NYSE:BBWI Bath & Body Works Q3 2024 Earnings Report $29.31 -0.44 (-1.48%) As of 11:32 AM Eastern This is a fair market value price provided by Polygon.io. Learn more. Earnings HistoryForecast Bath & Body Works EPS ResultsActual EPS$0.48Consensus EPS $0.35Beat/MissBeat by +$0.13One Year Ago EPS$0.40Bath & Body Works Revenue ResultsActual Revenue$1.56 billionExpected Revenue$1.56 billionBeat/MissBeat by +$6.37 millionYoY Revenue Growth-2.60%Bath & Body Works Announcement DetailsQuarterQ3 2024Date11/16/2023TimeBefore Market OpensConference Call DateThursday, November 16, 2023Conference Call Time9:00AM ETUpcoming EarningsBath & Body Works' Q1 2026 earnings is scheduled for Thursday, May 29, 2025, with a conference call scheduled on Tuesday, June 3, 2025 at 9:00 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Bath & Body Works Q3 2024 Earnings Call TranscriptProvided by QuartrNovember 16, 2023 ShareLink copied to clipboard.There are 9 speakers on the call. Operator00:00:00Good morning. My name is Paul, and I will be your conference operator today. At this time, I would like to welcome everyone to the Bath and Body Works Third Quarter 2023 Earnings Call. Please be advised that today's conference is being recorded. I will now turn the call over to Ms. Operator00:00:20Heather Hollander, Vice President, Investor Relations at Bath and Body Works. Heather, you may begin. Speaker 100:00:27Call. Good morning, and welcome to Bath and Body Works' 3rd quarter 2023 earnings conference call. Today's call may contain forward looking statements related to future events and expectations. Please refer to this morning's press release and the risk factors in Bath and Body Works' 2022 Form 10 ks Call for factors that could cause the actual results to differ materially from these forward looking statements. Today's call contains certain non GAAP financial measures. Speaker 100:00:54Please 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. Joining me on the call today are Gina Boswell, Chief Executive Officer Julie Rosen, President, Retail and Eva Berrado, Chief Financial Officer. I'll now turn the call over to Gina. Speaker 200:01:16Thank you, Heather, and good morning, everyone. Thank you for joining us today. I'll start this morning with a review of our Q3 results, then discuss our view of the Q4, provide some initial perspective on fiscal year 2024 and discuss the progress our team has made in executing our strategy. Before we begin, I'd like to thank our teams who continue to deliver on our initiatives and commitments and control what we can control. Now for the results. Speaker 200:01:443rd quarter net sales were in line with the higher end of our expectations, declining 2.6% compared to the prior year and representing 100 basis points of sequential improvement versus 2nd quarter. The team delivered strong merchandise margin improvement and continued benefits from our cost optimization initiatives. In fact, our year over year merchandise margin rate increased 200 basis points in the Q3 and we generated flat AURs for average unit retail in line with our plan. From a category perspective in the Q3, sales of soaps and wallflowers increased versus the prior year, Body Care sales were flat and candles and sanitizers declined as expected. While we continue to see post pandemic normalization in candles and sanitizers, we held unit share in candles and gained unit share and sanitizers year to date. Speaker 200:02:42Throughout the Q3, we continue to demonstrate the strength of our seasonal merchandising and exceptional innovation and capabilities. We were pleased with our Halloween results delivering a 5% sales increase over last year's event. Our team remains focused on delivering newness with elevated single fragrance launches such as Luminess. Our men's business continued to outperform and customers responded positively to the addition of men's grooming to our product line. We're leaning into this growth opportunity with new marketing programs to drive increased awareness and customer acquisition. Speaker 200:03:18Call. Consistent with the trend of fragrance from head to toe, customers responded well to our launch of fragrant hair care, now in approximately 30% of our U. S. Stores. Finally, the limited launches of laundry and our new expanded lip collection also performed well, which Julie will discuss in a moment. Speaker 200:03:38Turning to sales, year over year trends improved at the beginning of the quarter with roughly flat sales in August driven by strong Halloween performance. Sales then softened in September October as the macroeconomic environment pressured consumer demand and we lapped the national launch of our loyalty program last year. Although we experienced positive traffic growth overall for the quarter, Traffic softened in September in line with mall and off mall traffic. Additionally, as expected, we continue to see the customer carefully managing their spending, which pressured basket size and conversion. Based on what we are seeing with the cautious consumer and continued market declines in 2 of our categories. Speaker 200:04:23We anticipate a continuation of softer top line trends in the Q4 and we are lowering our top line guidance for the full year. We are also raising the midpoint of our diluted earnings per share guidance to reflect merchandise margin outperformance and the benefits of our capital deployment in the Q3. Eva will provide more details in a moment. I also want to take the opportunity to provide some early views on 2024. We continue to invest and focus on building capabilities to better serve our customer and drive profitable growth. Speaker 200:04:58Keeping in mind where we are in the implementation process for our strategic initiatives, as well as the current macro environment and continued industry level category pressure, We see a path to positive sales growth in the second half of twenty twenty four. Of course, we'll continue to focus on driving efficiency in our business throughout 2024 as well. Looking out longer term as we execute our strategy and scale initial benefits from all the great work the team is doing, We are increasingly confident in our ability to achieve our sales and operating margin targets. Turning now to some of the progress we're making. We continue to focus on our 5 key growth drivers. Speaker 200:05:381st, elevating the brand through innovation and upgrades second, extending our reach through new category adjacencies and international growth third, deepening customer engagement through our loyalty program, enhanced technology and more personalization 4th, enabling a seamless omnichannel experience and finally, enhancing operational excellence to drive efficiency. Julie will speak to our progress in brand elevation and extending our reach, but first I'd like to expand on the other three. As we work to better engage with our customer, we have a tremendous opportunity to leverage sharper tools and more targeted marketing to attract new customers and increase spend and share of wallet with our existing customers. We are building technology capabilities to implement a more personalized targeted approach to marketing and promotions rooted in data analytics and customer segmentation. Through this work, we plan to acquire new customers and increase spend by incenting trial of new product, increasing cross channel and cross category shopping, growing basket size and driving incremental trips. Speaker 200:06:48This year, we've also increased our testing capacity to allow for greater agility. With our technology separation from Victoria's Secret substantially complete, we began testing personalized emails in the 3rd quarter, which allowed us to adjust email timing and offers to meet the customer mindset, while reducing reliance on broad based promotions such as direct mail. As we sharpen our approach to promotions and customize offers to the individual customer, we plan to drive incremental sales at a higher margin. For example, in the Q3, we shifted a portion of our direct mail spend toward new customer acquisition via digital marketing channels and we're already seeing positive results. Our loyalty program is another critical tool for engaging with our customers and meeting them where they are. Speaker 200:07:39In August, we anniversaried the national launch of our loyalty program. Since the launch, we've had industry leading enrollment speed. We have nearly 41,000,000 members and loyalty sales represent approximately 3 quarters of our U. S. Sales since the national launch. Speaker 200:07:56Though our speed of enrollment has been impressive and we continue to grow our loyalty member base, we are still only in the early stages of leveraging the program and driving member engagement. We increased engagement this quarter by offering our 1st loyalty member appreciation days with early access to exclusive shopping events and offers and testing loyalty accelerators starting with a double point today designed to move customers closer to reward redemption, which drives higher customer value. As we test more loyalty benefits in the future such as Call. Cheering and flexible rewards, we are confident in our ability to deepen customer engagement and increase both sales and merchandise margin. Next, we are enabling a seamless omni channel experience. Speaker 200:08:43Though we have a strong profitable digital business, We have a significant opportunity to drive future growth by moving from a largely transactional website and app to more personalized experiential and integrated platforms. By adding personalized landing pages, immersive content and product recommendations, we plan to drive higher sales, more discovery and larger baskets. Speaker 100:09:09In the Speaker 200:09:09Q3, we added personalized product recommendations based on shopping behavior and a customized header to welcome recognized users by name and highlight their loyalty account balances. We also implemented a customer retention pilot powered by machine learning, which drove 7% greater retention for the targeted audience. To target customers who were inactive or who had abandoned their carts, call. We tested new retention and win back offers, which increased sales. Importantly, Beauty and Personal Care customers value a seamless omnichannel experience. Speaker 200:09:46By reducing friction throughout the customer journey from browse to shop to purchase and offering convenient options like buy online, pick up in store or BOPIS as well as Instacart and buy now, pay later, we can convert more single customers to dual channel customers, which on average increases spend threefold. Focus orders increased approximately 50% in the 3rd quarter versus last this year as customers continue to opt for convenience. When picking up their order, approximately 30% of BOPIS customers made an additional purchase in store, a testament to the power of the omni channel model. This quarter, we also added social proofing matches on our website, highlighting trending and best selling products as well as those products with limited supply. Given our customers' strong desire to obtain their preferred fragrances, we knew that alerting them to decreasing availability would incent them to lock in a purchase. Speaker 200:10:48Having implemented these initiatives to improve our omni channel experience, digital conversion inclusive of BOPIS increased of 4% in the Q3 versus the Q2. Finally, we are enhancing operational excellence and efficiency to $200,000,000 of planned annual cost savings across the company. We are on track to deliver approximately 150,000,000 of those savings in 2023. And Eva will share additional details in a moment. As I touched on earlier, the customer has been cautious and managing their spending amidst macroeconomic pressure, but we are still driving positive traffic and customers are responding to newness, Innovation and our compelling seasonal events. Speaker 200:11:31We are taking action to deliver innovation and build the capabilities Call that will allow us to drive long term profitable growth even amidst external pressures. As we enter the critical holiday season, we are well positioned with a clean inventory position, a compelling product assortment, gifts at a variety of price points, call, a transported store experience and stores that are staffed and ready to serve and an omnichannel model that allows customers to shop whenever and however they want. Bath and Body Works has a strong foundation with leading market share, top brand awareness and a competitive advantage in our vertically integrated supply chain, which allows us to respond quickly to changing trends. We have a healthy balance sheet, strong free cash flow generation and balanced capital allocation plans. Despite what remains a challenging macroeconomic environment, the initial results we're seeing from the implementation of our strategic initiatives gives us even more confidence in our ability to reach our $10,000,000,000 sales target and deliver industry leading operating income margins of 20% conference call over time. Speaker 200:12:38I'd like to conclude by saying a big thank you to our outstanding partners and teams, especially our store and distribution center associates during this busy holiday season. They do a terrific job delivering a great experience to our customers and dedicating themselves to executing on our strategic initiatives. With that, I'll turn the call over to Julie. Thank you, Gina. I'd like to go a level deeper in reviewing the results and trends in the Q3 and provide an update on the progress we're making in elevating our brand and extending our reach to accelerate growth. Speaker 200:13:13As Gina mentioned, we started the Q3 with a strong Halloween with event sales increasing 5% over last year's event. We positioned our Halloween assortment at the front of our stores for the first time to give it additional prominence. We also expanded customer favorites Conference Call. We also launched a new brand new, elevated accessories that met the customer mindset. Notably, our higher priced premium accessories such as the Carriage Luminary priced at $99.95 and the Wallflower Carriage Heater priced at $39.95 were especially popular and sold out quickly. Speaker 200:13:54The Q3 is also the time of the year when customers turn to us for our iconic fall fragrances, which are always a favorite. The customers responded well to top fragrances such as leaves, pumpkin pecan waffles and sweater weather in multiple forms and packaging. Turning to category performance. Soaps, including our new formulation made without paraben, sulfates or dyes, performed well in the Q3, posting low single digit growth. Additionally, we rolled out foaming hand soap refills and cycle paper cartons to all U. Speaker 200:14:31S. Stores in July, allowing customers to conveniently refill and reuse their soap containers. Body Care sales were flat for the quarter. The category continues to be supported by growth in Fine Fragrance Mist, as well as our men's business, which posted a high single digit sales increase this quarter and remains one of our fastest growing product lines as we add new forms and merchandising ideas. We launched men's grooming last quarter, customer response as Gina noted. Speaker 200:15:12We continue to be very excited about the growth of our men's business as it is introducing new customers to our brand and attracting the attention of younger customers. We're also infusing newness into the collection with our latest single fragrance launch, Woodlands. Despite strong year to date growth, our men's offering has relatively low awareness amongst consumers. We see a significant opportunity to drive increased awareness and additional growth in this $12,000,000,000 market, and we have multiple marketing campaigns planned to showcase our compelling assortment and acquire new customers. Conference Call. Speaker 200:15:51Wallflowers also performed well in the 3rd quarter, posting low single digit growth, driven by strong fall fragrance selling and increased Call. Candles and sanitizers both declined versus last year as expected, driven by continued Industry wide post pandemic normalization trends. We remain a market leader in both candles and sanitizers, and we have held unit share in candles and gained unit share in sanitizers year to date even as the categories experience pressure at the industry level. Turning to our strategic initiatives, I'd like to provide some detail on how we're making progress in elevating our brand and extending our reach to accelerate growth. This quarter, we continue to deliver innovation and elevation in product and Merchandising. Speaker 200:16:45For our latest single fragrance product, Luminess, we positioned the launch at the front of the shop in October. Conference call. This was an intentional earlier move in the calendar to meet the customer mindset and better align with the industry. Luminess has elevated Call. This is a bold gift worthy packaging perfect for the holiday season. Speaker 200:17:08As we work to extend our reach, we're leveraging our core strengths in fragrance and innovation to expand into adjacent categories, including fragrant laundry, lip and hair care. Call. In the Q3, we had a limited launch of our laundry line and many of our best selling fragrances across 10 stores and online. Laundry has attracted new customers to the brand and the feedback has been overwhelmingly positive, with customers noting that our laundry detergent is an exciting new way to add another layer of their favorite scent to their daily routine. We are testing and optimizing the product to prepare for expansion next spring. Speaker 200:17:51Lip products have attracted new younger customers to our brand and represent an opportunity to expand our customer base. To capture this opportunity, we have relaunched our in store assortment and the visual presentation of our lip products across a limited number of stores. The new ritual based assortment and presentation posted triple digit sales lift compared to our previous lip offering, and we plan to complete the rollout of this fixture and expanded assortment to all North American stores by the fall of 2024. Additionally, our Fragrant Hair Care line now in 560 stores continues to exceed our expectations. We plan to complete the North American rollout in the spring of 2024. Speaker 200:18:39We're particularly excited about this line's ability to attract a new customer to Bath and Body Works, considering that 14% of Fragrant Hair Care customers are new to our brand. We're also committed to extending our reach internationally and continue to explore opportunities to build on the success of our asset light profitable franchise model. As we look ahead to the Q4, this is always an exciting time of the year and we have a mix of returning holiday favorites and new giftable offerings. Our theme for the holiday season is storybook. The concept is threaded throughout the stores and online channels providing a magical and Sensory filled journey for customers. Speaker 200:19:24As an affordable luxury brand, we have gifts at all price points. As we further expand our loyalty program and introduce compelling new product assortments, we're confident we will continue to deepen our relationships with our existing customers and attract new customers to our brand. In closing, I'd like to thank our teams for delivering an standing experience to our customers and for their work to position us well for the upcoming holiday season. And with that, I'll turn it over to Eva. Speaker 100:19:56Thank you, Julie, and good morning, everyone. Today, I'll start by reviewing our Q3 financial results, Then I'll provide an overview of our Q4 fiscal year 2023 guidance as well as some initial perspective on 2024. Starting with Q3 results, we reported adjusted diluted earnings per share of $0.48 call, exceeding our guidance of $0.30 to $0.40 per diluted share. Our adjusted results exclude the $12,000,000 pretax gain on the early extinguishment of debt associated with the repurchases in the Q3. We are pleased with our ability to leverage both quarter. Speaker 100:20:40Gross profit and SG and A this quarter. EPS also benefited from interest expense favorability associated with the repurchase and retirement of debt. Net sales for the Q3 were 1,600,000,000 in line with the high end of our expectations. The year over year decline of 2.6% was driven by a decrease in both average dollar sale and transactions. AURs were flat in the quarter as expected. Speaker 100:21:12In U. S. And Canadian stores, 3rd quarter net sales totaled $1,200,000,000 a decrease of approximately 1% versus the prior year. 3rd quarter direct net sales were $317,000,000 a decrease of 8% compared to last year. Adjusted for BOPUS, direct demand decreased 5% in the 3rd quarter. Speaker 100:21:38As a reminder, BOPIS sales are recognized as store sales and we completed the BOPIS rollout to U. S. Stores in the Q1 of 2023. International net sales were $77,000,000 and declined 5% versus last year. On a year to date basis, international net sales increased 1%. Speaker 100:22:02As a reminder, there are 2 components to our international net sales. Royalties collected from franchise retail sales and wholesaler revenue generated by the product we sell to our franchise partners. Our total international system wide retail sales again posted double digit growth in the 3rd quarter. However, quarter. Wholesaler revenue declined as our partners manage their inventory level. Speaker 100:22:31Also, since the conflicts that began in the Middle East in October, sales for certain franchise partners have been pressured. We continue to monitor the event and consumer sentiment in the region and support our partners accordingly. 3rd quarter gross profit rate increased 140 basis point compared to prior year, a sequential improvement of 2 30 basis points from 2nd quarter. This represents our first gross profit rate expansion in 9 quarters. Merchandise margin rate improved 200 basis points year over year driven by $40,000,000 of deflation benefits, lower product costs and reduced transportation costs. Speaker 100:23:18The margin expansion was partially offset by continued investments in product formulation and packaging innovation. Improvements in merchandise margin were also partially offset by buying and occupancy expense deleverage, call, primarily due to lower sales and increased occupancy expense from new store growth. Total Call. 3rd quarter SG and A leveraged by 20 basis points versus last year and represented a sequential improvement of 220 basis points from the Q2. SG and A leverage was driven by the benefits of our cost optimization initiative as well as approximately $10,000,000 of marketing and technology investments shifting to the 4th quarter. Speaker 100:24:09Our cost optimization work across both gross profit and SG and A delivered benefits of approximately $45,000,000 in the quarter. Taking all of this into consideration, 3rd quarter total operating income was 221,000,000 call for 14.1 percent of net sales. Turning to the balance sheet. We repurchased $174,000,000 senior notes principal for $161,000,000 in the quarter. We remain disciplined with inventory management and ended 3rd quarter with quarter. Speaker 100:24:45Total inventory dollars down 5% compared to last year. Heading into the holiday season, our inventory levels are well positioned. Now turning to real estate, our overall portfolio, the majority of which is off mall, We made additional progress increasing our off mall penetration, opening 25 new off mall North American stores and permanently closing 6 mall stores in the quarter. And internationally, our partners opened 16 new stores in the 3rd quarter ending the quarter with 4 58 stores. Moving to our financial guidance, we are providing 2023 guidance with comparisons to 2022. Speaker 100:25:48As a reminder, fiscal 2023 includes the 53rd week, so the Q4 of fiscal 2023 will consist of 14 weeks. The impact of the 53rd week reflected in our guidance is estimated release of nearly $85,000,000 of sales and $0.05 of earnings per diluted share. And our guidance excludes the impact of any future debt for share repurchase activity. Now for the Q4, we expect sales to decline 1% to 5%, reflecting continued soft consumer spending and post pandemic category normalization across the industry. The company is very adept at quickly reading and reacting, and we will leverage our vertically integrated supply chain Call. Speaker 100:26:43We remain focused on enhancing our operational excellence and plan to deliver approximately $50,000,000 in cost savings in the 4th quarter. Approximately 35% of the savings are related to reduced transportation expense with the remainder coming from other elements of our program, including efficiency in store labor and selling productivity as we approximately 44% as we continue to expect about 100 basis points of year over year merchandise margin rate improvement. Our Q4 includes approximately $55,000,000 of deflation benefit as well as efficiencies produced by our cost optimization work. We anticipate these benefits will be partially offset by investments in formulation and packaging upgrades to reinforce our competitive position. We expect roughly flat buying and occupancy expense Speaker 200:28:05as a percent of Speaker 100:28:14Our 4th quarter guidance assumes an SG and A rate of approximately 22% with deleverage driven by higher marketing spending as we activate new programs to drive customer acquisition and Technology Investment to drive future growth. As a reminder, approximately $10,000,000 of marketing and technology spending shifted from the Q3 to the Q4. We expect non operating expense of approximately $75,000,000 reflecting interest expense favorability from debt repurchases through the end of the third quarter. We are forecasting an effective with a tax rate of approximately 26% and weighted average diluted shares outstanding of approximately 228,000,000. For the Q4, our earnings per diluted share guidance is $1.70 to 1.90 Turning to our full year outlook, I'll highlight the revisions to our previous guidance. Speaker 100:29:18We are now forecasting sales declines of 2.5% to 4% versus prior year. We now expect full year Call. We have completed net non operating expense of approximately $290,000,000 and weighted average diluted shares outstanding of call. $229,000,000 We are revising our adjusted earnings per diluted share guidance for fiscal year 2023 to $2.90 to $3.10 increasing the midpoint of our guidance. Additionally, we anticipate ending the year with slightly elevated inventory levels compared to the prior year as we prepare to expand new product launches to additional stores. Speaker 100:30:07We continue to expect free cash flow of $675,000,000 to $725,000,000 in fiscal year 2023. Looking at capital allocation, our first priority is investing in the business to drive profitable growth. We are also committed to returning excess cash to shareholders. In the 1st 9 months of the year, we paid 1 Call. $137,000,000 in dividend and plan to continue paying an annual dividend of $0.80 per share with an intention to increase the dividend over time as earnings increase. Speaker 100:30:44In the Q3, we repurchased 1,400,000 shares for $50,000,000 in the open market. In addition to returning cash to shareholders, We are committed to returning to our target leverage ratio of approximately 2.5 times adjusted Gross debt to EBITDAR over time. We ended fiscal 2022 with a leverage ratio of 3.1 Call. And through the Q3 of this year, we have repurchased $373,000,000 of principal amount of our senior notes in the open market. We will continue to take a balanced approach to capital allocation considering options such as additional debt and share repurchases. Speaker 100:31:31Now I'd like to take a moment to build on Gina's earlier comments regarding our initial perspective on fiscal 2024. We expect that the softer macroeconomic backdrop and category normalization trend will continue into the year. At the same time, we are building capabilities and launching products designed to drive customer acquisition, sales growth and operating income margin expansion, even amidst modest macroeconomic pressure and category normalization. As you know, we began testing many of these strategic initiatives in the 3rd quarter and we plan to scale them through the first half of the year. Our personalized marketing and loyalty programs will build through the year, which we expect will drive improvements in customer for retention and acquisition. Speaker 100:32:27We also plan to drive growth through our product adjacencies, including call, building greater awareness of our men's line and extending the rollout of fragrant hair care, laundry and lip. Conference Call. Fragrance is top of mind for customers and we are leaning into our position as a fragrance market leader with this portfolio expansion. As these capabilities are fully implemented and benefits build throughout 2024, We see a path to positive sales growth in the second half of the year. We also expect operating income margin to be supported by continued input costs, deflation and the benefits of our cost optimization work. Speaker 100:33:15In conclusion, we remain focused in the business and managing through a dynamic environment with agility. We are well positioned as we approach the upcoming holidays and look forward to serving our customers during this important season. At this time, we'd be happy to take your questions, and I'll turn it over to Heather for Q and A. Thanks, Eva. For our Q and A session, we ask that participants limit their responses to one question and one follow-up. Speaker 100:33:53We'll now move to the Q and A session. Operator? Operator00:33:58Thank you. We'll now be conducting a question and answer One moment please while we poll for questions. Thank you. Our first question is from Simeon Siegel with BMO Capital Markets. Please proceed with your question. Speaker 300:34:31Thanks. Good morning, everyone. Nice quarter. Hope you and your families are okay during these challenging times. So how are you guys thinking about the timeline for the post pandemic candle normalization because that's an interesting point. Speaker 300:34:42So just any thought on how close we are to that healthy reset? And then for my follow-up, if Ken, just really nice job on the gross margins. Maybe run through a bit more why the Q4 gross margin wouldn't see a similar or even a higher benefit, just given increasing deflation benefits, better expected B and O, the extra week and the general trajectory you're on. So just thinking through that gross margin a bit. Thank you. Speaker 200:35:04Good morning, Simeon. It's Gina. Thank you for the question. I would like to first go to Julie to talk about the category normalization reset and then we Speaker 100:35:12will of the EBA for Speaker 200:35:13the gross margin benefits in the Q4. Good morning, Simeon. I hope you and your family are well too. Call. As far as the candle normalization, I really cannot circle a date on the calendar for you and in fact no one Call. Speaker 200:35:29That being said, I just want you to know that we are innovating in these categories. We are still the market leader as we hold our dominant market share in candles and we gained market share in sanitizers year to date and we are also working very hard to diversify our sales mix. Speaker 100:35:49Great. So now I'll take the gross margin question, Simeon. And we are quite pleased with our continued progress in delivering Strong and improving gross margins. A couple of things that I'll highlight. In the Q4, We expect about $55,000,000 of deflation to benefit our merchandise margin rate, and we'll continue to invest in our formulation and packaging upgrades. Speaker 100:36:18Overall, we continue to expect merchandise margin to expand about 100 basis points and we expect to have flat AURs in the quarter. On a positive, in the 4th quarter. We're expecting roughly flat buying and occupancy as we scale our new customer fulfillment center and that ramps. And recognizing we're not improving as much as Q3, as you can appreciate the Q4 is a big quarter for us. There's a lot of volatility given the holiday season, and we'll continue to pull on all the levers we can to drive our gross margins. Speaker 300:36:59Great. Thanks so much. Best of luck for the rest of the year and the holiday season. Speaker 100:37:02Thank you. Thank you. Thanks, Simeon. Next question, please. Operator00:37:06Thank you. Our next question is from Alex Stratton with Morgan Stanley. Please proceed with your question. Speaker 400:37:12Perfect. Thanks a lot for taking the question. I wanted to start with just the sales outlook for next year. I know you guys have had a couple of years of post COVID reversion. You're talking about that back timeline to returning to growth. Speaker 400:37:26So can we just go through kind of what gives you confidence in that happening at that time period or what's underpinning that? And then my second question is just on the long term EBIT margin target. You provided that nice bridge earlier this year on the 2019 to 2022 dynamics. I'm wondering if you can kind of walk us through where we're at this year and then kind of the puts and takes to get back to that 20% over time and if you have a timeline? Thanks a lot. Speaker 200:37:53Good morning. Thank you, Alex, for the question. I will be happy to take the first part about the sales inflection and then I'll ask Eva to give color on the long term sort of EBIT margin. As you know and we commented in our remarks, we are facing softer consumer trends. So In September, we saw the traffic pressure for the first time this year as the macro environment impacted our customer. Speaker 200:38:17And while October traffic was positive, the growth was lower than what we had seen year to date through August. So we have softer positive traffic. So through the year, We've seen consistently that the customer has been carefully managing their spending and that has pressured basket size and conversion. And then as Julie just commented, we continue to have the industry level category normalization that impacts our candles and sanitizers business. So we do expect those dynamics to continue into 2024. Speaker 200:38:45But at the same time, you asked about the confidence level about when that would inflect. And while we can't circle a date either, we are building capabilities and we're launching products that are designed to drive the customer acquisition and the sales growth as well as the operating income margin expansion even amidst that modest This is macro pressure and category normalization that we could expect. As you know, we began testing many of the strategic initiatives in the 3rd quarter. Once we completed our separation from Victoria's Secret 11 weeks ago and we're very pleased with what we C. We expect those will drive improvements over time and build and compound in customer retention and acquisition. Speaker 200:39:27We also plan to drive growth through those product adjacencies, including building greater awareness, as Julie mentioned on our men's line, doing and extending the rollout of our fragrant hair care, laundry and lip collections. So we're quite encouraged by the early benefits we're we're seeing in test and early stage deployment and that gives us confidence in the opportunity ahead. So once those capabilities are fully implemented and we see those benefits build, We see a path to positive sales growth in the second half of twenty twenty four. And then over to you, Eva. Speaker 100:40:00Great. Thanks, Gina. So We remain very focused on driving toward that 20% OI target operating income ratio with Gross profit is at 45% and SG and A at 25% leverage. Ultimately, the capabilities that Gina spoke about and the product adjacencies are expected to drive both top and bottom line growth. As you think about our cost reduction initiative, we remain on track to deliver our $200,000,000 annually And we remain focused on finding additional efficiencies in the business to both drive those Improvements as well as fuel investments for growth. Speaker 100:40:51So we will continue to focus on all of the levers we can to get to those targets. Thank you. Thanks, Alex. Next question, please. Operator00:41:05Thank you. Our next question is from Paul Lejuez with Citi. Please proceed with your question. Speaker 500:41:11Hey, thanks guys. I'm sure you have a range of outcomes as you think about 2024 top line. You mentioned potential inflection in the second half. I'm curious how confident you are in achieving EBIT margin expansion in 'twenty four across those range of top line outcomes. And if you could, if there's any We should keep in mind in terms of the major tailwinds in terms of basis points, would love to hear that from you. Speaker 500:41:42And I'm curious also if you Could you just comment on what you're seeing quarter to date, if you could share that? Thanks. Speaker 200:41:50Okay. Thank you. Thanks Paul for the question. First, We'll go to Eva around the margin and then come back to your question on the quarter. Speaker 100:41:58Yes. As you can appreciate, we have a pretty significant quarter ahead of us And we're really focused on driving performance in the Q4 and delivering on the expectations. So we'll have more to say on specific as it relates to 2024 on our earnings call. A couple of things I will highlight, one I just mentioned, but I'll mention it again. We're really confident in our ability to Deliver our cost savings initiatives of $200,000,000 as we wrap into next year. Speaker 100:42:36And from a technology perspective, you heard us continuously We expect that the spend will remain elevated to support the initiatives in the growth capabilities, but we'll certainly have more to provide as we hit our year end earnings call. Speaker 200:42:53Thank you. I think you covered both. Thank you. Speaker 100:42:59Thanks, Paul. Next question please. Operator00:43:02Thank you. Our next question is from Kate McShane with Goldman Sachs. Please proceed with your question. Speaker 100:43:09Hi, good morning. Thanks for taking our question. I wanted to ask about the investment in product formulations in the quarter. Was that for any specific product? And should the product formulation and packaging innovation investment just be considered as ongoing? Speaker 100:43:23Or is it a higher level this year than maybe what we can expect for next year? Speaker 200:43:28Thank you, Kate, for the question. I will I'll be happy to take that and ask maybe Julie to chime in a bit. The product formulations that we've been doing really throughout, Conference Call. The notable one, of course, that we've spoken about earlier this year is around our soaps, which are now free of parabens, sulfates, etcetera. Operator00:43:49This is Speaker 200:43:49an ongoing aspect to our overall strategy about elevating the brand and and the product and packaging and even some of the packaging that you saw with our most recent single fragrance launch on Luminess, which I think depicts the fact that we're investing in the product as we need due to make sure that we elevate and meet the customer for the innovation component of that. Anything further, I'll ask Julie to speak about because This is an important part of our strategy going forward. Yes, I think from an Investment perspective, we also have invested in some other formulas. We're in the process now of finishing the rollout of our shower gel, which is also in a cleaned up formula. I will say that we also believe that we have the ability to grow our AURs over Conference Call. Speaker 200:44:38The brand has a very strong track record of low single digit AUR growth and we believe we will get back to that. Thank you. Speaker 100:44:52Okay. Thanks, Kate. Next question, please. Operator00:44:56Thank you. Our next question is from Matthew Boss with JPMorgan. Please proceed with your question. Speaker 600:45:02Great. And thanks for all the helpful color. So 2 part question. Gina, I guess first, what do you attribute to the softening in September October? And then maybe if you take that, Could you just elaborate on what you're assuming from both the macro and category level in this bridge from the front half of next year to the back. Speaker 600:45:23And then Eva, as we think about the balance between the continued tech investments and the cost savings, What is the fixed cost leverage point in the business? Or what sales growth do you need to leverage SG and A going forward? Speaker 200:45:39Great. Thank you. So thanks, Matt. Great to hear from you. I think, as I mentioned in September October, well really We were quite encouraged actually in August starting pretty strong with nearly flat. Speaker 200:45:52But then in September, we saw the traffic, for the first time swing negative and then bouncing back a bit in October. We did lap the loyalty launch, but really we also saw Just pressure overall on the customer and certainly consistent pressure on the basket size as well. So what we are seeing is that the customer is for sure under pressure. We saw the categories continue to normalize as well. But really most of what we're talking about for our outlook for Q4 is based on the fact that we saw softer although positive traffic in the September, October months. Speaker 200:46:34So that's what we have seen and that's what we have built into our guidance going forward. And your second part question, I'll hand to Eva. Speaker 100:46:41Sure, Matt. On the SG and A leverage, I would think about it as we need 3% to 5% growth To get that leverage going. Speaker 200:46:53And I think you had another part of your question embedded that had to do with sort of as we turn the corner and obviously we have a very big quarter in front of us. So we're looking forward to talking to you more about that as we get into 2024. Speaker 600:47:05Great. Best of luck. Speaker 200:47:07Thank you. Speaker 100:47:08Thanks, Matt. Next question? Operator00:47:12Thank you. Our next question is from Gabby Carbone with Deutsche Bank. Please proceed with your question. Speaker 200:47:19Good morning and thank you for all the color today. I was I was wondering if you can dig a little further into adjacency categories such as men's hair care and laundry. Are these categories driving in new customers? Or do you view them being more added to the basket. And then just on the laundry side, maybe how do you kind of view the addressable market there? Speaker 200:47:38Thank you. Thank you. Great question. Thank you, Gabby. On men's, we spoke about the fact that it's still low awareness. Speaker 200:47:49And while it's been growing double digit, we're leaning in to fuel that growth. So there's a marketing campaign we're undertaking right now that is meant to address the awareness piece. And so we've got an experiential tour out there. We're taking our men's shop on the road. The influencer campaign. Speaker 200:48:06We're inviting athletes and so forth to reach new audiences and fans. So we're quite excited about the men's opportunity. It is still a small percentage of our business today and so that's the kind of, obviously in part incremental from a customer point of view. That's on the men's side, a very big addressable market to your point, dollars 12,000,000,000 So penetrating there is very helpful as we reshape the portfolio specifically into the next year. The launch of hair has also outperformed. Speaker 200:48:41I mean We have gotten a great response to our fragrance led positioning there. In the Q2, we launched it in 5 60 stores, conference call, but we're going to complete the North American rollout in the spring of 2024. And while we are particularly excited because this attracts a new customer to Bath and Body Works considering that 14% of our Fragrant Hair Care customers are new to our brand. So while it's Too early to comment on the possible size of the business. I can tell you that we're confident in our positioning with the fragrance leadership as our point of differentiation in the category. Speaker 200:49:17And then finally, I think as it relates to your comment on laundry. Laundry, again, a very large addressable market at $14,000,000,000 And so we're excited about the potential there. We knew that our customers wanted to experience their favorite fragrances in multiple forms and certainly that is a differentiated Factor 4 for Bath and Body Works. And the customers have asked us for those laundry products. You may recall that we used our loyalty program to sort of canvass their ideas about what signature scents they wanted, for us to offer. Speaker 200:49:49And in the Q3, we did have the limited launch of it of Laundry. The feedback very, very positive because laundry detergent is an exciting new way to add another layer of favorite scent to the daily routine and that includes the fragrance boosters as well. So we're testing and optimizing the product as we do to prepare for expansion next spring. Gina, I would just add, you mentioned it, but just to sort of reiterate, The great thing about the new categories is they definitely bring new customers and they help to build the basket. So, we're very excited about rolling these out over the next year. Speaker 200:50:27Thank you, Julie. Great. Thank you so much. Speaker 100:50:31Thanks, Gabby. Next question, please. Operator00:50:35Thank you. Our next question is from Lorraine Hutchinson with Bank of America. Please proceed with your question. Speaker 100:50:41Thank you. Good morning. Speaker 200:50:43I was hoping you could provide some initial views on free cash flow drivers for next year. If you'd expect it to be similar to this year's $675,000,000 to 25 or if there are any puts and takes to that number and then how you expect to use that cash? Thank you, Lorraine. Nice to hear from you. I will ask Eva to provide color on that. Speaker 100:51:05Great. Lorraine, I would just reiterate what you said. This company generates a significant amount of cash. There is nothing unusual this year that I would call out that would be one time in nature. Our capital I would expect our CapEx to be generally in line with what we've spent in the past, dollars 300,000,000 to $3.50 And we continue to look for opportunities to generate cash, drive growth and generate Cash and work the balance sheet. Speaker 100:51:42So I will have more to say on our guidance on our Q4 call, but there's nothing to Drorle, I would just add, we evaluate the best ways to return capital to shareholders. Speaker 200:52:00Thank you. Speaker 100:52:04Thanks. Next question please. Operator00:52:07Thank you. Our next question is from Adrienne Yih with Barclays. Please proceed with your question. Speaker 700:52:13Yes. Thank you very much for taking my question. You have a great read and react promotional strategy and It's been very effective seemingly throughout the year to date period. When we think about the average unit retail And the merchandise margin, not a lot was spoken about the product margin itself and kind of recapture on promos. So that seems to still be on the table for 2024. Speaker 700:52:39If you could talk about that, that would be fantastic. Thank you. Speaker 200:52:43Thank you. Thank you, Adrienne. I will I'll take that question and might go to Julie as well. Our view on AURs, you're absolutely right. We have a read and react approach and this quarter is a perfect example of that. Speaker 200:52:58So based on what we saw, we expected flat AUR, we delivered that. Our agile model allows us to flex. And so we were pleased to optimize top line and bottom line, while not being more promotional than prior year. So that's certainly how we look at it. From a product margin perspective, I don't know if there's anything further that Julie you wanted to comment on. Speaker 200:53:19I mean, I would just say that we constantly are balancing the need to keep engagement and traffic strong with our desire to obviously increase price. And this to your point, our agile Our operating model really allows us to increase or decrease our promotional levels in a meaningful way. And we have a robust testing agenda that we're always testing for the best outcomes. Speaker 100:53:44And we always work on the cost side of the equation as you think about margins. To help drive improved margins. Speaker 700:54:01Okay, fantastic. Thanks very much and best of luck. Speaker 200:54:04Thank you. Speaker 100:54:06Thanks, Adrienne. Next question please. Operator00:54:09Thank you. Our next question is from Mark Altschwager with Baird. Please proceed with your question. Good morning. Thanks for taking the question. Operator00:54:18I guess just another one on promotions. I know you've been doing a lot of personalization tests. Hoping you could share a little bit more there. What's working? What are the key learnings? Operator00:54:26And is there any indication you have that the reduction in direct mail was a factor that contributed to the softening traffic and basket size trend? Thanks. And I have a follow-up on margin. Speaker 200:54:39Thank you. Thank you for the question, Mark. We are always testing and some of the things that we talked about in our agile model on AURs, I think speaks to that. The tests that we have that I alluded to are some of the things we're doing from a loyalty perspective. Conference call. Speaker 200:54:59We're seeing lots of data that suggests that when we customize offers and when we provide triggers and things, we can Actually use the data and insights from loyalty to better sharpen and optimize. But to your specific question on direct mail, conference? It did not. We think that is offsetting with loyalty finally, frankly, and so we don't expect that that was going to be a driver on our September traffic. Speaker 100:55:26And Gina, if I could just add one thing. As you think about our loyalty program, If we move a customer from redeeming one reward to more than 2 in a year, They were than double their spending in the store. So there's a tremendous amount of opportunity ahead of us As we test and learn, as Gina said, to drive value. Speaker 200:55:54Yes. I should say the loyalty platform is going to be Today, for sure, with all the enrollment speed, but as we push engagement even further, levering the tools that we've just been implementing, frankly, in the last 11 weeks, We see the spend, the engagement, the retention, the trips being a nice way to address the promo optimization as well. So you're absolutely right. Thank you, Eva for the comments on what redemption truly does, to drive customer annual spend. Operator00:56:24Very helpful. Thank you. And just following up on gross margin, you're guiding Q4 buying and occupancy leverage flat and that's with sales down, I guess, 1% to 5%. Do you expect continued efficiencies there next year? Or how should we be thinking about the leverage point on buying in occupancy for 2024? Operator00:56:44Thank you. Speaker 200:56:46Thank you, Mark, for the second Part of that question, I think we do have a big quarter ahead of us. So we're not really speaking specifically to 2024, but I'm not sure on B and L, if there's anything you'd like to add Eva. Speaker 100:56:56No. Mark, we're pleased that we're roughly flat in the 4th quarter. Obviously, it's our largest sales quarter and from a cost perspective, scaling that new customer fulfillment center, of course, helps with the leverage and we'll have more specifics as we head into next year. Speaker 200:57:20Thank you for the question. Speaker 100:57:23Thanks, Mark. Operator, I think we have time for one more question. Operator00:57:29Thank you. And our last question is from Dana Telsey with the Telsey Advisory Group. Please proceed with your question. Speaker 800:57:38Hi, good morning, everyone. As you think about the Performance in the Q3, the off mall locations versus on mall, was there any difference in terms of cadence or what you saw there? And then hi, Julie, As you think about the new launches that you have and the new product assortment, any thoughts on 2024 and what the launches will look like? And the launches that you introduced this year, how are prices would you say on average versus your core product? Thank you. Speaker 200:58:09Thank you, Dana. I'll go to Julie for both of those questions on the mall as well as the new product assortment. Hi, Dana. Nice to hear your voice. So as far as, the performance of mall versus, non mall, off malls outperformed mall stores. Speaker 200:58:25And just for a little more color, performance between the regions and the income cohorts were relatively uniform. As far as the new launches, they're all at various stages of rollout. So as Gina mentioned, hair is in about 30% of our stores. We will complete the North American rollout of Call. Laundry is in a small group of stores. Speaker 200:58:49We're looking to roll that. We'll let you know at the next earnings call how many stores we Actually, make it to with laundry. We're just in the midst of testing, optimizing and rolling as we don't want to disappoint any customers. And it's sort of the same with lip. We have this new lip fixture and a new lip assortment that we've been testing in a small group of stores and performance has been threefold off of those fixtures. Speaker 200:59:17So we're very Excited about that. We have a Lip Ritual, which is a scrub mask tint and we are To really go after these launches, roll them out and to your point about AUR, Gain the most AUR from the new categories that we possibly can. Speaker 100:59:45And Julie, I'd just like to come back to real estate a little more broadly as you talked about off mall. And Dana, just to remind you that our long term strategy is focused on off ball. Our goal is to be about 2 thirds of the portfolio. And our new stores continue to perform Extremely well. We have strong returns. Speaker 101:00:10Our payback remains about 2 years and Our real estate team has just been doing a tremendous job on an excellent real estate portfolio. Thank you. Speaker 801:00:27Thank you. Speaker 101:00:29Thanks, Dana, and thank you, everyone. Call. That concludes today's call. I want to thank you for joining us and extend our best wishes for the holiday season.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallBath & Body Works Q3 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) Bath & Body Works Earnings HeadlinesBath & Body Works (NYSE:BBWI) Given New $42.00 Price Target at The Goldman Sachs GroupApril 23 at 3:37 AM | americanbankingnews.comBath & Body Works Stock Short Interest Report | NYSE:BBWI | BenzingaApril 22 at 8:27 PM | benzinga.comCrypto’s crashing…but we’re still profitingMost traders are panicking right now. Bitcoin’s dropping. Altcoins are bleeding. The stock market’s a mess. The news is screaming fear. But while most traders watch their portfolios tank…April 25, 2025 | Crypto Swap Profits (Ad)Bath & Body Works has a major tariff advantage. Here's what that means for shoppersApril 22 at 8:00 AM | cnbc.comBath & Body Works Stock To 11?April 21, 2025 | forbes.comRaymond James Cuts Bath & Body Works (NYSE:BBWI) Price Target to $37.00April 20, 2025 | americanbankingnews.comSee More Bath & Body Works Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Bath & Body Works? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Bath & Body Works and other key companies, straight to your email. Email Address About Bath & Body WorksBath & 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.View Bath & Body Works ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Market Anticipation Builds: Joby Stock Climbs Ahead of EarningsIs Intuitive Surgical a Buy After Volatile Reaction to Earnings?Seismic Shift at Intel: Massive Layoffs Precede Crucial EarningsRocket Lab Lands New Contract, Builds Momentum Ahead of EarningsAmazon's Earnings Could Fuel a Rapid Breakout Tesla Earnings Miss, But Musk Refocuses and Bulls ReactQualcomm’s Range Narrows Ahead of Earnings as Bulls Step In Upcoming Earnings Cadence Design Systems (4/28/2025)Welltower (4/28/2025)Waste Management (4/28/2025)AstraZeneca (4/29/2025)Booking (4/29/2025)DoorDash (4/29/2025)Honeywell International (4/29/2025)Mondelez International (4/29/2025)PayPal (4/29/2025)Regeneron Pharmaceuticals (4/29/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. Start Your 30-Day Trial MarketBeat All Access Features Best-in-Class Portfolio Monitoring Get personalized stock ideas. Compare portfolio to indices. Check stock news, ratings, SEC filings, and more. Stock Ideas and Recommendations See daily stock ideas from top analysts. Receive short-term trading ideas from MarketBeat. Identify trending stocks on social media. Advanced Stock Screeners and Research Tools Use our seven stock screeners to find suitable stocks. Stay informed with MarketBeat's real-time news. Export data to Excel for personal analysis. Sign in to your free account to enjoy these benefits In-depth profiles and analysis for 20,000 public companies. Real-time analyst ratings, insider transactions, earnings data, and more. Our daily ratings and market update email newsletter. Sign in to your free account to enjoy all that MarketBeat has to offer. Sign In Create Account Your Email Address: Email Address Required Your Password: Password Required Log In or Sign in with Facebook Sign in with Google Forgot your password? Your Email Address: Please enter your email address. Please enter a valid email address Choose a Password: Please enter your password. Your password must be at least 8 characters long and contain at least 1 number, 1 letter, and 1 special character. Create My Account (Free) or Sign in with Facebook Sign in with Google By creating a free account, you agree to our terms of service. This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
There are 9 speakers on the call. Operator00:00:00Good morning. My name is Paul, and I will be your conference operator today. At this time, I would like to welcome everyone to the Bath and Body Works Third Quarter 2023 Earnings Call. Please be advised that today's conference is being recorded. I will now turn the call over to Ms. Operator00:00:20Heather Hollander, Vice President, Investor Relations at Bath and Body Works. Heather, you may begin. Speaker 100:00:27Call. Good morning, and welcome to Bath and Body Works' 3rd quarter 2023 earnings conference call. Today's call may contain forward looking statements related to future events and expectations. Please refer to this morning's press release and the risk factors in Bath and Body Works' 2022 Form 10 ks Call for factors that could cause the actual results to differ materially from these forward looking statements. Today's call contains certain non GAAP financial measures. Speaker 100:00:54Please 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. Joining me on the call today are Gina Boswell, Chief Executive Officer Julie Rosen, President, Retail and Eva Berrado, Chief Financial Officer. I'll now turn the call over to Gina. Speaker 200:01:16Thank you, Heather, and good morning, everyone. Thank you for joining us today. I'll start this morning with a review of our Q3 results, then discuss our view of the Q4, provide some initial perspective on fiscal year 2024 and discuss the progress our team has made in executing our strategy. Before we begin, I'd like to thank our teams who continue to deliver on our initiatives and commitments and control what we can control. Now for the results. Speaker 200:01:443rd quarter net sales were in line with the higher end of our expectations, declining 2.6% compared to the prior year and representing 100 basis points of sequential improvement versus 2nd quarter. The team delivered strong merchandise margin improvement and continued benefits from our cost optimization initiatives. In fact, our year over year merchandise margin rate increased 200 basis points in the Q3 and we generated flat AURs for average unit retail in line with our plan. From a category perspective in the Q3, sales of soaps and wallflowers increased versus the prior year, Body Care sales were flat and candles and sanitizers declined as expected. While we continue to see post pandemic normalization in candles and sanitizers, we held unit share in candles and gained unit share and sanitizers year to date. Speaker 200:02:42Throughout the Q3, we continue to demonstrate the strength of our seasonal merchandising and exceptional innovation and capabilities. We were pleased with our Halloween results delivering a 5% sales increase over last year's event. Our team remains focused on delivering newness with elevated single fragrance launches such as Luminess. Our men's business continued to outperform and customers responded positively to the addition of men's grooming to our product line. We're leaning into this growth opportunity with new marketing programs to drive increased awareness and customer acquisition. Speaker 200:03:18Call. Consistent with the trend of fragrance from head to toe, customers responded well to our launch of fragrant hair care, now in approximately 30% of our U. S. Stores. Finally, the limited launches of laundry and our new expanded lip collection also performed well, which Julie will discuss in a moment. Speaker 200:03:38Turning to sales, year over year trends improved at the beginning of the quarter with roughly flat sales in August driven by strong Halloween performance. Sales then softened in September October as the macroeconomic environment pressured consumer demand and we lapped the national launch of our loyalty program last year. Although we experienced positive traffic growth overall for the quarter, Traffic softened in September in line with mall and off mall traffic. Additionally, as expected, we continue to see the customer carefully managing their spending, which pressured basket size and conversion. Based on what we are seeing with the cautious consumer and continued market declines in 2 of our categories. Speaker 200:04:23We anticipate a continuation of softer top line trends in the Q4 and we are lowering our top line guidance for the full year. We are also raising the midpoint of our diluted earnings per share guidance to reflect merchandise margin outperformance and the benefits of our capital deployment in the Q3. Eva will provide more details in a moment. I also want to take the opportunity to provide some early views on 2024. We continue to invest and focus on building capabilities to better serve our customer and drive profitable growth. Speaker 200:04:58Keeping in mind where we are in the implementation process for our strategic initiatives, as well as the current macro environment and continued industry level category pressure, We see a path to positive sales growth in the second half of twenty twenty four. Of course, we'll continue to focus on driving efficiency in our business throughout 2024 as well. Looking out longer term as we execute our strategy and scale initial benefits from all the great work the team is doing, We are increasingly confident in our ability to achieve our sales and operating margin targets. Turning now to some of the progress we're making. We continue to focus on our 5 key growth drivers. Speaker 200:05:381st, elevating the brand through innovation and upgrades second, extending our reach through new category adjacencies and international growth third, deepening customer engagement through our loyalty program, enhanced technology and more personalization 4th, enabling a seamless omnichannel experience and finally, enhancing operational excellence to drive efficiency. Julie will speak to our progress in brand elevation and extending our reach, but first I'd like to expand on the other three. As we work to better engage with our customer, we have a tremendous opportunity to leverage sharper tools and more targeted marketing to attract new customers and increase spend and share of wallet with our existing customers. We are building technology capabilities to implement a more personalized targeted approach to marketing and promotions rooted in data analytics and customer segmentation. Through this work, we plan to acquire new customers and increase spend by incenting trial of new product, increasing cross channel and cross category shopping, growing basket size and driving incremental trips. Speaker 200:06:48This year, we've also increased our testing capacity to allow for greater agility. With our technology separation from Victoria's Secret substantially complete, we began testing personalized emails in the 3rd quarter, which allowed us to adjust email timing and offers to meet the customer mindset, while reducing reliance on broad based promotions such as direct mail. As we sharpen our approach to promotions and customize offers to the individual customer, we plan to drive incremental sales at a higher margin. For example, in the Q3, we shifted a portion of our direct mail spend toward new customer acquisition via digital marketing channels and we're already seeing positive results. Our loyalty program is another critical tool for engaging with our customers and meeting them where they are. Speaker 200:07:39In August, we anniversaried the national launch of our loyalty program. Since the launch, we've had industry leading enrollment speed. We have nearly 41,000,000 members and loyalty sales represent approximately 3 quarters of our U. S. Sales since the national launch. Speaker 200:07:56Though our speed of enrollment has been impressive and we continue to grow our loyalty member base, we are still only in the early stages of leveraging the program and driving member engagement. We increased engagement this quarter by offering our 1st loyalty member appreciation days with early access to exclusive shopping events and offers and testing loyalty accelerators starting with a double point today designed to move customers closer to reward redemption, which drives higher customer value. As we test more loyalty benefits in the future such as Call. Cheering and flexible rewards, we are confident in our ability to deepen customer engagement and increase both sales and merchandise margin. Next, we are enabling a seamless omni channel experience. Speaker 200:08:43Though we have a strong profitable digital business, We have a significant opportunity to drive future growth by moving from a largely transactional website and app to more personalized experiential and integrated platforms. By adding personalized landing pages, immersive content and product recommendations, we plan to drive higher sales, more discovery and larger baskets. Speaker 100:09:09In the Speaker 200:09:09Q3, we added personalized product recommendations based on shopping behavior and a customized header to welcome recognized users by name and highlight their loyalty account balances. We also implemented a customer retention pilot powered by machine learning, which drove 7% greater retention for the targeted audience. To target customers who were inactive or who had abandoned their carts, call. We tested new retention and win back offers, which increased sales. Importantly, Beauty and Personal Care customers value a seamless omnichannel experience. Speaker 200:09:46By reducing friction throughout the customer journey from browse to shop to purchase and offering convenient options like buy online, pick up in store or BOPIS as well as Instacart and buy now, pay later, we can convert more single customers to dual channel customers, which on average increases spend threefold. Focus orders increased approximately 50% in the 3rd quarter versus last this year as customers continue to opt for convenience. When picking up their order, approximately 30% of BOPIS customers made an additional purchase in store, a testament to the power of the omni channel model. This quarter, we also added social proofing matches on our website, highlighting trending and best selling products as well as those products with limited supply. Given our customers' strong desire to obtain their preferred fragrances, we knew that alerting them to decreasing availability would incent them to lock in a purchase. Speaker 200:10:48Having implemented these initiatives to improve our omni channel experience, digital conversion inclusive of BOPIS increased of 4% in the Q3 versus the Q2. Finally, we are enhancing operational excellence and efficiency to $200,000,000 of planned annual cost savings across the company. We are on track to deliver approximately 150,000,000 of those savings in 2023. And Eva will share additional details in a moment. As I touched on earlier, the customer has been cautious and managing their spending amidst macroeconomic pressure, but we are still driving positive traffic and customers are responding to newness, Innovation and our compelling seasonal events. Speaker 200:11:31We are taking action to deliver innovation and build the capabilities Call that will allow us to drive long term profitable growth even amidst external pressures. As we enter the critical holiday season, we are well positioned with a clean inventory position, a compelling product assortment, gifts at a variety of price points, call, a transported store experience and stores that are staffed and ready to serve and an omnichannel model that allows customers to shop whenever and however they want. Bath and Body Works has a strong foundation with leading market share, top brand awareness and a competitive advantage in our vertically integrated supply chain, which allows us to respond quickly to changing trends. We have a healthy balance sheet, strong free cash flow generation and balanced capital allocation plans. Despite what remains a challenging macroeconomic environment, the initial results we're seeing from the implementation of our strategic initiatives gives us even more confidence in our ability to reach our $10,000,000,000 sales target and deliver industry leading operating income margins of 20% conference call over time. Speaker 200:12:38I'd like to conclude by saying a big thank you to our outstanding partners and teams, especially our store and distribution center associates during this busy holiday season. They do a terrific job delivering a great experience to our customers and dedicating themselves to executing on our strategic initiatives. With that, I'll turn the call over to Julie. Thank you, Gina. I'd like to go a level deeper in reviewing the results and trends in the Q3 and provide an update on the progress we're making in elevating our brand and extending our reach to accelerate growth. Speaker 200:13:13As Gina mentioned, we started the Q3 with a strong Halloween with event sales increasing 5% over last year's event. We positioned our Halloween assortment at the front of our stores for the first time to give it additional prominence. We also expanded customer favorites Conference Call. We also launched a new brand new, elevated accessories that met the customer mindset. Notably, our higher priced premium accessories such as the Carriage Luminary priced at $99.95 and the Wallflower Carriage Heater priced at $39.95 were especially popular and sold out quickly. Speaker 200:13:54The Q3 is also the time of the year when customers turn to us for our iconic fall fragrances, which are always a favorite. The customers responded well to top fragrances such as leaves, pumpkin pecan waffles and sweater weather in multiple forms and packaging. Turning to category performance. Soaps, including our new formulation made without paraben, sulfates or dyes, performed well in the Q3, posting low single digit growth. Additionally, we rolled out foaming hand soap refills and cycle paper cartons to all U. Speaker 200:14:31S. Stores in July, allowing customers to conveniently refill and reuse their soap containers. Body Care sales were flat for the quarter. The category continues to be supported by growth in Fine Fragrance Mist, as well as our men's business, which posted a high single digit sales increase this quarter and remains one of our fastest growing product lines as we add new forms and merchandising ideas. We launched men's grooming last quarter, customer response as Gina noted. Speaker 200:15:12We continue to be very excited about the growth of our men's business as it is introducing new customers to our brand and attracting the attention of younger customers. We're also infusing newness into the collection with our latest single fragrance launch, Woodlands. Despite strong year to date growth, our men's offering has relatively low awareness amongst consumers. We see a significant opportunity to drive increased awareness and additional growth in this $12,000,000,000 market, and we have multiple marketing campaigns planned to showcase our compelling assortment and acquire new customers. Conference Call. Speaker 200:15:51Wallflowers also performed well in the 3rd quarter, posting low single digit growth, driven by strong fall fragrance selling and increased Call. Candles and sanitizers both declined versus last year as expected, driven by continued Industry wide post pandemic normalization trends. We remain a market leader in both candles and sanitizers, and we have held unit share in candles and gained unit share in sanitizers year to date even as the categories experience pressure at the industry level. Turning to our strategic initiatives, I'd like to provide some detail on how we're making progress in elevating our brand and extending our reach to accelerate growth. This quarter, we continue to deliver innovation and elevation in product and Merchandising. Speaker 200:16:45For our latest single fragrance product, Luminess, we positioned the launch at the front of the shop in October. Conference call. This was an intentional earlier move in the calendar to meet the customer mindset and better align with the industry. Luminess has elevated Call. This is a bold gift worthy packaging perfect for the holiday season. Speaker 200:17:08As we work to extend our reach, we're leveraging our core strengths in fragrance and innovation to expand into adjacent categories, including fragrant laundry, lip and hair care. Call. In the Q3, we had a limited launch of our laundry line and many of our best selling fragrances across 10 stores and online. Laundry has attracted new customers to the brand and the feedback has been overwhelmingly positive, with customers noting that our laundry detergent is an exciting new way to add another layer of their favorite scent to their daily routine. We are testing and optimizing the product to prepare for expansion next spring. Speaker 200:17:51Lip products have attracted new younger customers to our brand and represent an opportunity to expand our customer base. To capture this opportunity, we have relaunched our in store assortment and the visual presentation of our lip products across a limited number of stores. The new ritual based assortment and presentation posted triple digit sales lift compared to our previous lip offering, and we plan to complete the rollout of this fixture and expanded assortment to all North American stores by the fall of 2024. Additionally, our Fragrant Hair Care line now in 560 stores continues to exceed our expectations. We plan to complete the North American rollout in the spring of 2024. Speaker 200:18:39We're particularly excited about this line's ability to attract a new customer to Bath and Body Works, considering that 14% of Fragrant Hair Care customers are new to our brand. We're also committed to extending our reach internationally and continue to explore opportunities to build on the success of our asset light profitable franchise model. As we look ahead to the Q4, this is always an exciting time of the year and we have a mix of returning holiday favorites and new giftable offerings. Our theme for the holiday season is storybook. The concept is threaded throughout the stores and online channels providing a magical and Sensory filled journey for customers. Speaker 200:19:24As an affordable luxury brand, we have gifts at all price points. As we further expand our loyalty program and introduce compelling new product assortments, we're confident we will continue to deepen our relationships with our existing customers and attract new customers to our brand. In closing, I'd like to thank our teams for delivering an standing experience to our customers and for their work to position us well for the upcoming holiday season. And with that, I'll turn it over to Eva. Speaker 100:19:56Thank you, Julie, and good morning, everyone. Today, I'll start by reviewing our Q3 financial results, Then I'll provide an overview of our Q4 fiscal year 2023 guidance as well as some initial perspective on 2024. Starting with Q3 results, we reported adjusted diluted earnings per share of $0.48 call, exceeding our guidance of $0.30 to $0.40 per diluted share. Our adjusted results exclude the $12,000,000 pretax gain on the early extinguishment of debt associated with the repurchases in the Q3. We are pleased with our ability to leverage both quarter. Speaker 100:20:40Gross profit and SG and A this quarter. EPS also benefited from interest expense favorability associated with the repurchase and retirement of debt. Net sales for the Q3 were 1,600,000,000 in line with the high end of our expectations. The year over year decline of 2.6% was driven by a decrease in both average dollar sale and transactions. AURs were flat in the quarter as expected. Speaker 100:21:12In U. S. And Canadian stores, 3rd quarter net sales totaled $1,200,000,000 a decrease of approximately 1% versus the prior year. 3rd quarter direct net sales were $317,000,000 a decrease of 8% compared to last year. Adjusted for BOPUS, direct demand decreased 5% in the 3rd quarter. Speaker 100:21:38As a reminder, BOPIS sales are recognized as store sales and we completed the BOPIS rollout to U. S. Stores in the Q1 of 2023. International net sales were $77,000,000 and declined 5% versus last year. On a year to date basis, international net sales increased 1%. Speaker 100:22:02As a reminder, there are 2 components to our international net sales. Royalties collected from franchise retail sales and wholesaler revenue generated by the product we sell to our franchise partners. Our total international system wide retail sales again posted double digit growth in the 3rd quarter. However, quarter. Wholesaler revenue declined as our partners manage their inventory level. Speaker 100:22:31Also, since the conflicts that began in the Middle East in October, sales for certain franchise partners have been pressured. We continue to monitor the event and consumer sentiment in the region and support our partners accordingly. 3rd quarter gross profit rate increased 140 basis point compared to prior year, a sequential improvement of 2 30 basis points from 2nd quarter. This represents our first gross profit rate expansion in 9 quarters. Merchandise margin rate improved 200 basis points year over year driven by $40,000,000 of deflation benefits, lower product costs and reduced transportation costs. Speaker 100:23:18The margin expansion was partially offset by continued investments in product formulation and packaging innovation. Improvements in merchandise margin were also partially offset by buying and occupancy expense deleverage, call, primarily due to lower sales and increased occupancy expense from new store growth. Total Call. 3rd quarter SG and A leveraged by 20 basis points versus last year and represented a sequential improvement of 220 basis points from the Q2. SG and A leverage was driven by the benefits of our cost optimization initiative as well as approximately $10,000,000 of marketing and technology investments shifting to the 4th quarter. Speaker 100:24:09Our cost optimization work across both gross profit and SG and A delivered benefits of approximately $45,000,000 in the quarter. Taking all of this into consideration, 3rd quarter total operating income was 221,000,000 call for 14.1 percent of net sales. Turning to the balance sheet. We repurchased $174,000,000 senior notes principal for $161,000,000 in the quarter. We remain disciplined with inventory management and ended 3rd quarter with quarter. Speaker 100:24:45Total inventory dollars down 5% compared to last year. Heading into the holiday season, our inventory levels are well positioned. Now turning to real estate, our overall portfolio, the majority of which is off mall, We made additional progress increasing our off mall penetration, opening 25 new off mall North American stores and permanently closing 6 mall stores in the quarter. And internationally, our partners opened 16 new stores in the 3rd quarter ending the quarter with 4 58 stores. Moving to our financial guidance, we are providing 2023 guidance with comparisons to 2022. Speaker 100:25:48As a reminder, fiscal 2023 includes the 53rd week, so the Q4 of fiscal 2023 will consist of 14 weeks. The impact of the 53rd week reflected in our guidance is estimated release of nearly $85,000,000 of sales and $0.05 of earnings per diluted share. And our guidance excludes the impact of any future debt for share repurchase activity. Now for the Q4, we expect sales to decline 1% to 5%, reflecting continued soft consumer spending and post pandemic category normalization across the industry. The company is very adept at quickly reading and reacting, and we will leverage our vertically integrated supply chain Call. Speaker 100:26:43We remain focused on enhancing our operational excellence and plan to deliver approximately $50,000,000 in cost savings in the 4th quarter. Approximately 35% of the savings are related to reduced transportation expense with the remainder coming from other elements of our program, including efficiency in store labor and selling productivity as we approximately 44% as we continue to expect about 100 basis points of year over year merchandise margin rate improvement. Our Q4 includes approximately $55,000,000 of deflation benefit as well as efficiencies produced by our cost optimization work. We anticipate these benefits will be partially offset by investments in formulation and packaging upgrades to reinforce our competitive position. We expect roughly flat buying and occupancy expense Speaker 200:28:05as a percent of Speaker 100:28:14Our 4th quarter guidance assumes an SG and A rate of approximately 22% with deleverage driven by higher marketing spending as we activate new programs to drive customer acquisition and Technology Investment to drive future growth. As a reminder, approximately $10,000,000 of marketing and technology spending shifted from the Q3 to the Q4. We expect non operating expense of approximately $75,000,000 reflecting interest expense favorability from debt repurchases through the end of the third quarter. We are forecasting an effective with a tax rate of approximately 26% and weighted average diluted shares outstanding of approximately 228,000,000. For the Q4, our earnings per diluted share guidance is $1.70 to 1.90 Turning to our full year outlook, I'll highlight the revisions to our previous guidance. Speaker 100:29:18We are now forecasting sales declines of 2.5% to 4% versus prior year. We now expect full year Call. We have completed net non operating expense of approximately $290,000,000 and weighted average diluted shares outstanding of call. $229,000,000 We are revising our adjusted earnings per diluted share guidance for fiscal year 2023 to $2.90 to $3.10 increasing the midpoint of our guidance. Additionally, we anticipate ending the year with slightly elevated inventory levels compared to the prior year as we prepare to expand new product launches to additional stores. Speaker 100:30:07We continue to expect free cash flow of $675,000,000 to $725,000,000 in fiscal year 2023. Looking at capital allocation, our first priority is investing in the business to drive profitable growth. We are also committed to returning excess cash to shareholders. In the 1st 9 months of the year, we paid 1 Call. $137,000,000 in dividend and plan to continue paying an annual dividend of $0.80 per share with an intention to increase the dividend over time as earnings increase. Speaker 100:30:44In the Q3, we repurchased 1,400,000 shares for $50,000,000 in the open market. In addition to returning cash to shareholders, We are committed to returning to our target leverage ratio of approximately 2.5 times adjusted Gross debt to EBITDAR over time. We ended fiscal 2022 with a leverage ratio of 3.1 Call. And through the Q3 of this year, we have repurchased $373,000,000 of principal amount of our senior notes in the open market. We will continue to take a balanced approach to capital allocation considering options such as additional debt and share repurchases. Speaker 100:31:31Now I'd like to take a moment to build on Gina's earlier comments regarding our initial perspective on fiscal 2024. We expect that the softer macroeconomic backdrop and category normalization trend will continue into the year. At the same time, we are building capabilities and launching products designed to drive customer acquisition, sales growth and operating income margin expansion, even amidst modest macroeconomic pressure and category normalization. As you know, we began testing many of these strategic initiatives in the 3rd quarter and we plan to scale them through the first half of the year. Our personalized marketing and loyalty programs will build through the year, which we expect will drive improvements in customer for retention and acquisition. Speaker 100:32:27We also plan to drive growth through our product adjacencies, including call, building greater awareness of our men's line and extending the rollout of fragrant hair care, laundry and lip. Conference Call. Fragrance is top of mind for customers and we are leaning into our position as a fragrance market leader with this portfolio expansion. As these capabilities are fully implemented and benefits build throughout 2024, We see a path to positive sales growth in the second half of the year. We also expect operating income margin to be supported by continued input costs, deflation and the benefits of our cost optimization work. Speaker 100:33:15In conclusion, we remain focused in the business and managing through a dynamic environment with agility. We are well positioned as we approach the upcoming holidays and look forward to serving our customers during this important season. At this time, we'd be happy to take your questions, and I'll turn it over to Heather for Q and A. Thanks, Eva. For our Q and A session, we ask that participants limit their responses to one question and one follow-up. Speaker 100:33:53We'll now move to the Q and A session. Operator? Operator00:33:58Thank you. We'll now be conducting a question and answer One moment please while we poll for questions. Thank you. Our first question is from Simeon Siegel with BMO Capital Markets. Please proceed with your question. Speaker 300:34:31Thanks. Good morning, everyone. Nice quarter. Hope you and your families are okay during these challenging times. So how are you guys thinking about the timeline for the post pandemic candle normalization because that's an interesting point. Speaker 300:34:42So just any thought on how close we are to that healthy reset? And then for my follow-up, if Ken, just really nice job on the gross margins. Maybe run through a bit more why the Q4 gross margin wouldn't see a similar or even a higher benefit, just given increasing deflation benefits, better expected B and O, the extra week and the general trajectory you're on. So just thinking through that gross margin a bit. Thank you. Speaker 200:35:04Good morning, Simeon. It's Gina. Thank you for the question. I would like to first go to Julie to talk about the category normalization reset and then we Speaker 100:35:12will of the EBA for Speaker 200:35:13the gross margin benefits in the Q4. Good morning, Simeon. I hope you and your family are well too. Call. As far as the candle normalization, I really cannot circle a date on the calendar for you and in fact no one Call. Speaker 200:35:29That being said, I just want you to know that we are innovating in these categories. We are still the market leader as we hold our dominant market share in candles and we gained market share in sanitizers year to date and we are also working very hard to diversify our sales mix. Speaker 100:35:49Great. So now I'll take the gross margin question, Simeon. And we are quite pleased with our continued progress in delivering Strong and improving gross margins. A couple of things that I'll highlight. In the Q4, We expect about $55,000,000 of deflation to benefit our merchandise margin rate, and we'll continue to invest in our formulation and packaging upgrades. Speaker 100:36:18Overall, we continue to expect merchandise margin to expand about 100 basis points and we expect to have flat AURs in the quarter. On a positive, in the 4th quarter. We're expecting roughly flat buying and occupancy as we scale our new customer fulfillment center and that ramps. And recognizing we're not improving as much as Q3, as you can appreciate the Q4 is a big quarter for us. There's a lot of volatility given the holiday season, and we'll continue to pull on all the levers we can to drive our gross margins. Speaker 300:36:59Great. Thanks so much. Best of luck for the rest of the year and the holiday season. Speaker 100:37:02Thank you. Thank you. Thanks, Simeon. Next question, please. Operator00:37:06Thank you. Our next question is from Alex Stratton with Morgan Stanley. Please proceed with your question. Speaker 400:37:12Perfect. Thanks a lot for taking the question. I wanted to start with just the sales outlook for next year. I know you guys have had a couple of years of post COVID reversion. You're talking about that back timeline to returning to growth. Speaker 400:37:26So can we just go through kind of what gives you confidence in that happening at that time period or what's underpinning that? And then my second question is just on the long term EBIT margin target. You provided that nice bridge earlier this year on the 2019 to 2022 dynamics. I'm wondering if you can kind of walk us through where we're at this year and then kind of the puts and takes to get back to that 20% over time and if you have a timeline? Thanks a lot. Speaker 200:37:53Good morning. Thank you, Alex, for the question. I will be happy to take the first part about the sales inflection and then I'll ask Eva to give color on the long term sort of EBIT margin. As you know and we commented in our remarks, we are facing softer consumer trends. So In September, we saw the traffic pressure for the first time this year as the macro environment impacted our customer. Speaker 200:38:17And while October traffic was positive, the growth was lower than what we had seen year to date through August. So we have softer positive traffic. So through the year, We've seen consistently that the customer has been carefully managing their spending and that has pressured basket size and conversion. And then as Julie just commented, we continue to have the industry level category normalization that impacts our candles and sanitizers business. So we do expect those dynamics to continue into 2024. Speaker 200:38:45But at the same time, you asked about the confidence level about when that would inflect. And while we can't circle a date either, we are building capabilities and we're launching products that are designed to drive the customer acquisition and the sales growth as well as the operating income margin expansion even amidst that modest This is macro pressure and category normalization that we could expect. As you know, we began testing many of the strategic initiatives in the 3rd quarter. Once we completed our separation from Victoria's Secret 11 weeks ago and we're very pleased with what we C. We expect those will drive improvements over time and build and compound in customer retention and acquisition. Speaker 200:39:27We also plan to drive growth through those product adjacencies, including building greater awareness, as Julie mentioned on our men's line, doing and extending the rollout of our fragrant hair care, laundry and lip collections. So we're quite encouraged by the early benefits we're we're seeing in test and early stage deployment and that gives us confidence in the opportunity ahead. So once those capabilities are fully implemented and we see those benefits build, We see a path to positive sales growth in the second half of twenty twenty four. And then over to you, Eva. Speaker 100:40:00Great. Thanks, Gina. So We remain very focused on driving toward that 20% OI target operating income ratio with Gross profit is at 45% and SG and A at 25% leverage. Ultimately, the capabilities that Gina spoke about and the product adjacencies are expected to drive both top and bottom line growth. As you think about our cost reduction initiative, we remain on track to deliver our $200,000,000 annually And we remain focused on finding additional efficiencies in the business to both drive those Improvements as well as fuel investments for growth. Speaker 100:40:51So we will continue to focus on all of the levers we can to get to those targets. Thank you. Thanks, Alex. Next question, please. Operator00:41:05Thank you. Our next question is from Paul Lejuez with Citi. Please proceed with your question. Speaker 500:41:11Hey, thanks guys. I'm sure you have a range of outcomes as you think about 2024 top line. You mentioned potential inflection in the second half. I'm curious how confident you are in achieving EBIT margin expansion in 'twenty four across those range of top line outcomes. And if you could, if there's any We should keep in mind in terms of the major tailwinds in terms of basis points, would love to hear that from you. Speaker 500:41:42And I'm curious also if you Could you just comment on what you're seeing quarter to date, if you could share that? Thanks. Speaker 200:41:50Okay. Thank you. Thanks Paul for the question. First, We'll go to Eva around the margin and then come back to your question on the quarter. Speaker 100:41:58Yes. As you can appreciate, we have a pretty significant quarter ahead of us And we're really focused on driving performance in the Q4 and delivering on the expectations. So we'll have more to say on specific as it relates to 2024 on our earnings call. A couple of things I will highlight, one I just mentioned, but I'll mention it again. We're really confident in our ability to Deliver our cost savings initiatives of $200,000,000 as we wrap into next year. Speaker 100:42:36And from a technology perspective, you heard us continuously We expect that the spend will remain elevated to support the initiatives in the growth capabilities, but we'll certainly have more to provide as we hit our year end earnings call. Speaker 200:42:53Thank you. I think you covered both. Thank you. Speaker 100:42:59Thanks, Paul. Next question please. Operator00:43:02Thank you. Our next question is from Kate McShane with Goldman Sachs. Please proceed with your question. Speaker 100:43:09Hi, good morning. Thanks for taking our question. I wanted to ask about the investment in product formulations in the quarter. Was that for any specific product? And should the product formulation and packaging innovation investment just be considered as ongoing? Speaker 100:43:23Or is it a higher level this year than maybe what we can expect for next year? Speaker 200:43:28Thank you, Kate, for the question. I will I'll be happy to take that and ask maybe Julie to chime in a bit. The product formulations that we've been doing really throughout, Conference Call. The notable one, of course, that we've spoken about earlier this year is around our soaps, which are now free of parabens, sulfates, etcetera. Operator00:43:49This is Speaker 200:43:49an ongoing aspect to our overall strategy about elevating the brand and and the product and packaging and even some of the packaging that you saw with our most recent single fragrance launch on Luminess, which I think depicts the fact that we're investing in the product as we need due to make sure that we elevate and meet the customer for the innovation component of that. Anything further, I'll ask Julie to speak about because This is an important part of our strategy going forward. Yes, I think from an Investment perspective, we also have invested in some other formulas. We're in the process now of finishing the rollout of our shower gel, which is also in a cleaned up formula. I will say that we also believe that we have the ability to grow our AURs over Conference Call. Speaker 200:44:38The brand has a very strong track record of low single digit AUR growth and we believe we will get back to that. Thank you. Speaker 100:44:52Okay. Thanks, Kate. Next question, please. Operator00:44:56Thank you. Our next question is from Matthew Boss with JPMorgan. Please proceed with your question. Speaker 600:45:02Great. And thanks for all the helpful color. So 2 part question. Gina, I guess first, what do you attribute to the softening in September October? And then maybe if you take that, Could you just elaborate on what you're assuming from both the macro and category level in this bridge from the front half of next year to the back. Speaker 600:45:23And then Eva, as we think about the balance between the continued tech investments and the cost savings, What is the fixed cost leverage point in the business? Or what sales growth do you need to leverage SG and A going forward? Speaker 200:45:39Great. Thank you. So thanks, Matt. Great to hear from you. I think, as I mentioned in September October, well really We were quite encouraged actually in August starting pretty strong with nearly flat. Speaker 200:45:52But then in September, we saw the traffic, for the first time swing negative and then bouncing back a bit in October. We did lap the loyalty launch, but really we also saw Just pressure overall on the customer and certainly consistent pressure on the basket size as well. So what we are seeing is that the customer is for sure under pressure. We saw the categories continue to normalize as well. But really most of what we're talking about for our outlook for Q4 is based on the fact that we saw softer although positive traffic in the September, October months. Speaker 200:46:34So that's what we have seen and that's what we have built into our guidance going forward. And your second part question, I'll hand to Eva. Speaker 100:46:41Sure, Matt. On the SG and A leverage, I would think about it as we need 3% to 5% growth To get that leverage going. Speaker 200:46:53And I think you had another part of your question embedded that had to do with sort of as we turn the corner and obviously we have a very big quarter in front of us. So we're looking forward to talking to you more about that as we get into 2024. Speaker 600:47:05Great. Best of luck. Speaker 200:47:07Thank you. Speaker 100:47:08Thanks, Matt. Next question? Operator00:47:12Thank you. Our next question is from Gabby Carbone with Deutsche Bank. Please proceed with your question. Speaker 200:47:19Good morning and thank you for all the color today. I was I was wondering if you can dig a little further into adjacency categories such as men's hair care and laundry. Are these categories driving in new customers? Or do you view them being more added to the basket. And then just on the laundry side, maybe how do you kind of view the addressable market there? Speaker 200:47:38Thank you. Thank you. Great question. Thank you, Gabby. On men's, we spoke about the fact that it's still low awareness. Speaker 200:47:49And while it's been growing double digit, we're leaning in to fuel that growth. So there's a marketing campaign we're undertaking right now that is meant to address the awareness piece. And so we've got an experiential tour out there. We're taking our men's shop on the road. The influencer campaign. Speaker 200:48:06We're inviting athletes and so forth to reach new audiences and fans. So we're quite excited about the men's opportunity. It is still a small percentage of our business today and so that's the kind of, obviously in part incremental from a customer point of view. That's on the men's side, a very big addressable market to your point, dollars 12,000,000,000 So penetrating there is very helpful as we reshape the portfolio specifically into the next year. The launch of hair has also outperformed. Speaker 200:48:41I mean We have gotten a great response to our fragrance led positioning there. In the Q2, we launched it in 5 60 stores, conference call, but we're going to complete the North American rollout in the spring of 2024. And while we are particularly excited because this attracts a new customer to Bath and Body Works considering that 14% of our Fragrant Hair Care customers are new to our brand. So while it's Too early to comment on the possible size of the business. I can tell you that we're confident in our positioning with the fragrance leadership as our point of differentiation in the category. Speaker 200:49:17And then finally, I think as it relates to your comment on laundry. Laundry, again, a very large addressable market at $14,000,000,000 And so we're excited about the potential there. We knew that our customers wanted to experience their favorite fragrances in multiple forms and certainly that is a differentiated Factor 4 for Bath and Body Works. And the customers have asked us for those laundry products. You may recall that we used our loyalty program to sort of canvass their ideas about what signature scents they wanted, for us to offer. Speaker 200:49:49And in the Q3, we did have the limited launch of it of Laundry. The feedback very, very positive because laundry detergent is an exciting new way to add another layer of favorite scent to the daily routine and that includes the fragrance boosters as well. So we're testing and optimizing the product as we do to prepare for expansion next spring. Gina, I would just add, you mentioned it, but just to sort of reiterate, The great thing about the new categories is they definitely bring new customers and they help to build the basket. So, we're very excited about rolling these out over the next year. Speaker 200:50:27Thank you, Julie. Great. Thank you so much. Speaker 100:50:31Thanks, Gabby. Next question, please. Operator00:50:35Thank you. Our next question is from Lorraine Hutchinson with Bank of America. Please proceed with your question. Speaker 100:50:41Thank you. Good morning. Speaker 200:50:43I was hoping you could provide some initial views on free cash flow drivers for next year. If you'd expect it to be similar to this year's $675,000,000 to 25 or if there are any puts and takes to that number and then how you expect to use that cash? Thank you, Lorraine. Nice to hear from you. I will ask Eva to provide color on that. Speaker 100:51:05Great. Lorraine, I would just reiterate what you said. This company generates a significant amount of cash. There is nothing unusual this year that I would call out that would be one time in nature. Our capital I would expect our CapEx to be generally in line with what we've spent in the past, dollars 300,000,000 to $3.50 And we continue to look for opportunities to generate cash, drive growth and generate Cash and work the balance sheet. Speaker 100:51:42So I will have more to say on our guidance on our Q4 call, but there's nothing to Drorle, I would just add, we evaluate the best ways to return capital to shareholders. Speaker 200:52:00Thank you. Speaker 100:52:04Thanks. Next question please. Operator00:52:07Thank you. Our next question is from Adrienne Yih with Barclays. Please proceed with your question. Speaker 700:52:13Yes. Thank you very much for taking my question. You have a great read and react promotional strategy and It's been very effective seemingly throughout the year to date period. When we think about the average unit retail And the merchandise margin, not a lot was spoken about the product margin itself and kind of recapture on promos. So that seems to still be on the table for 2024. Speaker 700:52:39If you could talk about that, that would be fantastic. Thank you. Speaker 200:52:43Thank you. Thank you, Adrienne. I will I'll take that question and might go to Julie as well. Our view on AURs, you're absolutely right. We have a read and react approach and this quarter is a perfect example of that. Speaker 200:52:58So based on what we saw, we expected flat AUR, we delivered that. Our agile model allows us to flex. And so we were pleased to optimize top line and bottom line, while not being more promotional than prior year. So that's certainly how we look at it. From a product margin perspective, I don't know if there's anything further that Julie you wanted to comment on. Speaker 200:53:19I mean, I would just say that we constantly are balancing the need to keep engagement and traffic strong with our desire to obviously increase price. And this to your point, our agile Our operating model really allows us to increase or decrease our promotional levels in a meaningful way. And we have a robust testing agenda that we're always testing for the best outcomes. Speaker 100:53:44And we always work on the cost side of the equation as you think about margins. To help drive improved margins. Speaker 700:54:01Okay, fantastic. Thanks very much and best of luck. Speaker 200:54:04Thank you. Speaker 100:54:06Thanks, Adrienne. Next question please. Operator00:54:09Thank you. Our next question is from Mark Altschwager with Baird. Please proceed with your question. Good morning. Thanks for taking the question. Operator00:54:18I guess just another one on promotions. I know you've been doing a lot of personalization tests. Hoping you could share a little bit more there. What's working? What are the key learnings? Operator00:54:26And is there any indication you have that the reduction in direct mail was a factor that contributed to the softening traffic and basket size trend? Thanks. And I have a follow-up on margin. Speaker 200:54:39Thank you. Thank you for the question, Mark. We are always testing and some of the things that we talked about in our agile model on AURs, I think speaks to that. The tests that we have that I alluded to are some of the things we're doing from a loyalty perspective. Conference call. Speaker 200:54:59We're seeing lots of data that suggests that when we customize offers and when we provide triggers and things, we can Actually use the data and insights from loyalty to better sharpen and optimize. But to your specific question on direct mail, conference? It did not. We think that is offsetting with loyalty finally, frankly, and so we don't expect that that was going to be a driver on our September traffic. Speaker 100:55:26And Gina, if I could just add one thing. As you think about our loyalty program, If we move a customer from redeeming one reward to more than 2 in a year, They were than double their spending in the store. So there's a tremendous amount of opportunity ahead of us As we test and learn, as Gina said, to drive value. Speaker 200:55:54Yes. I should say the loyalty platform is going to be Today, for sure, with all the enrollment speed, but as we push engagement even further, levering the tools that we've just been implementing, frankly, in the last 11 weeks, We see the spend, the engagement, the retention, the trips being a nice way to address the promo optimization as well. So you're absolutely right. Thank you, Eva for the comments on what redemption truly does, to drive customer annual spend. Operator00:56:24Very helpful. Thank you. And just following up on gross margin, you're guiding Q4 buying and occupancy leverage flat and that's with sales down, I guess, 1% to 5%. Do you expect continued efficiencies there next year? Or how should we be thinking about the leverage point on buying in occupancy for 2024? Operator00:56:44Thank you. Speaker 200:56:46Thank you, Mark, for the second Part of that question, I think we do have a big quarter ahead of us. So we're not really speaking specifically to 2024, but I'm not sure on B and L, if there's anything you'd like to add Eva. Speaker 100:56:56No. Mark, we're pleased that we're roughly flat in the 4th quarter. Obviously, it's our largest sales quarter and from a cost perspective, scaling that new customer fulfillment center, of course, helps with the leverage and we'll have more specifics as we head into next year. Speaker 200:57:20Thank you for the question. Speaker 100:57:23Thanks, Mark. Operator, I think we have time for one more question. Operator00:57:29Thank you. And our last question is from Dana Telsey with the Telsey Advisory Group. Please proceed with your question. Speaker 800:57:38Hi, good morning, everyone. As you think about the Performance in the Q3, the off mall locations versus on mall, was there any difference in terms of cadence or what you saw there? And then hi, Julie, As you think about the new launches that you have and the new product assortment, any thoughts on 2024 and what the launches will look like? And the launches that you introduced this year, how are prices would you say on average versus your core product? Thank you. Speaker 200:58:09Thank you, Dana. I'll go to Julie for both of those questions on the mall as well as the new product assortment. Hi, Dana. Nice to hear your voice. So as far as, the performance of mall versus, non mall, off malls outperformed mall stores. Speaker 200:58:25And just for a little more color, performance between the regions and the income cohorts were relatively uniform. As far as the new launches, they're all at various stages of rollout. So as Gina mentioned, hair is in about 30% of our stores. We will complete the North American rollout of Call. Laundry is in a small group of stores. Speaker 200:58:49We're looking to roll that. We'll let you know at the next earnings call how many stores we Actually, make it to with laundry. We're just in the midst of testing, optimizing and rolling as we don't want to disappoint any customers. And it's sort of the same with lip. We have this new lip fixture and a new lip assortment that we've been testing in a small group of stores and performance has been threefold off of those fixtures. Speaker 200:59:17So we're very Excited about that. We have a Lip Ritual, which is a scrub mask tint and we are To really go after these launches, roll them out and to your point about AUR, Gain the most AUR from the new categories that we possibly can. Speaker 100:59:45And Julie, I'd just like to come back to real estate a little more broadly as you talked about off mall. And Dana, just to remind you that our long term strategy is focused on off ball. Our goal is to be about 2 thirds of the portfolio. And our new stores continue to perform Extremely well. We have strong returns. Speaker 101:00:10Our payback remains about 2 years and Our real estate team has just been doing a tremendous job on an excellent real estate portfolio. Thank you. Speaker 801:00:27Thank you. Speaker 101:00:29Thanks, Dana, and thank you, everyone. Call. That concludes today's call. I want to thank you for joining us and extend our best wishes for the holiday season.Read morePowered by