Bath & Body Works, Inc. Q3 FY2025 earnings call

Daniel Heaf acknowledged underperformance and outlined a strategy to address issues. Key points include: focus on consumer-centric approach, four strategic pillars (creating innovative products, reigniting brand, winning in marketplace, operating with speed/efficiency), new talent hires (e.g., Mally Bernstein as Chief Commercial Officer, Varonis Gabai as product and merchandising advisor), SKU rationalization and category exits starting in spring 2026, Amazon launch in 2026, and product refocus on core categories. Eva Boratto discussed financials, Q4 guidance, the $250 million cost savings target, and capital allocation plans.

In the third quarter, net sales totaled $1.6 billion, a 1% decrease from the prior year. Adjusted earnings per diluted share were $0.35. Core categories declined in low single digits. U.S. and Canadian stores net sales were flat at $1.2 billion. Direct net sales were $299 million, a 7% decrease year-over-year, but adjusted for Buy Online Pickup in Store, digital net sales were down 1% sequentially improved from Q2. International net sales were $73 million, up 6% and in line with expectations. System-wide retail sales in international grew 16% in the quarter. Gross profit rate was 41.3%, down 220 basis points year-over-year, driven by a 260 basis point decrease in merch margin (impacted by ~$35M from tariffs). SG&A as a percentage of net sales was 31.2%, 120 basis points deleverage. Operating income was $161 million, down 26% from the prior year.

Q4 sales expected to be down high single digits; gross profit rate approximately 44.5%; SG&A rate approximately 24%; earnings per diluted share at least $1.70. Full-year net sales guidance lowered from 1.5%-2.7% growth to low single digits; adjusted earnings per diluted share guidance range lowered from $3.35-$3.60 to at least $2.87. Capital expenditures planned at approximately $240 million; full-year free cash flow expectation is approximately $650 million.

Macro consumer sentiment weighing on purchase intent, highly competitive retail marketplace, potential cannibalization from Amazon launch, inventory management challenges due to seasonal sales and product exits, and the need for time to see the impact of the transformation strategy on financial performance.

Q: How are you assessing competitive dynamics and innovation pipeline?

A: Daniel Heaf said perception issues in product, need to communicate benefits better, new forms/vessels/formulations in development. Eva Boratto added growth in digital is outpacing market.

Q: Tension between entering Amazon and maintaining brand image?

A: Daniel Heaf said Amazon is sales and brand opportunity, telling elevated story will drive store traffic, assortment used thoughtfully across channels.

Q: Sales expectations and margin on Amazon, exit of ancillary categories, cash flow progression?

A: Daniel Heaf said Amazon launch to go slow to go fast, focus on brand accretive experience. Eva Boratto discussed cash flow management, investments in transformation affecting first nine months of 2026.

Q: Loyalty customers and collaborations post reset?

A: Eva Boratto said loyalty program has strong retention, reward redemption increase. Daniel Heaf said collaborations to be used tactfully to drive long-term brand equity, not carry quarters.