Bath & Body Works Q2 2026 Earnings Report

Bath & Body Works EPS Results

• Actual EPS: $0.37
• Consensus EPS: $0.37
• Beat/Miss: Met Expectations
• One Year Ago EPS: $0.37

Bath & Body Works Revenue Results

• Actual Revenue: $1.55 billion
• Expected Revenue: $1.55 billion
• Beat/Miss: Missed by -$3.10 million
• YoY Revenue Growth: -0.80%

Bath & Body Works Announcement Details

• Quarter: Q2 2026
• Date: 8/28/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, August 28, 2025
• Conference Call Time: 8:30AM ET

Bath & Body Works (NYSE:BBWI) is a specialty retailers and home to America’s Favorite Fragrances, offering a breadth of exclusive fragrances for the body and home, including the selling collections for fine fragrance mist, body lotion and body cream, 3-wick candles, home fragrance diffusers and liquid hand soap. The company was founded by Leslie Herbert Wexner in 1963 and is headquartered in Columbus, OH.

Bath & Body Works Q2 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Raised full-year EPS guidance after delivering revenue and adjusted earnings at the high end of the second quarter range, reflecting confidence in outlook.
• Positive Sentiment: Announced three “no regret” growth initiatives—elevating the digital platform, amplifying product efficacy messaging, and expanding into new channels like college bookstores.
• Negative Sentiment: Direct digital sales declined 10%, with Buy Online Pickup in Store masking a 3% underlying drop, prompting a roadmap to overhaul online functionality and experience.
• Negative Sentiment: Tariff headwinds of about $85 million are expected to reduce gross profit this year, with a disproportionate impact in the third quarter.
• Neutral Sentiment: SG&A expenses delevered by 110 basis points due to store investments and higher healthcare costs, with full-year SG&A forecast at approximately 27.7% of sales.

Presentation

[Operator]

Good morning. My name is Melissa, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Bath and Body Works Second Quarter twenty twenty five Earnings Conference Call. Please be advised that today's conference is being recorded. I will now turn the call over to Luke Long, Vice President of Investor Relations. Luke, you may begin.

[Luke Long, VP - IR at Bath & Body Works, Inc]

Good morning and welcome to Bath and Body Works' second quarter twenty twenty five earnings conference call. Joining me on the call today are Daniel Heath, Chief Executive Officer and Eva Boratto, Chief Financial Officer. In addition to this call and this morning's press release, we have posted a slide presentation on our website that summarizes the information in these prepared remarks in addition to providing some related facts and figures regarding our operating performance and guidance. As a reminder, some of the comments today may include forward looking statements related to future events and expectations. For factors that could cause the actual results to differ materially from these forward looking statements, please refer to the risk factors in Bath and Body Works' 2024 Form 10 ks.

[Luke Long, VP - IR at Bath & Body Works, Inc]

Today's call also contains certain non GAAP financial measures. Please refer to this morning's press release and supplemental materials for important disclosures regarding such measures, including reconciliations to the most comparable GAAP financial measure. With that, I'll turn the call over to Daniel.

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

Hello, everyone, and thank you for joining us. I'm excited to be here on my one hundred and fifth day as CEO of Bath and Body Works. Q2 was a packed quarter where I focused on three things. Firstly, deeply immersing myself in the business. Secondly, driving forward three, no regret moves.

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

And finally, shaping our long term vision. At the same time, our team navigated the quarter with focus and we delivered solid results. We ended the quarter with revenue and adjusted earnings at the high end of our guidance range. And given our strong first half results and confidence in our outlook, we are raising the low end of our full year adjusted earnings per share guidance. This quarter, our customers remain cautious and value seeking and we continue to see more intentional purchasing behavior.

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

Consumers are prioritizing purchases that support personal well-being and convenience while spending selectively. Regardless of the macro environment, we are well positioned to serve consumers with affordable high quality products that bring joy to their lives and I believe there is even more opportunity ahead. Over the past one hundred and five days, I focused on understanding where our biggest opportunities lie to accelerate growth. I've had the privilege of connecting with associates at Beauty Park, our distribution centers and our stores across The United States. I've spoken with many of our shareholders.

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

I've traveled internationally where I've engaged with our partners in key markets such as Dubai, Malaysia and The UK. And of course, I've spoken with our customers. It was important for me to collect direct insights from our most critical stakeholders and I will continue doing this going forward. What stands out most from my time on the ground is the tremendous upside potential across the entire value chain. From product innovation and merchandising to alternative distribution and storytelling across both our physical stores and digital platforms.

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

When I joined, I spoke to many of you about my philosophy. We will accelerate growth by putting the consumer at the center of everything we do. That commitment remains unchanged, but we must continue to evolve with our consumers positioning ourselves as a global leader in home fragrance and personal care. To be clear, Bath and Body Works has a very strong foundation, an iconic brand, over 1,900 North American stores, more than five thirty international stores, 39,000,000 active loyalty members, knowledgeable and passionate store associates and a predominantly U. S.

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

Based vertically integrated supply chain. In recent years, we've invested heavily to strengthen this foundation from building a loyalty program and enhancing our technology to expanding into new categories. These moves have made us stronger, but we have not yet delivered the consistent, durable and profitable growth we expect of ourselves. The reality is clear to me. We have grown spend and increased retention with existing customers.

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

We have not achieved the new customer growth we aspire to and we are not connecting deeply enough with the younger consumers who are driving growth in our industry. There is also an opportunity to drive market share growth in our core categories and reduce our reliance on promotions. We are confident in the steps we must take to unlock growth potential. To meet the opportunity, we are taking swift action in the short term while actively shaping our long term strategy. This is about performing and transforming simultaneously.

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

It's about making strategic moves that resonate both with current and future customers. I'm confident we can achieve this, while not only maintaining, but expanding our operating margins. Looking at Q2, we made progress with improvements to our semi annual sale and we launched successful collections like Summerween, where we highlighted Halloween themed products during the late summer period. And as we build a durable, consistent, long term growth model, we were pleased to announce that we have entered into a multi year partnership with Disney. This builds on the successful momentum of Disney Princesses and our recently announced Disney Billings collaboration, which Eva will share more about.

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

From a process perspective, I'm pushing our marketing, digital and merchandising team to work in a more integrated and omnichannel way to deepen brand connection by telling powerful and emotional stories, delivering innovative products and engaging consumers across all touch points. And this is just the beginning. Early in my tenure, I laid out three no regret moves to act on now, while we shape our vision and strategy for the future. Firstly, elevating our own digital platform. The consumer experience and revenue growth of our digital business are not where they need to be and we're making rapid progress to address these now.

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

Our focus is on elevating our digital platform to meet the expectation of today's consumers, delivering more experiential, frictionless and convenient way to shop. Improving our digital platform is expected to drive stronger results both online and in stores. Starting this September, you will see meaningful improvements across our digital platforms, including enhanced functionality, better product imagery and copy and richer and more emotional storytelling. You can see examples of these improvements on our slide presentation. Over time, we believe these digital improvements will boost brand equity and direct channel sales.

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

Next, we are amplifying our efficacy message by more clearly communicating claims and modernizing packaging to better reflect the key product attributes such as efficacy, safety and emotional benefits. These will help us connect more meaningfully with consumers and reinforce the value of our products. Our formulas are of exceptional quality, but our packaging doesn't emphasize it. We will evolve our packaging to more consistently educate the consumer and build awareness of the numerous benefits of our products, especially to younger and ingredient conscious consumers. For example, starting this fall, we are enhancing in store and online messages of our aromatherapy line to focus on stress relief and sleep.

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

Also, our body lotion and body cream packaging will highlight forty eight hour hydration and over time, we'll be updating our labeling to more prominently signal that our products are dermatologist tested. We're also introducing consistent elevated messaging across all of our stores to reinforce trust in every product we offer. Thirdly, we are focused on putting our products in the path of the consumer, because to attract new consumers we must meet them where they are. That means strategically and thoughtfully exploring new forms of distribution beyond the own channels we currently sell through. Our recent entry into college bookstores is a fantastic example and one we are excited about.

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

As back to school season kicks off, we're in more than 600 campus stores with access to 7,000,000 young consumers. This push into alternative distribution is the first time we have distributed products at this scale outside of our stores and we believe it provides an exciting avenue to reach and engage new younger consumers and is the perfect environment to drive brand discovery. These no regret initiatives will place us in the path of even more consumers and they will accelerate our growth over time. However, the opportunity ahead extends well beyond these three moves with potential upside to how we innovate and execute and how we reach and connect with consumers. For example, we see opportunities in how we manage and merchandise our assortment, how we leverage our store footprint to further enhance brand storytelling, how we maximize the potential of our supply chain and beauty park, and how we drive growth across international markets.

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

Looking at our store experience and our assortment, many consumers tell us that when they walk into our stores, the assortment feels overwhelming. We also tend to leave with discounts and promotions instead of highlighting product benefits. We believe we have an opportunity to focus our assortment and spotlight product attributes alongside price and value as compelling purchase drivers. Our stores also provide us with an opportunity to amplify bigger, bolder marketing messages. For example, we've moved our store base to predominantly off mall locations, and we've gained tens of thousands of feet of window space.

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

Historically underutilized, these windows are now being used to activate and tell rich brand storytelling that draw in new consumers. Turning to our supply chain. Our strategic partner, Beauty Park, and our relationship with leading global fragrance houses provides us with unmatched speed and quality. We are focused on better leveraging these strengths to accelerate our innovation cycle and reinforce our position as a category leader. And finally, we have tremendous untapped opportunity to reach and connect with more consumers internationally.

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

We are thoughtfully evaluating these and other opportunities and integrating them into our long term strategy. Before I hand off to Eva, I want to take a moment to thank our teams for the hard work, dedication and focus on delivering for our customers and our company. Change is already underway at Bath and Body Works. We understand the challenges and our opportunities, which is exactly why we've moved quickly on our no regret move and we are building a strategy to perform and transform in parallel. With razor sharp priorities, disciplined execution, and a strong team, we are determined to return Bath and Body Works to durable revenue and profitable growth.

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

We look forward to sharing more on our long term vision in the coming quarters. And now, I'll hand it over to Eva.

[Eva Boratto, CFO at Bath & Body Works, Inc]

Thank you, Daniel, and good morning, everyone. The energy level here at BBW is high and our teams are hard at work to accelerate growth under Daniel's leadership. I'll begin with a high level summary of the quarter, including key business drivers. I'll then share more detail on our Q2 financial performance and provide an update on our Q3 and fiscal year twenty twenty five guidance. Throughout the quarter, we were disciplined and decisive in our actions, while navigating through continued macro volatility and our Q2 performance is evidence of that.

[Eva Boratto, CFO at Bath & Body Works, Inc]

As a reminder, we are focused on three priority areas. First, accelerating top line growth while maintaining or expanding margins. Second, enhancing operational excellence. And third, consistently deploying our strong cash flow to invest in growth opportunities and return value to shareholders. Overall, we delivered a solid quarter with net sales up 1.5% and adjusted earnings per diluted share of $0.37 both at the high end of our range.

[Eva Boratto, CFO at Bath & Body Works, Inc]

In terms of our top line performance, it was our fourth consecutive quarter of underlying sales growth with positive dual channel traffic and stores traffic exceeding third party benchmarks we track. This performance was led by a strong semiannual sale, thanks to focused execution by our team. We put our learnings from prior semiannual sales into action, strategically shifting the event back by two weeks to better align with the market dynamics and consumer mindset. Our stores were ready with the right mix of product and clearly signaling the sale event, effectively drawing in deal seeking shoppers from the start. We also built excitement across social media.

[Eva Boratto, CFO at Bath & Body Works, Inc]

Billy the Duck, our newly relaunched brand mascot, became a breakout star, driving strong engagement across platforms and generating over two sixty million impressions. Additionally, partnerships with leading fragrance influencers helped boost awareness and traffic both online and in stores. Additionally, there were other key contributors to our performance in the quarter. First, our sanitizer business performed above the shop with consumers responding positively to our newer products like our moisturizing pocket bags and our one ounce sanitizer sprays. We drove growth in our men's business, which we highlighted during Father's Day, and we're pleased with the performance of our True Blue Spa collection relaunch.

[Eva Boratto, CFO at Bath & Body Works, Inc]

Finally, we launched our Summerween product collection earlier to capture consumer demand. Fan favorite fragrances like Ghoul Friend and Vampire Blood performed well, and our new Frankenstein's Bakery concept featuring ice cream float became a standout hit. Looking ahead, we will bring consumers more newness and more collaborations in Q3 and Q4. We're excited about the fragrance experiences we'll drive this fall, including our Disney Villains collaboration, which launched with early access to loyalty members this week. Building on the success of our Princess collaboration, this launch will soon be available to all consumers globally.

[Eva Boratto, CFO at Bath & Body Works, Inc]

We have also introduced a new ceramic candle vessel, elevating our assortment with an enhanced design. At the same time, we're evolving our in store technology and loyalty program, along with the planned enhancements to our digital capabilities will strengthen the consumer experience. This quarter, we successfully completed the deployment of a new point of sale system across our store base with no consumer disruption. This new point of sale is easier for our store associates to navigate and allows them to provide a better customer experience. Our loyalty program is performing well with existing customers and is driving increased spend, trip frequency, cross channel purchases and retention.

[Eva Boratto, CFO at Bath & Body Works, Inc]

In Q2, we had approximately 39,000,000 active loyalty customers, up 5% compared to the prior year. Now I'll turn to the details of our Q2 financial performance and guidance. In Q2, we delivered net sales of $1,500,000,000 up 1.5% to the prior year. These results were at the high end of our guidance range led by strong semiannual sales performance as I previously stated. In U.

[Eva Boratto, CFO at Bath & Body Works, Inc]

S. And Canadian stores, net sales totaled $1,200,000,000 an increase of 5% versus the prior year. Direct net sales were $267,000,000 a decrease of 10% compared to last year. When adjusted for Buy Online Pickup in Store, which is reported as store sales, Direct net sales were down 3%. That said, we're not satisfied with our digital business.

[Eva Boratto, CFO at Bath & Body Works, Inc]

And as Daniel noted, our teams are moving quickly to enhance the digital experience. International net sales were $86,000,000 in the second quarter, a decline of 3% and in line with expectations. The decline in the quarter was driven by the timing of ship sales between Q1 and Q2. Year to date, net sales were up 2% versus prior year, representing the first positive seasonal net sales result we've seen since the start of the Middle East conflict. International system wide retail sales grew 9% in the quarter, in line with our expectations and a continued improvement in performance.

[Eva Boratto, CFO at Bath & Body Works, Inc]

Our second quarter gross profit rate of 41.3% exceeded our expectations and increased 30 basis points compared to prior year, while including $16,000,000 or approximately 100 basis point headwind from tariffs. Gross profit expansion resulted from B and O leverage, largely due to the exit of a third party fulfillment center. Adjusted SG and A as a percentage of net sales was 30.2, representing 110 basis point deleverage compared to the prior year. The increase was driven by selling expense, including investments in new stores and higher health care costs. Now bringing it all together, second quarter adjusted operating income was $172,000,000 down 6% to last year.

[Eva Boratto, CFO at Bath & Body Works, Inc]

With respect to inventory, we ended the second quarter with total inventory up 13% to prior year. This includes the impacts of tariffs on purchases as well as planned strategic pull forward. We exited the season with healthy inventory levels. Turning to real estate. Our portfolio remains healthy with 58% of our fleet in off mall locations.

[Eva Boratto, CFO at Bath & Body Works, Inc]

In the second quarter, we opened 20 new North American stores, all in off mall location and permanently closed 16 stores, primarily in malls. Internationally, our partners opened 14 new stores and closed one store during the quarter, and we ended the quarter with five thirty seven stores. Our international store expansion plans for 2025 remain on track with at least 30 planned net new store openings. Turning now to our 2025 financial guidance. Our full year and third quarter guidance includes the estimated impact of all tariff rates communicated by the U.

[Eva Boratto, CFO at Bath & Body Works, Inc]

S. Government and other countries as of this week, including the recent removal of Canadian retaliatory tariffs effective September 1. For the full year, we expect tariffs, net of mitigation efforts, to negatively impact gross profit by approximately $85,000,000 with $40,000,000 of that impact in Q3. As a reminder, we import approximately 10% of goods from China and 7% from Canada and Mexico. We believe our vertically integrated predominantly U.

[Eva Boratto, CFO at Bath & Body Works, Inc]

S.-based supply chain positions us well to compete in the current environment and to fully absorb the impact of tariffs at current levels in our fiscal twenty twenty five guidance. Looking ahead, we are confident in our ability to further mitigate these costs over time through strategic sourcing, operational efficiencies and other targeted initiatives. For the full year, we are narrowing our net sales guidance from 1% to 3% growth to 1.5% to 2.7% growth and raising the low end of our adjusted earnings per diluted share guidance from $3.25 to $3.6 to $3.35 to $3.6 Our guidance reflects strong first half performance and consistent expectations of 1% to 3% net sales growth for the second half of the year. We continue to expect gross profit rate of approximately 44%, and I am confident in our ability to absorb the $85,000,000 impact of tariffs, most of which was not included in our initial guidance range back in February. We now expect our adjusted SG and A rate to be approximately 27.7%, driven by higher health care costs and strategic investments.

[Eva Boratto, CFO at Bath & Body Works, Inc]

And we are increasing our planned share repurchases to $400,000,000 up from $300,000,000 Turning now to the third quarter. We expect net sales growth of 1% to 3% growth versus the prior year. We expect Q3 system wide international retail sales to be up high single digits with reported net sales up mid single digits. We expect third quarter gross profit rate to be approximately 42.2%, including approximately $40,000,000 of tariff impact. Tariffs are expected to disproportionately impact third quarter results due to inventory receipts that were subject to the 145% China tariff rate between April 9 through May 13.

[Eva Boratto, CFO at Bath & Body Works, Inc]

We expect our third quarter SG and A rate to be approximately 31.5%, also reflecting higher health care and technology costs as well as strategic investments. We are diligently working to mitigate these impacts. Our third quarter outlook includes interest expense and other of approximately $65,000,000 and a tax rate of approximately 25% and weighted average diluted shares outstanding of approximately $2.00 $6,000,000 Considering all of these inputs, we are forecasting third quarter earnings per diluted share of $0.37 to $0.45 You can find additional details on our guidance in our slide presentation. Now for an update on capital allocation. We are a strong cash flow generating business, and our top priority remains driving durable profitable growth through strategic investments in the business.

[Eva Boratto, CFO at Bath & Body Works, Inc]

To support this, we continue to plan capital expenditures of $250,000,000 to $270,000,000 during the year with a focus on real estate and technology. In the second quarter, capital expenditures totaled $56,000,000 bringing the year to date total to $93,000,000 Our full year free cash flow expectation remains in the range of $750,000,000 to $850,000,000 reflecting working capital improvement driven by our Fuel for Growth initiative. In Q2, we returned $42,000,000 to shareholders through dividends and repurchased 4,100,000.0 shares of common stock for $121,000,000 at an average price of $29.14 per share. Year to date, we have returned $85,000,000 to shareholders through dividends, and we have repurchased 8,500,000.0 shares of common stock for $256,000,000 As I mentioned, we are increasing our planned full year share repurchases from $300,000,000 to $400,000,000 Our business generates strong free cash flow and we view our shares as an attractive investment at current levels. In summary, I'm encouraged by our first half performance and energized by the opportunity to accelerate growth.

[Eva Boratto, CFO at Bath & Body Works, Inc]

We believe that our agile business model positions us well to compete effectively in today's dynamic consumer and macro environment. We are executing with discipline, focusing on what we can control and introducing newness and collaborations to consumers in the second half of the year. I'd like to extend my gratitude to our teams across the company for their hard work and strong execution. Now let's open it up for questions.

[Operator]

Thank session. Our first question comes from the line of Matthew Boss with JPMorgan. Please proceed with your question.

[Matt Boss, Equity Research Analyst at JP Morgan]

Great. Thanks. So Daniel, with a full quarter now under your belt, how would you assess opportunities ahead versus your perspective maybe when you first walked into the building? And Eva, could you speak to traffic trends during the quarter and trends that you've seen in August supporting the 1% to 3% sales outlook for the third quarter?

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

Good morning, everyone and good morning, Matt. Yes, I've been at Bath and Body Works now for just over one hundred days and deeply immersed in the business as you heard meeting with consumers, teams, partners, shareholders. And the real headline is beyond my sort of diligence from outside the company, see even more opportunity to accelerate growth than I did three days ago. I mentioned on my first earnings call on day 10 our three no regret moves elevating our digital platforms, amplifying the efficacy of our products and expanding our distribution and we are making good progress against those important initiatives. But beyond those, I do see opportunities right across the value chain to accelerate growth.

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

Let me give you a few examples of the things I've seen. Firstly, in terms of our assortment and merchandising, our stores are beautiful and experiential, exceptionally strong. But many new consumers have told me they find the assortment overwhelming. It's not that we don't have the products for them, we really do. It's just that they find it hard to find.

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

And we also lead with price sometimes over benefits. So we're addressing that. We're editing our assortment to amplify what we truly stand for, for the consumer, telling bigger and bolder stories to drive greater demand through a smaller selection of products at lower discount. That's where we're focused there. Another opportunity has been in Beauty Park.

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

It's incredible the foundation that this company has built with its agile domestically vertically integrated supply chain. It gives us speed, agility and quality. But we can truly use this asset to drive innovation in our core categories and reinforce our position as a category leader. I am focused on making sure that we have the right innovations in the pipeline for our core categories and we are looking forward to bringing those to market in the next fiscal. And then finally on brand, so important.

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

We have this iconic brand and so many consumers have shared with me that deep love for the Bath and Body Works brand. We have this incredible social following as you might seen about 7,400,000 Instagram followers. But we're posting not programming social the way that top brands do, creator led at the speed of culture and commerce integrated. We need to reframe social, Instagram, TikTok as a growth system. I think about the four Cs content, community, creators and commerce.

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

We know this is the modern brand heat and demand generation playbook and we are getting after that in short order. Eva?

[Eva Boratto, CFO at Bath & Body Works, Inc]

Great. Thanks, Daniel, and good morning, Matt. So your first question about how the months played out in the quarter and in particular traffic. As you know, we changed and really improved our retail calendar to drive performance during SaaS. We launched Halloween earlier than prior years and created space for Father's Day.

[Eva Boratto, CFO at Bath & Body Works, Inc]

So as you look at the monthly trends, May was softer, but largely negatively affected by the timing of SaaS. June was very strong from a sales and traffic perspective. And July, I would say, more back to normal when you normalize for the Halloween launch and the prime date. So traffic overall was up in the quarter. It was above external benchmarks, but it was a bit softer than Q1.

[Eva Boratto, CFO at Bath & Body Works, Inc]

Now your question in terms of Q3 and what we're seeing in August. First, what I just want to say is, as always, our performance to date is included in our outlook for the quarter. As you think about our key drivers for the quarter, it's our Disney villains launch, our fall assortment and our single fragrance launch that will come at the end of the quarter. So we're excited about this newness and are confident in the outlook we provided today.

[Operator]

Thank you. Our next question comes from the line of Lorraine Hutchinson with Bank of America. Please proceed with your question.

[Lorraine Hutchinson, Managing Director at Bank of America]

Thank you. Good morning. You've talked about marketing changes to focus less on pricing and promotions and more on emotionally connecting with customers. What are some of the changes you've made in marketing? And how have customers been responding?

[Lorraine Hutchinson, Managing Director at Bank of America]

And then for Eva, can you talk to the tariff impact between 3Q and 4Q?

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

Yes. Thank you very much Lorraine. We focused on elevating our market in what I would call the most practical ways. So you can start to see already the changes that we are driving to our digital experience. Just the product photography for villains and the product copy for villains is a marked improvement on what this brand has already done.

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

And as I've said before, that will drive both in store and online sales as well as raising the overall profile and feeling of the brand. And then secondly in stores, I would say we have a real opportunity to tell bigger bolder stories. I'm really pleased with the way that Summerween came to pass. It shows that when we stick to our growth formula or the growth philosophy, creating innovative and coveted product, telling bold and emotional stories and bringing it to life in the marketplace, we win. And I see many collections in fall and holiday as we move to the back half where the consumer will notice the elevated storytelling in our fleet.

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

Just one practical example, as we've moved our stores off mall, we've ended up with thousands of feet of windows which we have historically not utilized. We have started to roll out really eye catching windows and we have been testing and learning with them and expanding it more into fall and holiday. And I must say, looks wonderful and consumers are responding.

[Eva Boratto, CFO at Bath & Body Works, Inc]

Great. Thanks, Daniel. The only thing I'll add to that is as we work to continue to optimize and improve our modeling, we're going to be making sure we're measuring the returns and getting the most value and driving the most growth out of those investments. Now Lorraine, to your question around Q3 versus Q4 and the impacts of tariffs, We're pleased that for the year, we've raised the low end of our guidance while absorbing this impact of tariffs. And if you think about the second half of the year versus where we were sitting here a quarter ago, we haven't changed things materially.

[Eva Boratto, CFO at Bath & Body Works, Inc]

Right? We're maintaining up 1% to 3% guidance. But as you look at the overall frame of our gross profit in particular, Q3 is disproportionately impacted by tariffs. The $40,000,000 that I quoted in my prepared remarks affects margins by about two forty basis points, and that compares to Q4 at 100 basis points, largely driven by the China tariffs at 145% back between April 9 and May 13. So that disproportionately impacts that as well as some of the mix of our business quarter versus quarter.

[Eva Boratto, CFO at Bath & Body Works, Inc]

So overall, we feel good about where we are in our ability to absorb the tariffs and longer term to mitigate the impacts over time.

[Operator]

Thank you. Our next question comes from the line of Alex Strain with Morgan Stanley. Please proceed with your question.

[Katherine Delahunt, Equity Research Senior Associate at Morgan Stanley]

Hi, thank you. This is Katie Delahunt on for Alex Drayton. Just a question for Daniel. I know the prior management team thoughts with the business that could return to mid single digit high single digit growth over time. Do you agree with that still?

[Katherine Delahunt, Equity Research Senior Associate at Morgan Stanley]

And if so, what are the building blocks as you think about core growth versus some of the newer ideas you have like wholesale or international?

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

Thanks, Casey. Yes, we are absolutely anchored to getting to mid single digit, high single digit. And we look at it both from a growth perspective, but also we're a brand that wants to take share in our core categories. And we know that we are in exciting and our categories are growing. When it comes to the core, we believe that we have all the right product and really it's about making sure that we are bringing it to market in best possible way.

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

I can't emphasize enough how fast we will act on our digital opportunity. We know that this is an opportunity to bring new consumers to the brand, which as I said in my opening remarks is the single largest opportunity that we have to drive durable and profitable growth. We know that consumers are on digital channels researching what it is they want to buy, whether they purchase in store and online. And as we move through September, October and into the next year, we will be unrelenting in making sure that we are delivering consumer right progress on that channel. And then in terms of new priorities, we do see being in the path of the consumer as fundamental to growing new consumers and returning to consistent durable high single digit, mid single digit growth.

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

We're very excited by the announcement of our launch in college bookstores, 7,000,000 young consumers with more convenient access to the brand. And this is the first of many initiatives in this area.

[Alex Straton, MD - Equity Research at Morgan Stanley]

Hey, Danielle. Switching between calls here. It's Alex. I have one follow-up for you. And it's really just a similar question, but on this path potentially 20% EBIT margin over time that the prior management team was pretty keen on.

[Alex Straton, MD - Equity Research at Morgan Stanley]

Similar question, do you agree with that still building blocks on that piece? Thanks so much.

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

Thanks, Alex. When it comes to investing in our strategy, I think that I'm still anchored to the principles that management have outlined. What we're going to do is refocus our capital internally, refocus our capital allocation internally to invest in the largest growth drivers. And we don't expect ourselves to certainly don't expect ourselves to dilute our margins in the coming quarters.

[Operator]

Thank you. Our next question comes from the line of Kate McShane with Goldman Sachs. Please proceed with your question.

[Emily Ghosh, Equity Research Associate at Goldman Sachs]

Hi. This is Emily Ghosh on for Kate. Thank you for taking our question. We were wondering if you could provide more detail around the drivers of SG and A deleverage in the quarter including the investments in new stores and higher healthcare costs? And then do you guys expect to see similar costs in the second half of the year? Thank you.

[Eva Boratto, CFO at Bath & Body Works, Inc]

Great. Thanks for the question, Emily. Overall, in the quarter, as mentioned prepared in remarks, a few things, right? The investment in stores is normal, the store growth, the build out that we're doing. We also invested in some training.

[Eva Boratto, CFO at Bath & Body Works, Inc]

We are seeing some pressure on health care costs that is factored in to our outlook. You saw for the year, we took our SG and A guidance up a bit if you think about that. And it's the health care costs, it's some technology costs and some investments we're making in building out the strategic plans that Daniel has outlined.

[Emily Ghosh, Equity Research Associate at Goldman Sachs]

Thank you.

[Operator]

Our next question comes from the line of Ike Boruchow with Wells Fargo. Please proceed with your question.

[Ike Boruchow, MD & Senior Analyst - Retailing, Specialty Softlines & E-commerce at Wells Fargo]

Hey, good morning everyone. I wanted to focus on the digital side of the business, understanding the BOPIS is having a headwind there, but still negative. I guess, Daniel, I'd love to hear some of the initial learnings that you have on your end, obviously, from your background, big DTC digital platform. Would love to know what you think you can enact in kind of the near term and the medium term? What are the biggest opportunities?

[Ike Boruchow, MD & Senior Analyst - Retailing, Specialty Softlines & E-commerce at Wells Fargo]

And what's your outlook for Bath and Body's kind of digital and e commerce platform over the next couple of years?

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

Thank you, Ike. You're absolutely right. Our digital business is not up to our standard. Our stores are beautiful and experiential and our digital platform is not. We know that digital drives brand relevance discovery and sales in all channels and we are taking steps to address this immediately as I said.

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

And consumers are going to start to feel this. You see it in the product photography for villains And we will launch a new app in September. We will relaunch mobile web starting in October. And we have a plan that goes three months, six months, nine months, twelve months. And we're going to be unrelenting in improving the channel because we know that it will drive brand and it will drive sales in store as well as sales online.

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

It is key to capturing the new consumer. We believe we have so many of the fundamentals in place, but this will be a key driver in the coming months, quarters and years and we are on it.

[Ike Boruchow, MD & Senior Analyst - Retailing, Specialty Softlines & E-commerce at Wells Fargo]

Daniel, just a follow-up. Do you have an expectation on when that channel can realistically show some inflection? Is there an algo or growth rate that you would target over the longer term? Just kind of curious more into the numbers.

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

So obviously, we look at the retail equation just as we do with all of our channels. I think the way I think about it is consumers are going to start seeing improvements immediately. And we do expect that to grow over time quite when it reaches what the growth rate should be. I actually have learned in my time at Nike that the important thing is to be moving at the pace of the consumer. We're not looking to overly advantage our digital channel over our stores channel.

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

What we're looking to do is ensure that we are in the path of the consumer with a channel that's right for them and bringing new consumers to the brand.

[Operator]

Thank you. Our next question comes from the line of Paul Lejuez with Citi. Please proceed with your question.

[Kelly Crago, Vice President at Citigroup]

Hi, there. This is Kelly on for Paul. Thanks for taking our question. I just wanted to dig a bit more into the tariffs. The $85,000,000 burn you're seeing this year seems very high relative to your sourcing exposure.

[Kelly Crago, Vice President at Citigroup]

Any way to sort of quantify what sort of tariff impact that you've seen from those higher rates does not repeat next year, so it would sort of be viewed as a margin opportunity? That's my first question. Then second question is just on how AUR shook out the quarter and your views on back half. Thanks.

[Eva Boratto, CFO at Bath & Body Works, Inc]

Sure, Kelly.

[Eva Boratto, CFO at Bath & Body Works, Inc]

I'll start with the tariff question. The net impact of about $85,000,000 syncs up with our sourcing. I would remind you that until September 1, the Canadian retaliatory tariffs of 25% were in place. We have a business, a strong business in Canada. Thus, we were importing our product there.

[Eva Boratto, CFO at Bath & Body Works, Inc]

So that may be the delta on your math there. Overall, on AURs, our mix adjusted AURs were up low single digits in the quarter. We were less promotional overall for the quarter. Obviously, we had a larger sales mix into the SaaS time frame. But we continue to use our agile model to meet consumers where they are, and we'll do that.

[Operator]

Thank you. Our next question comes from the line of Mark Altschwager with Baird. Please proceed with your question.

[Mark Altschwager, Senior Research Analyst at Robert W. Baird & Co]

Good morning. Thank you for taking my question. A couple here. First, on wholesale, how should we be thinking about the contribution from the campus stores this year, both from top line and gross margin? And just bigger picture, maybe update us on how you're thinking about the timing and scale of future wholesale opportunities?

[Mark Altschwager, Senior Research Analyst at Robert W. Baird & Co]

And then separately just SG and A, wanted to follow-up there. I mean the deleverage has intensified a bit. Maybe just help us reconcile the Q2 trend and the guide with the plans to accelerate growth while sustaining or expanding margin? Thank you.

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

Thank you, Mark. Let me kick off and then hand to Eva. So the contribution from Campus a Campus Bookstore that's built into our full year guidance. So that's that. The most important thing I think is this is a statement of intent.

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

We are a consumer led brand and consumers don't shop channels, they shop brands. And to introduce new consumers, we must be in their path. And so we're going to thoughtfully and strategically explore new channels of distribution. College bookstores is the first example. It targets consumers, younger consumers in a really convenient location.

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

And we are hard at work thinking about which are the next opportunities and we're looking forward to providing you an update when we come back with our long term growth strategy.

[Eva Boratto, CFO at Bath & Body Works, Inc]

Yes, Mark. And I'll take your SG and A question. From an SG and A pressure and the trends we're seeing, as I said, it's really the higher health care costs, some strategic investments that we're making to drive the new strategy and a bit of technology. Now looking at it more holistically, B and O is leveraging as we exited a third party fulfillment center as we're driving strength in our stores. That pressure is more of the SG and A versus the B and O.

[Eva Boratto, CFO at Bath & Body Works, Inc]

We'll continue. We've had a strong fuel for growth program. We've taken out $300,000,000 of cost over the last couple of years, and we will continue to flex that muscle to offset some of these impacts we're seeing.

[Operator]

Thank you. Our next question comes from the line of Jonah Kim with TD Cowen. Please proceed with your question.

[Jonna Kim, Director at TD Cowen]

Thank you for taking my question. I would love to hear more about the fragrance and body mix, how that performed during the quarter. And Daniel, I know beauty is a focus area for you. What are your plans around that specific category? And any color around Disney partnership in terms of how long the new drop will last and cadence of future launches as well? Thank you so much.

[Eva Boratto, CFO at Bath & Body Works, Inc]

Great, Jenna. I'll start with Body Care and how it performed in the quarter. Overall, we were disappointed with Body Care. As you saw, we were down low single digits. We had stronger results during the semiannual sale.

[Eva Boratto, CFO at Bath & Body Works, Inc]

Our men's business continued to grow nicely. We relaunched True Blue Spa. But Mother's Day didn't perform to our expectations in this growing category. We'll high insight that. We believe we needed more newness as you approach the event.

[Eva Boratto, CFO at Bath & Body Works, Inc]

And what I'll say is this is a really strong category that we're a leader in, and it will continue to be a priority area for us. And we're going to learn from consumers and innovate in both form and function.

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

Thanks, Eva. Now let me just follow-up with a few comments on Disney and collabs. We have seen great success from our collaboration in the past with Disney, Disney Princesses specifically in the first quarter. And we're very excited about the launch of Villains in this quarter. We've taken learnings from what we did at Princesses and then applied them to this launch and we're excited that this is our first global launch of a collaboration.

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

But there are two strategic things that I should mention. Firstly, collaborations like this are proof points to the growth philosophy. Putting the consumer at the center, innovative and coveted product, amazing storytelling and then bring it to life in the integrated and elevated marketplace. I've seen what Villains is going to look like in stores. And again, it raises the bar for storytelling in our stores and I know our consumers will respond positively.

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

Secondly, we are focused on consistent durable and profitable growth levers. And so the announcement of our signing a multi year deal with Disney is exciting. We're turning a one off into a durable and profitable growth lever for this company. It will be the first of many that we'll be talking about in the coming quarters.

[Operator]

Thank you. Our next question comes from the line of Olivia Tong with Raymond James. Please proceed with your question. Ms. Tong, your line is live.

[Olivia Tong, MD & Senior Analyst - Consumer at Raymond James Financial]

Thanks. Good morning. Could you talk a little bit more about price and promotion in your views, less so on Q2 given the semiannual sale, but more in Q3 and second half and whether tariff mitigation plans necessitate any pricing? And then just on tariffs overall, could you talk about any other initiatives that you have that you're planning to embark on to lower the pressure there? Thank you.

[Eva Boratto, CFO at Bath & Body Works, Inc]

Thanks, Olivia. This is Eva. I'll start. As you think about tariffs, we've been working to mitigate this since tariffs were announced or became a possibility. And as we look over a multiyear period, we have three areas that we're clearly focused on.

[Eva Boratto, CFO at Bath & Body Works, Inc]

One, supply chain optimization. We've done that before, right, with 80% of our supply chain US based. So our teams are working hard there. That takes time to shift and have the right capacity in the right location. Targeted assortment changes, how we can optimize our assortment to minimize tariff while continuing to satisfy the customer.

[Eva Boratto, CFO at Bath & Body Works, Inc]

We've made some of those changes. It's reflected in our outlook in our back half of the year expectation. And finally, strategic pricing assumptions. And as Daniel has said, relying less on promotional, elevating our value equation. We're an affordable luxury.

[Eva Boratto, CFO at Bath & Body Works, Inc]

So really bringing the innovation to elevate that value and drive AUR up.

[Operator]

Thank you. Our next question comes from the line of Ashley Helgans with Jefferies. Please proceed with your question.

[Sydney Wagner, Equity Research Senior Associate - Beauty & Personal Care at Jefferies]

Hi, this is Sydney on for Ashley. Thanks for taking our question. Have you ever quantified the difference in store productivity between on and off mall stores? And then just on newness and thinking about that as a sales driver, have you sized maybe what percent of comp is driven by newness historically and kind of where you would like to see that go going forward? Thank you.

[Eva Boratto, CFO at Bath & Body Works, Inc]

Yes. On your question on the on and off mall, both have very strong four wall economics. In the quarter, and this is very consistent with prior periods, all small stores are performing better than mall based stores, driven by conversion, some traffic. But overall, the economics are both are strong in both, and we have a very healthy portfolio. And in terms of your question on what percent of growth is driven by newness, we have an overall portfolio of products.

[Eva Boratto, CFO at Bath & Body Works, Inc]

We know our customers respond to the newness that we bring. That's the way to drive traffic, excitement, bring new consumers in. So it's part of the overall equation. We have not broken it out specifically.

[Operator]

Thank you. Our final question this morning comes from the line of Dana Telsey with Telsey Advisory Group. Please proceed with your question.

[Dana Tesley, CEO & CRO at Telsey Advisory Group]

Hi, good morning everyone. As you think about one top line, the drivers of innovation and now obviously the new college campus initiative, are there other initiatives that where you can see putting your product outside of your own stores that could be a top line enhancer and marrying that with the profitability and margin metrics, how do you think of accelerating those margins go forward in the wake of tariffs? And just lastly, on the third and fourth quarter guide, the fourth quarter obviously shows much more improvement than the third quarter. As you think about the fourth quarter, any changes in how you're thinking about the promotional cadence and innovation or marketing? Thank you.

[Eva Boratto, CFO at Bath & Body Works, Inc]

Yes. Good morning, Dana. I'll start with your last question first, right? The dynamics between the third and fourth quarter and the pressures on margin is largely driven to that tariff dynamic that I spoke to earlier, about two thirty, two forty basis points of pressure in Q3. In Q4, 100 basis points of pressure.

[Eva Boratto, CFO at Bath & Body Works, Inc]

We know Q4 is about winning in holiday. We're excited about our holiday assortment. Our expectation is not to be meaningfully different than last year from a promotional cadence, and we'll continue to use our agile model to meet the customer and drive demand.

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

Dana, let me just come in finally on the top line drivers. I mean, think that's my big take out from my first one hundred days. It was clear to me that we are going to drive top line growth by elevating our digital platforms, by amplifying the efficacy of our product, which is something that new and younger consumers are asking for. And we have already invested in the formulas that are efficacious and clean. And so it's really about messaging and bringing them to the market in the right way.

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

And then as you said, as we expand our distribution points to be in the path of the consumer, we see that being a top line driver as well. But beyond those things, I can't emphasize enough how many opportunities I've seen in this business to drive growth. That is my big takeout from the first one hundred days, whether that is in marketing and in social, whether that is in innovation through our partnerships in the beauty park, whether that is the opportunities that we have just with some of our iconic fragrances. I go into our stores and I see some big drivers of growth in our classic fragrances. Think Mahogany Tigewood, Into the Stars, Champagne Toast.

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

Once we've launched those products, we rarely go back and market them. We don't necessarily take them to a new consumer. They sit on the shelves and people walk in and buy them. It's almost like an annuity. When we take those products to a new consumer and we treat them with the iconic status they deserve, I believe we will bring new consumers to the brand and drive repeat purchase from existing consumers.

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

There is so much opportunity for this company and we are getting after making sure that we identify the largest opportunities and focus the company behind them in the short term and as we bring our strategy to the market in the next couple of quarters in the medium and long term too.

[Operator]

Thank you. Ladies and gentlemen, that concludes our time allowed for questions. I'll turn the floor back to Mr. Heath for any final questions or any final comments.

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

Thank you. And thank you so much for joining us today. In summary, while we delivered solid results this quarter, there is still much work for us to do ahead. We are energized by the path forward and we believe the actions we are taking now are positioning us well for profitable, consistent and durable long term growth. We are without question making progress on those three no regret moves and actively evaluating all the other untapped opportunities we have spoken to today, all while executing with strength and delivering newness for our customers and the customer is the center of everything that we do.

[Daniel Heaf, CEO & Board Member at Bath & Body Works]

I want to say thank you to all of our associates who are making all of this progress possible and we couldn't be more excited about what lies ahead.

[Operator]

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

Participants

Executives

• Luke Long, VP - IR
• Daniel Heaf, CEO & Board Member
• Eva Boratto, CFO

Analysts

• Matt Boss, Equity Research Analyst at JP Morgan
• Lorraine Hutchinson, Managing Director at Bank of America
• Katherine Delahunt, Equity Research Senior Associate at Morgan Stanley
• Alex Straton, MD - Equity Research at Morgan Stanley
• Emily Ghosh, Equity Research Associate at Goldman Sachs
• Ike Boruchow, MD & Senior Analyst - Retailing, Specialty Softlines & E-commerce at Wells Fargo
• Kelly Crago, Vice President at Citigroup
• Mark Altschwager, Senior Research Analyst at Robert W. Baird & Co
• Jonna Kim, Director at TD Cowen
• Olivia Tong, MD & Senior Analyst - Consumer at Raymond James Financial
• Sydney Wagner, Equity Research Senior Associate - Beauty & Personal Care at Jefferies
• Dana Tesley, CEO & CRO at Telsey Advisory Group