XML 26 R10.htm IDEA: XBRL DOCUMENT v3.24.1
Adore Me Acquisition
 12 Months Ended
Feb. 03, 2024
Business Combination and Asset Acquisition [Abstract]  
Adore Me Acquisition Acquisition
On December 30, 2022, the Company completed its acquisition of 100% of the equity interests of Adore Me. Adore Me is a direct-to-consumer lingerie and apparel brand with technology driven commerce service and a series of innovation-driven products. The acquisition creates the opportunity for the Company to leverage Adore Me's expertise and technology to continue to improve the Victoria's Secret and PINK customer shopping experience and accelerate the modernization of the Company's digital platform.
Under the terms of the definitive agreement setting forth the terms and conditions of the acquisition (the “Merger Agreement”), the Company made an upfront cash payment of $391 million at closing and will pay further cash consideration in an aggregate amount of at least $80 million, consisting of a fixed payment to be made on or prior to January 15, 2025, and up to $300 million based on the performance of Adore Me and achievement of specified strategic objectives and certain EBITDA and net revenue goals within the two-year period following closing of the transaction. Under the terms of the Merger Agreement, up to $60 million of the further cash consideration is subject to the continued employment of a certain Adore Me employee (“Contingent Compensation Payments”). The Contingent Compensation Payments are not included as consideration when applying the acquisition method of accounting and are recognized as compensation expense within General, Administrative and Store Operating Expenses in the Consolidated Statements of Income if and when earned in future periods.
The total consideration when applying the acquisition method of accounting was initially $537 million, net of $22 million of cash acquired. The gross consideration as of the acquisition date of $559 million consisted of $391 million in cash paid at closing, $98 million which represented the fair value of the contingent cash consideration as of the acquisition date and $70 million which represented the fair value of the future fixed payment as of the acquisition date. During the second quarter of 2023, the Company received $1 million in cash for the final working capital settlement, which decreased the total consideration of the acquisition to $536 million.
The Company incurred approximately $15 million of acquisition-related costs related to the Adore Me transaction. Those costs, primarily related to professional advisory services and other transaction-related costs, are included within General, Administrative and Store Operating Expenses in the 2022 Consolidated Statement of Income.
The Company accounted for the acquisition of Adore Me using the acquisition method of accounting. Assets acquired and liabilities assumed have been recorded based on their fair values. During 2023, the Company recorded certain measurement period adjustments based on additional information, primarily related to assumed other long-term liabilities, assumed deferred income tax liabilities, assumed accrued expenses and other liabilities, acquired accounts receivable and acquired other current assets, resulting in a $4 million increase to Other Long-term Liabilities, a $3 million decrease to Deferred Income Tax Liabilities, a $2 million increase to Goodwill, a $2 million increase to Accrued Expenses and Other, a $1 million increase to Other Current Assets and a $1 million decrease to Accounts Receivable. The Company has finalized the valuation estimates used to determine the final purchase price allocation which includes amounts allocated to intangible assets.
The following is the final purchase price allocation of assets acquired and liabilities assumed related to the Adore Me acquisition:
Initial AllocationMeasurement Period AdjustmentsFinal Allocation
(in millions)
Accounts Receivable
$1 $(1)$— 
Inventories105 — 105 
Other Current Assets7 1 8 
Property and Equipment, Net12 — 12 
Operating Lease Assets5 — 5 
Goodwill365 2 367 
Trade Name43 — 43 
Other Intangible Assets137 — 137 
Other Assets1 — 1 
Accounts Payable17 — 17 
Accrued Expenses and Other88 2 90 
Current Operating Lease Liabilities2 — 2 
Deferred Income Tax Liabilities21 (3)18 
Long-term Operating Lease Liabilities3 — 3 
Other Long-term Liabilities8 4 12 
Net Assets Acquired and Liabilities Assumed$537 $(1)$536 
The following table represents the definite-lived intangible assets acquired, the fair values and respective useful lives:
Useful LifeFair Value
(in millions)
Customer Relationships
7 years$81 
Developed Technology
6 years56 
Trade Name10 years43 
Total Definite-Lived Intangible Assets$180 
The Company used the multi-period excess earnings method to value the customer relationships intangible assets and the relief from royalty method to value the developed technology and trade name intangible assets. The significant assumptions used to estimate the fair value of customer relationships included forecasted revenues, customer attrition rates and a discount rate. The significant assumptions used to estimate the fair value of developed technology and the trade name included forecasted revenues, royalty rates and a discount rate. These significant assumptions are forward-looking and could be affected by future economic and market conditions. The estimated weighted-average useful life as of the acquisition date was 7.4 years for definite-lived intangible assets.
Goodwill was calculated as the difference between the acquisition date fair value of the consideration transferred and the fair value of net assets recognized for Adore Me, and represents the future economic benefits, including synergies, and assembled workforce, that are expected to be achieved as a result of the consummation of the acquisition of Adore Me. The goodwill arising from the acquisition is not expected to be deductible for tax purposes. For additional information about goodwill and other intangible assets, see Note 10, “Intangible Assets.”
The Company consolidates Adore Me's financial information on an approximate one-month reporting lag. Accordingly, given the acquisition closing date of December 30, 2022, the operating results of Adore Me for the period subsequent to the acquisition date are recorded in the Company's consolidated financial statements beginning in 2023.
In 2023, the Company recognized the financial impact of purchase accounting items and additional acquisition-related costs, including recognition in gross profit of the fair value adjustment to acquired inventories as it is sold, recognition of changes in the estimated fair value of contingent consideration and Contingent Compensation Payments, as well as amortization of acquired intangible assets. In 2023, the Company recognized total related costs of $75 million, including $41 million in General, Administrative and Store Operating Expenses, $29 million in Costs of Goods Sold, Buying and Occupancy and $5 million in Interest Expense. See Note 12, “Fair Value of Financial Instruments” for further information on the contingent consideration. The deferred consideration liability for the future fixed payment is included within Accrued Expenses and Other in the February 3, 2024 Consolidated Balance Sheet and Other Long-term Liabilities in the January 28, 2023 Consolidated Balance Sheet and was $76 million as of February 3, 2024 and $71 million as of January 28, 2023.
Pro Forma Financial Information
In accordance with ASC 805, Business Combinations, the following unaudited pro forma results of operations for 2022 and 2021, respectively, assumes the Adore Me acquisition was completed on the first day of fiscal year 2021, or January 31, 2021. The following pro forma results include adjustments to reflect acquisition-related costs, amortization of intangibles associated with the acquisition and the effects of adjustments made to the carrying value of inventories.
20222021
(in millions)
Net Sales
$6,595 $6,996 
Net Income Attributable to Victoria's Secret & Co.330 544 
The unaudited pro forma financial information may not be indicative of the results that would have been obtained had the acquisition occurred at the beginning of the periods presented, nor is it intended to be a projection of future results. Additionally, the pro forma financial information does not reflect the costs which the Company has incurred or may incur to integrate the acquired business.