Adore Me Acquisition

12 Months Ended

Feb. 01, 2025

Business Combination, Asset Acquisition, and Joint Venture Formation [Abstract]

Adore Me Acquisition

Acquisition

Background

On December 30, 2022, the Company completed its acquisition of 100% of the equity interests of Adore Me. 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. Additionally, under the terms of the Merger Agreement, the Company agreed to pay further cash consideration in an aggregate amount of at least $80 million and up to $300 million, which included a minimum fixed payment along with consideration for potential additional payments based on the achievement of specified strategic objectives and EBITDA and net revenue goals within the two-year period following closing of the transaction.

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.

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. As of February 3, 2024, the Company finalized the valuation estimates used to determine the final purchase price allocation which includes amounts allocated to intangible assets. For additional information about goodwill and other intangible assets, see Note 9, “Intangible Assets.”

Post-Acquisition

During 2024, the Company made payments totaling $200 million, which included a fixed payment of $100 million and payments totaling $100 million relating to the achievement of specified strategic objectives under the terms of the Merger Agreement. These payments made during 2024 were comprised of $161 million classified as financing cash outflows and $39 million classified as operating cash outflows in the Consolidated Statement of Cash Flows. The amount classified as operating cash outflows was subject to the continued employment of a certain Adore Me employee (“Contingent Compensation Payments”) and was recognized as compensation expense within General, Administrative and Store Operating Expenses in the Consolidated Statements of Income as it was earned.

As of February 1, 2025, management believes no further payment is required based on its calculation of Adore Me’s EBITDA and net revenue results compared to specified targets applicable to the two-year period following the close of the transaction as set forth in the Merger Agreement. Determination of payment required according to the terms of the Merger Agreement related to the calculation of EBITDA and net revenue goals applicable to the two-year period following the closing of the transaction remains subject to finalization. The range of outcomes is zero to $100 million. Management submitted, under the terms of the Merger Agreement, its calculation of the contingent payment owed of zero dollars on March 3, 2025.

In both 2024 and 2023, the Company recognized the financial impact of purchase accounting items, including recognition of changes in the estimated fair value of contingent consideration and Contingent Compensation Payments and amortization of acquired intangible assets. In addition, in 2023, the Company recognized the financial impact of additional acquisition-related costs and recognition in gross profit of the fair value adjustment to acquired inventories that were sold in 2023. The following table provides a summary by line item in the Consolidated Statements of Income of the financial impact of purchase accounting items and additional acquisition-related costs for 2024 and 2023:

	2024		2023
Income Statement Line Item	(in millions)
Costs of Goods Sold, Buying and Occupancy	$	—	$	29
General, Administrative and Store Operating Expenses	29		41
Interest Expense	5		5

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.

Pro Forma Financial Information

In accordance with ASC 805, Business Combinations, the following unaudited pro forma results of operations for 2022 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.

	2022
	(in millions)
Net Sales	$	6,595
Net Income Attributable to Victoria's Secret & Co.	330

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 period 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.