Q4 2023 Bath & Body Works Inc Earnings Call

Paul: Good morning. My name is Paul, and I will be your conference operator today. At this time, I would like to welcome everyone to the Bath & Body Works Fourth Quarter 2023 Earnings Conference. Please be advised that today's conference is being recorded. During the question and answer portion, you may ask a question from the phone by pressing star 1.

Good morning, My name is Paul and I will be your conference operator today.

At this time I would like to welcome everyone to the bathroom body works fourth quarter 2023 earnings conference call.

Speaker Change: Please be advised that today's conference is being recorded.

Paul: The question and answer portion you may ask a question from the phone by pressing star one.

Mike Mcguire: I will now turn the call over to Mike McGuire, Interim Head of Investor Relations. Mike, you may begin. Thank you, Paul. Good morning, and welcome to Bath & Body Works' fourth quarter 2023 earnings conference call. Joining me on the call today are Gina Boswell, Chief Executive Officer; Julie Rosen, President and Chief Retail Officer; and Eva Boratto, Chief Financial Officer. In addition to this call and this morning's press release, we have posted a slide presentation on our website that summarizes the information in our prepared remarks, as well as some additional facts and figures regarding our operating performance and guidance. 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 & Body Works' 2022 Form 10-K for factors that could cause actual results to differ materially from these forward-looking statements.

Paul: Now I'll turn the call over to Mike Mcguire interim head of Investor Relations, Mike You may begin.

Mike Mcguire: Thank you Paul Good morning, and welcome to Bath <unk> body works fourth quarter 2023 earnings Conference call.

Mike Mcguire: Joining me on the call today are gene of Boswell, Chief Executive Officer, Julie Rosen, President retail and even Burrito Chief Financial Officer.

Mike Mcguire: In addition to this call in this morning's press release, we have posted a slide presentation on our website that summarizes the information in our prepared remarks as well as some additional facts and figures regarding our operating performance and guidance.

Mike Mcguire: Today's call may contain forward looking statements related to future events and expectations.

Mike Mcguire: Please refer to this morning's press release, and the risk factors and Bath and body works 2020 to Form 10-K 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. Please refer to this morning's press release and supplemental materials for important disclosures regarding such measures.

Mike Mcguire: Today's call contains certain non-GAAP financial measures. Please refer to this morning's press release and supplemental materials for important disclosures regarding these, including reconciliations to the Most Comparable GAAP Financial Measure. Additionally, the fourth quarter and full year 2023 earnings results we shared today are on a continuing operations basis. I'll now turn the call over to Gina. Thank you, Mike. And good morning, everyone.

Mike Mcguire: Including reconciliations to the most comparable GAAP financial measure.

Mike Mcguire: Additionally, the fourth quarter and full year 2023 earnings results. We shared today are on a continuing operations basis I'll now turn the call over to Gina.

Gina: Thank you Mike and good morning, everyone. Thank you for joining us today before we begin I want to thank our outstanding team, especially our store and distribution Center associates. They did a terrific job delivering a great experience to our customers and executing on our strategic initiatives.

Gina R. Boswell: Thank you for joining us today. Before we begin, I want to thank our outstanding teams, especially our store and distribution center associates. They do a terrific job delivering a great experience to our customers and executing on our strategic initiatives. Our fourth quarter performance is a great example of just that, as we ended the year strongly, generating sales and earnings that both exceeded our expectations. It's been just over a year since I joined Bath & Body Works as CEO, and the team has made significant progress in delivering against the five key growth drivers I outlined at the beginning of 2023. While we're pleased with the headway we've made, I know that we have more work ahead of us. In the 14-week fourth quarter of 2023, net sales of $2.9 billion grew 0.8% compared to the 13-week fourth quarter of the prior year.

Gina: Our fourth quarter performance is a great example of just that as we ended the year strongly generating sales and earnings at both exceeded our expectations.

Speaker Change: It's been just over a year since I joined Bath <unk> body works as CEO and the team has made significant progress in delivering against our five key growth drivers I outlined at the beginning of 2023.

Speaker Change: While we've been pleased with the headway we've made I know that we have more work ahead of us.

Speaker Change: In the 14 week fourth quarter of 2023 net sales of $2 $9 billion grew 0.8% compared to the 13 week fourth quarter in the prior year.

Gina R. Boswell: This result was above the high end of our estimates. 4th quarter adjusted earnings per diluted share of $2.06 was better than anticipated and up nearly 11% from the prior year's 4th quarter. This outperformance was driven by strong merchandise margin as we drove an improvement of 290 basis points year over year. As expected, EPS benefited from the extra week by about five cents.

Speaker Change: This result was above the high end of our outlook.

Speaker Change: Fourth quarter adjusted earnings per diluted share of $2.06 with better than anticipated and up nearly 11% from the prior year's fourth quarter. This outperformance was driven by strong merchandise margin as we drove an improvement of 290 basis points year over year as expected EPS.

Speaker Change: <unk> benefited from the extra week by about five cents.

Gina R. Boswell: Average unit retails grew by 2%, which was greater than the growth we saw in all previous quarters during the year. This increase in AURs was driven by a thoughtfully planned pricing strategy. Overall, our promotional activities were comparable to last year, that is, we had the same number of events of slightly longer duration, but we didn't need to go as deep. During the holiday season, we were pleased to see customers responding positively to our core merchandise along with gifting and our traditional holiday favorites. Notably, we delivered a low single-digit sales increase in our critical Thanksgiving to Christmas time period, even after adjusting for the longer holiday.

Speaker Change: Average unit retails grew by 2%, which was greater than the growth we saw in all previous quarters during the year.

Speaker Change: This increase in AUR was driven by thoughtfully planned pricing strategy.

Speaker Change: Overall, our promotional activities were comparable to last year that is we had the same number of events a slightly longer duration, but we didn't need to go as deep.

Speaker Change: During holiday, we were pleased to see customers responding positively to our core merchandise along with gifting and our traditional holiday favorites, notably.

Speaker Change: Notably we delivered a low single digit sales increase and our critical Thanksgiving to Christmas time period, even after adjusting for the longer holiday period.

Gina R. Boswell: Both Black Friday week and Candle Day weekend were successful, and our candle event was a great example of our omni-channel strategy in action. It's an event that our customers look forward to, given their general love of our brand and the category, and we successfully amplified it with BOPUS and day one exclusive loyalty access per member. We are pleased that we're beginning to see the benefits of the decisions we've made within the candle category. However, we recognize that normalization is still impacting the business.

Speaker Change: Those black Friday week, and candle day weekend were successful and our candle event was a great example of our Omnichannel strategy and action.

Speaker Change: It's an event that our customers look forward to giving their general love up our brand in the category and we successfully amplified it with focus and day, one exclusive loyalty access for members.

Speaker Change: We're pleased that we're beginning to see the benefits of the decisions. We've made within the candle category. However, we recognize that normalization is still impacting the business.

Gina R. Boswell: Our men's shop continues to grow, with two-thirds of category growth coming from the addition of new products. This new assortment was further supported by our first ever large-scale influencer program featuring professional and college football stars and an experiential tour, which enabled hundreds of thousands of men to sample our products in less than two months. We continue to lean into this category to drive increased awareness and customer acquisition. And we were well-positioned in our newest categories, such as Fragrant Hair Care, our Expanded Lip Collection, and Laundry, and we'll continue to roll these out throughout the year. While dual channel traffic was up through the holiday period, we experienced softness during January, and that continued into early February.

Speaker Change: Our men shop continues to grow with two thirds of category growth coming from the addition of new products.

Speaker Change: This new assortment was further supported by our first ever large scale Influencer program, featuring professional and college football stars and an experiential tour, which enabled hundreds of thousands of men to sample our products in less than two months, we continue to lean into this category to drive increased awareness and customer.

Speaker Change: Position.

Speaker Change: And we were well positioned and our newest categories such as fragrance hair care are expanded lip collection and laundry and we'll continue to roll these out throughout the year.

Speaker Change: Well dual channel traffic was up through the holiday period, we experienced softness during January and that continued into early February.

Gina R. Boswell: Consistent with external market data, we are continuing to see customers carefully manage their spending, which has pressured basket size and conversion. Let me now turn to our five key growth drivers. First, elevating the brand through innovation and product upgrades. Second, extending our reach through new category adjacencies and international. Third, engaging the customer, fostering a deeper connection with the customer through our loyalty program, enhanced technology, and greater personalization. 4.

Speaker Change: Consistent with external market data, we're continuing to see customers carefully manage their spending which has pressured basket size and conversion.

Speaker Change: Let me now turn to our five key growth drivers first elevating the brand through innovation and product upgrades.

Speaker Change: Extending our reach through new category, Adjacencies and international growth.

Speaker Change: Third engaging the customer fostering a deeper connection with the customer through our loyalty program enhanced technology and greater personalization.

Gina R. Boswell: Enabling a seamless omni-channel experience. And finally, 5. Enhancing operational excellence to drive efficiency. Foundational to these growth drivers is the creation of great products and delivering innovation and newness for our customers. Other critical elements to support those are a focus on marketing and technology initiatives. And I'd like to take time to drill down into each of these this morning.

Speaker Change: Fourth, enabling a seamless omnichannel experience and finally.

Speaker Change: It's enhancing operational excellence to drive efficiency.

Speaker Change: Foundational to these growth drivers is the creation of great products, and delivering innovation and newness for our customers.

Speaker Change: Other critical elements to support those are a focus on marketing and technology initiatives and I'd like to take time for a click down into each of these this morning.

Gina R. Boswell: 1st March. We know that in order to achieve our long-term net sales target of $10 billion, we need to grow spend with our existing customers, as well as grow the number of customers who shop with us each year. We have invested in and will continue to invest in multiple types of marketing to reach further into the market of 175 million consumers who buy fragrance products each year in the U.S. and drive higher penetration. Our High Value Loyalty Program, which we've quickly scaled, also plays an important role in our efforts, and I'll talk more about that shortly. As we're executing our marketing programs, we are working to make our brand more top of mind, increase the likelihood of purchase, drive more conversion, and deepen brand loyalty. Last fall, our team developed a new brand campaign called Come Back to Your Senses, and we launched that during the fourth quarter.

Speaker Change: First marketing, we know that in order to achieve our long term net sales target of $10 billion, we need to grow spend with our existing customers as well as grow the number of customers who shop with us each year.

Speaker Change: We have invested and will continue to invest in multiple types of marketing to reach further into the market of 175 million consumers, who buy fragrance products each year in the U S and drive higher penetration.

Speaker Change: Our high value loyalty program that we've quickly scaled also plays an important role in our efforts and I'll talk more about that shortly.

Speaker Change: As we're executing our marketing programs, we are working to make our brand more top of mind increase the likelihood to purchase drive more conversion and deepen brand loyalty.

Speaker Change: Last fall our team developed a new brand campaign called come back to your senses and we launched that during the fourth quarter. This campaign was a full funnel program designed to reach more people a greater frequency and we are seeing high levels of engagement. We're continuing this campaign expanding into other new channels such as <unk>.

Gina R. Boswell: This campaign was a full-funnel program designed to reach more people at greater frequency, and we are seeing high levels of engagement. We're continuing this campaign by expanding into other new channels such as connected TV and out of home. We're also giving consumers more reason to consider our brand through influencer campaigns, pop-up experiences, and new collaborations. You may recall us speaking earlier in the year about our customer segmentation analysis, designed to develop a better understanding of our core customer segments and the biggest growth opportunities. Leveraging these segmentation efforts, we have made investments in lower funnel channels, such as paid search.

Speaker Change: <unk> TV and out of home.

Speaker Change: We're also giving consumers more reason to consider our brand through influencer campaigns pop up experiences in new collaborations.

Speaker Change: You may recall, a speaking earlier in the year about our customer segmentation analysis designed to develop a better understanding of our core customer segments and the biggest growth opportunities.

Speaker Change: Leveraging these segmentation efforts, we have made investments and lower funnel channels, such as paid search using first party data and machine learning to re target customers delivering more personalized marketing and push messaging to drive urgency.

Gina R. Boswell: Using first-party data and machine learning to retarget customers, delivering more personalized marketing and push messaging to drive urgency. Notably, our investments in both our full funnel marketing and other new marketing campaigns generated 9 billion media impressions in the fourth quarter, more than doubling impressions year over year. Our full funnel marketing and the scaling of our predictive customer retention model helped drive the 2% increase in retained customers we saw in the fourth quarter. Turning to our technology initiatives, our first priority this past year was the separation of our IT systems from Victoria's, which was largely completed over the summer.

Speaker Change: Notably our investments in both our full funnel marketing and other new marketing campaigns generated 9 billion media impressions in the fourth quarter more than doubling impressions year over year.

Speaker Change: Our full funnel marketing and the scaling of our predictive customer retention model helped drive a 2% increase in retained customers we saw in the fourth quarter.

Speaker Change: Turning to our technology initiatives, our first priority of this past year was the separation of our it systems from Victoria's secret, which was largely completed over the summer.

Gina R. Boswell: At the same time, we have also begun investing in the foundational tools and systems needed to support future growth. There are table stakes capabilities we must build in order to continue to evolve our loyalty program to support more advanced analytics and strengthen the omnichannel experience we deliver for our customers. In the fourth quarter, we continued to evolve the digital experience to include features like social proofing, enhanced personalized product recommendations, and BOPUS enhancements, which have been proven to increase conversion. BOPA's order fulfillment increased approximately 88% in the fourth quarter versus the prior year, and our total digital conversion trend in Q4 was up 3% compared to the prior year. Looking forward, we are excited about adding personalized landing pages, immersive content, and the introduction of a new AI-driven digital fragrance finder to be rolled out in the second half of this year.

Speaker Change: At the same time, we have also begun investing in the foundational tools and systems needed to support future growth.

Speaker Change: There are table stakes capabilities, we must build in order to continue to evolve our loyalty program to support more advanced analytics and strengthened the omnichannel experience, we deliver for our customers.

Speaker Change: In the fourth quarter, we continue to evolve the digital experience to include features like social proofing enhanced personalized product recommendations and focus enhancements, which have been proven to increase conversion.

Speaker Change: Opus order fulfillment increased approximately 88% in the fourth quarter versus the prior year and our total digital conversion trend in Q4 was up 3% compared to the prior year.

Speaker Change: Looking forward, we are excited about adding personalized landing pages immersive content and the introduction of a new AI driven digital fragrance finder to be rolled out in the back half of this year.

Gina R. Boswell: The investments in our marketing and technology are critical to our long-term success. I'm pleased with how the team has implemented our initiatives over the past year, and we're excited about the opportunities ahead as we continue our investments in 2024. In connection with this discussion of our marketing and technology initiatives, I'd also like to provide an update on our loyalty program. The pace of enrollment in the program since its August 2022 launch has been strong, and there is still opportunity to drive even more engagement from our customers. Nearly 80% of our U.S. revenue now flows through loyalty, and those who redeem rewards have been proven to spend more with our brand. We introduced point accelerators in the fourth quarter with the goal of helping customers redeem more frequently, and we plan to test and bring additional enhancements to the program throughout 2024, including additional early access and member-only events. Holiday helped drive high levels of enrollment, especially by leveraging our big day.

Speaker Change: The investments in our marketing and technology are critical to our long term success I am pleased with how the team has implemented our initiatives over the past year and we're excited about the opportunities ahead as we continue our investments in 2024.

Speaker Change: In connection with this discussion of our marketing and technology initiatives I'd also like to provide an update on our loyalty program.

Speaker Change: The pace of enrollment in the program since the August 2022 launch has been strong and there's still opportunity to drive even more engagement from our customers.

Speaker Change: Nearly 80% of our U S revenue now flows through loyalty and those who redeemed rewards have been proven to spend more with our brand.

Speaker Change: We introduced point accelerators in the fourth quarter with the goal of helping customers redeem more frequently and we plan to test and bring additional enhancements to the program throughout 2024, including additional early access and member only events.

Speaker Change: Holiday helped drive high levels of enrollment, especially by leveraging our big days.

Speaker Change: The Omnichannel early access loyalty only events for candle day and body care day generated record loyalty sales penetration rates.

Gina R. Boswell: The Omnichannel Early Access Loyalty Only events for Candle Day and Body Care Day generated record loyalty sales penetration. Of our more than 45 million enrolled members, approximately 37 million were active at the end of the year, which is up 3% from the 3rd quarter and over 30% year over year. Now that we have anniversaryed the program launch, active members is the right metric to track.

Of our more than 45 million enrolled members approximately 37 million were active at the end of the year, which is up 3% from the third quarter and over 30% year over year.

Speaker Change: Now that we have Anniversaried the program launch.

Speaker Change: Active members is the right metric to track.

Speaker Change: Importantly, we are very pleased that 36% of new loyalty members in the quarter were new to our brand.

Speaker Change: Before I turn the call over to Julie I'd like to speak briefly to our outlook for 2024, and then Eva will provide more details.

Gina R. Boswell: Importantly, we are very pleased that 36% of new loyalty members in the quarter were new to our brand. Before I turn the call over to Julie, I'd like to speak briefly to our outlook for 2024, and then Eva will provide more details. We had a strong holiday.

Speaker Change: We had a strong holiday we are well positioned for a strong spring and summer together with all the newness to come and we are cautiously optimistic about customer spending for the year.

Gina R. Boswell: We are well-positioned for a strong spring and summer, together with all the newness to come, and we are cautiously optimistic about customer spending for the year. However, we are seeing macroeconomic pressures continue, and our largest product category, candles, continues to normal. Taking headwinds and tailwinds into consideration, we expect net sales and operating income to be down on a year over year basis as we begin the year.

Speaker Change: However, we are seeing macroeconomic pressures continue and our largest product category candles continues to normalize.

Speaker Change: Taking headwinds and tailwind into consideration, we expect net sales and operating income to be down on a year over year basis. As we begin the year. We then expect to see net sales inflect and begin to grow during the second half of the year importantly, the high end of our outlook contemplates holding operating income margins in line with two.

Speaker Change: <unk> thousand 23, even as we continue to reinvest in the business.

Gina R. Boswell: We then expect to see net sales inflect and begin to grow during the second half. Importantly, the high end of our range contemplates holding operating income margins in line with 2023, even as we continue to reinvest in the business. Finally, in addition to executing our strategic initiatives and creating more efficiencies in our business, we are focused on continuing to reduce our leverage and return cash to shareholders. This past year, we made good progress in all these areas, and we expect to continue to do so in 2020. As part of this, I'm pleased to announce that our board recently approved a new authorization to repurchase up to $500 million of outstanding shares. With that, I'll turn the call over to Julie.

Speaker Change: Finally in addition to executing our strategic initiatives and creating more efficiencies in our business. We are focused on continuing to reduce our leverage and return cash to shareholders.

Speaker Change: This past year, we made good progress in all these areas and we expect to continue to do so in 2024 as part of this I am pleased to announce that our board recently approved a new authorization to repurchase up to $500 million.

Speaker Change: Of outstanding shares.

Speaker Change: With that I'll turn the call over to Julie Thank.

Julie: Thank you Gina I would like to Echo Gina and thanking our teams for delivering an exceptional experience to our customers and for their tireless work during the holiday season as it runs a result of their success, we are well positioned for a strong spring and summer and all the newness to come in the fourth quarter.

Julie B. Rosen: Thank you, Gina. I would like to echo Gina's thanks to our teams for delivering an exceptional experience to our customers and for their tireless work during the holiday season. As a result of their success, we are well positioned for a strong spring and summer and all the newness to come. In the fourth quarter, our holiday performance was supported by several key drivers, including strength in our core fragrances such as Champagne Toast, Mahogany Teakwood, and Eucalyptus Mint, coupled with new and returning seasonal collections, including Holiday Traditions and Evergreen Lane.

Julie: Our holiday performance was supported by several key drivers, including strength in our core fragrances, such as champagnes host mahogany teak wood and eucalyptus meant coupled with new and returning seasonal collections, including holiday traditions and evergreen line.

Julie: Customers turn to us to celebrate the season and responded to how we presented a seamless and easy gifting destination by providing covert all offering at all price points.

Julie: This year, we strategically placed gets us at the front of shop and expanded our range of price points and forms which led to a very strong business in the fourth quarter exceeding our expectations and prior year results with record high gifts that cells. We also focused our stores and web shop on a storybook.

Julie B. Rosen: Customers turned to us to celebrate the season and responded to how we presented a seamless and easy gifting destination by providing covetable offerings at all price points. This year, we strategically placed gift sets at the front of the shop and expanded our range of price points and forms, which led to a very strong business in the fourth quarter, exceeding our expectations and prior year results with record-high gift set sales. We also focused our stores and web shop on a storybook theme, which resulted in a successful floor set that yielded repeat trips and transactions.

Julie: Theme, which resulted in a successful floor set that yielded repeat trips and transactions.

Julie: Turning to our category performance, we continue to be very excited about the growth of our men's business as it introduces new customers to our brand and attract the attention of a younger slightly more diverse customer our new marketing Activations amplifying this category, such as our social media Influencers and <unk>.

Julie: Up shops are resonating with our customer and our fueling growth the business continues to be our fastest growing category in body care and we're seeing strong growth in the new forms. We introduced earlier this year, principally grooming and Antiperspirants deodorants in the fourth quarter, we infuse newness into the collection.

Julie B. Rosen: Turning to our category performance, we continue to be very excited about the growth of our men's business as it introduces new customers to our brand and attracts the attention of a younger, slightly more diverse customer. Our new marketing activations amplifying this category, such as our social media influencers and pop-up shops, are responding to our customers and are fueling growth. The business continues to be our fastest-growing category in body care, and we're seeing strong growth in the new forms we introduced earlier this year, principally grooming and antiperspirant deodorant. In the fourth quarter, we infused newness into the collection, resulting in our core and seasonal fragrances exceeding our expectations. We've been able to maintain our strong market leadership position in the sanitizer business, though, as expected, we continue to see a shift out of this category, which of course surged during the pandemic. Body care sales grew low single digits in the quarter and outperformed expectations, driven in part by men's, which I just discussed.

Julie: Resulting in our core and seasonal fragrances exceeding our expectations.

Julie: We've been able to maintain our strong market leadership position in the sanitizer business, though as expected we continued to see a shift out of this category, which of course surged during the pandemic body care sales grew low single digits in the quarter and outperformed expectations driven in.

Julie: Part by mens, which I just discussed our customers continued to show their affinity for our body care collection.

Julie: Evidenced by the strength of our body care days in December travel, which also grew year over year outpaced other categories due to strong inventory availability and customers, adding on these products to their transaction.

Julie: Home fragrance was down low single digits in the quarter compared to last year as anticipated. However, we had our first ever loyalty omni early access events for our candle day weekend, and our highest U S. Dual channel sales day ever customers showed up in a meaningful way demonstrate.

Julie B. Rosen: Our customers continue to show their affinity for our body care collection as evidenced by the strength of our body care days in December. Travel, which also grew year over year, outpaced other categories due to strong inventory availability and customers adding on these products to their transactions. Home Fragrance was down low single digits in the quarter compared to last year, as anticipated.

Julie: The desirability and get stability of our candle.

Julie: Wallflowers continued to be a strong and steady category with wall flower bulbs, posting low single digit growth driven by strong holiday fragrance selling and increased units.

Julie B. Rosen: However, we had our first ever Loyalty Omni early access event for our Candle Day weekend and our highest U.S. dual channel sales day ever. Customers showed up in a meaningful way, demonstrating the desirability and giftability of our candles. Wallflowers continue to be a strong and steady category, with wallflower bulbs posting low single-digit growth driven by strong holiday fragrance sales and increased June sales. Turning to innovation and newness, both of which continue to be key drivers across our products and merchandising, this spring, we're delivering fresh and compelling new scents, such as our new Sweetheart Cherry, Valentine's Day collection, and Tropidelic.

Julie: Turning to innovation and newness.

Julie: Both of which continue to be key drivers across our products and merchandising. This spring, we're delivering fresh and compelling new sense.

Julie: Such as our new sweetheart, Cherry Valentine's Day collection and trough of Delek. We are also introducing brightest bloom our fragrance for mother's day and have new launches planned for summer and later in the year.

Julie: As part of our continued sustainability initiatives, we have expanded our soap decanters and cartons that enable our customers to conveniently refill and reuse their containers.

Julie: This new form is growing quickly and we're looking forward to expanding sense and offerings. This year.

Julie B. Rosen: We are also introducing Brightest Bloom, our fragrance for Mother's Day, and have new launches planned for summer and later in the year. As part of our continued sustainability initiatives, we have expanded our soap decanters and cartons that enable our customers to conveniently refill and reuse their soap containers. This new form is growing quickly, and we're looking forward to expanding scents and offerings this year. Additionally, after years of hard work, we're thrilled to announce that our total body care assortment has been fully reformulated and is now made without sulfates and parabens.

Julie: Additionally, after years of hard work, we're thrilled to announce that our total body care assortment has been fully reformulated and has now made without sulfates in turbine. We're excited about completing the rollout of our fragrance hair care line to the North American fleet. This category has attracted a new customer to Bath <unk> body works.

Julie: With 14% of fragrance hair care customers new to our brand.

Julie: Lip products have attracted new younger customers to our brand and represent an opportunity to expand our customer base to capture this opportunity we have relaunched our in store assortment and the visual presentation of our lip products across 380 stores and the goal is to complete the rollout.

Julie B. Rosen: We're excited about completing the rollout of our Fragrant Hair Care line to the North American fleet. This category has attracted new customers to Bath & Body Works, with 14% of Fragrant Hair Care customers new to our brand. Lit products have attracted new, younger customers to our brand and represent an opportunity to expand our customer base. To capture this opportunity, we have relaunched our in-store assortment and the visual presentation of our lip products across 380 stores, and the goal is to complete the rollout of this fixture and expanded assortment to all North American stores by July of this year. Our new lip fixture encourages customer interaction and supports an expanded assortment, which is doubling lip sales in those stores. Last quarter, we discussed the launch of our Laundry Line and our best-selling fragrances in a very limited number of stores and online.

Julie: This fixture and expanded assortment to all North American stores by July of this year.

Julie: Our new led fixture encourages customer interaction and support expanded assortment, which is doubling lip sales in those stores.

Julie: Last quarter, we discussed the launch of our laundry line and our best selling fragrances and a very limited number of stores and online we have since rolled this out to just over 200 stores and have plans to continue to expand to roughly half of the U S fleet in the fall.

Julie: Like our other new categories laundry has attracted new customers to the brand and their feedback has been positive, noting that laundry is yet another new and exciting way to add fragrance to their lifestyle and their daily routine with that I'll turn it over to Eva.

Eva: Thank you Julie and good morning, everyone before I jump into review of our fourth quarter financial results and fiscal year 2024, I first wanted to focus on our approach to capital allocation.

Julie B. Rosen: We have since rolled this out to just over 200 stores and have plans to continue to expand to roughly half of the U.S. fleet in the fall. Like our other new categories, Laundry has attracted new customers to the brand, and their feedback has been positive, noting that Laundry is yet another new and exciting way to add fragrance to their lifestyle and their daily routine.

Eva: Our top priority is to invest in the business to drive sustainable long term profitable growth.

Eva: In fiscal 2023, we generated $954 million of operating cash flow and of that we invested $298 million into capital projects, primarily related to real estate and technology.

Eva C. Boratto: With that, I'll turn it over to Eva. Thank you, Julie, and good morning, everyone. Before I jump into the review of our fourth quarter financial results and fiscal year 2024, I first want to focus on our approach to capital allocation. Our top priority is to invest in the business to drive sustainable, long-term, profitable growth. In fiscal 2023, we generated $954 million of operating cash flow.

Eva: Brick and mortar stores are an important part of our omnichannel ecosystem and brand experience Gina earlier discussed the investments we've made and will continue to make in technology in projects that will provide a better shopping experience for our customers.

Eva: Ultimately, we believe investments in these areas will generate profitable growth for the company and you will continue to see us focus on them.

Eva: After investments in the business, we generated $656 million in free cash flow in fiscal 2023, allowing us to return cash to shareholders and deleverage our balance sheet, both of which are priorities for us.

Eva C. Boratto: And of that, we invested $298 million in capital projects primarily related to real estate and technology. Brick-and-mortar stores are an important part of our omni-channel ecosystem and brand experience. Gina earlier discussed the investments we've made and will continue to make in technology, in projects that will provide a better shopping experience for our customers. Ultimately, we believe investments in these areas will generate profitable growth for the company, and you will continue to see us focus on them. After investing in the business, we generated $656 million in free cash flow in fiscal 2023, allowing us to return cash to shareholders and deleverage our balance sheet, both of which are priorities for us. As a reminder, we have a goal to reduce our leverage ratio to approximately two and a half times gross adjusted debt to EBITDAR. In fiscal 2023, we repurchased $485 million principal amount of senior notes for $447 million.

Eva: As a reminder, we have a goal to reduce our leverage ratio to approximately two and a half times gross adjusted debt to EBITDAR in fiscal 2023, we repurchased $485 million principal amount of senior notes for $447 million as a.

Eva: We made good progress on our goal ending the year at two eight times, which is down from three one times a year ago.

Eva: After paying 182 million in dividends. During 2023, we were able to repurchase $4 1 million shares of common stock for $149 million or an average price of $36 38 per share.

Eva: In 2024, we will continue to prioritize investments in the business and we expect to invest between 300 and $325 million in capital projects during the year.

Eva C. Boratto: As a result, we made good progress on our goal, ending the year at 2.8 times, which is down from 3.1 times a year ago. After paying $182 million in dividends during 2023, we were able to repurchase 4.1 million shares of common stock for $149 million, or an average price of $36.38 per share. In 2024, we will continue to prioritize investments in the business, and we expect to invest between $300 and $325 million in capital projects during the year. We expect to generate free cash flow of $675 to $775 million and put that toward our priorities of dividend, share repurchase, and deleveraging. We expect to continue our annual dividend of $0.80 per share with an intention to increase the dividend over time as earnings increase.

Eva: We expect to generate free cash flow of $675 million to $775 million and put that towards our priorities of dividend share repurchase and deleveraging.

Eva: We expect to continue our annual dividend of <unk> 80 per share with an intention to increase the dividend over time as earnings increase.

Eva: Leveraging the new share repurchase authorization, our outlook includes the expectation to repurchase approximately $300 million of shares spread throughout the fiscal 2024.

Eva: And finally, we will consider opportunistic debt repurchases subject to market conditions.

Eva: Now moving to the income statement in the 14 week fourth quarter, we reported adjusted earnings per diluted share of $2 <unk>.

Eva: Exceeding our outlook of $1 78 to $1 90 per diluted share.

Eva C. Boratto: Leveraging the new share repurchase authorization, our outlook includes the expectation to repurchase approximately $300 million of shares spread throughout fiscal 2024. And finally, we will consider opportunistic debt repurchases subject to market conditions. Now, moving to the income statement. In the 14-week fourth quarter, we reported adjusted earnings per diluted share of $2.06, exceeding our outlook of $1.70 to $1.90 per diluted share. Our adjusted results exclude $112 million in tax benefits from the partial release of a valuation allowance on a foreign deferred tax asset.

Eva: Our adjusted results exclude $812 million tax benefit from the partial release of a valuation allowance on our foreign deferred tax asset.

Eva: And 8 million pre tax impairment charge on an equity method investment and a 6 million pre tax gain on the early extinguishment of debt associated with the repurchases in the quarter.

Eva: Our outperformance in the quarter was primarily driven by strong merchandise margin and net sales outperformance adjusted diluted earnings per share also benefited from a lower tax rate.

Eva C. Boratto: An $8 million pre-tax impairment charge on an equity method investment and a $6 million pre-tax gain on the early extinguishment of debt associated with the repurchases in the quarter. Our outperformance in the quarter was primarily driven by strong merchandise margin and net sales outperformance. Adjusted Diluted Earnings Per Share also benefited from a lower tax rate. Net sales for the quarter were $2.9 billion and grew 0.8% compared to 2022. The extra week in 2023 added approximately $80 million to our top line, so on a comparable 13-week basis, net sales declined by 2% year over year. The year-over-year decline was driven by a decrease in traffic outside of the holiday period.

Eva: Net sales for the quarter were $2 9 billion and grew <unk>, 8% compared to 2020 to the extra week in 2023 added approximately $80 million to our top line. So on a comparable 13 week basis net sales declined by 2%.

Eva: <unk> year over year.

The year over year decline was driven by a decrease in traffic outside of the holiday period, we did see an improvement in conversion and average dollar sale versus prior quarters in the year.

Eva: As Gina mentioned previously our Aur's increased 2% in the quarter.

Eva: In U S and Canadian stores 14 week fourth quarter net sales totaled $2 2 billion, an increase of 4% versus the prior year.

Eva C. Boratto: We did see an improvement in conversion and average dollar sale versus prior quarters in the year. As Gina mentioned previously, our AURs increased 2% in the quarter. In U.S. and Canadian stores, 14-week fourth-quarter net sales totaled $2.2 billion, an increase of 4% versus the prior year. Reported fourth-quarter direct net sales were $656 million, a decline of 8% compared to last year. Adjusted for BOPUS, direct demand declined 2% in the fourth quarter. As a reminder, BOPUS net sales are recognized as store net sales and will be marking the anniversary of our completion of the BOPUS rollout to all U.S. stores during the first quarter. International net sales were $94 million and declined 1% versus last year, reflecting challenges in the Middle East.

Eva: Reported fourth quarter direct net sales were 656 million a decline of 8% compared to last year.

Eva: Adjusted for Bovis direct demand declined 2% in the fourth quarter.

Eva: As a reminder, <unk> net sales are recognized as store net sales and we will be marking the anniversary of our completion of the bogus rollout to all U S stores during the first quarter.

Eva: International net sales were $94 million and declined 1% versus last year, reflecting challenges in the middle East.

Eva: As a reminder, there are two components to our international net sales royalties collected from franchise retail sales and wholesale revenue generated by the product we sell to our franchise partners.

Eva C. Boratto: As a reminder, there are two components to our international net sales, royalties collected from franchise retail sales and wholesale revenue generated by the product we sell to our franchise partners. Our total international system-wide retail sales declined mid-single digits in the fourth quarter and were up in the low teens outside of the areas affected by the war in the Middle East. The fourth quarter gross profit rate was 45.9%, an increase of 260 basis points compared to the prior year and a sequential year-over-year improvement of 120 basis points from the third quarter, our second consecutive quarter of improvement versus the prior year. The merchandise margin rate improved 290 basis points year over year, driven by AUR increases and approximately $60 million of deflation benefiting product and transportation costs.

Eva: Our total international system wide retail sales declined mid single digits in the fourth quarter and were up in the low teens outside of the areas affected by the war in the Middle East.

Eva: Fourth quarter gross profit rate was 45, 9% an increase of 260 basis points compared to the prior year, a sequential year over year improvement of 120 basis points from the third quarter, our second consecutive quarter of improved.

Eva: Versus the prior year.

Merchandise margin rate improved 290 basis points year over year, driven by AUR increases and approximately $60 million of deflation benefiting product and transportation cost. This margin expansion was partially offset by continued.

Eva C. Boratto: This margin expansion was partially offset by continued investment in product reformulation and packaging innovation as we continue to elevate the brand. However, improvements in merchandise margin were partially offset by buying and occupancy expense deleverage, primarily due to increased occupancy costs associated with new store growth. Total fourth-quarter SG&A deleveraged by 130 basis points versus last year, driven by investments in marketing and technology, partially offset by the benefits of our cost optimization initiatives. Additionally, included in our SG&A is approximately 10 million of expense associated with our cost reduction initiatives, primarily severance.

Eva: Estimate and product re formulation and packaging innovation as we continue to elevate the brand.

Eva: Improvements in merchandise margin were partially offset by buying and occupancy expense deleverage, primarily due to increased occupancy costs associated with new store growth.

Eva: Total fourth quarter, SG&A Deleveraged by 130 basis points versus last year, driven by investments in marketing and technology, partially offset by the benefits of our cost optimization initiatives.

Eva: Additionally included in our SG&A is approximately 10 million of expense associated with our cost reduction initiatives primarily severance.

Eva C. Boratto: Our cost optimization work spans across both gross profit and SG&A and delivers benefits of approximately $50 million in the quarter, in line with our outlook. We have delivered approximately $150 million of total savings for 2023, exceeding our initial goal of $100 million. Taking all of this into consideration, fourth quarter total operating income was $696 million, or 23.9% of net sale. For the full year, operating income was 17.3% of net sale.

Eva: Our cost optimization work spans across both gross profit and SG&A and deliver benefits of approximately $50 million in the quarter in line with our outlook.

Eva: We have delivered approximately $150 million of total savings for 2023 exceeding our initial goal of $100 million.

Eva: Taking all of this into consideration fourth quarter total operating income was $696 million or 23, 9% of net sales for the full year operating income was 17, 3% of net sales.

Eva C. Boratto: Moving on to inventory, we continue to efficiently manage our inventory, ending the fourth quarter with total inventory dollars about flat compared to last year in a quarter that saw sales growth. As we head into the spring, we feel our inventory levels are appropriately positioned. Turning to real estate, our portfolio remains extremely healthy, with 99% of the fleet profitable and stores significantly outperforming pre-pandemic levels. As a reminder, more than half our fleet is in off-mall locations. We made additional progress increasing our off-mall penetration during the quarter. For the full year, we opened 94 new off-mall North American stores and permanently closed 39 mall stores.

Eva: Moving on to inventory, we continue to efficiently manage our inventory ending the fourth quarter with total inventory dollars about flat compared to last year and a quarter that saw sales growth.

Eva: As we head into the spring, we feel our inventory levels are appropriately positioned.

Eva: Turning to real estate, our portfolio remains extremely healthy with 99% of the fleet profitable and stores significantly outperforming pre pandemic levels.

Eva: As a reminder, more than half of our fleet is in off mall locations.

Eva: We made additional progress increasing our all small penetration during the quarter for the full year. We opened 94, new off mall, North American stores and permanently closed 39 mall stores as a result of our net store openings and Remodels we grew net.

Eva C. Boratto: As a result of our net store openings and remodels, we grew net square footage by about 4% for the full year. And internationally, our partners opened 27 net new stores during the quarter and ended the year with 485 stores. Now, let me walk you through our fiscal 2024 financial outlook. We are providing our 2024 outlook with comparisons to 2023 that include the 53rd week, which, as I said earlier, added approximately $80 million to net sales and $0.05 to diluted EPS. For the year, we expect net sales results to range between down 3% to flat year over year.

Eva: Square footage by about 4% for the full year.

Eva: And internationally our partners opened 27 net new stores during the quarter and ended the year with 485 stores now.

Eva: Now, let me walk through our fiscal 2024 financial outlook, we are providing our 2024 outlook with comparisons to 2023 that include the 50, <unk> week, which as I said earlier added approximately 80 million to net sales and <unk> <unk> to diluted EPS.

Eva: For the year, we expect net sales results to range between down 3% to flat year over year.

Eva C. Boratto: Adjusting for the 53rd week in 2023, we expect net sales to range between down 2% to up 1%, with the extra week representing a headwind of about 100 basis points to our 2024 growth. Our outlook reflects the building of capabilities and the launch of products designed to drive customer acquisition and net sales growth. We are increasing our marketing investments to drive customer acquisition and retention.

Eva: Adjusting for the 50 <unk> week in 2023, we expect net sales to range between down 2% to up 1% with the extra week, representing a headwind of about 100 basis points to our 2020 for growth.

Eva: Our outlook reflects the building of capabilities and the launching of products designed to drive customer acquisition and net sales growth.

Eva: We are increasing our marketing investment to drive customer acquisition and retention.

Eva C. Boratto: This will include a variety of marketing programs as well as enhancements to our loyalty program. We are investing in technology at comparable levels to 2023, which will support these marketing and loyalty program initiatives while creating a more seamless experience overall. We plan to drive growth through our product adjacencies. These include building greater awareness of our men's shop, our recently completed Fragrant Hair Care Rollout, and the extension of the rollout of lip products and laundry while continuing to focus on the core. We expect category normalization to continue but to moderate as we move through the year.

Eva: This will include a variety of marketing programs as well as enhancements to our loyalty program.

Eva: We are investing in technology at comparable levels to 2023, which will support these marketing and loyalty program initiatives, while creating a more seamless experience overall.

Eva: We plan to drive growth through our product Adjacencies. These include building greater awareness of our men's shop, our recently completed fragrance hair care rollout and the extension.

Eva: The rollout of lit and laundry, while continuing to focus on the core.

Eva: We expect category normalization to continue but moderate as we move through the year.

Eva C. Boratto: And we will continue expansion efforts within international to provide healthy margins of creative growth to our business. As these capabilities are scaled and benefits build through the year, we expect net sales growth to turn positive in the second half of the year, as we noted on last quarter's call. Our total cost optimization goal is now approximately $250 million, up from our previous goal of $200 million. We now expect approximately $100 million in incremental cost savings this year.

Eva: And we will continue expansion efforts with international to provide healthy and margin accretive growth to our business.

Eva: As these capabilities, our scale and benefits build through the year, we expect net sales growth to turn positive in the second half of the year as we noted on last quarter's call.

Eva: Our total cost optimization goal is now approximately $250 million up from our previous goal of $200 million. We now expect approximately $100 million incremental cost savings this year.

Eva C. Boratto: We expect a full-year gross margin rate of approximately 43.5% at the midpoint of our range, representing continued improvement in merchandise margin driven by modest AUR expansion and product cost decline. We expect buying and occupancy expense as a percent of net sales to deleverage slightly for the full year, driven by our investment in our store real estate. Our full-year outlook assumes an SG&A rate of approximately 26.5%, with the leverage driven by higher marketing investments as well as wage inflation, both of which we expect to partially offset by our cost reduction initiative. We expect full-year net non-operating expense of approximately $270 million, an effective tax rate of approximately 27%, and weighted average diluted shares outstanding of approximately $224 million.

Eva: We expect our full year gross margin rate of approximately 43, 5% at the midpoint of our range representing continued improvement in merchandise margin driven by modest AUR expansion and product cost declines.

Eva: We expect buying and occupancy.

Eva: Expense as a percent of net sales to deleverage slightly for the full year driven by our investments in our store real estate.

Eva: Our full year outlook assumes an SG&A rate of approximately 26, 5% with deleverage driven by higher marketing investments as well as rate wage inflation, both of which we expect to partially offset by our cost reduction initiatives.

Eva: We expect full year net non operating expense of approximately $270 million and effective tax rate of approximately 27% and weighted average diluted shares outstanding of approximately $224 million.

Eva C. Boratto: Considering all of these inputs, we are forecasting full-year earnings per diluted share to be between $3.00 and $3.35. For the first quarter, you can find commentary on the details of our outlook in the slide presentation, but I'll quickly provide the numbers here. Our outlook includes net sales down 4.5% to down 2%. We expect the first quarter gross margin rate to be approximately 42.5%. AURs in the first quarter are expected to be flat. We expect our first quarter SG&A rate to be approximately 30.5% of net sales. We expect a first quarter net non-operating expense of approximately $70 million and a tax rate of approximately 28%, with weighted average diluted shares outstanding of approximately $226 million.

Eva: Considering all of these inputs, we are forecasting full year earnings per diluted share to be between $3 and $3 35.

Eva: For the first quarter, you can find commentary on the details of our outlook in the slide presentation, but I'll quickly provide the numbers here. Our outlook includes net sales down four and a half to down to we expect first quarter gross margin rate to be approximately 42 five <unk>.

<unk>.

Eva: <unk> in the first quarter are expected to be flat.

Eva: We expect our first quarter SG&A rate to be approximately 35% of net sales.

Eva: We expect first quarter net non operating expense of approximately $70 million and a tax rate of approximately 28% with weighted average diluted shares outstanding of approximately $226 million.

Gina R. Boswell: Considering all of these inputs, we are forecasting first quarter earnings per diluted share of $0.28 to $0.33. And I'll now turn the call back to Gina for some closing remarks. Thank you, Eva. As we enter 2024, we are pleased to be able to leverage our clean inventory position, a compelling product assortment, an exceptional store experience with our associates who are ready to serve, and an omni-channel model that allows customers to shop whenever and however they want. Bath & Body Works has a strong foundation with leading market share, top brand awareness, and a competitive advantage in our vertically integrated supply chain that allows us to respond quickly to changing trends.

Eva: Considering all of these inputs, we are forecasting first quarter earnings per diluted share of 28 to 33.

Eva: And now I'll turn the call back to Gena for some closing remarks. Thank.

Gena: Thank you Eva as we enter 2024, we are pleased to be able to leverage our clean inventory position, our compelling product assortment and exceptional store experience with our associates, who are ready to serve and an omnichannel model that allows customers to shop whenever and however, they want.

Gena: Bath <unk> body works has a strong foundation with leading market share top brand awareness and a competitive advantage and our vertically integrated supply chain that allows us to respond quickly to changing trends, we have a healthy balance sheet strong free cash flow generation and balanced capital allocation plan.

Gina R. Boswell: We have a healthy balance sheet, strong free cash flow generation, and a balanced capital allocation plan. The outlook ranges that Eva discussed for the first quarter and the full year take into consideration the mix of headwinds and tailwinds we expect through 2024 as we continue to execute our strategic initiative. Longer term, we remain confident in our ability to achieve our 10 billion net sales and 20% operating income margin.

Gena: The outlook ranges that Eva discussed for the first quarter and the full year taken to consideration the mix of headwinds and <unk>. We expect through 2024 as we continue to execute our strategic initiatives longer term, we remain confident in our ability to achieve our $10 billion of net sales and 20% operating.

Gena: Income margin targets and with that I'll turn it over to Mike for questions.

Mike Mcguire: And with that, I'll turn it over to Mike for questions. Thank you, Gina. For our Q&A session, we ask that participants limit their responses to one question and one follow-up. So we'll now move to the Q&A session. Paul.

Mike Mcguire: Thank you gena for our Q&A session, we ask that participants limit their responses to one question and one follow up so we'll now move to the Q&A session Paul.

Mike Mcguire: Okay.

Paul: Thank you. We will now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in question. You may press star 2 if you'd like to remove your question.

Paul: Thank you we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question to.

Paul: Starting with who'd like to remove your question from the queue for participants using speaker equipment may be necessary to pick up your handset before pressing the star tier one moment. Please while we poll for questions.

Paul: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button. One moment, please, while we call for questions. Our first question is from Lorraine Hutchinson with Bank of America. Please proceed with your question. Thank you. Good morning. Can you talk about the drivers of the fourth quarter AUR up 2% and then why AURs would go from flat in one queue to up for the year? What are the key reasons for that?

Paul: Okay.

Our first question is from Lorraine Hutchinson with Bank of America. Please proceed with your question.

Lorraine Corrine Maikis Hutchinson: Thank you. Good morning can you talk about the drivers of the fourth quarter AUR up 2% and then why <unk> would go from flat in one Q2 up for the year what are the key reasons for that.

Julie B. Rosen: Thank you, Lorraine. Great to hear from you. I'll ask Julie if she can chime in with that question. Hi, Lorraine. I hope you are well.

Lorraine Corrine Maikis Hutchinson: Thank you Lorraine.

Speaker Change: Great to hear from you.

Speaker Change: I'll ask Julie if she can chime in with that question first.

Julie: Hi, Lorraine I hope you're well.

Julie B. Rosen: So, you know, we are constantly balancing the need to keep engagement and traffic strong with our desire to increase pricing as well as have a very agile operating model that allows us to increase or decrease promotional levels in a meaningful way to test for outcomes. So, you know, we've taken select price increases in 2023 to raise our AURs. You see that in more differentiated assortments that really drive pricing power, whether it be three-wick lids, our new seasonal single-wick vessel, and faceted bottles.

Julie: So we are constantly balancing the need to keep engagement and traffic strong with our desire to increase pricing.

Julie: As well as have a very agile operating model that allows us to increase or decrease promotional levels in a meaningful way and tests for outcomes.

Julie: So we've taken select price increases in 2023 to raise our AUR as you see that in more differentiated assortments.

Julie: That really drive pricing power, whether it be three with lids are new seasonal single west basalt faceted bottles or <unk> were up 2% and better than expected and we have a very thoughtful and planned pricing strategy and really levers that we pull to manage our AUR on.

Julie B. Rosen: Our AURs were up 2% and better than expected. And we have a very thoughtful and planned pricing strategy and really levers that we pull to manage our AUR on a constant basis. Some of what we do is around bundles; others is that we take, you know, other opportunities. We were not more promotional this year than we were last year. We had the same number of events. They were slightly longer, but we did not have to take them as seriously.

Julie: On a constant basis some of what we do is around bundles others is that we take other opportunities.

Julie: We were not more promotional this year than we were last year, we had the same number of events.

Julie: They were slightly longer, but we did not have to.

Julie B. Rosen: And you probably noticed that in between our big events, we added in some other events to create engagement. We do have a very price-conscious consumer, and so we are just ensuring that we are meeting them where they are while using our very agile operating model where we're constantly testing on the side for the best options. So, you know, we have robust strategies and robust testing going on to manage our AUR all the time. Thank you. Question.

Julie: Take them as deep and you probably noticed that in between our big events. We added in some other events to create engagement. We do have a very price conscious consumer and so we are just ensuring that we are meeting them, where they are at while using.

Julie: <unk> are very agile operating model, where we're constantly testing on the side for the best options.

Julie: So.

Julie: We have robust strategies and robust testing going on to manage our AUR all the time.

Speaker Change: Thank you.

Julie B. Rosen: Next question. Our next question is from Kate McShane with Goldman Sachs. Please proceed with your question. Hi, good morning.

Speaker Change: Thank you for the question next question.

Speaker Change: Our next.

Speaker Change: <unk> is from Kate Mcshane with Goldman Sachs. Please proceed with your question.

Katharine Amanda McShane: Hi, good morning, Thanks for taking our question I wondered if there was a way that you could quantify maybe the level of innovation level of innovation or level of newness that we can expect to see.

Gina R. Boswell: Thanks for taking our question. I wondered if there was a way that you could quantify maybe the level of innovation or level of newness that we can expect to see in your stores and online in fiscal year 24 versus what we saw in the previous year? Thank you for the question, Kate. I would say that clearly, we have the newness and the seasonal storytelling that Julie might speak to, and she's already done so in her prepared remarks, but we also have the new adjacencies, and those start to build over time. As you know, men's is one and still a fairly low awareness.

Katharine Amanda McShane: In your stores and online in fiscal year 'twenty four versus what we saw this previous year.

Speaker Change: Thank you for the question.

Speaker Change: I would say that we have.

Speaker Change: Clearly, we have the newness and the seasonal storytelling that Julie might speak to and she has already done so in the prepared remarks, but we also have the new adjacencies and those start to build over time as you know mens is one.

Speaker Change: And still a fairly low awareness and so we've built out that assortment.

Gina R. Boswell: And so we've built out that assortment further, and that's why you saw sort of two-thirds of the growth coming from those new products, and that will continue in twenty-four. Our hair is also, will be building even further, and both in distribution as well as SKUs, so there's that newness as well. And then our lip assortment, which is further expanded in the fixture itself, which is beautiful and serves the role of attracting new customers, but there's more expansion within lips, SPFs, and some other things. I'm leaving Julie very little to say, but laundry as well is the next one. But Julie, you're close to it.

Speaker Change: Further and that's why you saw sort of two thirds of the growth coming from those new products and we will continue in 'twenty four or hair was also will be building, even further and both in distribution as well as skus. So theres that newness as well and then our lip assortment, which has further expanded in the.

Speaker Change: Fixture itself with this beautiful and serves the rollover of attracting new customers.

Speaker Change: But theres more expansion within lips, Sps and some other things I'm, leaving Julie very little to say buy laundry as well as the next one peculiar or close to it yeah. So as you know our adjacent categories. We are very excited about and we are in various stages of our rollout of these.

Julie B. Rosen: Yes, so, as you know, our adjacent categories are very excited about, and we are in various stages of our rollout of these adjacencies. For example, our men's shop is fully rolled out to all stores. We know that men's is attracting a younger customer and a slightly more diverse customer, and we have added some extra marketing here. Maybe you saw our pop-up shops or our influencers, and that is really helping to fuel growth as well. Men's is also being fueled by some of the new products, some new merchandising that we added this past year in grooming and antiperspirant deodorant. So, that is the business that's probably the farthest along from an adjacency. Laundry, we have now rolled out to about two hundred stores, and by the middle of the year, we will be in half the fleet. The feedback has been incredibly positive from our customers. They note that laundry detergent is a great way and just another way for them to layer their favorite scents into their daily routine.

Speaker Change: These adjacencies so our men shop is fully rolled out to all stores. We know that men is attracting a younger customer and a slightly more diverse customer.

And we have added some extra marketing here, maybe you saw our pop up shops of our Influencers and that is really helping to fuel growth as well men's is also being fueled by some of the new products. The new merchandising that we added this past year in grooming and an antiperspirant deodorant so that is.

Speaker Change: The business, that's probably the most farthest along permanent J P C.

Speaker Change: <unk>, we have now rolled out to about 200 stores and by the middle of the year, we will be in half the fleet. The feedback has been incredibly positive from our customers. They note that laundry detergent is a great way and just another way for them to layer their favorite sense into their daily routine and while it's a little.

Julie B. Rosen: And while it's a little early to speculate on the size of the business, we are very excited about the opportunity because the laundry market is a $14 billion market. As Gina mentioned, we finished the rollout of Fragrant Hair Care to all stores this spring. And this is another line that we have learned that is attracting new customers to Bath & Body Works. 14% of Fragrant Hair Care customers are new to our brand. Again, we are not ready quite yet to comment on the size of the prize, but we are very confident in our positioning with our Fragrance First leadership as our point of differentiation. And then, finally, we have our lip.

Speaker Change: Early to speculate on the size of the business. We are very excited about the opportunity because the laundry market as a $14 billion market as Gina mentioned, we have finished the rollout of fragrance and hair care to all stores. This spring and this is another line that we have learned that is attracting new customers.

Speaker Change: Bath <unk> body works, 14% of fragrance hair care customers are new to our brand.

Speaker Change: Again, not ready quite yet to comment on the size of the prize, but we are very confident in our positioning with our fragrance first leadership as our points of differentiation and then finally, we have our lift so.

Julie B. Rosen: So we are consistently looking to get new and also younger customers into the brand, and we are seeing that Lipsy is doing this as well. So we've been upgrading, expanding, and relaunching our in-store assortment as well as our visual presentation, which will be in all stores by Q3.

Speaker Change: We are consistently looking to get new and also younger customers into the brand and we are seeing that lift is doing this as well so we've been upgrading and expanding and re launching our in store assortment as well as our visual presentation and this will be in all stores by Q3. So these.

Julie B. Rosen: So these categories are small, but they're growing. And like all launches at Bath & Body Works, we test, we optimize, we roll. So you will see us testing a lot of different things this year, whether it be around pricing, whether it be around merchandising, or marketing. But out of the gate, we are excited about these new launches.

Speaker Change: Categories are small, but they're growing and like all launches at Bath <unk> body works you know we test we optimize we roll. So you will see us testing a lot of different things this year, whether it be around pricing, whether it be around merchandising or marketing.

Speaker Change: Out of the gate, we are excited.

Speaker Change: About these new lines. Thank you. Thank you next question. Please.

Julie B. Rosen: Thank you. Next question, please. Our next question is from Dana Telsey with Telsey Advisors Group. Please proceed with your question. Hi, good morning, everyone.

Speaker Change: Our next question comes from Dana Telsey with Telsey Advisor Group. Please proceed with your question.

Dana Lauren Telsey: Hi, Good morning, everyone. As you think about the merchandise margin, which accelerated up 290 basis points and it sounds like you're expecting some continued improvement in merchandize margin can you talk about the drivers and when you think about the tests of pricing and level of promotions, how should we think about it differently.

Eva C. Boratto: As you think about the merchandise margin, which accelerated by 290 basis points, and it sounds like you're expecting some continued improvement in merchandise margin, can you talk about the drivers? And when you think about the test of pricing and level of promotions, how should we think about that differently this year as compared to last year? And does it differ by category?

Dana Lauren Telsey: This year as compared to last year and does it differ by category. Thank you.

Eva C. Boratto: Thank you. Thank you. Eva, would you start with that question? Sure. Good morning, Dana.

Dana Lauren Telsey: Thank you Eva would you start with that question sure covering Dana.

Eva C. Boratto: Overall, I think we're really pleased with the progress that we've made improving our margins over the last couple of quarters. And as you look at the outlook for the year, merchandise margins, we expect to expand about 50 basis points. And that does reflect continued deflation as well as the cost reduction initiative. We will continue to reinvest in restocking and reformulation.

Eva: Overall, I think we're really pleased with the progress that that we've made improving our margin in the last couple of the last several quarters and as you look at the outlook for the year.

Eva: Merchandise margin, we expect to expand about 50 basis points and that does reflect continued deflation as well as the cost reduction initiatives now we will continue to reinvest in restage and re formulation.

Eva C. Boratto: We're annualizing the changes that we made to body care and soaps this year, so that will continue to impact us. Now, offsetting that for the year, we continue to have B&O deleverage given our real estate investment. But we're really pleased with our progress here on merchandise margin. And I would just note, as you look at our first quarter guidance, our merchandise margin is pretty comparable to what we were able to deliver in 2019. And that's despite costs continuing to be inflated since the pandemic.

Eva: We're annualizing the changes that we made to body care and so this year. So that will continue to impact us now offsetting that for the year. We continue to have no deleverage given our real estate investments.

But we're really pleased with our progress here on merchandise margin and I I would just note as you look at our first quarter guidance. Our merchandise margin is is pretty comparable to what we were able to deliver in 2019 and that's despite costs continuing to be inflated.

Eva: Since the pandemic.

Gina R. Boswell: Yeah, thank you. And one extra thing I would add is that even with some of these new adjacencies and so forth, as Julie spoke to, the margin profile of those over time improves as the product scales post launch, also contributing in bigger ways to the merge margin. Thank you, Eva. Next question. Our next question is from Simeon Siegel with BMO Capital Markets. Please continue with your question. Thanks. Morning, everyone.

Yeah. Thank you and one extra thing I would add is that even with some of these new adjacencies and so forth and Julie spoke to the margin profile of those overtime improves as the product scales post launch also contributing in bigger ways to the merch margin. Thank you Eva.

Speaker Change: Next question.

Speaker Change: Our next question is from Simeon Siegel with BMO capital markets. Please proceed with your question.

Simeon Avram Siegel: Thanks, Good morning, everyone hope, you're all doing well and really nice job on the quarter.

Gina R. Boswell: Hope you're all doing well and really nice job in the quarter. Thank you. So, so great to hear about the men's strength. Sorry if I missed it. Did you say how large the men's group is?

Simeon Avram Siegel: Thank you so so.

Simeon Avram Siegel: So great to hear about the men's strength, sorry, if I missed it did you say how large meds as maybe Julien the point you bring up with the other adjacencies are the new products and then where it goes in the mid to long term.

Gina R. Boswell: Maybe Julie, to the point you were making about the other adjacencies or the new products, and then where they go in the mid to long term. And then Eva, just how much was the investment in the product reformulation, the packaging innovation? Just how should we think about that going forward? How should we think about transport and logistics expenditure going forward? And then what do we need at this point to leverage buying an occupancy? Does that get better as you move off the mall?

Simeon Avram Siegel: Just how much was the investment in the product re formulation to the packaging innovation just how should we think about that going forward, how should we think about transport and logistics expense going forward.

Simeon Avram Siegel: Then what do we need at this point to leverage buying and occupancy does that get better as you move off mall, so as the rent better off mall or not necessarily given which malls you are exiting from thank you.

Eva C. Boratto: So is the rent better off at the mall or not necessarily given which malls you're exiting from? Thank you. Thanks, Simeon. Great to hear from you. I would say on men's, we don't report the exact number, but it is a single digit percent of our sales, so still relatively small, with lots of headroom with respect to the large addressable market of $12 billion.

Thanks, Simeon great to hear from you I would say on mens we don't report the exact but it is a single digit percent of our sales so still relatively small.

Speaker Change: We have lots of headroom with respect to the large addressable market of $12 billion and as I said in and Julie commented as well.

Gina R. Boswell: And as I said, and Julie commented as well, ample distribution as well as new SKUs. As it relates to the B&O leverage and reformulation, I will ask Eva. Unknown Speaker Sure, good morning Simeon.

Ample distribution as well as new Skus as it relates to the.

Speaker Change: <unk> leverage and re formulation I will ask Eva.

Eva: <unk> comment on that sure good morning, Simeon on the beach.

Eva C. Boratto: On the B&O leverage, I would say it would take about 2 to 3% of sales growth to leverage B&O, and you're right, moving from malls to off-mall is a benefit for us. On the mix and the investment levels in reformulation, first, we'll always work to get paid for that reformulation and drive our AURs. As you think about 23 to 24, the impact on the margin of the reformulation is less than it was in 23 as we're annualizing the impacts, and our investments aren't as great in 24. Thank you. Thanks, Simeon.

Eva: <unk> leverage I would say it would take about 2% to 3% of sales growth to leverage P&L and Youre right moving from mall to off mall is a is a benefit for us.

Speaker Change: On this the mix and the investment levels in inquiry formulation.

Speaker Change: First we will always work to get paid for that re formulation and drive our and drive our AUR.

Speaker Change: As you think about 'twenty three to 'twenty for the impact on margin of the <unk> formulation is less than it was in 'twenty three as we're annualizing the impacts and our investments are to as great in 'twenty three in 2004 excuse me.

Gina R. Boswell: Next question, please. Our next question is from Alex Stratton with Morgan Stanley. Please proceed with your question. Perfect. Good morning, ladies. Thanks for taking the questions. Just a couple from me here.

Speaker Change: Thank you. Thanks Simeon next question please.

Speaker Change: Our next question is from Alex <unk> with Morgan Stanley. Please proceed with your question.

Alex: Perfect. Good morning, ladies thanks for taking the question just starting just a couple from me here. The first is on the first quarter sales guidance, if I look at it compared to the fourth quarter ex the 50 <unk> week. It seems like you're embedding that year over year sales declines worsened. So does that assume the lower January or February.

Gina R. Boswell: The first is on the first quarter sales guidance. If I look at it, you know, compared to the fourth quarter X the 53rd week, it seems like you're embedding that year over year sales declines worsen. So does that assume the lower January or February trend continues for the rest of the quarter? Or how do you think about what informs that?

Speaker Change: The trend continues for the rest of the quarter or how do you think about what informed that and then the second question is just on gross margin you know hitting nearly 46% this quarter our long term guide for 45.

Gina R. Boswell: And then the second question is just on gross margin, you know, hitting nearly 46% this quarter, and the long-term guide for 45. I'm having trouble reconciling that with the 43 and a half percent guidance for this year. So the flat.

Speaker Change: Having trouble reconciling that with the 43, 5% guidance for this year. So the flat. So if you can just walk me through what's what's weighing on gross margin right now that would be super helpful. Thanks, a lot.

Eva C. Boratto: So you can just walk me through what's weighing on gross margin right now. That would be super helpful. Thanks a lot. Thank you, Alex. For the first quarter, if you can speak to the, Yeah, good.

Thank you Alex.

Speaker Change: On the first quarter.

Gina R. Boswell: Good morning. Good morning, Alex. Let me take it.

Speaker Change: If you can speak to the.

Speaker Change: Yeah. Good morning, Good morning, Alex Let me take it let me first speak to the high end of the guide the high end of the guide down about 2% right. We're assuming we continue to have a cautious consumer it doesn't get worse as you said the performance trends are in line with Q4 on a comparable 13.

Eva C. Boratto: Let me first speak to the high end of the guide, the high end of the guide down about 2%. Right. We're assuming we continue to have a cautious consumer. It doesn't get worse.

Eva C. Boratto: As you said, the performance trends are in line with Q4 on a comparable 13 week to 13 week basis. You know, good response to our product assortment and Mother's Day, and introduction of partnerships on the low end. The low end of our guide does assume more pressure reflecting the trends that we saw coming into February where we had weaker, weaker traffic and potentially a weaker response to our assortment or Mother's Day. But you were you were thinking about that right on the margin for the was your question on margin for Q1 or year Alex for the full year gross margin. Please.

Week to 13 week basis.

Speaker Change: Good response to our product assortment and mother's day and introduction of our partnerships.

Speaker Change: On the low end the low end of our guidance does assume more pressure there.

Speaker Change: Selecting the trends that we saw coming into February.

Speaker Change: Where we had weaker weaker traffic and potentially weaker response to our assortment or our mother's day, but you were you were thinking about that right.

Speaker Change: On the margin.

For the <unk>.

Speaker Change: Was your question on margin for Q1, our year Alex for the full year gross margin. Please thank you.

Eva C. Boratto: Thank you. Yeah, so for the full year growth margin, as you can appreciate, we're annualizing a lot of the deflation benefits that we achieved throughout 2023. Our margin.

Alex: Yeah. So so for the for the full year gross margin as you can appreciate we're annualizing a lot of the deflation benefits that we achieved throughout 2023 our margin.

Eva C. Boratto: The outlook does include 50 basis points of continued merch margin improvement reflecting those costs, annualization, as well as the investments that I mentioned previously in restage reformulation. Until we get to our growth, right, B&O does cause de-leverage while the dollars are up modestly, you know. You get the de-leverage. So that's it. That's the summary on gross margin. Thanks a lot.

Alex: Outlook does include 50 basis points of continued merch margin improvement, reflecting those costs and utilization as well as the investments that I mentioned previously in restage <unk> formulation.

Alex: Until we get to our growth rate being at D&O does cause deleverage, while the dollars are up modestly.

Alex: Get the deleverage so that's that's.

Alex: That's the summary on gross margin.

Speaker Change: Thanks Lachlan.

Speaker Change: Next question please.

Speaker Change: Yes.

Speaker Change: Our next question is from Matthew Boss with Jpmorgan. Please proceed with your question.

Matthew Robert Boss: Great. Thanks, Gena, so maybe could you just walk through or help rank order. The drivers that you see supporting top line improvement through the year any visibility to candle categories stabilization.

Eva C. Boratto: Thank you. Next question, please. Our next question is from Matthew Boss with J.P. Morgan. Please proceed with your question. Great, thanks. Gina, could you maybe just walk through or help rank order the drivers?

Matthew Robert Boss: Sales to turn positive in the back half how best to think about revenue growth quarterly beyond the first quarter down 3% at the midpoint and is there any way to just elaborate on what Youre seeing in February I think you cited softer traffic trends, that's impacting basket and conversion just any elaborating on that I think would be.

Gina R. Boswell: Unknown Speaker, Matthew Boss, Simeon Siegel, Adrienne Yih, Irwin Boruchow, Paul Lejuez, [inaudible] Thank you. Thank you, Matt. This is a three-part question. So I'll start with the candle category. Julie, if you can speak to that, and then Eva, finish it off with the second half.

Matthew Robert Boss: Great.

Great. Thank.

Speaker Change: Thank you. Thank you Matt. This is a three part question. So I'll start and then candle category. Julie if you can speak to that and then Eva finish it off with the.

Gina R. Boswell: I would say overall, when we put our full-year outlook together, you know, we built it building block by building block, and as stated, there were a variety of scenarios that were considered from below to the high end of our guidance, including things that are in our control with the execution of our initiatives but also macro and consumer sentiment. But I think if you zoom out entirely, there really are four things that drive our return to growth in the back half. The first is one that you touched on that we'll talk about the normalization of candles and sanitizers, moderating, so effectively seeing an easing of the market decline. The second is growth from our core categories, and that's where some of the newness that Julie spoke of and seasonal storytelling comes through.

Matthew Robert Boss: The second half.

Speaker Change: I would say overall.

Speaker Change: When we put our full year outlook together, we built building block by building lock in and as was stated there is a variety of scenarios that were considered from below to the high end of our guidance, including things that are in our control with the execution of our initiatives, but also macro and consumer sentiment, but I think if you zoom out and <unk>.

Speaker Change: Direly there really are four things that drive to our return to growth in the back half first is it one that you touched on that we'll talk to the normalization of candles and Sanitizers moderating so effectively seeing an easing of the market decline.

Speaker Change: Is the growth from our core categories, and that's where some of the newness that Julie spoke to in <unk>.

Speaker Change: Seasonal storytelling comes through the third is the continued rollout of our new Adjacencies and there are small.

Gina R. Boswell: The third is the continued rollout of our new adjacencies, and they're small, you know, as I mentioned, even in the men's point as a percent of our shop today, but men, hair, lip, and laundry, those build and ramp through the year based on the distribution that we're talking about, whether going from 200 stores and laundry to half the chain fall, you know, lip, et cetera. And then fourth, you know, we talked about our full funnel marketing investments. We've got enhanced loyalty capabilities. We've got personalized digital experiences. These are driving more loyal and engaged customers. And so that's sort of the, you know, overall piece to the top line growth as it plays out throughout the year. So, the second question that you have is about candles. Yeah, Hi Matt.

Speaker Change: As I mentioned, even in the mens point as a percent of our shop today, but men's hair lip in laundry those build and ramp through the year based on the distribution.

Speaker Change: We're talking about where they're going from 200 stores in laundry to half the chain and fall.

Speaker Change: Lip et cetera, and then force.

Speaker Change: We talked about our full funnel marketing investments, we've got enhanced loyalty capabilities. We've got the personalized digital experiences those are driving more loyal and engaged customers and so that's sort of the.

Speaker Change: Overall piece to the topline growth as it plays out throughout the year. So second question that you had was on candles, Yeah, Hi, Matt.

Julie B. Rosen: So candles and sanitizers do continue to normalize at an industry level. However, we know customers continue to spend less time at home. And their mindset continues to adjust post-pandemic at an industry level; this unit normalization from Q3 to Q4 improved, and our business mirrored that same exact trend. We've also been able to hold our leading industry market share in candles, and we've actually gained share in sanitizers. And as a reminder, both candles and sanitizers remain elevated versus 2019 levels, more so than the rest of the shop. And I know Eva mentioned it, but just to say it again, our guidance in the back half calls for inflection, even with the normalization.

Speaker Change: Candles and Sanitizers do continues to normalize at an industry level, we know customers continue to spend less time at home.

Speaker Change: And their mindset continues to adjust post pandemic.

Speaker Change: An industry level. This unit normalization from Q3 to Q4 improved and our business mirrored those same exact trends. We've also been able to hold our leading industry market share and Campbell's and we've actually gained share and sanitizers and as a reminder, both chemicals and <unk>.

Speaker Change: Sanitizers remain elevated versus 2019 level more so than the rest of shop and I know even mentioned it but just to say it again our guidance in the back half calls for inflection even with the normalization of candles.

Julie B. Rosen: Yeah, so going back, Matt, to the back half of the year, I'll follow up on Julie's point. As we look at that inflection, we are expecting it to inflect and return to growth in Q3. I would remind you that as we look at Q4 and as you look at the year, there are a number of factors that can out that affect the outlook. Particularly in Q4, we have one less week between Thanksgiving and Christmas that we'll be hurdling for the business, so we're seeing that inflection driving toward Q3 as we expand the adjacencies and roll out our programs. On February, I'll just comment that traffic was pressure Our initial floor set that we had in the year didn't perform as we wanted it to, and we quickly pivoted and adjusted our approach and brought some newness and our tropidelic new fragrance to the front of the store. Thank you. Thank you, Mac.

Speaker Change: Yes, so going back Matt to the back half of the year I'll I'll follow up on Julie's point.

Speaker Change: As we look at that inflection we are expecting to inflect and return to growth in Q3.

Speaker Change: I would remind you that as we look at Q4.

Speaker Change: And then as you look at the year. There are a number of factors that can out that affect the outlook and.

Speaker Change: Particularly in Q4, we have one less week between Thanksgiving and Christmas that will be hurdling for the business. So we're seeing that inflection driving towards Q3, as we expand the adjacencies and rollout our programs.

Speaker Change: On February I will just comment you know traffic traffic was pressured coming into February or our initial floor set that we had in the year didn't perform as we wanted it to and we quickly pivoted and and adjusted our approach and brought some newness.

Speaker Change: And our trough of Delek.

Speaker Change: New fragrance to the front of the store.

Speaker Change: Thank you thank.

Eva C. Boratto: You can take the next question, please. Our next question is from Olivia Tong with Brayman James. Please proceed with your question. Good, thanks. Good morning.

Speaker Change: Thank you Mac can take next question. Please.

Speaker Change: Our next question is from Olivia Tong with Raymond James. Please proceed with your question.

Unknown Executive: Great. Thanks, good morning.

Gina R. Boswell: I wanted to ask you about your pricing plans for the year and how much of that pricing, for the full year, is new pricing and promotion efficiency improvements that you expect to build that have yet to be implemented versus actions that have already been taken. And then, if you could just talk about the balance between achieving AUR improvement and what sounds like a bigger than expected softness in January that has continued into February. So can you talk about your promotion levels versus your peers and how to think about the risk that you can hold on to those improvements that you were able to achieve in Q4. Thank you, Olivia.

Unknown Executive: Wanted to ask you about your pricing plans for the year and how much of that pricing increases for the full year has new pricing and promo efficiency improvements that you expect to build on.

Unknown Executive: That have yet to be implemented versus actions that have already been taken and then if you could just talk about the balance between achieving AUR improvement with what sounds like a bigger than expected softness in January that has continued into February. So can you talk about your your promo levels versus your peers and how to think about the rest of it you know.

Unknown Executive: But that you can hold on to those improvements that you were able to achieve in Q4. Thank you.

Speaker Change: Thank you Olivia too well to start our assumptions on AUR.

Gina R. Boswell: Well, to start our assumptions on AUR, for the first quarter, we're flat and moderate for the full year. In terms of new price actions that we've taken, Julie might want to speak to that. I mean, it's a very, you know, it's a very agile model where we sort of look at those everyday deals and bundles and so forth. Then, I think the last part of your question, I would ask Eva to chime in on, and I'm trying to remember.

Speaker Change: For the first quarter were flat and moderate for the for the full year.

Speaker Change: In terms of new price actions that we've taken Julie one might want to speak to I mean, it's a very.

Julie: It's a very agile model, where we sort of look at those everyday deals in bundles and so forth.

Julie: The I think the last part of your question I would ask Eva.

Speaker Change: Huge chime in on on and Im trying to remember exactly.

Gina R. Boswell: Sure, sure. As you think about the pricing overall, I'd remind you we've said this a few times right about the mix. We are reducing our reliance on direct mail.

Eva: Sure sure.

Eva: As you think about the pricing overall.

Eva: Mind, you. We've said this a few times right on the mix, we are reducing our reliance on direct mail.

Eva C. Boratto: We're increasing, leaning into loyalty, and more personalization. So they're all factors that give us the confidence that we can have modest increases for the year. In terms of the overall competitive landscape, it is a competitive landscape, and our agile model and our product assortment enables us to respond while we're balancing both margin and top line volume. So I just would add one more or a couple more things. You know, in 2023, we raised a lot of our prices, we raised for all of the forms that we invested in, we raised at least a dollar, we added all endings on all products So when I say we have an agile testing model, every single weekend, we're testing alternative pricing to figure out where we can, you know, garner more AUR. We don't plan for this business to become more promotional over time.

Eva: We're increasing leaning into loyalty and more personalization. So they're all factors that give us the confidence that we.

Eva: We can have modest increases for the year in terms of the <unk>.

Eva: Overall competitive landscape. It is a competitive landscape and our agile model in our product assortment enables us to respond while we're balanced both margin and and top line volume.

Speaker Change: So I just would add one more a couple more things.

Speaker Change: In 2023, we raised a lot of our prices we raised for all of the forms that we.

Speaker Change: <unk> invested in we raised at least a dollar we added all endings on all products 95, we took our wallflowers from five for 20% to five for 2007.

Speaker Change: We did so five for 25 or 27, so when I say, we have an agile testing model every single weekend, we're testing alternative pricing to figure out where we can garner more.

Speaker Change: We don't plan for this business to be more promotional over time, so I want to make sure that we're all clear on that we believe that our products are.

Julie B. Rosen: So I want you to make sure that we're all clear on that. We believe that our products are affordable luxuries. We believe that they're meant to be used daily and replenished often. And we know that our customers love to celebrate seasons, holidays, fragrances, and love newness. And we can do this in a way that nobody else can.

Speaker Change: Affordable luxuries, we believe that they are meant to be used daily and replenish often and we know that our customer loves to celebrate seasons holidays fragrances and loves newness and we can do this in a way that nobody else can we can tell these transport of emotional stories. So.

Julie B. Rosen: We can tell these transportive emotional stories. So I believe it's the celebrations and the newness, along with the promotion, that's gonna drive traffic to our stores. Again, as I keep saying, we use that operating model, right, to increase or decrease promotion. So promotions will be a traffic driver for our business, but we're hoping by sharpening our approach with the right technology in place, we're gonna leverage some data and analytics, and we'll deliver more personalized targeted messages, which hopefully will increase trips, and spreads, and engagement, while reducing reliance on broad-based promos. Thank you. Next question, please. Our next question is from Paul Lejuez with PIDI.

Speaker Change: So I believe it's the celebrations on the newness along with the promo that's going to drive traffic to our stores.

Speaker Change: Again, as I keep saying, we use that operating model right to increase or decrease promotions. So promotions will be a traffic driver for our business, but we're hoping by sharpening our approach with the right technology in place, we're going to leverage some data and analytics and we will deliver more personalized targeted messages, which hope.

Speaker Change: He will increase trips and spreads and engagement, while reducing reliance on broad based promos.

Speaker Change: Thank you.

Speaker Change: Next question please.

Our next question listen Paul Lajoie with Citi. Please proceed with your question.

Eva C. Boratto: Please proceed with your question. Hey, thanks, guys. I just wanted to clarify on February. You said that I think traffic was pressured coming into February. Can you talk about February specifically and what you saw and if there was any change from the beginning of the month to the end of the month? And then separately on the SG&A line in 4Q, what came in above and below plan? What drove that?

Paul Lawrence Lejuez: Hey, Thanks, guys just wanted to clarify.

Paul Lawrence Lejuez: February you said that I think traffic was pressured coming into February can you talk about February specifically, what you saw and if there's any change from being able to monitor the end of the month and then just separate on SG&A by four to what came in above and below plan.

Paul Lawrence Lejuez: What drove that.

Eva C. Boratto: And can you talk about the opportunity to leverage SG&A and F24 if sales perform above your expectations? Yeah, thanks for the question. This is Eva.

Paul Lawrence Lejuez: Can you talk about the opportunity to leverage SG&A in F. 'twenty four itself performed above your expectations. Thanks.

Paul Lawrence Lejuez: Yeah. Thanks. Thanks for the question this is Eva.

Eva C. Boratto: On the SG&A, as I referenced, we had a severance charge of about $10 million associated with our cost reduction initiative. Also, sales outperformed, so we had additional costs related to that. Could you repeat your other question? February traffic. February traffic.

Eva: The SG&A.

Eva: As I referenced we.

Eva: We had a severance charge of about $10 million associated with our cost reduction initiatives also sales outperformed so we had additional cost related to related to that.

Eva: Could you repeat your other question Alright February traffic February traffic. Thank you. So overall as I said, we came into February traffic was pressured we've referenced that are our initial floor set didn't perform to our expectations.

Eva C. Boratto: So overall, as I said, we came into February and traffic was pressured.

Eva C. Boratto: We referenced that our initial floor set didn't perform to our expectations, and we adjusted that performance has improved during the month. It's reflected in our outlook and the guidance range that we provided. Was that performance improvement during the month driven by promotions? Is that the message? No, no, I apologize.

Eva: We adjusted that.

Eva: <unk> performance has improved during the month, it's reflected in our in our outlook and the guidance range that we provided.

Eva: <unk> performance improved during the month driven by promotion does that you got the message.

Eva C. Boratto: That was not my message. Overall, we changed our we changed our floor set, and promotions are always part of is always part of our strategy. But we're adapting and adjusting to our customers, and with the guidance of flat AUR.

Eva: Rich.

Speaker Change: No no I apologize that was not my message overall, we changed our we changed our floor set.

And promotions is always part of is always part of our strategy, but we're adapting and adjusting to our customer and with the guidance of flat AUR and in the first quarter. So thank you got.

Eva C. Boratto: So thank you. I got it. Thank you. I think we have time for one more question, please. Thank you. The last question is from Adrienne Yih with Barclays. Please proceed with your question. Gina and Julie, can you talk about the elevation strategy? I've seen it coming through, particularly in candle packaging. Which categories are sort of optimal for price elevation or premiumization? And is that through packaging? Is it through innovation, formulations, et cetera?

Speaker Change: Got it. Thank you I think we have time for one more question. Please.

Speaker Change: Thank you. Our last question is from Adrienne <unk> with Barclays. Please proceed with your question.

Adrienne: Great. Thank you so much very nice end to the end of the year.

Adrienne: So congrats on the fourth quarter, Ciena and or Julie can you talk about the the elevation strategy I've seen it coming through particularly in the candle packaging, which categories are sort of optimal for price elevation or premium position.

Adrienne: And is that through packaging through innovation formulations et cetera.

Gina R. Boswell: And then the follow-on to that is, did that acquire, when you do that, do you see sort of an elevation in age or demographics or any statistics associated with that? Thank you. Thank you. As it relates to the categories, you know, overall, we sort of look at Mastige as the pricing sort of segment that we operate in. And, you know, many of those categories, I mean, if you just think about the beautiful laundry package that we have, and what that connotes, and even, you know, the price-value proposition there, you know, being sort of in that sweet spot of Mastige. But you're right, there are other things like the beveling of some of the products and then the reformulations as well, which is an important elevation from the customer's mindset.

Adrienne: And then the <unk>.

Adrienne: Carry on to that is there.

Adrienne: Did that acquire when you do that do you see sort of an elevation in age or demographics or any statistics associated with that thank you.

Speaker Change: Thank you al.

Speaker Change: As it relates to the categories overall, we sort of look at the Masstige sort of as the as the pricing sort of segment that we operate in and.

Speaker Change: Many of those categories I mean, if you just think about the beautiful laundry pack.

Speaker Change: Package that we have and what that connotes an even.

Speaker Change: The price value proposition there.

Speaker Change: Being sort of in that sweet spot of of of math Steve.

You are right there are other things like the <unk> of some of the products and then the re formulations as well, which is an important elevation from the customer's mindset in terms of so I would say overall the categories and Julie will chime in I'm sure, but overall.

Gina R. Boswell: In terms of, so I would say, overall, the categories, and Julie will chime in, I'm sure, but overall, they all have opportunities to elevate, not necessarily rise entirely, right, because we want to make sure we always meet the mindset of our customers and increase their usage. We are a highly replenishable business, so we want to make sure of that and get the trial that we need. But I would say that in terms of what we're seeing by cohort, which I think was the other part of your question, we are actually not seeing any discernible changes with respect to income or age, based on all the things that we've seen, and we're not seeing trade down in our assortment as well.

Speaker Change: All have opportunities to elevate not necessarily raise entirely right because we want to make sure. We always meet the mindset of our customers and increase their their usage that we are a highly replenishable business. So we want to make sure of that and get the trial that we need.

Speaker Change: But I would say that in terms of what we're seeing by cohort, which I think was the other part of your question. We are actually not seeing any discernible changes with respect to income or age.

Speaker Change: Based on all the things that we've seen and we're not seeing trade down in our assortment as well.

Julie B. Rosen: Yeah, and I think from an elevation perspective, just to follow up, we are seeing a nice response from our neutrals collection, both across soaps and candles, which are very elevated products. My design and merchandising teams do an excellent job scanning the market and the world, looking for trends to sort of see what is going on. I think one of the things that we try to hit on in our store is that there are sometimes multiple mindsets that the customer is having, and we try to hit on all of those. So if you look at men's, we upgraded the packaging on our shower gels. We just relaunched our champagne toast in new faceted bottles. So we're constantly looking, but it is about balance. We do have some customers that still like some of those more brightly colored fun, but we are seeing an elevation as in pretty products and as in neutrals, really responding with customers.

Speaker Change: Yeah, and I think from an L.

Speaker Change: I think from an elevation perspective, just a.

Speaker Change: Follow up.

Speaker Change: We are seeing nice response from our neutrals collection, both across soaps and candles, which are very elevated products my design and merchandising teams do an excellent job scanning the market and the world looking for trends to sort of see what is going on I think one of the things that we try.

Speaker Change: To hit on in our stores is there are at times multiple mindset that the customer is.

Speaker Change: Is having and we try to hit on all of those so if you look at mens we upgraded.

Speaker Change: The packaging on our.

Speaker Change: Shower gels, we just relaunched our champagne toast in new faceted bottles. So we're constantly looking but it is about a balance we do have some customers that still like some of those more brightly colored fun, but we are seeing elevation as in pretty.

Speaker Change: Products and as in neutrals.

Speaker Change: Really responding with customers and because we have an agile model, we're able to go out and react and ensure we have enough about.

Julie B. Rosen: And because we have an agile model, we're able to go out and react and ensure we have enough of that. Yeah, Julie, just feedback wise, the neutrals look very sophisticated and lovely. So congrats on that. Best of luck. Thank you. Thank you. I'll pass that on to the team.

Speaker Change: Yes, Julie just feedback wise, the neutrals look very sophisticated and a lovely. So congrats on that best of luck. Thank you. Thank you I'll pass that onto the team so that concludes our call.

Mike Mcguire: So that concludes our call. I want to thank you for joining today's call. Over to you, Mike. The replay will be available for 90 days on our website. Thanks again for your interest in Bath & Body Works. If anybody has any questions, contact us here.

Speaker Change: Thank you for joining today's call over to you Mike. So a replay will be available for 90 days on our website. Thanks again for your interest in Bath <unk> body works, if anybody has any questions contact us here. Thanks. Thank you.

Thanks. Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Thank you, Paul. I've been trained. Unknown Speaker

Mike Mcguire: This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.

Mike Mcguire: Thank you Paul.

Mike Mcguire: Answers.

Mike Mcguire: I've been trained.

Mike Mcguire: