Bath & Body Works NYSE: BBWI executives said the company’s fourth quarter results came in better than expected as targeted holiday actions helped offset a soft start to the period, while management emphasized that a broader multi-year turnaround plan will take time to show up fully in financial results.
Fourth quarter results topped internal expectations
CEO Daniel Heaf said the fourth quarter “was better than we had anticipated,” though still “well below the standard we expect for ourselves.” He attributed improvement as the quarter progressed to actions taken after early-November softness, including targeted promotions and operational adjustments during key holiday moments. He also noted a “consumer rebound after the government reopened,” which supported demand.
CFO Eva Boratto said fourth quarter net sales were $2.7 billion, down 2.3% year over year, and above the “guidance floor” the company had set for down high single digits. Adjusted earnings per diluted share were $2.05, down 2% year over year and ahead of expectations.
By channel, Boratto reported:
- U.S. and Canadian stores: $2.1 billion, down 2.6%
- Direct channel: $579 million, down 2.5% (with digital outperforming stores when adjusting for buy online, pick up in store)
- International net sales: $91 million, up 8.6%, with system-wide retail sales up 13%
Category performance: Body Care pressured, home fragrance and soaps grew
Boratto said Body Care declined “mid-single digits below the shop,” driven by underperformance in seasonal collections—particularly Holiday Traditions, which she said “did not resonate for the first time in several years.” She added that consumer research indicated Body Care had become “too predictable” and needs more “disruptive, modern, benefit-led innovation.”
She highlighted several positives, including Champagne Toast having “its strongest year ever,” which management framed as support for a strategy to elevate core fragrance icons. Home fragrance grew low single digits and outperformed the overall business, while candles were described as a “relatively bright spot” supported by stronger three-wick and single-wick acceptance, better inventory positioning, and disciplined pricing. Soaps & sanitizers also grew low single digits, led by PocketBac sanitizers.
Margins, costs, inventory, and store footprint
Boratto said fourth quarter adjusted gross profit rate was 45.7%, down 100 basis points year over year but better than expected. She attributed the decline primarily to tariff impacts, partially offset by leverage in buying and occupancy (B&O), which benefited from the first-quarter 2025 exit of a third-party fulfillment center. Mixed adjusted average unit retail (AUR) declined low single digits, reflecting holiday strategies.
Adjusted SG&A rate was 23.2%, up 90 basis points year over year due to softer sales and investments in technology and initiatives tied to the company’s “Consumer First Formula” plan. Adjusted operating income was $614 million (22.5% of net sales).
Inventory ended the quarter down 5% year over year, with “clean inventory levels headed into spring,” Boratto said. In North America, the company opened 21 new stores (all off-mall) and closed 28 (primarily in malls) during the quarter; 60% of the fleet is off-mall. For fiscal 2025, the company opened 32 net new stores. International partners opened 44 net new stores in the year, and Bath & Body Works ended fiscal 2025 with 573 international locations.
Strategy update: “Consumer First Formula” and early initiatives
Heaf reiterated the company’s multi-year “Consumer First Formula,” focused on four priorities: disruptive product innovation, reigniting the brand, winning in the marketplace, and operating with speed and efficiency. He said the full financial impact will “take time and build throughout 2026 and accelerate into 2027,” but that the organization is moving “from strategy to action.”
On product, Heaf pointed to a new moisturizing hand soap with an updated formula, elevated packaging, and “Benefit First” marketing. He said consumer reviews and sell-through have been strong enough that the company is “actively chasing into demand.” Later, Boratto added that productivity on the new soap is “double” the product it is intended to replace.
Management described a 2026 product pipeline grounded in consumer insights and enhanced testing, with more visible product evolution expected in the back half of 2026, including a restage of moisturizing body wash and a “flat back spray hand sanitizer.” Heaf also said the company is evolving labeling to emphasize ingredient transparency and efficacy claims, including “48-hour moisture” and “dermatologist-approved” claims, and is rolling these messages across stores, digital, and product labels.
On collaborations, Heaf said the latest Disney Princess collaboration includes five new fragrances—Life’s a Fairytale, Snow White, Mulan, Rapunzel, and Aurora—along with the return of Belle and Tiana. He said results have been “in line with our expectations.” He also cited a PEEPS collection designed to support the Easter shop, and said the company has more collaborations planned than last year.
On brand and marketing, Heaf said the company is modernizing storytelling and visual identity and increasing investment in upper-funnel media with “higher caliber influencers and creators.” He told analysts Bath & Body Works expects a “roughly tenfold increase” in leveraging content creators to improve its presence on social platforms.
Marketplace expansion: Amazon launch and digital changes
A major development discussed on the call was the company’s February 20 launch on Amazon. Heaf said the curated Amazon assortment gives the company access to Amazon’s “broad, high-intent customer base” and helps reach new and lapsed consumers. He described the initial assortment as limited to 50 SKUs and emphasized upgraded product photography and storytelling on the platform, which he said can be rolled out across the company’s own channels over time.
In the Q&A, Heaf said it was still early to assess performance, but he expects Amazon to have a “meaningful financial impact” as the company ramps the channel. Boratto said expanded distribution is expected to contribute about $50 million, or “half a point of growth,” within the full-year outlook, and noted Amazon is a wholesale model so the company does not record full retail sales as revenue.
Separately, Heaf said Bath & Body Works lowered its free shipping threshold from $100 to $50 to reduce friction and align more closely with specialty retail standards.
2025 results and 2026 outlook: investment year with sales and EPS pressure
For fiscal 2025, Boratto reported net sales of $7.3 billion, flat year over year, and adjusted EPS of $3.21, down 2%.
For fiscal 2026, Bath & Body Works guided net sales to decline 4.5% to 2.5%, reflecting assumptions of a similar macro environment and continued value-oriented consumer behavior. The company expects its innovation pipeline, marketing improvements, and new touchpoints such as marketplace and wholesale to contribute more meaningfully over time, with greater impact in the back half of 2026 and into 2027.
The company guided full-year adjusted EPS to $2.40 to $2.65. First quarter net sales are expected to decline 6% to 4%, with adjusted EPS of $0.24 to $0.30. Boratto said the first quarter faces the company’s most challenging year-over-year comparison, citing last year’s strength in Q1.
On profitability, the company expects a full-year gross profit rate of approximately 42.4% and an adjusted SG&A rate of approximately 29.2%, reflecting sales deleverage, wage inflation, and investments tied to the turnaround plan, partially offset by cost savings initiatives. Boratto said the company’s multi-year “Fuel for Growth” program targets $250 million in cost savings over two years, with approximately $175 million included in 2026 guidance, and about half of the savings expected to flow to gross margin and half to SG&A.
Capital allocation: dividends maintained, buybacks paused in guidance
Boratto said 2025 capital expenditures were $237 million, and free cash flow was $865 million, including about $125 million of working capital benefits. The company returned $167 million through dividends and repurchased 15.1 million shares for $400 million in 2025.
For 2026, Bath & Body Works expects capital expenditures of approximately $270 million and free cash flow of approximately $600 million, including a $65 million after-tax benefit from the interchange fee litigation settlement. The outlook assumes no share repurchases, and management said it plans to maintain the annual dividend of $0.80 per share. The company also expects to redeem $284 million of January 2027 notes in the first quarter.
Management said it will monitor “green shoots” including new-to-brand customer growth, stronger pricing power tied to innovation, improved performance in hero categories, and incremental sales from new distribution channels as the Consumer First Formula progresses.
About Bath & Body Works NYSE: BBWI
Bath & Body Works, Inc is a leading specialty retailer focused on personal care, home fragrance and complementary products. Through its flagship Bath & Body Works brand, the company offers a diverse assortment of shower gels, lotions, fragrance mists, candles and home fragrance items. Its product portfolio also includes the White Barn Candle Co range of premium scented candles and diffusers. Bath & Body Works serves consumers through a combination of brick-and-mortar stores and e-commerce platforms, delivering seasonal collections, limited-edition releases and signature scent lines.
Founded in 1990 as part of Limited Brands (now L Brands), Bath & Body Works opened its first store in New Albany, Ohio, and quickly expanded across the United States.
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