignificant in the period.

Given these inputs, we estimate third quarter net income per diluted share to be in the range of a loss of 9 cents to income of 1 cent compared to adjusted net loss per diluted share of 27 cents in the third quarter of last year. We enter the back half of the year with healthy inventories and expect to end the third quarter with inventories up high single digits compared to last year to support business trends. In closing, our results this quarter reflect two years of significant transformation across Victoria's Secret, PINK, and Beauty. We are pleased with the continued acceleration in our top and bottom line performance, and we wish you a great day. We believe there remains a long runway of opportunity ahead as we continue to grow our customer base, invest in our brands, our customer experiences, and our operating capabilities. Would now like to open it up for questions. Operator?

Operator

[Operator Instructions] For our first question, we will go to the line of Michael Vu with Barclays. Your line is open.

分析师问答

Michael Vu

Good morning. This is Mike Vu on for Adrian Yee, and thank you for taking our question. So it's great to continue to see the strong regular price selling and strength at PINK across all the categories. So I guess we wanted to ask specifically to PINK, would you be able to share any color on the use of promotions at the division, and were you seeing any changes, any elevated promotions within the apparel category versus the other ones?

Scott Sekella

Scott, I can take that. So at PINK, much like the other brands, we continue to pull back on promotions, particularly even on apparel. I mean, the regular price selling continues to be where all the growth is coming from, and within apparel, it's even particularly to our sort of PINK icon styles.

Michael Vu

Got it. And then as a follow-up, I know, Hillary, you cited the total customer file grew mid-single digits, new customer acquisition was up high single digits, and you saw improved retention during the quarter. So I guess we wanted to know, what are you learning about the quality of these newer cohorts, any color on initial AUR, repeat purchases, or cross-category purchasing. Thanks.

Hillary Super

Thanks for the question. I'm actually going to have Elizabeth, our Chief Marketing Customer Officer, answer that.

Unknown Speaker

Yes, we're very happy with our customer file this past quarter. It was the fourth straight quarter of customer growth and the fourth straight customer of new customer acquisition that outpaced. The key thing we're doing right now is we're really using our core network of own channels and paid channels. That would include paid search, paid social, push and email to make sure that we're keeping that customer engaged within the brand. As a result of these efforts, we're actually bringing those customers back to us, more of them back to us, they're coming back faster, and they're actually spending more when they do come back. Thank you.

Michael Vu

Great. Thank you very much.

Operator

Thank you. Our next question comes from Dana Telsey with Telsey Advisory Group. Your line is open. Dana, your line is open. You may need to unmute yourself. Okay.

Dana Telsey

Hi, good morning everyone and nice to see the progress. As you think about the bra category where you're gaining significant share and the path going forward, how do you think about product introductions, pricing, and how do you think about it for PINK versus Victoria's Secret? Secondly, what about retail stores? The PINK store in Soho is doing well. Is there opportunity for others, even if a selective number? And just lastly, marketing spend and how you think of marketing spend, this the balance of this year and how you think about it for next year. What is sustainable in marketing investment? What's new and different? Okay.

Hillary Super

Thank you. Thanks, Dana. I'll start off and then Scott.

Scott Sekella

Elizabeth may chime in at the end. Yes, certainly.

Hillary Super

in PINK and VS. So I will start by saying our innovation engine is fully in gear, shall we say. And in July, we were able to launch two innovations, one in PINK, one in VS, that were very much grounded in what we heard from the customer. On the VS side, it was taking a frame, the Balconette, which she is absolutely loving, and marrying that with Flex Factor, a technology we know she loves, and creating a new product that really, really resonated with her. And then on the PINK side, it's the first time we have had a new frame in over two years. And it has been tremendous. It was 100% incremental. We still saw the other two franchises grow in the month.

And we continue to see momentum in both brands and bras. Bras are really driving the lion's share of our growth in both brands, and we have a full pipeline of innovation on the way. We also think of innovation in terms of technical innovation and also fashion innovation. And so then I would point to our Very Sexy launch in August where we launched a very fashion bra called the Very Sexy Envy, and it's already in our top 10, which is quite tremendous for a fashion brand. So long story short, more innovation, more fashion, more frequent newness, and really focusing in our core to be much more productive to allow for that fun in the fashion space. So firing on all cylinders in the bra category, I'm very excited for all of what's to come. On your question on retail stores and the PINK store in Soho, we are really pleased with that store, and we're pleased with it and its performance, but we're also pleased with it in terms of the experimentation, community building, cultural connectivity, such as the TikTok Shop Live that we did during PINK Friday. So it is absolutely a laboratory for us, and we're actively thinking about where there might be opportunity to bring more PINK standalones.

Over time, we want to meet the customer where she is. We will be selective in that, but we definitely think it's an opportunity. And then I'll let Scott and Elizabeth talk about the marketing.

Scott Sekella

In terms of marketing spend, we're in the low 7% of sales right now. We see opportunity over the next couple years to drive that up to a high single digit. The return that Elizabeth will talk to in the marketing is what gives us confidence to invest in marketing on the back half of this year. So there's an investment with Angels Among Us, the docu-series that we're excited about, but that investment will continue in the fourth quarter. And we see this as really being a sustainable as we go forward.

Unknown Speaker

Yes, we've had solid growth. We started this journey about four quarters ago, basically redeploying our marketing investments. I would say that we were sort of focused very much on our existing customers and we weren't really reaching more new customers. Since we've deployed a much more digital first, social-centric approach, that's allowed us to reach a broader audience, a broader relevant audience, and that is what has helped us bring in many more new customers. I would say that when we started this journey, we didn't have a marketing that was not performing. What we have done in the past four quarters is actually optimize our marketing mix. So, without spending a lot more, we've actually just been shifting the dollars, and that has performed very nicely for us. We see the results both in terms of traffic, traffic to stores, traffic to online, and we also see the results very clearly in our customer accounts and our customer acquisition.

So that gives us a lot of confidence for the go forward. We're going to continue this. We see this additional opportunity of turning even more dollars into working dollars for us and are excited about the back half. Over time, we believe that we could take the marketing investment from currently just over 7% annually up to high single digits.

Operator

Thank you. Thank you. Our next question comes from Matthew Boss with JPMorgan. Your line is open.

Matthew Boss

Great, thanks. So, Hillary, on 9% comps in the second quarter, which accelerated on a 2-year stack, could you speak to the cadence or July exit rate trends, excluding some of the shifts, and just elaborate on the August momentum or your confidence in raising back half revenue guidance despite tougher conditions?

Hillary Super

Comparison? Hi, Matt. Yes, sure. So July was incredibly strong for us, and we accelerated in August. So July, very much grounded in bra innovation across both brands. Very, very pleased with our performance in July. And as we entered August, I would say that in VS and PINK, the business was largely consistent, and we saw beauty really accelerate. And so I thought I would just take a minute to talk about some of the things that we've been working on in beauty because you will start to see them in the back half of the year. Really four key things we've been working on in beauty. 1 is our innovation pipeline. Very similar, taking a page out of the playbook in bras and applying it to beauty. And that is starting to come to market.

2 examples of that are Strawberry Bisou from Tees, which just launched this month and has been very, very strong, as well as integrating shimmer into our products. And that's something you'll see in the back half with the Bombshell franchise. The third is really tapping into our archive and the nostalgia trend that is going on on social media and what we are calling bring back fragrances. And scent memory is really important and with all of the emotional attachment that our customer has to the brand, really, tying that with a bow with scent memory, we are finding is incredibly impactful. And so the PINK square bottles, which sold out online in the first day, are a good example of that, and we have more of that to come in the pipeline. That's something that we're really thinking about across the entire enterprise. The third is brand integration, making sure that scent is part of the big brand moments, Mother's Day being an example, Valentine's Day being example. And then finally, what is our channel experience for beauty? We've been working on new in-store displays, integrating into the main floor, new creative, etc.

So you'll start to see an elevation in the beauty area in stores, as well as some work in the service piece of the business. And finally, our digital channel. When I say digital channels, I mean all of the touch points of digital. And that includes the use of influencers, which we also have had incredible success in the bra arena with, as well as TikTok shops and TikTok Lives. So it's really a full court press in beauty, and that's just starting to come to life. And we're just feeling really, really, really strong about the business overall.

Matthew Boss

Great color. And then as a follow-up, Scott, could you speak to North America and international top-line performance relative to internal plan in the second quarter? Have you seen acceleration in both regions, as you cited in August, and just what you've embedded for the back half across the 2 regions or are there any growth drivers that you see moderating relative to the front half of the year?

Scott Sekella

I mean, Hillary touched on how North America has performed to start the back half, which gives us confidence there. From international, you know, in Q2, we saw a little bit of a mix shift where we had less of the sell-in to our franchise partners. Those are real low-margin sales, which is why we had one of the reasons we had such good flow through in the second quarter. But as we go forward in international, it was really the back half of Q2 when their growth accelerated even beyond what we had been seeing. So we're lapping that in the back half. So I do expect, you know, the growth in international to moderate a bit. And for the year, I think it will be approximately 20% growth.

Matthew Boss

Great color, best of luck.

Operator

Thank you. Excuse me. Our next question comes from Corey Tarlowe with Jefferies. Your line is open.

Corey Tarlowe

Great, thanks and good morning. I guess first for Hillary and Scott. 1 of the things that is very impressive to me is that if we look back over the last several years, the company has not made money in the third quarter. And based on the outlook that you provided today, there actually is scope for positive operating profit and earnings. And I think that that speaks to potentially the positive underlying momentum of the business. So I was wondering if you could maybe highlight for us, what it is that you see helping to drive that and support a more profitable business going forward, despite the investments being made in the third quarter.

Scott Sekella

Hey, Corey, it's Scott. Great question. 1 we're proud of that we've been able to turn positive in Q3 because we know that's a heavy investment quarter. What's driving that is the continued strength of strong sell-through of our regular price core products. We saw that in Q2, which helped contribute to the strong flow through. We're seeing that continue to come to fruition in Q3. So a few numbers on that. In Q2, our total units were up low single digits, but our regular price units were up high single digits.

So I'll take that mix any time. And as we go forward into Q3, we really see units on 14 Q3 accelerating and going to be up in the mid to high single digit. And so that strong flow through is what's enabling us to turn profitable in Q3, despite investing even more into marketing to support Fashion Show, Angels Among Us, and just driving that new customer growth. So it speaks to the health of the P&L.

Corey Tarlowe

Great. And then just to follow up, Hillary, you shared that the customer file continues to grow across all customer segments, particularly a focus on new customers. Could you provide a little bit more color around how these new customers are performing post acquisition? Are they 1 and done? Or can you share any insights into their long-term value?

Hillary Super

Thanks, Corey. I'll have Elizabeth speak to that.

Unknown Speaker

Sure. Yeah, we're very encouraged that these customers are not 1 and done. Through our network, we're able to actually bring more of them back. We're doing that with a very strategic approach. We are benefited with literally tens of millions of customers and over 100 million followers and fans across all the social platforms. So that allows us a very, very rich data set to tap into and to market and to remarket against. So all that basically allows us to be very efficient with our funds, be very efficient with our targeting, and is bringing more customers back to us, not only in the paid channels, but also in our organic channels.

A fun fact is our app growth was up 30% last quarter, and that was on top of double-digit growth from last year.

Corey Tarlowe

Great. Thanks so much and best of luck.

Operator

Thank you. Our next question comes from Alexandra Straton with Morgan Stanley. Your line is open.

Alexandra Straton

Great, thanks so much for taking our questions. My first one is for Scott. Can you just speak to why back half margin expansion flows a bit from what you were seeing in the front half? Maybe just the puts and takes around gross margin and SG&A and what gets worse in the back half would be helpful.

Scott Sekella

to have just 1 follow-up. Yes, so I'll talk Q3 and a little bit on Q4. So Q3, you know, the growth of 7% to 9% on the forecast is just a little bit, obviously, below what we've had in Q1 and Q2 as we have the tougher comps. So our leverage on B&O is just less than it was in that first half. The other thing to consider is in Q4, well let me jump back, Q1 to Q3 we continue to drive promo favorability down close to 100 basis points each quarter. In Q4, given the heavy promotional nature of that quarter, we don't plan promos to be down. We are planning them flat to slightly down, so that's a decision. Turn on that margin expansion in the back half.

Alexandra Straton

Perfect. And then maybe for Hillary, I just wanted to dig into stores a bit more. I think you all said digital traffic outpaced the store. So what is your view on the role of stores for the brand generally? Do you think the current fleet size is the right one? Do and any learnings on Store of the Future, if you plan to continue rolling those out, any changes there would be helpful. Thanks so much.

Hillary Super

Sure. Digital did outpace, but I would like to add that our stores outpaced them all. So I think that they are a very, very important competitive tool for us. They differentiate us. I think with bras being at the heart of our business, our service, which I think is industry leading, is critical. I think what we do in terms of bra fitting in a personal space is unmatched. And so I believe very much in stores. We definitely see Gen Z wanting a store experience even more than other groups of customers. And so we are investing in stores.

Store of the Future continues to be more productive. We are tweaking it as we learn about the business. I would say primarily in the beauty arena. Making sure that we have appropriately sized selling square footage by business, making sure that we have a PINK side of the business that is what I will call pinkified, and so we're really looking at the Soho store and determining what we will take to all stores or some stores based on the success of that pilot. And in terms of the future of the fleet, you know, we haven't really grown meaningfully in store count in some time, and we do think there's opportunity to selectively grow our footprint actually globally, but also in North America. So very much believe in stores, very much believe that they're at the heartbeat of our business, and proud of what they've delivered. Okay.

Operator

Thanks, Omar. Thank you. Our next question comes from Mauricio Serna with UBS. Your line is open.

Unknown Speaker

Great. Good morning. Thanks for taking my questions. I guess just 1 follow-up on the comment about the semi-annual sale, how should we think about the strategy for that event going forward? Should we see that less of a revenue driver but more stronger profitability just given how you continue to pivot towards more regular price selling? And then in terms of the marketing investment, that you talked about, you know, exactly could you just elaborate on the main buckets of marketing investments and how should we think about that maybe manifesting in sales upside, you know, I don't know if it's a second half or you expect to see that investment, you know, come into fruition or is it more like thinking about fiscal 2027? Thank you.

Scott Sekella

Hey, Mauricio, Scott, I'll take the semi-annual sale and start there. You know, we do see semi-annual still playing a key role in the period. It is, you know, allows us to clear units, but to your point, it, It's less of an event as we go, and we do think there's an opportunity to add newness in the back part of that event and not have the event be the hero. We are seeing higher AURs in the semi-annual sale as we pull back on promotions and levels, and so it will continue to increase. Be less than a quarter for us. In terms of marketing investment, I'll start and turn it over to Hillary and Elizabeth, but we believe strongly in the marketing investment we're making. It's across the board, both in Fashion Show, but also in driving customer growth and the brand projection. We see it impacting not only second half, but carrying forward into next year. And so we're looking at this as a key investment that we'll continue to make.

And it's not just Q3, but it's also in Q4. And then we'll carry forward as Elizabeth talked about previously. Thank you.

Unknown Speaker

I mean, yeah, we are confident that we're investing in the right ways to reach a new audience. We have a lot more runway ahead of us. We know that at our peak we had many more customers than we do now. But here are the things that are giving us confidence that we will continue to invest and that will prove fruitful for us. 1, our evolving marketing is already working for us. Customers up, brand health metrics are up, and traffic is up both in stores and online. Secondly, we have a very disciplined execution plan in place.

It's all about increasing our awareness to increase traffic, and then based on that traffic, we will then convert that traffic much more efficiently based on our ecosystem and very wide network on both the digital platforms as well as our own active base. And then finally, as I said earlier, we're bringing these customers back to our brands once they do shop at a higher rate, and when they do, they're spending more. So we have a very good system in place. We've now had four straight quarters of this being deployed, and we're seeing results, and we still have more to go.

Unknown Speaker

Got it. If I could squeeze in a quick follow-up, just on international, I think like, you know, underlying growth, you know, if you like, if you exclude the shift in the shipments of the European distribution center, decelerated from 36% the previous quarter to 10% this quarter, you know, I know like, you know, anything in particular that, you know, you could call out that caused that. I know you mentioned some shift in the shipments to your wholesale partners, but just more details will be very helpful and then just on top of that, what are you seeing in China? We have heard actually some concerns about that market, generally speaking. Just as a reminder, how big is that market for you at this point? Thank you.

Scott Sekella

Yeah, on international, you said it, the biggest change in that deceleration was the sales into our franchise partners, which is a very low margin sale. And so that was due to order and shipment timing. No world concerns there. In terms of China, China started seeing its accelerated growth with their 618 event last year. So we've lapped that in the back part of the quarter. And China is still our #1 growth area within international. And so really encouraged. It continues to be led by digital, which is heavy in the social selling, but our retail comps have accelerated as well. So we're really pleased with the store performance in China as we're going into the back half and they're lapping that accelerated growth.

So still feel really strong about that market.

Unknown Speaker

And how much was the shift in the sale from the international wholesale partners?

Scott Sekella

I mean, that's not a number we quantify, but that was the biggest drag on that deceleration.

Unknown Speaker

Great. Thank you so much.

Operator

Thank you. Our next question comes from Simeon Siegel with Guggenheim Securities. Your line is open.

Simeon Siegel

Thanks, Nick in there. Hey everyone, good morning. Hope you had a great summer. Hillary, I don't know if this 1's for you or Elizabeth, but within the customer acquisition conversation, 1, I guess, do you have a view on where the customers are coming from? And then, higher level, can you share with us how you're thinking about the customer acquisition for Victoria's Secret from PINK customers now? You've just done such a nice job at recreating specific and distinct brand identities for them, but curious how you think about the right level of bringing VS acquisition from PINK customers.

Hillary Super

Yes, I'll stop there. Thanks. All right, Simeon. I'll let Elizabeth start, and I'll fill in with anything I think is relevant.

Unknown Speaker

Okay. First and foremost, you're absolutely right in terms of distinct brands. We look at VS and PINK and also the beauty category within that very distinctly. I will share that we've actually seen growth across all three brands, both total customer count as well as new customer count this past quarter. We're very happy about that. In general, our total file is also are growing, so we know that people are coming in not only to 1 brand. Yes, there is some cross-shop, but we're also seeing people coming in specifically for just a single brand, growing our total file. Secondly, I would say, where are we bringing them from? I would say it's very much a function of how we're reaching them. We're bringing many more through the digital channels.

Paid Social was our best performing channel this past quarter in terms of bringing in more customers. We see that continuing. And it's really about leveraging that network, leveraging our existing footprint or network to its maximum ability.

Hillary Super

And then I would just add that if you look at market share data, it's really mass that is losing share in the space category, and I think it is really that brand promise and that emotional connection that is convincing customers to shop with us and engage with our brands because she believes so much in what we stand for.

Simeon Siegel

Thanks. And actually, if I can, Scott, just a quick follow-up. Great to see the growth in both AUR and units this quarter. How do you think about price and units embedded within the third quarter and full year guide? Thanks, guys.

Scott Sekella

Yes, so for Q3, we're thinking AUR is probably going to be up low single digits, so a deceleration there, but the units will be up in that mid to high single digit in the future. So feeling good about the mix there.

Simeon Siegel

Thank you.

Operator

Thank you. Our next question comes from Jungwon Kim with TD Cowen. Your line is open.

Jungwon Kim

Thank you for taking my question. I would be curious to know just overall, your thoughts what you're seeing on the intimates side and you sort of how you're thinking of market share gains going forward. And then just 1 follow-up is your apparel strategy, how you're thinking about the mix at this point, just given the strength on the intimate side. Do you plan to have that increase over time or sort of keep it balanced just given how the intimate side has been. Thank you so much.

Hillary Super

I think you asked me about trends in intimates and then the balance of intimates and apparel. It was a little fuzzy.

Um, okay, so our bra business is broad-based success. Really nothing not performing. So everything from push-up to wireless, everything from balconette to Demi, it really, it really goes the whole distance and we have what I'm really particularly encouraged about is that our core continues to grow even as we introduce more fashion and so I And also we are seeing PINK and Victoria's Secret both grow at the same time, which has not always been the case. So broad-based success across intimates. I think that comes partially from trend, partially from us reasserting our authority in the category, providing incredible fitting service, and connecting with her on an emotional level. To answer your question about apparel, you know, on the PINK side of the business, where it's most important, we really see bra, the mix between bras and apparel, intimates and apparel being about 50-50 over time. So, still seeing great growth in apparel. The icons in PINK in particular are incredible. I'm sure you just saw our PINK Pantherus Super Flare yesterday, which you can see we think is really exciting and lots more to come in both intimates and apparel.

Operator

Thank you so much. Thank you. We have time for 1 more question. Our last question comes from Ike Boruchow with Wells Fargo. Your line is open.

Irwin Boruchow

Hey, thanks so much. Scott, could we just, sorry if you said this already, just the gross margin drivers in Q3 and Q4. The tariff, the core merch margin, the occupancy, and any details specifically in Q3. And then could you comment on what that gross margin is supposed to look like for the full year as well? And last follow up to that is, Hillary, I know you've spoken about the medium term gross margin opportunity. I think you've mentioned low 40s very much on the table. Can you kind of just comment on where you think the puck's kind of going for you guys on that line item? Thanks.

Scott Sekella

Yes, so gross margin on Q3, we're calling it up about 150 basis points. Gross tariff in the quarter is going to be flat when you think about the tariff rates now at 10% and 12.5% respectively. Factor in some of the mitigation efforts, there's going to be about a 60 basis points sort of benefit. Promos will be favorable a little bit less than prior quarters because that Black Friday shifted in to Q3. So that just causes the promo favorability to be probably in the 70 basis points range or so. And then we'll leverage on B&O and then have a headwind on transportation costs probably around 30 basis points or so for the full year. You factor in the strong performance, Q1, Q2, that 150. The gross margin expansion in Q4, it will still expand. It will be less than the prior quarters, as I mentioned earlier, when you think about promos being less of a tailwind just as a heavy promotional quarter.

Irwin Boruchow

Thank you. Does that conclude your question? Yes, can you repeat the second part of your question?

Scott Sekella

Yes, I think, you know, we see this gross margin, you know, all the uncertainty around tariffs aside, starting with a 4. And so we're definitely on that trajectory and feel really good, especially as we drive more regular price, higher margin, you know, core product sales.

Irwin Boruchow

Thanks a lot.

Operator

Thank you. I will now turn the call back to Hillary Super for closing remarks.

Hillary Super

Thank you, everyone, for attending our Q2 call, and we look forward to seeing you after the Fashion Show to report Q3.

Operator

Thank you all for participating in the Victoria's Secret & Company's second quarter 2026 earnings conference call. That concludes today's conference. Thank you for participating. You may now disconnect.

This live transcript is auto-generated without human intervention or review.