Victorias Secret Co
For the period ended Feb 3, 2024. Filed Mar 22, 2024.
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FY2024 · Filed Mar 22, 2024
Contents
Report of Independent Registered Public Accounting Firm on Consolidated and Combined Financial Statements
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Victoria's Secret & Co.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Victoria's Secret & Co. (the Company) as of February 3, 2024 and January 28, 2023, the related consolidated and combined statements of income, comprehensive income, equity and cash flows for each of the three years in the period ended February 3, 2024, and the related notes (collectively referred to as the “consolidated and combined financial statements”). In our opinion, the consolidated and combined financial statements present fairly, in all material respects, the financial position of the Company at February 3, 2024 and January 28, 2023, and the results of its operations and its cash flows for each of the three years in the period ended February 3, 2024, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of February 3, 2024, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 22, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated and combined financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.
| Reserve for Store Inventory Losses | |
| Description of the Matter | As described in Note 7 to the consolidated and combined financial statements, the Company had inventories of $985 million as of February 3, 2024, which included finished goods of $929 million. Inventories were principally valued at the lower of cost or net realizable value, on an average cost basis. The most significant and judgmental portion of the inventory reserves related to the reserve for store inventory losses. Management applied judgment to determine its reserve for store inventory losses that have occurred since the date of the last physical inventory. The Company calculated the reserve for store inventory losses based on actual inventory losses identified as a result of store physical inventory counts during each fiscal period and estimated inventory losses occurring between physical inventory counts. The estimate for store inventory losses occurring in the interim period between the most recent physical inventory count and year-end was calculated on a store-specific basis and was primarily based on recent inventory loss results. Management considered historical store inventory losses taken and current consumer behavior to estimate the reserve for store inventory losses. |
|---|---|
| Auditing management’s estimate of the reserve for inventory losses on finished goods required us to make subjective auditor judgments because the estimate was impacted by management's assumptions about the appropriateness of historical data used and its applicability to current period consumer behavior. |
| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s process to determine the valuation of the Company’s store inventory loss reserve. This included controls over the Company’s review of the significant assumptions underlying the reserve estimate. |
|---|---|
| To test the Company's reserve for store inventory losses, our audit procedures included, among others, testing the accuracy and completeness of the underlying data used in the estimation calculation and evaluating significant assumptions (e.g., historical data used and its applicability to current period consumer behavior) used in management's store inventory loss valuation assessment. We also obtained an understanding of inventory loss activity trends at a store level, and performed a sensitivity analysis to evaluate changes in the estimate that would result from changes in management's significant assumptions. | |
/s/Ernst & Young LLP
We have served as the Company’s auditor since 2021.
Grandview Heights, Ohio
March 22, 2024
CONSOLIDATED AND COMBINED STATEMENTS OF INCOME
(in millions except per share amounts)
| 2023 | 2022 | 2021 | |
|---|---|---|---|
| Net Sales | $6,182 | $6,344 | $6,785 |
| Costs of Goods Sold, Buying and Occupancy | (3,940) | (4,086) | (4,025) |
| Gross Profit | 2,242 | 2,258 | 2,760 |
| General, Administrative and Store Operating Expenses | (1,996) | (1,780) | (1,890) |
| Operating Income | 246 | 478 | 870 |
| Interest Expense | (99) | (60) | (27) |
| Other Loss | — | (1) | — |
| Income Before Income Taxes | 147 | 417 | 843 |
| Provision for Income Taxes | 31 | 79 | 197 |
| Net Income | 116 | 338 | 646 |
| Less: Net Income (Loss) Attributable to Noncontrolling Interest | 7 | (10) | — |
| Net Income Attributable to Victoria's Secret & Co. | $109 | $348 | $646 |
| Net Income Per Basic Share Attributable to Victoria's Secret & Co. | $1.41 | $4.24 | $7.34 |
| Net Income Per Diluted Share Attributable to Victoria's Secret & Co. | $1.39 | $4.14 | $7.18 |
CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME
| 2023 | 2022 | 2021 | |
|---|---|---|---|
| Net Income | $116 | $338 | $646 |
| Other Comprehensive Income (Loss), Net of Tax: | |||
| Foreign Currency Translation | (3) | (7) | 1 |
| Amounts Reclassified from Accumulated Other Comprehensive Income to Paid-in Capital | — | 3 | — |
| Total Other Comprehensive Income (Loss), Net of Tax | $(3) | $(4) | $1 |
| Total Comprehensive Income | 113 | 334 | 647 |
| Less: Net Income (Loss) Attributable to Noncontrolling Interest | 7 | (10) | — |
| Less: Foreign Currency Translation Attributable to Noncontrolling Interest | (2) | — | — |
| Comprehensive Income Attributable to Victoria's Secret & Co. | $108 | $344 | $647 |
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