Bath & Body Works, Inc. Q2 FY2025 earnings call

Key Points

• Daniel Heaf focused on immersing in the business, driving forward, making no-regret moves, and shaping long-term vision. Q2 results were solid with revenue and adjusted earnings at the high end of guidance, and they raised the low end of full-year adjusted earnings per share guidance.
• Eva Boratto discussed Q2 net sales up 1.5% and adjusted earnings per diluted share of $0.37. Highlights included a strong semiannual sale, the relaunch of Billy the Duck as a brand mascot driving engagement, partnerships with fragrance influencers, and the successful launch of the Summerween product collection. Also, they completed deployment of a new point-of-sale system and the loyalty program had 39 million active customers up 5% year-over-year.
• Initiatives included elevating the digital platform, amplifying efficacy messages, exploring new distribution channels like college bookstores, and continuing collaborations like the Disney Villains partnership.

In Q2, net sales were $1.5 billion, up 1.5%. U.S. and Canadian stores net sales totaled $1.2 billion, an increase of 5% versus the prior year. Direct net sales were $267 million, a decrease of 10% compared to last year when adjusted for buy online, pickup in store. International net sales were $86 million, a decline of 3%. Gross profit rate was 41.3%, exceeding expectations and increasing 30 basis points compared to prior year. Adjusted SG&A as a percentage of net sales was 30.2%, up 110 basis points. Adjusted operating income was $172 million, down 6% from the prior year.

Full-Year Guidance

• Raised the low end of full-year adjusted earnings per share guidance. Full-year net sales guidance narrowed to 1.5% to 2.7% growth. Gross profit expected to be negatively impacted by tariffs by approximately $85 million, with $40 million in Q3. Capital expenditures planned at $250 million to $270 million. Increased full-year share repurchases to $400 million.

Q3 Guidance

• Q3 net sales growth expected 1% to 3%. Gross profit rate expected ~42.2% including ~$40 million tariff impact. SG&A rate expected ~31.5%. Forecasted earnings per diluted share $0.37 to $0.45.

Tariff Impact

• Tariffs are a significant risk. Q3 results are disproportionately impacted by tariffs due to inventory receipts subject to the 145% China tariff rate between April 9 through May 13. The company is working on mitigation efforts like strategic sourcing, operational efficiencies, and other targeted initiatives, but tariffs still negatively affect gross profit.

Q: With a full quarter now under your belt, how would you assess opportunities ahead versus your perspective when you first walked into the building?

A: Daniel Heaf said he sees even more opportunity to accelerate growth than initially thought, including opportunities in assortment and merchandising, Beauty Park, and brand reframing on social media.

Q: 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?

A: Daniel Heaf mentioned improved product photography and copy for the Disney Villains launch, and rolling out eye-catching windows in stores to tell bolder stories. Eva Boratto added they are measuring returns to get the most value from investments.

Q: Could you talk a little bit more about price and promotion in your views, less so in Q2 given the semiannual sale, but more in Q3 and second half and whether tariff mitigation plans necessitate any pricing?

A: Eva Boratto said they are focused on supply chain optimization, targeted assortment changes, and strategic pricing assumptions to mitigate tariffs, and they rely less on promotional pricing while elevating the value equation.