NYSE:BBWI Bath & Body Works Q2 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$0.40Consensus EPS $0.33Beat/MissBeat by +$0.07One Year Ago EPS$0.52Bath & Body Works Revenue ResultsActual Revenue$1.56 billionExpected Revenue$1.56 billionBeat/MissMissed by -$5.19 millionYoY Revenue Growth-3.60%Bath & Body Works Announcement DetailsQuarterQ2 2024Date8/23/2023TimeBefore Market OpensConference Call DateWednesday, August 23, 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 Q2 2024 Earnings Call TranscriptProvided by QuartrAugust 23, 2023 ShareLink copied to clipboard.There are 11 speakers on the call. Operator00:00:00Morning. My name is Ted, and I will be your conference operator today. At this time, I would like to welcome everyone to the Bath and Body Works Second Quarter 2023 Earnings Conference Call. Please be advised that today's conference is being recorded. I will now turn the call over to Ms. Operator00:00:19Heather Hollander, Vice President, Investor Relations at Bath and Body Works. Heather, you may begin. Speaker 100:00:26Thank you. Good morning, and welcome to Bath and Body Works' Q2 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 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 100:00:53Please 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 Borado, Chief Financial Officer. I'll now turn the call over to Gina. Speaker 200:01:14Thank you, Heather, and good morning, everyone. Thank you for joining us today. Before I discuss our performance and progress in the quarter, I'd like to thank our teams for consistently delivering terrific service to our customers, remaining agile in a dynamic environment and executing on our strategic initiatives. We're also very pleased to have welcomed Eva Barado As Bath and Body Works' new CFO at the beginning of this month, she is a seasoned executive with over 3 decades of Financial, operational and retail experience and she's already hit the ground running. You'll of course hear from Eva on today's call. Speaker 200:01:52Now moving on to our Q2 results. Net sales were in line with our expectations, declining 3.6% compared to the prior year. Adjusted diluted earnings per share of $0.40 were better than planned, with the majority of the outperformance driven by the benefits of our cost optimization initiatives increased average unit retails or AURs and improved merchandise margin. In fact, Year over year merchandise margin rate increased modestly for the first time in 9 quarters. I continue to be very pleased with our team's ability to drive With the completed rollout of Speaker 300:02:41our new hand soaps, all of Speaker 200:02:43which are formulated without parabens, sulfates and dyes, Continued delivery of newness through our gingham fragrance collection, the addition of grooming to our men's offering, the successful limited launch of our new Fragrant Care Care line in July, which has received a very positive response from customers. And finally, the launch of hand soap refill cartons in July, providing our customers with a convenient sustainable solution. We were also pleased with our Mother's Day results and executed well in our June semiannual sale, delivering merchandise margin rates above our expectations. From a category perspective in the Q2, our body care sales increased versus the prior year. Home fragrance and soaps and sanitizers sales declined as expected driven by post pandemic normalization. Speaker 200:03:35Importantly, Year to date, we've increased unit share across these product categories. As expected, we continue to see some pressure on basket size during the quarter. To be clear, we aren't seeing any trade down in our business, but we've observed that the customer is carefully managing their spending against the backdrop of a challenging macroeconomic environment. As we look ahead to the remainder of the year, we remain focused on delivering innovation and building capabilities to position our company for above industry growth when our categories normalize. Our revenue is approximately 40% above 2019 levels and we have diverse We're making progress on the 5 key areas that I outlined on our Last call. Speaker 200:04:281st, elevating the brand through innovation and upgrades to our forms, packaging and merchandising. 2nd, extending our reach through adjacencies and international growth. 3rd, engaging with our customers by fully leveraging the strength of our loyalty program, enhanced technology and more personalization 4th, enabling a seamless omnichannel experience by advancing our digital platforms and connecting them with our stores and finally, enhancing operational excellence to drive efficiency. Julie will speak to our progress in brand elevation and extending our reach in a moment, but I'd like to dig a little deeper on the other three. So turning to our work to better engage with our customer. Speaker 200:05:11We are deepening our connection across the customer journey, building on our history of connecting with the customer through fragrance, outstanding products and a terrific shopping experience, whether online or in store. Our customer segmentation analysis identified the customer groups that represent our biggest growth opportunities and has given us a better understanding of their unique needs These insights are now informing our innovation, merchandising and marketing and enabling us to be more effective and efficient in reaching our target customer segments. We're also building our technology capabilities to implement a more personalized targeted approach the marketing and promotions rooted in data and analytics. Through this work, we plan to increase trial of new product, Encourage cross channel and cross category shopping, build the customer's basket and drive incremental trips. Now that we have successfully completed the vast majority of our IT separation from Victoria's Secret, we will begin testing personalized marketing and optimize promotions this fall, then apply these capabilities more broadly and derive more value from them beginning next year. Speaker 200:06:24Our loyalty program continues to be a key component of customer engagement. This August, we anniversaried the national launch of our loyalty program And we remain pleased with our enrollment of nearly 38,000,000 members with loyalty sales representing approximately 3 quarters of our U. S. Sales since launch. While we'll continue to build on our impressive enrollment, our primary focus is on increasing engagement. Speaker 200:06:51For example, In the Q2, we not only invited our loyalty members to vote for the featured fragrances in our laundry product, We then gave them exclusive access to a preview sample event. Next, we gave our loyalty members a sneak preview of our Halloween collection and an exclusive early Halloween shopping event prior to the national launch. We have more benefits And we're excited to test new capabilities such as accelerators in the Q3. Beyond that, we're focused on fully integrating our loyalty experience throughout We are still in the early innings of our loyalty program and we are confident in our ability to drive more sales and improve merchandise margin, while attracting more customers to the program. Moving to the next area of focus, which is enabling a seamless omnichannel experience. Speaker 200:07:42Although we have a strong profitable digital business, our digital assets are largely transactional. As we move to more Experiential integrated platforms, we plan to drive higher sales, more discovery and larger baskets through personalized landing pages, immersive content and product recommendations. In the Q2, we introduced personalized recommendations on our website and mobile app. This month, we'll begin to deliver personalized e mail content. Later in the Q3, we plan to test immersive video content on our website and mobile app with a broader launch plan for the Q4. Speaker 200:08:20As you know, we completed our national rollout of buy online, pickup in store or BOPIS in the Q1. BOPIS orders increased 25% in the 2nd quarter as customers are increasingly choosing this convenient option. And approximately 30% of BOPUS customers made an additional purchase in store when they picked up their order, which is a testament to the power of the outstanding in store experience delivered by our talented associates, iconic fragrances and compelling assortments. Delivering a seamless omnichannel experience will allow us to convert more single channel customers to dual channel customers, which on average increases spend threefold. Finally, we are enhancing operational excellence and efficiency through $200,000,000 of planned annual cost savings across the company. Speaker 200:09:11We are on track to deliver approximately $150,000,000 of those savings in 2023 and Eva will share additional details on our plans for in the second half of the year shortly. Eva will also provide an update to our fiscal 2023 guidance, which reflects our bottom line in the Q2 and sales expectations for the second half of the year. As I touched on earlier, the customer has been cautious in managing their spending amidst the softer macroeconomic backdrop. However, they are still responding to newness, innovation and our compelling seasonal events. We are taking action to deliver innovation and build the capabilities that will allow us to better serve our customers, drive above industry growth and deliver margin expansion. Speaker 200:09:59Bath and Body Works has a highly differentiated business model positioned at the intersection of consumer goods and retail and a strong fleet of profitable stores, both off mall and in mall that position us close to the customer. We have a vertically integrated supply chain, which allows us to respond quickly to changing customer and macro trends, along with a strong balance sheet and a history of superior growth and free cash flow generation. As we navigate macroeconomic pressures, I am confident that we have a diverse set of opportunities to profitably grow the business and create value for our shareholders, building on the strong foundation that exists today. With that, I'll turn the call over to Julie. Speaker 300:10:43Thank you, Gina. We started the Q2 with a strong Mother's Day, delivering newness with our gingham all back of collection and a strong gifting assortment. As you know, our vertically integrated supply chain allows us to read and react to trends quickly and we leveraged this capability as we chase winners and delivered additional inventory to meet customer demand. As Gina mentioned, we executed well in our June semiannual sale and we're pleased to deliver merchandise margin rates above Our expectation. We were very intentional in structuring this year's event to drive early interest by offering compelling price points on sale product and introducing full price new summer season product alongside the event. Speaker 300:11:31We then took Fewer markdowns over the course of the event and delivered better than expected merchandise margin rate. Turning to category performance. 2nd quarter Body Care sales increased slightly versus last year, a sequential improvement from the Q1. Body Care was propelled by growth in Fine Fragrance Mist, Travel as well as our men's business, which posted a double digit sales increase this quarter and remains one of our fastest growing product lines as we add new forms and merchandising ideas. At the beginning of the quarter, we launched men's grooming, which performed well and exceeded our expectations. Speaker 300:12:13We're very excited about the growth of our men's business as it is bringing in new customers to our brands and also garnering the attention of younger customers. The home fragrance and soaps and sanitizers categories both declined versus last year as expected driven by Continued industry wide post pandemic normalization trend, which we have discussed previously. Sales for the home fragrance and soaps and sanitizers categories collectively represent just over half of our business. We remain market leaders in these categories and have gained unit share year to date even as the categories experience pressure at Speaker 400:12:55the industry Speaker 300:12:57We remain focused on innovating and positioning for future growth in these categories. For example, Wallflowers once again outperformed candles as customers are spending less time at home. We are leaning into the demand by increasing our assortment of scent control wallflower heaters and offering decorative Innovations such as the projection wallflowers in our Halloween collection, which illuminate and project festive images. Turning to our strategic initiatives. As Gina mentioned, I'll provide some detail on how we're making progress in elevating our brand and extending our reach to accelerate growth. Speaker 300:13:41This quarter, we continued to deliver innovation in product and merchandising. This was visible in our refreshed core hand soap offering, including the completed rollout of our new formulation made without parabensulfates or dyes. Additionally, we have rolled out foaming hand soap refills and with Cyclable paper cartons to all U. S. Stores, allowing customers to conveniently refill their soap containers and minimize waste. Speaker 300:14:13Beyond Soap, we're innovating and elevating our product and packaging while staying true to the brand heritage. For example, this month we brought back fan favorite, Cocoa Shea and Water in new and elevated packaging and formulation. We also added a sensitive skin product with colloidal oatmeal. This ingredient led collection is Expansion of our wellness category and intended to provide the additional moisture, hydration and sensitive skin solutions that And within merchandising, we're evolving our storytelling to broader inspirational brand storytelling, including recommendations for selecting and using the product, as well as creating the perfect gift. We demonstrated elements of this within our which was designed to be an immersive shopping experience. Speaker 300:15:09This included new fragrances in gorgeous, Fresh, vibrant and gingham legend for men across multiple forms as well as front of store and digital takeovers and beautiful gifting options. As we work to extend our reach, we're leveraging our core strength in fragrance Innovation to expand into adjacent categories, including fragrant hair care, men's, wellness and laundry. We're also building on the success of our international business. As I mentioned, this quarter we expanded our men's product Portfolio to include grooming. The first stage of our expansion focused on face and beard care and launched in the advance of Father's Day. Speaker 300:15:56In September, we are expanding into men, hair and shaving. As part of our ongoing innovation cycle, we tested fragrant hair care products last summer and we're very pleased with the customer response to our Fragrance led positioning. In the Q2, we launched hair care in approximately 560 stores and online with shampoo and conditioner in 5 of our signature scents and dry shampoo in 3. The launch has exceeded our expectations And we plan to complete the rollout to all U. S. Speaker 300:16:32Stores next spring. This month, we're excited to elevate the mundane With the launch of our laundry line, including many of our best selling fragrances across a limited number of stores and online, Initial customer feedback from our previous sample event has been very positive with customers noting that our laundry detergent is an citing new way to add another layer of their favorite scent to their daily routine. As we work broaden our customer base and attract a younger customer, we know that lip products represent an important opportunity. Therefore, we're upgrading, expanding and relaunching our in store assortment and visual presentation of our lip product across the limited number of stores this fall with additional expansion to follow early next year. With the addition of Fragrant Hair Care, Laundry and Lifts, we are now able to offer our iconic fragrances across as many as 22 product forms. Speaker 300:17:35We are also committed to extending our reach geographically And continue to evaluate opportunities to build on the success of our international business and drive significant growth through further market expansion, new stores and digital growth with our partnership based model. As we look ahead to the Q3, we are Very excited about the launch of Halloween. We launched Halloween 1 week later this year to better align with the customer mindset. For the first time, we are placing this assortment at the front of our stores to give it additional prominence and we're expanding our most loved Scents such as Vampire Blood across categories. For our fall assortment and scents, we've listened to the customers and are bringing back our iconic fall scent such as leaves and pumpkin pecan waffles in new and elevated packaging. Speaker 300:18:31And for Hispanic Heritage Month, we are featuring a perfumer series celebrating Patti Hidalgo and her long standing contribution to our fragrance portfolio, including customer favorite strawberry pound cake. Bath and Body Works is an outstanding beloved brand and we are excited about what's ahead as we continue to deliver new compelling products and capitalize on opportunities for profitable global expansion. In closing, I'd like to thank our teams for their Speaker 500:19:13Thank you, Julie, and good morning, everyone. I'm excited to join you today and honored to be part of this outstanding company. Over the past several weeks, I spent my time immersing in the business while engaging with the executive leadership and finance team. I've also had the opportunity to participate in the financial planning process and observe the progress the teams have made on the company's The last few weeks have reinforced my belief that Bath and Body Works is on the right path to capitalize on the tremendous opportunities ahead and create significant long term value for shareholders. Today, I'll start by reviewing our 2nd quarter financial results, then I'll provide an overview of our guidance for the Q3 fiscal year 2023. Speaker 500:20:07Starting with the 2nd quarter results, we generated Adjusted diluted earnings per share of $0.40 exceeding our guidance range of $0.27 to $0.32 per diluted share. Our adjusted results exclude the gain on the early extinguishment of debt associated with the debt repurchases in the 2nd quarter. We were pleased with our 2nd quarter operational outperformance resulting from the benefits of our cost optimization initiatives, increased AURs and improved merchandise margin. EPS also benefited from interest expense favorability in part associated with the repurchase and retirement of debt in the 2nd quarter and tax rate favorability, resulting from the resolution of certain discrete tax matters related to the Victoria's Secret spin off. Net sales for the Q2 were $1,600,000,000 in line with our expectations. Speaker 500:21:10The year over year decline of 3.6% was driven by a decrease in both transactions and average dollar sale. In U. S. And Canadian stores, 2nd quarter sales totaled $1,100,000,000 a decrease of 1% versus the prior year. 2nd quarter direct sales of $329,000,000 decreased 10% compared to last year. Speaker 500:21:39Adjusted for BOPIS, direct demand decreased 6% in the 2nd quarter. As a reminder, BOPIS sales are recognized as store sales and we completed the BOPIS rollout to U. S. Stores in the Q1. International sales were $86,000,000 and declined 4% versus last year. Speaker 500:22:02Note on a year to date basis international sales increased 4%. There are 2 components to our international net sales, Royalties collected off franchise retail sales and wholesale revenue generated by the product we sell to our franchise partners. And while wholesale revenue declined in the 2nd quarter due to lower orders and shipments, total international system wide retail sales posted a double digit increase propelled by new store openings and strong sales for the June semiannual sale event. Our guidance for the back half of the year assumes that our international net sales return to growth. Our gross profit rate for the 2nd quarter decreased by 90 basis points compared to prior year Q2, representing a year over year sequential improvement of 255 basis Merchandise margin rate improved modestly year over year for the first time in 9 quarters. Speaker 500:23:09This improvement was driven by deflation benefit, increased AUR and reduced transportation costs, partially offset by continued investment in product formulations and packaging innovation. Improvements in merchandise margin were offset by buying and occupancy expense deleverage, primarily due to lower sales and increased occupancy expense from new store sales growth sales. Total SG and A deleveraged by 200 basis points, representing a year over year sequential improvement of 90 basis points from the Q1. Technology expense was the biggest driver of deleverage, reflecting our IT separation costs as well as strategic investments to drive future growth. As Expected, we partially mitigated the impact of technology investments with our cost optimization work, which produced efficiency in store labor hours and home office expense. Speaker 500:24:17All said, Our cost optimization work produced benefits of approximately $30,000,000 in the quarter across gross profit and SG and A. 2nd quarter total company operating income was $188,000,000 or 12% of net sales. Turning to the balance sheet, we repurchased $115,000,000 senior notes principal for $106,000,000 in the quarter. We remain focused on disciplined inventory management and ended the 2nd quarter with total inventory dollars down 16% compared to last year. Heading into the second half of the year, our inventory levels are well positioned. Speaker 500:25:03Our overall real estate Portfolio remains very healthy with 99% of the fleet profitable and stores significantly outperforming pre In the second quarter, we continued to increase our off mall penetration, opening 30 new off mall North American stores and permanently closing 17 stores, principally in malls. Our international business, our partners opened 16 new stores in the 2nd quarter, ending the quarter with 4 44 stores. Now turning to our fiscal 2023 guidance, We are providing our 2023 guidance with comparisons to 2022. And as 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 at $0.07 per diluted share. Speaker 500:26:13And our guidance excludes the impact of any further debt or share repurchase activity. With that as context, we are updating our fiscal year guidance to reflect Q2 performance, narrowing our sales range, raising our gross profit expectations and factoring in the benefits of the debt and share repurchases through the 2nd quarter, resulting in an increase to our EPS guidance. Now let me provide some additional color on these changes. For the full year, we now expect sales declines of 1.5% to 3.5%, reflecting our year to date performance, Continued macroeconomic uncertainty, judicious consumer spending and post pandemic category normalization across the industry. For the 1st two quarters of the year, our sales were in line with the midpoint of our projections. Speaker 500:27:13Factoring in year to date performance and improved visibility, we are narrowing our sales range around the midpoint of our prior guidance. The company is very adept at quickly reading and responding to changing business trends, and we plan to leverage that agility to chase demand and maximize sales. We are enhancing our excellence and efficiency and plan to deliver approximately $100,000,000 in cost savings in the second half of the year. Approximately 30% of the savings are related to reduced transportation expense with the remainder reflecting of our program, including efficiency in store labor and selling productivity as we better align staffing hours to traffic, Reduced expense as we optimize our call center, home office expense efficiency and decreased indirect spend. Gross margin exceeded our expectations in the first half of the year and we are now raising our forecast for Full year gross margin rate to approximately 43%. Speaker 500:28:30We continue to expect Year over year merchandise margin rate to improve in the second half of the year, supported by greater deflation benefits and efficiency produced from our cost optimization work. These benefits are partially offset by investments in formulation and packaging upgrades to reinforce our competitive position. Overall, We expect merchandise margin rate to expand by approximately 100 basis points in the second half of the year versus prior year, resulting in improved merchandise margin rate for the full year. We still expect buying With less deleverage for the remainder of the year as our new direct to consumer fulfillment center ramps, Our guidance still assumes a full year SG and A rate of approximately 26% with deleverage driven by lower sales level, Technology expense and increased store wage rate, partially offset by the expected benefits of our cost optimization work. We now expect full year adjusted net non operating expense of approximately 295,000,000 reflecting interest expense favorability from debt repurchases through the end of the second quarter. Speaker 500:30:04We still expect an effective tax rate of approximately 26% and weighted average diluted shares outstanding of approximately $230,000,000 For the fiscal year 2023, we are increasing our adjusted earnings Per diluted share guidance range to $2.80 to 3 point $300,000,000 to $350,000,000 of capital expenditures in 2023. And we now expect to generate free cash flows of $675,000,000 to $725,000,000 in fiscal 2023. Turning to our Q3 2023 outlook, we are forecasting sales declines of 2.5% to 4% versus the prior year. We expect gross profit rate of approximately 42% and SG and A rate of approximately 31% of sales. We expect net non operating expense of approximately $75,000,000 and a tax rate of approximately 26% and weighted average diluted shares outstanding of approximately $229,000,000 Considering all these factors, we are forecasting 3rd quarter earnings per diluted share of $0.30 to $0.40 Looking now at our capital allocation, our first priority is investing in the business to drive profitable growth. Speaker 500:31:38We are also committed to returning cash to shareholders. In the 1st 6 months of the year, We paid $92,000,000 in dividend and we plan to continue paying an annual dividend of $0.80 per share with an intention to increase the dividend over time as earnings increase. In the second quarter, we also repurchased 1,300,000 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 growth Adjusted debt to EBITDAR over time. We ended 2022 with a leverage ratio of 3.1 times And through the Q2 of the year, we have repurchased $199,000,000 principal amount of our senior notes in the open market. Speaker 500:32:37We will continue to take a balanced approach to capital allocation considering options such as additional debt and share repurchases. In conclusion, I'm excited about the future of our business and we're focused on taking the necessary actions to drive profitable growth and generate value for all stakeholders. At this time, we'd be happy to take your questions and I'll turn it over to Heather for Q Speaker 100:33:05Thanks, Eva. For our Q and A session, we ask the participants limit their responses to one question and one follow-up. We'll now move to the Q and A session. Operator? Speaker 600:33:25The Operator00:33:26first question in the queue is from Kate McShane with Goldman Sachs. Your line is open. Speaker 700:33:31Hi, good morning. Thanks for taking our questions. It was really encouraging to see that you grew AURs in the quarter. We wondered if you could talk to us a little bit more about this and what role it plays in your updated guidance today? Speaker 300:33:48Yes. So from an AUR perspective, this is Julie by the way. Speaker 800:33:53Thank you for the question. Speaker 300:33:56We actually, as you know, semiannual sales plays a huge role in our Q2. We took a very balanced approach to driving sales and improving merchandise margins. So our semi annual sales event sales were below last year's event, but in line with our expectations. We executed well. We offered compelling price points on sale products, while also introducing Full price new summer season product alongside the event. Speaker 300:34:26The customers responded very favorably to our event. They continue to carefully manage their spending in light of macroeconomic conditions, which had an adverse effect on the impact of the number of items added to the basket. Ultimately, we took fewer markdowns over the course of the event and delivered better than expected merchandise margin rate. I would also say that, AUR increased slightly this quarter and remained significantly elevated since 2019. And as a note on pricing, we have taken price increases in spring 2023. Speaker 300:35:08We've created more differentiated assortments to drive pricing power. As a reminder, our AUR has increased Slightly this quarter, but significantly compared to 2019. And we do have a long track record of AUR growth And positive low single digit levels prior to the pandemic. Speaker 500:35:29And Julie, if I could just add, as it pertains to our guidance, We are assuming flat AURs in the back half of the year and we'll continue to test for opportunities to increase AURs as Julie has just Speaker 700:35:51And then if we could just follow-up with a question on the candle soaps and sanitizers. Can you talk about what that category looks like on a stack Or versus 2019 and just how it performed also versus Q1? Speaker 300:36:07Yes. Thank you for that question. So Though the home fragrance and substance sanitizers categories are normalizing post pandemic, we have gained unit Chair year to date and we are a market leader in these categories and plan to build on that position. We do continue to innovate and position for growth Speaker 200:36:27in these Speaker 300:36:28Categories, for example, wallflowers, as I mentioned, continue to outperform, so we're leaning into that demand. We also recently refreshed our core soap offering, including the completed rollout of our new formulation made without parabensulfates And dyes and additionally rolled out our foaming hand soaps and recyclable cartons. So we are absolutely focused on our core businesses and innovating in them to drive growth. To 2019, all categories are up significantly In the double digits. So no category is below. Speaker 100:37:09All right. Thanks, Kate. We'll take the next question, please. Operator00:37:13Next question in the queue is from Alex Straton with Morgan Stanley. Your line is open. Speaker 900:37:18Great. Thanks so much for taking the question. I've got 2 for you, 1 on guidance and then one on the longer term outlook. So on guidance, it seems like the full year update implies a deceleration in quarter over growth in the 4th quarter. I think a little bit lower sales than prior. Speaker 900:37:36So what's driving that more conservative view on the 4th quarter? And then secondly, on the long term, I know you guys have that 20% EBIT margin target out there. What do you view as the key factors holding you below that rate Right now and how do you think about the time line to getting back to that goal in the future? Thanks a lot. Speaker 500:37:59Alex, this is Eva. I'll start with your question as it pertains to the Q4 guidance. As you look at our back half of the year guidance first, right, and our full year guidance, What we've done is we've narrowed our sales range to the midpoint of what we had previously provided. And that really reflects our performance that we've seen in the 1st two quarters that were in line with our performance. And it also reflects the cautious consumer. Speaker 500:38:34And while we haven't seen trade downs In our business, we are seeing the consumer be more thoughtful at the overall basket size. So as we have this visibility, there's a lot of macro uncertainty. That's how we thought about the top line in the back half of Speaker 200:38:54the year. And as it relates it's Gina. As it relates to your question around the 20% operating income margin long term, There's a few things. We feel very comfortable that as a long term target, that's the right one. 20% is the best in class operating income rate for our sector. Speaker 200:39:15And we don't want to limit ourselves to 20%, but we do think that that number over time best Balance is the investment in the business to drive future growth while maximizing shareholder return. And clearly in the last Couple of years, there have been step function increases in input costs and labor and certain parts of our business like technology. They require additional investments Our growth and those are very important as we evolve our marketing program, our loyalty and our omni channel. But I'm pleased with The track that we have on our initiatives, I'm pleased with what we expect in terms of margin recovery and a very disciplined approach to expenses. So very comfortable with that. Speaker 100:40:01Thanks a lot. Thanks, Alex. We'll take the next question. Operator00:40:07Next question is from Ike Boruchow with Wells Fargo. Your line is open. Speaker 600:40:12Hey, good morning, everyone. I guess I wanted to ask a question around costs And your AUC more so into next year, can you comment about some of your key raw materials, primarily soy, What those costs look like today? How they should flow into the P and L come next year? Just curious for some high level thoughts over the next 12 months there? Thanks. Speaker 500:40:36Hi, Ike. This is Eva Barado. From a deflation perspective, We saw we experienced about $20,000,000 of deflation in the Q2 and we expect $30,000,000 in Q3. 3. We expect that benefit to increase throughout the remainder of this year. Speaker 500:41:01As you look at raw materials, I'll just add a few comments. Overall, we did See most prices peak in 2022, with expected deflation in 2023. Wax has been an outlier with significant price volatility up and down year to date. We saw a spike in Soy over the past 60 days with some concerns over dry weather impacting the crop. We've seen an impact being smooth via commodity risk mitigation processes. Speaker 500:41:41And I think there are the key things that I would highlight. I think it's premature to comment on what we expect in 2024 and we'll certainly come back As we are ready to provide our 2024 outlook. Speaker 600:41:59Great. Thank you. Speaker 100:42:03All right. Thanks, Ike. Next question, please. Operator00:42:06Next question is from Dana Telsey with the Telsey Group. Your line is open. Speaker 1000:42:13Hi. Good morning, everyone. As you think about the new products that you're introducing, Julie, and What the gross margins could look like on some of the new products? Is there any difference from the core gross margin to the business overall? And then the loyalty members, any more color on the loyalty members and their acceptance of the new products and what statistics you're looking to hit And then just lastly on the off mall stores, anything you're seeing at all in terms of productivity rates, Anything with what we've heard with Organized Crime and Shrink and what you're doing? Speaker 1000:42:50Thank you. Speaker 300:42:52Thanks. Thanks, Dana. Nice to hear your voice. So starting with the new products, we have launched a lot of adjacencies We see that we are starting to test optimize enroll. So I just want to review them very quickly and then I'll talk to your margin question about them. Speaker 300:43:13So in men's, as you know, in the Q2, we successfully launched men's grooming and in September, we're following with men's hair and shave. We continue to focus on APDO as it is the number one form in the men's market. And men's continues to be our fastest growing category in Body Care. The men's margin is commensurate with the SHOP, so we're very excited about that. Fragrant Hair Care in the 2nd quarter was launched to 5 60 stores and online in July and the launch has We exceeded our expectations and we expect to complete that rollout to all stores next spring. Speaker 300:43:51We also have Lyft as we work to broaden our customer base and attract the younger customer. We're upgrading, we're expanding and we're relaunching our in store assortment and visual presentation of our lip products across a limited number of stores in the Q3. Additional expansion will happen next year. And then finally, of course, there's laundry, which we are very excited about to be launching this month across a limited number of stores and online. So initial customer feedback from our preview sample event has been very positive with customers noting that our laundry detergent is an exciting way to add another layer of their favorite scent to their daily routine. Speaker 300:44:34So some of those adjacencies are measured with Schott from a margin perspective, others are not quite there yet, but we have a long standing history here at Bath and Body Works As you've seen with Wallflowers and 3 Wick over the years that with scale, we have no doubt that we will get there. So, I will skip to the shrink question, if that's okay, and then I will have Gina come back to your loyalty question, if that works. So, as is the case with other retailers, we have seen, external pressures adversely impacting our shrink rates and it has gotten worse this year. That being said, the impact has been factored into our guidance And we are working with our stores, with government and community partners to achieve lower loss rates over time. So I'll let Gina talk to loyalty. Speaker 200:45:29Thank you. So loyalty is as you know, we're very proud of one of the best rollouts in Bath and Body Works' In terms of the enrollment speed among the facets in the industry. So we're very pleased with the enrollment to date. And as I mentioned, we are early stages of deriving the value from the program, but some of the things that Julie had mentioned in terms of the previews that we've used, whether it's the laundry or the sneak preview of Halloween, we absolutely use the loyalty platform in ways to build The excitement around some of the launches, and we will continue to do that. The benefits that we have planned going forward on new capabilities like accelerators, which you may see in other programs that's happening in Speaker 300:46:12the Q3. So that's sort Speaker 200:46:14of on the come. And then this Actually this month, we have our 1st annual member appreciation event because we're celebrating the 1 year anniversary. So you'll be seeing a lot of surprise and delight product drops. You'll see first looks, exclusive offers to reward our loyal Customer. So lots going on in loyalty, and with the 38,000,000 members strong, that's a lot to work with. Speaker 200:46:37So we're excited on the go forward there. And I think you may have had a question around off mall as well on and actually we're quite Please Julie can chime back in, but we're quite pleased with the traffic both in mall and off mall. And the off mall sales performance Exceeds the in mall, but the traffics are actually quite good. Julie, did you want to add anything about in mall? Speaker 300:47:03No. I think that you have absolutely answered that question. We do have opportunities with new stores as they continue Yes, drive a great return for Speaker 1000:47:18us. Thank you. Speaker 100:47:19Thank you. Next question, please. Operator00:47:23Next question is from Matthew Boss with JPMorgan. Your line is open. Speaker 400:47:29So Gina, could you speak to Categories of relative improvement that you saw throughout the Q2. And then maybe as you just assess The performance of some of the new category launches and early feedback maybe relative to the normalization curve that you spoke to around candles and soaps and sanitizers. Just trying to put together or maybe bridge the path forward, any way to think about a timeline to Return to low to mid single digit same store sales and the multi year long term target? Speaker 200:48:04Sure. We can talk to normalization as well. Julie, you might want to start with the home fragrance and Speaker 300:48:13I actually, why don't I talk to you about category performance relative to overall performance Just to give you a gauge of what's happening in our business and then talk to you about how we're thinking about the back half. So Body Care was our top performing category this quarter and with positive sales propelled by fine fragrance mist, Travel and double digit growth in the men's business. I think the exciting thing about Fine Fragrance Mist is we just came out of Mother's Day And that is what we hope to sell during Mother's Day. Our home fragrance performed below the shop With declines driven by pressure in candles, as was expected, we know this is an industry wide trend as the category continues to normalize Post pandemic. Wallflowers performed above the shop and better than candles because we are seeing people fragrance their homes in different ways. Speaker 300:49:13I do want to mention we are still the market leader in this category and we continue to gain unit share versus masks even as the category experiences broader pressure. And then from a soaps and sanitizers Just tearing those apart, I just want you to know that soaps performed in line with SHOP. We Our rollout as I said of our new formulations as well as our new foaming hand soap refills. It was sanitizers that performed well below shop as that category continues to normalize and this is a broader And we continue to gain unit share versus mass in both soaps and sanitizers. So our back App is really assuming similar trends and we're not really speaking to 24 right now. Speaker 200:50:10Yes. I was Matt, thank you for the question. I was only going to say that we're not speaking 24, we did see normalization. We have baked in continued normalization into the back half of the year and as well as the macro Sure. 2, our intent and our strategy that we undertake are absolutely building the capabilities to build above industry and growth going forward. Speaker 200:50:35We're pleased with gaining unit share in the categories that we have as they decline. And quite frankly, we're leaning into some of the pandemic trends that we believe will endure, Right. So there's areas like wellness and self care. We can have categories contract, but we can take our fair share or more. And then hang on to the ones that sort of we can grow further from there. Speaker 200:50:57And given our track record, I feel comfortable that we'll continue to do that gaining market share and building the capabilities for future growth so that when our categories normalize and our macroeconomic backdrop We will have the customer that are frequent as you know they come in, they replenish and that's why from a personal perspective I think unit share is a wonderful Operator00:51:28Yes. The next question is from Lorraine Hutchinson with Bank of America. Your line is open. Speaker 100:51:33Thank you. Good morning. The new guidance implies Speaker 200:51:43also the sustainability of these gains into next year? Thank you. Speaker 300:51:49So, hi, Lorraine, it's Julie. From Speaker 200:51:53a promotional Speaker 300:51:57perspective, We are actually looking at promotions being in line with last year. As you know and have We are incredibly, incredibly agile in our promos. So when we need to add something in, we do. And when we need to pull something We do. So we see it actually in line. Speaker 500:52:21Lorraine, this is Eva. I'll add a little more color on the back half Of the year trends and sequentially Q3, Q4, how we're looking at things. So as you look at the back half of the year, As you mentioned, we're seeing margin improvement and that's coming from a few places. 1, our Q3 and Q4 Merch margin, both quarters we expect to improve 100 basis points versus LY due to our continued efforts around supply as well as price. We are also getting a benefit as our B and O deleverage improved, Particularly in Q4, it's a greater impact in Q4. Speaker 500:53:08Obviously, we get the ramp of the sales line, But also the ramp of our new customer fulfillment center as we as that ramps through the period. Finally, I'll say our SG and A deleverage improves in the back half and sequentially Q3 to Q4, again, as Sales increased, greater impact from our cost optimization and Q3 has Cost elevated costs related to staffing and the seasonality of our business that we experience Each year. So hopefully that provides you some additional color there. And in terms of durability, while we're not Commenting to 2024 here today, right, from our cost initiative, we continue to target 200,000,000 of annual cost savings and we'll continue to strive to achieve more. We are focused on our margins, Reducing costs, but also driving the top line. Speaker 200:54:12Thank you. Speaker 100:54:15Thanks, Lorraine. We're ready for the next question, please. Operator00:54:19Next question is from Adrienne Yih with Barclays. Your line is open. Speaker 800:54:23Great. Congratulations on the progress. Very nice to see the merch margins. So I guess I'll start there with the merch margin. You talk about that merchandise margin relative to pre pandemic? Speaker 800:54:42And then Gina, I'd really like to see the new packaging and the Elevation in JOLI as well. Can you talk about sort of how you think about weaning the business off of some of these promos that kind of come out semiannual, etcetera, As you make your way toward kind of a more elevated product in particular categories and how you think about price further price appreciation, price taking In that higher elevated category? Thank you very much. Speaker 500:55:12Yes. So I'll start, Hey, Jonna, with the merch margin since pre pandemic, it is still down Slightly from pre pandemic given the inflation that we've experienced over Speaker 200:55:30the last Couple of years. Yes. And your question around when can we expect, I mean, I think everybody is clear on our strategies around We elevate the brand and the product and the way we have been and I think Julie explained well in terms of what we do with semi annual sale, right, to sort of Have the prices sort of adjust and so that we can eke out the merch margin that we had. I think from a longer term point of view and it's not so long term we're building those capabilities as we speak is how do we move from broad based promotions into more personalized. And that has been something that we are now doing because we have successfully completed the vast majority of our separation from Victoria's Secret. Speaker 200:56:14So with that, in the rearview mirror, we've been putting tests in place. And so as an example, we introduced some personalized recommendations to Our website and our mobile app and it was a small initial test, but we see the conversion rates, people engaging with personalized content to a greater degree. And that is the toolkit really to start targeting our promotions more effectively Driving efficiency there. And we'll start to see those for sure in the quarters that follow, but we're testing that right now. And beyond that, The way we read, react, respond as it relates to where the customer It's really strength of this organization. Speaker 200:56:59So wherever we can get, average unit retails without impacting we basically have an analytical As well as week to week where is everybody at, we can drive the merch margin. Speaker 300:57:20Yes, just one final Point on that is just promos will still be a traffic driver for our business. But I do believe, as Gina said, by Sharpening our approach with the right technology in place, we're going to really leverage that data and analytics to deliver that more personalized targeted messages to our customer. And what the hope is and what we know will happen is that we'll increase trip spend and engagement while reducing our reliance on those broad based promotions. Speaker 800:57:51Fantastic. Great to see the progress. Speaker 200:57:54Thank you. Thank you. Speaker 100:57:55And operator, we have time for one more question, please. Operator00:57:59Okay. The last Question is from Olivia Tong with Raymond James. Your line is open. Speaker 800:58:04Great. Thanks and good morning. I wanted to ask you two questions. First, about Trends exiting the quarter, your view in terms of back to school. You mentioned in earlier remarks Your expectation for flat AUR in second half, if you could talk about what's driving that given that it had improved in Q2 and if that maybe Whether it's bringing in any new customers or expanding the share of wallet with existing, just where that consumer is coming from? Speaker 200:58:42Thanks so much. Speaker 500:58:45Sure. Hi, Olivia. This is Eva. I'll start with trends exiting the quarter. Sitting here today, as we look at our August performance For the first half of the month, it's right in line with the expectations that we provided today. Speaker 500:59:02If your question was more asking about Our 2nd quarter sales normalizing for timing of events that we have Performed right in line with our expectations and there were no trends to really there were no trends month to month To call out. Speaker 300:59:26As far as customers go, Olivia, we do know from the data That men's is bringing in new customers and more customers who identify as male And now customers all just skew younger, we know that from our data. The other thing we are starting to see, but these are early stages, is that our lip Product is also engaging a younger customer. So as we roll out hair and laundry and lip and continue to test optimize and Work with men, we will grab the data and continue to let you know how we are tracking. Speaker 201:00:03Yes. And I was Simply going to say you mentioned the magic word for me, which is it is really about the core and more. And so and as much as we talk about how the customer develops around In reaction to Lyft or men's and younger and more diverse, there are certainly opportunities in our customer segmentation work is indicating that. The core categories are also supportive of our customer expansion and we think there is equal amounts there that we can glean. Speaker 501:00:34And you had one additional question for me about flat AURs in the guidance. You're correct. We are assuming flat AURs in the back half of the year and we will continue to test for opportunities to increase the AUR and expand margin through data driven initiatives, targeted marketing efforts, etcetera, but Speaker 101:01:04We want to thank you for joining today's call. A replay will be available for 90 days on our website. Thank you for your interest in Bath and Body Works. Have a great day. Operator01:01:14This concludes today's call. Thank you for your participation. You may disconnect at this time.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallBath & Body Works Q2 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.comNow I look stupid. Real stupid... I thought what happened 25 years ago was a once- in-a-lifetime event… but how wrong I was. Because here we are, a quarter of a century later, almost to the exact day, and it’s happening again. April 25, 2025 | Porter & Company (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. 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There are 11 speakers on the call. Operator00:00:00Morning. My name is Ted, and I will be your conference operator today. At this time, I would like to welcome everyone to the Bath and Body Works Second Quarter 2023 Earnings Conference Call. Please be advised that today's conference is being recorded. I will now turn the call over to Ms. Operator00:00:19Heather Hollander, Vice President, Investor Relations at Bath and Body Works. Heather, you may begin. Speaker 100:00:26Thank you. Good morning, and welcome to Bath and Body Works' Q2 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 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 100:00:53Please 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 Borado, Chief Financial Officer. I'll now turn the call over to Gina. Speaker 200:01:14Thank you, Heather, and good morning, everyone. Thank you for joining us today. Before I discuss our performance and progress in the quarter, I'd like to thank our teams for consistently delivering terrific service to our customers, remaining agile in a dynamic environment and executing on our strategic initiatives. We're also very pleased to have welcomed Eva Barado As Bath and Body Works' new CFO at the beginning of this month, she is a seasoned executive with over 3 decades of Financial, operational and retail experience and she's already hit the ground running. You'll of course hear from Eva on today's call. Speaker 200:01:52Now moving on to our Q2 results. Net sales were in line with our expectations, declining 3.6% compared to the prior year. Adjusted diluted earnings per share of $0.40 were better than planned, with the majority of the outperformance driven by the benefits of our cost optimization initiatives increased average unit retails or AURs and improved merchandise margin. In fact, Year over year merchandise margin rate increased modestly for the first time in 9 quarters. I continue to be very pleased with our team's ability to drive With the completed rollout of Speaker 300:02:41our new hand soaps, all of Speaker 200:02:43which are formulated without parabens, sulfates and dyes, Continued delivery of newness through our gingham fragrance collection, the addition of grooming to our men's offering, the successful limited launch of our new Fragrant Care Care line in July, which has received a very positive response from customers. And finally, the launch of hand soap refill cartons in July, providing our customers with a convenient sustainable solution. We were also pleased with our Mother's Day results and executed well in our June semiannual sale, delivering merchandise margin rates above our expectations. From a category perspective in the Q2, our body care sales increased versus the prior year. Home fragrance and soaps and sanitizers sales declined as expected driven by post pandemic normalization. Speaker 200:03:35Importantly, Year to date, we've increased unit share across these product categories. As expected, we continue to see some pressure on basket size during the quarter. To be clear, we aren't seeing any trade down in our business, but we've observed that the customer is carefully managing their spending against the backdrop of a challenging macroeconomic environment. As we look ahead to the remainder of the year, we remain focused on delivering innovation and building capabilities to position our company for above industry growth when our categories normalize. Our revenue is approximately 40% above 2019 levels and we have diverse We're making progress on the 5 key areas that I outlined on our Last call. Speaker 200:04:281st, elevating the brand through innovation and upgrades to our forms, packaging and merchandising. 2nd, extending our reach through adjacencies and international growth. 3rd, engaging with our customers by fully leveraging the strength of our loyalty program, enhanced technology and more personalization 4th, enabling a seamless omnichannel experience by advancing our digital platforms and connecting them with our stores and finally, enhancing operational excellence to drive efficiency. Julie will speak to our progress in brand elevation and extending our reach in a moment, but I'd like to dig a little deeper on the other three. So turning to our work to better engage with our customer. Speaker 200:05:11We are deepening our connection across the customer journey, building on our history of connecting with the customer through fragrance, outstanding products and a terrific shopping experience, whether online or in store. Our customer segmentation analysis identified the customer groups that represent our biggest growth opportunities and has given us a better understanding of their unique needs These insights are now informing our innovation, merchandising and marketing and enabling us to be more effective and efficient in reaching our target customer segments. We're also building our technology capabilities to implement a more personalized targeted approach the marketing and promotions rooted in data and analytics. Through this work, we plan to increase trial of new product, Encourage cross channel and cross category shopping, build the customer's basket and drive incremental trips. Now that we have successfully completed the vast majority of our IT separation from Victoria's Secret, we will begin testing personalized marketing and optimize promotions this fall, then apply these capabilities more broadly and derive more value from them beginning next year. Speaker 200:06:24Our loyalty program continues to be a key component of customer engagement. This August, we anniversaried the national launch of our loyalty program And we remain pleased with our enrollment of nearly 38,000,000 members with loyalty sales representing approximately 3 quarters of our U. S. Sales since launch. While we'll continue to build on our impressive enrollment, our primary focus is on increasing engagement. Speaker 200:06:51For example, In the Q2, we not only invited our loyalty members to vote for the featured fragrances in our laundry product, We then gave them exclusive access to a preview sample event. Next, we gave our loyalty members a sneak preview of our Halloween collection and an exclusive early Halloween shopping event prior to the national launch. We have more benefits And we're excited to test new capabilities such as accelerators in the Q3. Beyond that, we're focused on fully integrating our loyalty experience throughout We are still in the early innings of our loyalty program and we are confident in our ability to drive more sales and improve merchandise margin, while attracting more customers to the program. Moving to the next area of focus, which is enabling a seamless omnichannel experience. Speaker 200:07:42Although we have a strong profitable digital business, our digital assets are largely transactional. As we move to more Experiential integrated platforms, we plan to drive higher sales, more discovery and larger baskets through personalized landing pages, immersive content and product recommendations. In the Q2, we introduced personalized recommendations on our website and mobile app. This month, we'll begin to deliver personalized e mail content. Later in the Q3, we plan to test immersive video content on our website and mobile app with a broader launch plan for the Q4. Speaker 200:08:20As you know, we completed our national rollout of buy online, pickup in store or BOPIS in the Q1. BOPIS orders increased 25% in the 2nd quarter as customers are increasingly choosing this convenient option. And approximately 30% of BOPUS customers made an additional purchase in store when they picked up their order, which is a testament to the power of the outstanding in store experience delivered by our talented associates, iconic fragrances and compelling assortments. Delivering a seamless omnichannel experience will allow us to convert more single channel customers to dual channel customers, which on average increases spend threefold. Finally, we are enhancing operational excellence and efficiency through $200,000,000 of planned annual cost savings across the company. Speaker 200:09:11We are on track to deliver approximately $150,000,000 of those savings in 2023 and Eva will share additional details on our plans for in the second half of the year shortly. Eva will also provide an update to our fiscal 2023 guidance, which reflects our bottom line in the Q2 and sales expectations for the second half of the year. As I touched on earlier, the customer has been cautious in managing their spending amidst the softer macroeconomic backdrop. However, they are still responding to newness, innovation and our compelling seasonal events. We are taking action to deliver innovation and build the capabilities that will allow us to better serve our customers, drive above industry growth and deliver margin expansion. Speaker 200:09:59Bath and Body Works has a highly differentiated business model positioned at the intersection of consumer goods and retail and a strong fleet of profitable stores, both off mall and in mall that position us close to the customer. We have a vertically integrated supply chain, which allows us to respond quickly to changing customer and macro trends, along with a strong balance sheet and a history of superior growth and free cash flow generation. As we navigate macroeconomic pressures, I am confident that we have a diverse set of opportunities to profitably grow the business and create value for our shareholders, building on the strong foundation that exists today. With that, I'll turn the call over to Julie. Speaker 300:10:43Thank you, Gina. We started the Q2 with a strong Mother's Day, delivering newness with our gingham all back of collection and a strong gifting assortment. As you know, our vertically integrated supply chain allows us to read and react to trends quickly and we leveraged this capability as we chase winners and delivered additional inventory to meet customer demand. As Gina mentioned, we executed well in our June semiannual sale and we're pleased to deliver merchandise margin rates above Our expectation. We were very intentional in structuring this year's event to drive early interest by offering compelling price points on sale product and introducing full price new summer season product alongside the event. Speaker 300:11:31We then took Fewer markdowns over the course of the event and delivered better than expected merchandise margin rate. Turning to category performance. 2nd quarter Body Care sales increased slightly versus last year, a sequential improvement from the Q1. Body Care was propelled by growth in Fine Fragrance Mist, Travel as well as our men's business, which posted a double digit sales increase this quarter and remains one of our fastest growing product lines as we add new forms and merchandising ideas. At the beginning of the quarter, we launched men's grooming, which performed well and exceeded our expectations. Speaker 300:12:13We're very excited about the growth of our men's business as it is bringing in new customers to our brands and also garnering the attention of younger customers. The home fragrance and soaps and sanitizers categories both declined versus last year as expected driven by Continued industry wide post pandemic normalization trend, which we have discussed previously. Sales for the home fragrance and soaps and sanitizers categories collectively represent just over half of our business. We remain market leaders in these categories and have gained unit share year to date even as the categories experience pressure at Speaker 400:12:55the industry Speaker 300:12:57We remain focused on innovating and positioning for future growth in these categories. For example, Wallflowers once again outperformed candles as customers are spending less time at home. We are leaning into the demand by increasing our assortment of scent control wallflower heaters and offering decorative Innovations such as the projection wallflowers in our Halloween collection, which illuminate and project festive images. Turning to our strategic initiatives. As Gina mentioned, I'll provide some detail on how we're making progress in elevating our brand and extending our reach to accelerate growth. Speaker 300:13:41This quarter, we continued to deliver innovation in product and merchandising. This was visible in our refreshed core hand soap offering, including the completed rollout of our new formulation made without parabensulfates or dyes. Additionally, we have rolled out foaming hand soap refills and with Cyclable paper cartons to all U. S. Stores, allowing customers to conveniently refill their soap containers and minimize waste. Speaker 300:14:13Beyond Soap, we're innovating and elevating our product and packaging while staying true to the brand heritage. For example, this month we brought back fan favorite, Cocoa Shea and Water in new and elevated packaging and formulation. We also added a sensitive skin product with colloidal oatmeal. This ingredient led collection is Expansion of our wellness category and intended to provide the additional moisture, hydration and sensitive skin solutions that And within merchandising, we're evolving our storytelling to broader inspirational brand storytelling, including recommendations for selecting and using the product, as well as creating the perfect gift. We demonstrated elements of this within our which was designed to be an immersive shopping experience. Speaker 300:15:09This included new fragrances in gorgeous, Fresh, vibrant and gingham legend for men across multiple forms as well as front of store and digital takeovers and beautiful gifting options. As we work to extend our reach, we're leveraging our core strength in fragrance Innovation to expand into adjacent categories, including fragrant hair care, men's, wellness and laundry. We're also building on the success of our international business. As I mentioned, this quarter we expanded our men's product Portfolio to include grooming. The first stage of our expansion focused on face and beard care and launched in the advance of Father's Day. Speaker 300:15:56In September, we are expanding into men, hair and shaving. As part of our ongoing innovation cycle, we tested fragrant hair care products last summer and we're very pleased with the customer response to our Fragrance led positioning. In the Q2, we launched hair care in approximately 560 stores and online with shampoo and conditioner in 5 of our signature scents and dry shampoo in 3. The launch has exceeded our expectations And we plan to complete the rollout to all U. S. Speaker 300:16:32Stores next spring. This month, we're excited to elevate the mundane With the launch of our laundry line, including many of our best selling fragrances across a limited number of stores and online, Initial customer feedback from our previous sample event has been very positive with customers noting that our laundry detergent is an citing new way to add another layer of their favorite scent to their daily routine. As we work broaden our customer base and attract a younger customer, we know that lip products represent an important opportunity. Therefore, we're upgrading, expanding and relaunching our in store assortment and visual presentation of our lip product across the limited number of stores this fall with additional expansion to follow early next year. With the addition of Fragrant Hair Care, Laundry and Lifts, we are now able to offer our iconic fragrances across as many as 22 product forms. Speaker 300:17:35We are also committed to extending our reach geographically And continue to evaluate opportunities to build on the success of our international business and drive significant growth through further market expansion, new stores and digital growth with our partnership based model. As we look ahead to the Q3, we are Very excited about the launch of Halloween. We launched Halloween 1 week later this year to better align with the customer mindset. For the first time, we are placing this assortment at the front of our stores to give it additional prominence and we're expanding our most loved Scents such as Vampire Blood across categories. For our fall assortment and scents, we've listened to the customers and are bringing back our iconic fall scent such as leaves and pumpkin pecan waffles in new and elevated packaging. Speaker 300:18:31And for Hispanic Heritage Month, we are featuring a perfumer series celebrating Patti Hidalgo and her long standing contribution to our fragrance portfolio, including customer favorite strawberry pound cake. Bath and Body Works is an outstanding beloved brand and we are excited about what's ahead as we continue to deliver new compelling products and capitalize on opportunities for profitable global expansion. In closing, I'd like to thank our teams for their Speaker 500:19:13Thank you, Julie, and good morning, everyone. I'm excited to join you today and honored to be part of this outstanding company. Over the past several weeks, I spent my time immersing in the business while engaging with the executive leadership and finance team. I've also had the opportunity to participate in the financial planning process and observe the progress the teams have made on the company's The last few weeks have reinforced my belief that Bath and Body Works is on the right path to capitalize on the tremendous opportunities ahead and create significant long term value for shareholders. Today, I'll start by reviewing our 2nd quarter financial results, then I'll provide an overview of our guidance for the Q3 fiscal year 2023. Speaker 500:20:07Starting with the 2nd quarter results, we generated Adjusted diluted earnings per share of $0.40 exceeding our guidance range of $0.27 to $0.32 per diluted share. Our adjusted results exclude the gain on the early extinguishment of debt associated with the debt repurchases in the 2nd quarter. We were pleased with our 2nd quarter operational outperformance resulting from the benefits of our cost optimization initiatives, increased AURs and improved merchandise margin. EPS also benefited from interest expense favorability in part associated with the repurchase and retirement of debt in the 2nd quarter and tax rate favorability, resulting from the resolution of certain discrete tax matters related to the Victoria's Secret spin off. Net sales for the Q2 were $1,600,000,000 in line with our expectations. Speaker 500:21:10The year over year decline of 3.6% was driven by a decrease in both transactions and average dollar sale. In U. S. And Canadian stores, 2nd quarter sales totaled $1,100,000,000 a decrease of 1% versus the prior year. 2nd quarter direct sales of $329,000,000 decreased 10% compared to last year. Speaker 500:21:39Adjusted for BOPIS, direct demand decreased 6% in the 2nd quarter. As a reminder, BOPIS sales are recognized as store sales and we completed the BOPIS rollout to U. S. Stores in the Q1. International sales were $86,000,000 and declined 4% versus last year. Speaker 500:22:02Note on a year to date basis international sales increased 4%. There are 2 components to our international net sales, Royalties collected off franchise retail sales and wholesale revenue generated by the product we sell to our franchise partners. And while wholesale revenue declined in the 2nd quarter due to lower orders and shipments, total international system wide retail sales posted a double digit increase propelled by new store openings and strong sales for the June semiannual sale event. Our guidance for the back half of the year assumes that our international net sales return to growth. Our gross profit rate for the 2nd quarter decreased by 90 basis points compared to prior year Q2, representing a year over year sequential improvement of 255 basis Merchandise margin rate improved modestly year over year for the first time in 9 quarters. Speaker 500:23:09This improvement was driven by deflation benefit, increased AUR and reduced transportation costs, partially offset by continued investment in product formulations and packaging innovation. Improvements in merchandise margin were offset by buying and occupancy expense deleverage, primarily due to lower sales and increased occupancy expense from new store sales growth sales. Total SG and A deleveraged by 200 basis points, representing a year over year sequential improvement of 90 basis points from the Q1. Technology expense was the biggest driver of deleverage, reflecting our IT separation costs as well as strategic investments to drive future growth. As Expected, we partially mitigated the impact of technology investments with our cost optimization work, which produced efficiency in store labor hours and home office expense. Speaker 500:24:17All said, Our cost optimization work produced benefits of approximately $30,000,000 in the quarter across gross profit and SG and A. 2nd quarter total company operating income was $188,000,000 or 12% of net sales. Turning to the balance sheet, we repurchased $115,000,000 senior notes principal for $106,000,000 in the quarter. We remain focused on disciplined inventory management and ended the 2nd quarter with total inventory dollars down 16% compared to last year. Heading into the second half of the year, our inventory levels are well positioned. Speaker 500:25:03Our overall real estate Portfolio remains very healthy with 99% of the fleet profitable and stores significantly outperforming pre In the second quarter, we continued to increase our off mall penetration, opening 30 new off mall North American stores and permanently closing 17 stores, principally in malls. Our international business, our partners opened 16 new stores in the 2nd quarter, ending the quarter with 4 44 stores. Now turning to our fiscal 2023 guidance, We are providing our 2023 guidance with comparisons to 2022. And as 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 at $0.07 per diluted share. Speaker 500:26:13And our guidance excludes the impact of any further debt or share repurchase activity. With that as context, we are updating our fiscal year guidance to reflect Q2 performance, narrowing our sales range, raising our gross profit expectations and factoring in the benefits of the debt and share repurchases through the 2nd quarter, resulting in an increase to our EPS guidance. Now let me provide some additional color on these changes. For the full year, we now expect sales declines of 1.5% to 3.5%, reflecting our year to date performance, Continued macroeconomic uncertainty, judicious consumer spending and post pandemic category normalization across the industry. For the 1st two quarters of the year, our sales were in line with the midpoint of our projections. Speaker 500:27:13Factoring in year to date performance and improved visibility, we are narrowing our sales range around the midpoint of our prior guidance. The company is very adept at quickly reading and responding to changing business trends, and we plan to leverage that agility to chase demand and maximize sales. We are enhancing our excellence and efficiency and plan to deliver approximately $100,000,000 in cost savings in the second half of the year. Approximately 30% of the savings are related to reduced transportation expense with the remainder reflecting of our program, including efficiency in store labor and selling productivity as we better align staffing hours to traffic, Reduced expense as we optimize our call center, home office expense efficiency and decreased indirect spend. Gross margin exceeded our expectations in the first half of the year and we are now raising our forecast for Full year gross margin rate to approximately 43%. Speaker 500:28:30We continue to expect Year over year merchandise margin rate to improve in the second half of the year, supported by greater deflation benefits and efficiency produced from our cost optimization work. These benefits are partially offset by investments in formulation and packaging upgrades to reinforce our competitive position. Overall, We expect merchandise margin rate to expand by approximately 100 basis points in the second half of the year versus prior year, resulting in improved merchandise margin rate for the full year. We still expect buying With less deleverage for the remainder of the year as our new direct to consumer fulfillment center ramps, Our guidance still assumes a full year SG and A rate of approximately 26% with deleverage driven by lower sales level, Technology expense and increased store wage rate, partially offset by the expected benefits of our cost optimization work. We now expect full year adjusted net non operating expense of approximately 295,000,000 reflecting interest expense favorability from debt repurchases through the end of the second quarter. Speaker 500:30:04We still expect an effective tax rate of approximately 26% and weighted average diluted shares outstanding of approximately $230,000,000 For the fiscal year 2023, we are increasing our adjusted earnings Per diluted share guidance range to $2.80 to 3 point $300,000,000 to $350,000,000 of capital expenditures in 2023. And we now expect to generate free cash flows of $675,000,000 to $725,000,000 in fiscal 2023. Turning to our Q3 2023 outlook, we are forecasting sales declines of 2.5% to 4% versus the prior year. We expect gross profit rate of approximately 42% and SG and A rate of approximately 31% of sales. We expect net non operating expense of approximately $75,000,000 and a tax rate of approximately 26% and weighted average diluted shares outstanding of approximately $229,000,000 Considering all these factors, we are forecasting 3rd quarter earnings per diluted share of $0.30 to $0.40 Looking now at our capital allocation, our first priority is investing in the business to drive profitable growth. Speaker 500:31:38We are also committed to returning cash to shareholders. In the 1st 6 months of the year, We paid $92,000,000 in dividend and we plan to continue paying an annual dividend of $0.80 per share with an intention to increase the dividend over time as earnings increase. In the second quarter, we also repurchased 1,300,000 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 growth Adjusted debt to EBITDAR over time. We ended 2022 with a leverage ratio of 3.1 times And through the Q2 of the year, we have repurchased $199,000,000 principal amount of our senior notes in the open market. Speaker 500:32:37We will continue to take a balanced approach to capital allocation considering options such as additional debt and share repurchases. In conclusion, I'm excited about the future of our business and we're focused on taking the necessary actions to drive profitable growth and generate value for all stakeholders. At this time, we'd be happy to take your questions and I'll turn it over to Heather for Q Speaker 100:33:05Thanks, Eva. For our Q and A session, we ask the participants limit their responses to one question and one follow-up. We'll now move to the Q and A session. Operator? Speaker 600:33:25The Operator00:33:26first question in the queue is from Kate McShane with Goldman Sachs. Your line is open. Speaker 700:33:31Hi, good morning. Thanks for taking our questions. It was really encouraging to see that you grew AURs in the quarter. We wondered if you could talk to us a little bit more about this and what role it plays in your updated guidance today? Speaker 300:33:48Yes. So from an AUR perspective, this is Julie by the way. Speaker 800:33:53Thank you for the question. Speaker 300:33:56We actually, as you know, semiannual sales plays a huge role in our Q2. We took a very balanced approach to driving sales and improving merchandise margins. So our semi annual sales event sales were below last year's event, but in line with our expectations. We executed well. We offered compelling price points on sale products, while also introducing Full price new summer season product alongside the event. Speaker 300:34:26The customers responded very favorably to our event. They continue to carefully manage their spending in light of macroeconomic conditions, which had an adverse effect on the impact of the number of items added to the basket. Ultimately, we took fewer markdowns over the course of the event and delivered better than expected merchandise margin rate. I would also say that, AUR increased slightly this quarter and remained significantly elevated since 2019. And as a note on pricing, we have taken price increases in spring 2023. Speaker 300:35:08We've created more differentiated assortments to drive pricing power. As a reminder, our AUR has increased Slightly this quarter, but significantly compared to 2019. And we do have a long track record of AUR growth And positive low single digit levels prior to the pandemic. Speaker 500:35:29And Julie, if I could just add, as it pertains to our guidance, We are assuming flat AURs in the back half of the year and we'll continue to test for opportunities to increase AURs as Julie has just Speaker 700:35:51And then if we could just follow-up with a question on the candle soaps and sanitizers. Can you talk about what that category looks like on a stack Or versus 2019 and just how it performed also versus Q1? Speaker 300:36:07Yes. Thank you for that question. So Though the home fragrance and substance sanitizers categories are normalizing post pandemic, we have gained unit Chair year to date and we are a market leader in these categories and plan to build on that position. We do continue to innovate and position for growth Speaker 200:36:27in these Speaker 300:36:28Categories, for example, wallflowers, as I mentioned, continue to outperform, so we're leaning into that demand. We also recently refreshed our core soap offering, including the completed rollout of our new formulation made without parabensulfates And dyes and additionally rolled out our foaming hand soaps and recyclable cartons. So we are absolutely focused on our core businesses and innovating in them to drive growth. To 2019, all categories are up significantly In the double digits. So no category is below. Speaker 100:37:09All right. Thanks, Kate. We'll take the next question, please. Operator00:37:13Next question in the queue is from Alex Straton with Morgan Stanley. Your line is open. Speaker 900:37:18Great. Thanks so much for taking the question. I've got 2 for you, 1 on guidance and then one on the longer term outlook. So on guidance, it seems like the full year update implies a deceleration in quarter over growth in the 4th quarter. I think a little bit lower sales than prior. Speaker 900:37:36So what's driving that more conservative view on the 4th quarter? And then secondly, on the long term, I know you guys have that 20% EBIT margin target out there. What do you view as the key factors holding you below that rate Right now and how do you think about the time line to getting back to that goal in the future? Thanks a lot. Speaker 500:37:59Alex, this is Eva. I'll start with your question as it pertains to the Q4 guidance. As you look at our back half of the year guidance first, right, and our full year guidance, What we've done is we've narrowed our sales range to the midpoint of what we had previously provided. And that really reflects our performance that we've seen in the 1st two quarters that were in line with our performance. And it also reflects the cautious consumer. Speaker 500:38:34And while we haven't seen trade downs In our business, we are seeing the consumer be more thoughtful at the overall basket size. So as we have this visibility, there's a lot of macro uncertainty. That's how we thought about the top line in the back half of Speaker 200:38:54the year. And as it relates it's Gina. As it relates to your question around the 20% operating income margin long term, There's a few things. We feel very comfortable that as a long term target, that's the right one. 20% is the best in class operating income rate for our sector. Speaker 200:39:15And we don't want to limit ourselves to 20%, but we do think that that number over time best Balance is the investment in the business to drive future growth while maximizing shareholder return. And clearly in the last Couple of years, there have been step function increases in input costs and labor and certain parts of our business like technology. They require additional investments Our growth and those are very important as we evolve our marketing program, our loyalty and our omni channel. But I'm pleased with The track that we have on our initiatives, I'm pleased with what we expect in terms of margin recovery and a very disciplined approach to expenses. So very comfortable with that. Speaker 100:40:01Thanks a lot. Thanks, Alex. We'll take the next question. Operator00:40:07Next question is from Ike Boruchow with Wells Fargo. Your line is open. Speaker 600:40:12Hey, good morning, everyone. I guess I wanted to ask a question around costs And your AUC more so into next year, can you comment about some of your key raw materials, primarily soy, What those costs look like today? How they should flow into the P and L come next year? Just curious for some high level thoughts over the next 12 months there? Thanks. Speaker 500:40:36Hi, Ike. This is Eva Barado. From a deflation perspective, We saw we experienced about $20,000,000 of deflation in the Q2 and we expect $30,000,000 in Q3. 3. We expect that benefit to increase throughout the remainder of this year. Speaker 500:41:01As you look at raw materials, I'll just add a few comments. Overall, we did See most prices peak in 2022, with expected deflation in 2023. Wax has been an outlier with significant price volatility up and down year to date. We saw a spike in Soy over the past 60 days with some concerns over dry weather impacting the crop. We've seen an impact being smooth via commodity risk mitigation processes. Speaker 500:41:41And I think there are the key things that I would highlight. I think it's premature to comment on what we expect in 2024 and we'll certainly come back As we are ready to provide our 2024 outlook. Speaker 600:41:59Great. Thank you. Speaker 100:42:03All right. Thanks, Ike. Next question, please. Operator00:42:06Next question is from Dana Telsey with the Telsey Group. Your line is open. Speaker 1000:42:13Hi. Good morning, everyone. As you think about the new products that you're introducing, Julie, and What the gross margins could look like on some of the new products? Is there any difference from the core gross margin to the business overall? And then the loyalty members, any more color on the loyalty members and their acceptance of the new products and what statistics you're looking to hit And then just lastly on the off mall stores, anything you're seeing at all in terms of productivity rates, Anything with what we've heard with Organized Crime and Shrink and what you're doing? Speaker 1000:42:50Thank you. Speaker 300:42:52Thanks. Thanks, Dana. Nice to hear your voice. So starting with the new products, we have launched a lot of adjacencies We see that we are starting to test optimize enroll. So I just want to review them very quickly and then I'll talk to your margin question about them. Speaker 300:43:13So in men's, as you know, in the Q2, we successfully launched men's grooming and in September, we're following with men's hair and shave. We continue to focus on APDO as it is the number one form in the men's market. And men's continues to be our fastest growing category in Body Care. The men's margin is commensurate with the SHOP, so we're very excited about that. Fragrant Hair Care in the 2nd quarter was launched to 5 60 stores and online in July and the launch has We exceeded our expectations and we expect to complete that rollout to all stores next spring. Speaker 300:43:51We also have Lyft as we work to broaden our customer base and attract the younger customer. We're upgrading, we're expanding and we're relaunching our in store assortment and visual presentation of our lip products across a limited number of stores in the Q3. Additional expansion will happen next year. And then finally, of course, there's laundry, which we are very excited about to be launching this month across a limited number of stores and online. So initial customer feedback from our preview sample event has been very positive with customers noting that our laundry detergent is an exciting way to add another layer of their favorite scent to their daily routine. Speaker 300:44:34So some of those adjacencies are measured with Schott from a margin perspective, others are not quite there yet, but we have a long standing history here at Bath and Body Works As you've seen with Wallflowers and 3 Wick over the years that with scale, we have no doubt that we will get there. So, I will skip to the shrink question, if that's okay, and then I will have Gina come back to your loyalty question, if that works. So, as is the case with other retailers, we have seen, external pressures adversely impacting our shrink rates and it has gotten worse this year. That being said, the impact has been factored into our guidance And we are working with our stores, with government and community partners to achieve lower loss rates over time. So I'll let Gina talk to loyalty. Speaker 200:45:29Thank you. So loyalty is as you know, we're very proud of one of the best rollouts in Bath and Body Works' In terms of the enrollment speed among the facets in the industry. So we're very pleased with the enrollment to date. And as I mentioned, we are early stages of deriving the value from the program, but some of the things that Julie had mentioned in terms of the previews that we've used, whether it's the laundry or the sneak preview of Halloween, we absolutely use the loyalty platform in ways to build The excitement around some of the launches, and we will continue to do that. The benefits that we have planned going forward on new capabilities like accelerators, which you may see in other programs that's happening in Speaker 300:46:12the Q3. So that's sort Speaker 200:46:14of on the come. And then this Actually this month, we have our 1st annual member appreciation event because we're celebrating the 1 year anniversary. So you'll be seeing a lot of surprise and delight product drops. You'll see first looks, exclusive offers to reward our loyal Customer. So lots going on in loyalty, and with the 38,000,000 members strong, that's a lot to work with. Speaker 200:46:37So we're excited on the go forward there. And I think you may have had a question around off mall as well on and actually we're quite Please Julie can chime back in, but we're quite pleased with the traffic both in mall and off mall. And the off mall sales performance Exceeds the in mall, but the traffics are actually quite good. Julie, did you want to add anything about in mall? Speaker 300:47:03No. I think that you have absolutely answered that question. We do have opportunities with new stores as they continue Yes, drive a great return for Speaker 1000:47:18us. Thank you. Speaker 100:47:19Thank you. Next question, please. Operator00:47:23Next question is from Matthew Boss with JPMorgan. Your line is open. Speaker 400:47:29So Gina, could you speak to Categories of relative improvement that you saw throughout the Q2. And then maybe as you just assess The performance of some of the new category launches and early feedback maybe relative to the normalization curve that you spoke to around candles and soaps and sanitizers. Just trying to put together or maybe bridge the path forward, any way to think about a timeline to Return to low to mid single digit same store sales and the multi year long term target? Speaker 200:48:04Sure. We can talk to normalization as well. Julie, you might want to start with the home fragrance and Speaker 300:48:13I actually, why don't I talk to you about category performance relative to overall performance Just to give you a gauge of what's happening in our business and then talk to you about how we're thinking about the back half. So Body Care was our top performing category this quarter and with positive sales propelled by fine fragrance mist, Travel and double digit growth in the men's business. I think the exciting thing about Fine Fragrance Mist is we just came out of Mother's Day And that is what we hope to sell during Mother's Day. Our home fragrance performed below the shop With declines driven by pressure in candles, as was expected, we know this is an industry wide trend as the category continues to normalize Post pandemic. Wallflowers performed above the shop and better than candles because we are seeing people fragrance their homes in different ways. Speaker 300:49:13I do want to mention we are still the market leader in this category and we continue to gain unit share versus masks even as the category experiences broader pressure. And then from a soaps and sanitizers Just tearing those apart, I just want you to know that soaps performed in line with SHOP. We Our rollout as I said of our new formulations as well as our new foaming hand soap refills. It was sanitizers that performed well below shop as that category continues to normalize and this is a broader And we continue to gain unit share versus mass in both soaps and sanitizers. So our back App is really assuming similar trends and we're not really speaking to 24 right now. Speaker 200:50:10Yes. I was Matt, thank you for the question. I was only going to say that we're not speaking 24, we did see normalization. We have baked in continued normalization into the back half of the year and as well as the macro Sure. 2, our intent and our strategy that we undertake are absolutely building the capabilities to build above industry and growth going forward. Speaker 200:50:35We're pleased with gaining unit share in the categories that we have as they decline. And quite frankly, we're leaning into some of the pandemic trends that we believe will endure, Right. So there's areas like wellness and self care. We can have categories contract, but we can take our fair share or more. And then hang on to the ones that sort of we can grow further from there. Speaker 200:50:57And given our track record, I feel comfortable that we'll continue to do that gaining market share and building the capabilities for future growth so that when our categories normalize and our macroeconomic backdrop We will have the customer that are frequent as you know they come in, they replenish and that's why from a personal perspective I think unit share is a wonderful Operator00:51:28Yes. The next question is from Lorraine Hutchinson with Bank of America. Your line is open. Speaker 100:51:33Thank you. Good morning. The new guidance implies Speaker 200:51:43also the sustainability of these gains into next year? Thank you. Speaker 300:51:49So, hi, Lorraine, it's Julie. From Speaker 200:51:53a promotional Speaker 300:51:57perspective, We are actually looking at promotions being in line with last year. As you know and have We are incredibly, incredibly agile in our promos. So when we need to add something in, we do. And when we need to pull something We do. So we see it actually in line. Speaker 500:52:21Lorraine, this is Eva. I'll add a little more color on the back half Of the year trends and sequentially Q3, Q4, how we're looking at things. So as you look at the back half of the year, As you mentioned, we're seeing margin improvement and that's coming from a few places. 1, our Q3 and Q4 Merch margin, both quarters we expect to improve 100 basis points versus LY due to our continued efforts around supply as well as price. We are also getting a benefit as our B and O deleverage improved, Particularly in Q4, it's a greater impact in Q4. Speaker 500:53:08Obviously, we get the ramp of the sales line, But also the ramp of our new customer fulfillment center as we as that ramps through the period. Finally, I'll say our SG and A deleverage improves in the back half and sequentially Q3 to Q4, again, as Sales increased, greater impact from our cost optimization and Q3 has Cost elevated costs related to staffing and the seasonality of our business that we experience Each year. So hopefully that provides you some additional color there. And in terms of durability, while we're not Commenting to 2024 here today, right, from our cost initiative, we continue to target 200,000,000 of annual cost savings and we'll continue to strive to achieve more. We are focused on our margins, Reducing costs, but also driving the top line. Speaker 200:54:12Thank you. Speaker 100:54:15Thanks, Lorraine. We're ready for the next question, please. Operator00:54:19Next question is from Adrienne Yih with Barclays. Your line is open. Speaker 800:54:23Great. Congratulations on the progress. Very nice to see the merch margins. So I guess I'll start there with the merch margin. You talk about that merchandise margin relative to pre pandemic? Speaker 800:54:42And then Gina, I'd really like to see the new packaging and the Elevation in JOLI as well. Can you talk about sort of how you think about weaning the business off of some of these promos that kind of come out semiannual, etcetera, As you make your way toward kind of a more elevated product in particular categories and how you think about price further price appreciation, price taking In that higher elevated category? Thank you very much. Speaker 500:55:12Yes. So I'll start, Hey, Jonna, with the merch margin since pre pandemic, it is still down Slightly from pre pandemic given the inflation that we've experienced over Speaker 200:55:30the last Couple of years. Yes. And your question around when can we expect, I mean, I think everybody is clear on our strategies around We elevate the brand and the product and the way we have been and I think Julie explained well in terms of what we do with semi annual sale, right, to sort of Have the prices sort of adjust and so that we can eke out the merch margin that we had. I think from a longer term point of view and it's not so long term we're building those capabilities as we speak is how do we move from broad based promotions into more personalized. And that has been something that we are now doing because we have successfully completed the vast majority of our separation from Victoria's Secret. Speaker 200:56:14So with that, in the rearview mirror, we've been putting tests in place. And so as an example, we introduced some personalized recommendations to Our website and our mobile app and it was a small initial test, but we see the conversion rates, people engaging with personalized content to a greater degree. And that is the toolkit really to start targeting our promotions more effectively Driving efficiency there. And we'll start to see those for sure in the quarters that follow, but we're testing that right now. And beyond that, The way we read, react, respond as it relates to where the customer It's really strength of this organization. Speaker 200:56:59So wherever we can get, average unit retails without impacting we basically have an analytical As well as week to week where is everybody at, we can drive the merch margin. Speaker 300:57:20Yes, just one final Point on that is just promos will still be a traffic driver for our business. But I do believe, as Gina said, by Sharpening our approach with the right technology in place, we're going to really leverage that data and analytics to deliver that more personalized targeted messages to our customer. And what the hope is and what we know will happen is that we'll increase trip spend and engagement while reducing our reliance on those broad based promotions. Speaker 800:57:51Fantastic. Great to see the progress. Speaker 200:57:54Thank you. Thank you. Speaker 100:57:55And operator, we have time for one more question, please. Operator00:57:59Okay. The last Question is from Olivia Tong with Raymond James. Your line is open. Speaker 800:58:04Great. Thanks and good morning. I wanted to ask you two questions. First, about Trends exiting the quarter, your view in terms of back to school. You mentioned in earlier remarks Your expectation for flat AUR in second half, if you could talk about what's driving that given that it had improved in Q2 and if that maybe Whether it's bringing in any new customers or expanding the share of wallet with existing, just where that consumer is coming from? Speaker 200:58:42Thanks so much. Speaker 500:58:45Sure. Hi, Olivia. This is Eva. I'll start with trends exiting the quarter. Sitting here today, as we look at our August performance For the first half of the month, it's right in line with the expectations that we provided today. Speaker 500:59:02If your question was more asking about Our 2nd quarter sales normalizing for timing of events that we have Performed right in line with our expectations and there were no trends to really there were no trends month to month To call out. Speaker 300:59:26As far as customers go, Olivia, we do know from the data That men's is bringing in new customers and more customers who identify as male And now customers all just skew younger, we know that from our data. The other thing we are starting to see, but these are early stages, is that our lip Product is also engaging a younger customer. So as we roll out hair and laundry and lip and continue to test optimize and Work with men, we will grab the data and continue to let you know how we are tracking. Speaker 201:00:03Yes. And I was Simply going to say you mentioned the magic word for me, which is it is really about the core and more. And so and as much as we talk about how the customer develops around In reaction to Lyft or men's and younger and more diverse, there are certainly opportunities in our customer segmentation work is indicating that. The core categories are also supportive of our customer expansion and we think there is equal amounts there that we can glean. Speaker 501:00:34And you had one additional question for me about flat AURs in the guidance. You're correct. We are assuming flat AURs in the back half of the year and we will continue to test for opportunities to increase the AUR and expand margin through data driven initiatives, targeted marketing efforts, etcetera, but Speaker 101:01:04We want to thank you for joining today's call. A replay will be available for 90 days on our website. Thank you for your interest in Bath and Body Works. Have a great day. Operator01:01:14This concludes today's call. Thank you for your participation. You may disconnect at this time.Read morePowered by