Q2 2024 Bath & Body Works Inc Earnings Call

[inaudible] Julie. I'm Julie.

[inaudible]

Donna: Good morning, my name is Donna, and I will be your conference operator today. At this time, I would like to welcome everyone to the Bath & Body Works second quarter, 2024, earnings conference call.

Speaker Change: 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. I will now turn the call over to Luke Long by President of Investor Relations. Luke, you may begin.

Luke Long: Good morning and welcome to Bath and Body Works 2nd quarter 2024 earnings conference call.

Speaker Change: and please to recently join the company, I look forward to continuing to connect with the investment community going forward.

Speaker Change: Joining me on the call today are Gina Boswell, Chief Executive Officer, Julie Rosen, President Retail, and Eva Boratto, Chief Financial Officer.

Speaker Change: In addition to this call in this morning's press release, we've posted a slide presentation on our website that summarizes the information in these prepared remarks, in addition to providing some related facts and figures regarding our operating performance in guidance.

Speaker Change: Today's call could be in certain forward-looking statements related to future events and expectations.

Speaker Change: for factors that could cause the action results to differ materially from these forward-looking statements. Please refer to this morning's press release as well as the Ritz factors in Bath & Body Works 2023, Form 10K and our quarterly report on Form 10Q, which will be filed at the end of today.

Speaker Change: Today's call also contains certain non-gap financial measures. Please refer to this morning's press release and supplemental materials for important disclosures regarding such measures including reconciliation to the most comparable gap financial measure.

Speaker Change: As you know, fiscal 2023 was a 53-week year.

Speaker Change: to provide the best understanding of the business, all category sales results, year-to-date market share data, loyalty metrics, and the selling metrics discussed during the call on a comparable calendar basis.

Speaker Change: which is the 13 weeks in August 3, 2024, first the 13 weeks in August 6, 2023.

Speaker Change: All of the results discussed are on a reported basis, which is the 13 weeks and did August 3, 2024, first of 13 weeks and did July 29, 2023.

Speaker Change: with that, I'll now turn the call over to Gina.

Gina Boswell: Thank you, Luke, and good morning everyone. We appreciate you joining us.

Gina Boswell: I'll start with a high level review of our second quarter results and our progress against our strategic priorities.

Gina Boswell: You'll hear about the actions we are taking to drive growth in our core portfolio, extend our reach to new adjacencies and markets, how we're using our agile model to adapt to a dynamic environment and how we're optimizing our business to reduce costs and expand margin.

Operator: Good morning.

Gina Boswell: Our performance came against a challenging backdrop of economic uncertainty and consumers highly focused on binding value. For the second quarter, net sales were $1.5 billion down to percent versus the prior year and in line with guidance.

Donna: My name is Donna and I will be your conference operator today. I have a conference. At this time, I would like to welcome everyone to the Bath & Body Works Second Quarter 2024 Earnings Conference Call. 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 one.

Gina Boswell: 2nd quarter adjusted earnings per deluted share of 37 cents exceeded our guidance by a penny. Our 2nd quarter net sales performance was impacted by our semi-annual sale or sats, which fell short of our expectations.

Luke Long: I will now turn the call over to Luke Long, Vice President of Investor Relations. Luke, you may begin.

Luke Long: Good morning and welcome to Bath & Body Works Second Quarter 2024 Earnings Conference Call. I'm pleased to have recently joined the company and I look forward to continuing to connect with the investment community going forward.

Gina Boswell: Without the impact of staff, our net sales would have been down 1% for the quarter.

Gina Boswell: Julie will go into more detail on the fast shortfall and importantly how we will evolve fast going forward.

Luke Long: Joining me on the call today, or Gina Boswell, Chief Executive Officer, Julie Rosen, President Retail, and Eva Boratto, Chief Financial Officer. In addition to this call in this morning's press release, we've posted a slide presentation on our website that summarizes the information in these prepared remarks in addition to providing some related facts and figures regarding our operating performance and guidance. Today's call contains certain forward-looking statements related to future events and expectations.

Julie Rosen: The out performance in our second quarter adjusted earnings per deluded share was driven by continued improvements in merchandise margin and solid execution on our fuel for growth initiatives.

Julie Rosen: I want to emphasize my confidence in our strategy and the actions we're taking to position the company for long-term, sustainable, profitable growth through our differentiated model.

Julie Rosen: This quarter, we continue to invest in fortifying our operating foundation while building a platform for growth.

Luke Long: For factors that could cause the action results to differ materially from these forward-looking statements, please refer to this morning's press release as well as the Ritz factors in Bath & Body Works 2023, Form 10K, and our quarterly report on Form 10Q, which will be filed at the end of today. Today's call also contains certain non-gap financial measures. Please refer to this morning's press release and supplemental materials for important disclosures regarding such measures, including reconcilations to the most comparable gap financial measure.

Julie Rosen: Focus on five key strategies.

Julie Rosen: Elevating the Bath & Body Works brand and product, extending our reach, engaging with customers.

Julie Rosen: Enabling a seamless, omnichannel experience and enhancing operational excellence and efficiency. We are making good progress on each of these elements.

Julie Rosen: Elevating the Brandon product.

Julie Rosen: We are innovating across our portfolio and leveraging speed and scale to continuously evolve the quality, ingredients, packaging, efficacy and fragrances of our products.

Luke Long: As you know, fiscal 2023 was a 53-week year. To provide the best understanding of the business, all category sales results, year-to-date market share data, loyalty metrics, and the selling metrics discussed during the call are on a comparable calendar basis, which is the 13 weeks into August 3, 2024, first the 13 weeks into August 5, 2023. All of the results discussed are on a reported basis, which is the 13 weeks into August 3, 2024, first the 13 weeks into July 29, 2023.

Julie Rosen: and Customers are responding positively to this newness and innovation. In addition, given our broad product assortment and mass-deish positioning, we are in a unique position to elevate value for our customers in this challenging environment.

Julie Rosen: Elevating value is about offering exceptional product quality and an outstanding customer experience at an affordable price. And our vertically integrated model allows us to do just that.

Julie Rosen: We work with the world's top fragrance houses, the very same used by the fragrance industry. To bring our customers the affordable luxuries they've come to expect.

Gina Boswell: With that, I'll now turn the call over to China. Thank you, Luke, and good morning, everyone. We appreciate you joining us.

Gina Boswell: I'll start with a high-level review of our second quarter results and our progress against our strategic priorities. You'll hear about the actions we are taking to drive growth in our core portfolio, extend our reach to new adjacencies and markets, how we're using our agile model to adapt to a dynamic environment, and how we're optimizing our business to reduce cost and expand margin. Our performance came against a challenging backdrop of economic uncertainty and consumers highly focused on finding value.

Julie Rosen: A recent example of this is our everyday luxuries launch, our Precision Spired Line of Fine Fragrance Missed.

Julie Rosen: Whether it's everyday luxury supporting the next hot co-lab or driving innovations across our core portfolio, we are making important investments in product and marketing to solidify our category leadership and brand loyalty.

Speaker Change: That in Body Works offers a wide array of price points from a $2 pocket back to a $30 candle to a $60 O-Deparphum

Gina Boswell: For the second quarter, net sales were $1.5 billion down 2% versus the prior year and in line with guidance. 2nd quarter adjusted earnings per deluded share of 37 cents exceeded our guidance by a penny. Our 2nd quarter net sales performance was impacted by our semi-annual sale or SASS which fell short of our expectations. Without the impact of SASS, our net sales would have been down 1% for the quarter.

Speaker Change: and we also offer a breadth of price points within categories using a good, better, best strategy so we can be customers where they're at with a product they will love and trust.

Speaker Change: Extending our reach, we are growing our new category of Json Seas, opening new store locations and expanding in international geographies.

Speaker Change: Our Jason categories of men's hair, lip and laundry continue to perform well, particularly among the existing customers.

Gina Boswell: Julie will go into more detail on the SASS shortfall and importantly how we will evolve SASS going forward. The outperformance in our 2nd quarter adjusted earnings per deluded share was driven by continued improvements in merchandise margin and solid execution on our fuel for growth initiatives. I want to emphasize my confidence in our strategy and the actions we're taking to position the company for long-term, sustainable, profitable growth through our differentiated model. This quarter we continued to invest in fortifying our operating foundation while building a platform for growth focused on 5 key strategies, elevating the Bath & Body Works brand and product, extending our reach, engaging with customers, enabling a seamless omnichannel experience, and enhancing operational excellence and efficiency.

Speaker Change: We're also focused on attracting new-to-brand customers with these categories.

Speaker Change: In the back half of the year, we're rolling out a number of exciting product launches and marketing campaigns to drive increased awareness and buzz

Speaker Change: Our Real Estate portfolio remains healthy and we continue to reshape the portfolio and move stores off mall with approximately 55% of our North American stores now in off mall locations.

Speaker Change: International Markets remain an attractive pillar of our strategy. We believe there is tremendous growth opportunity as we enter new markets and expand in existing markets.

Speaker Change: International system-wide retail sales grew double digits in the second quarter in the areas not affected by the war in the Middle East, while pressure continued in those areas affected.

Speaker Change: At the end of the second order, we were operating in nearly 500 stores internationally.

Gina Boswell: We are making good progress on each of these elements, elevating the brand and product. We are innovating across our portfolio and leveraging speed and scale to continuously evolve the quality, ingredients, packaging, efficacy, and fragrances of our products, and customers are responding positively to this newness and innovation. In addition, given our broad product assortment and mastige positioning, we are in a unique position to elevate value for our customers in this challenging environment.

Speaker Change: and we're accelerating our international expansion plan and now expect our partners to open approximately 15 net news stores this year up from our prior expectation of at least 35 net news stores.

Speaker Change: As we noted last quarter, our partners have opened the first stand-alone bath and bodywork store in London and the first shop in South Korea and both are performing above our expectations.

Speaker Change: As we continue to expand globally, our fragrances are becoming known and loved throughout the world and we are seeing strong customer adoption of our products.

Gina Boswell: Elevating value is about offering exceptional product quality and an outstanding customer experience at an affordable price, and our vertically integrated model allows us to do just that. We work with the world's top fragrance houses, the very same used by the fragrance industry, to bring our customers the affordable luxuries they've come to expect. A recent example of this is our everyday luxuries launch, our precision-spired line of fine fragrance myths. Whether it's everyday luxuries supporting the next hot colab or driving innovations across our core portfolio, we are making important investments in product and marketing to solidify our category leadership and brand loyalty.

Speaker Change: Engaging with customers, one way we measure our customer engagement and satisfaction is net promoter scores, which we're pleased to say is consistently at the top quartile of retailers measured.

Speaker Change: Building on that strong foundation is the strength of our loyalty program which we continue to advance.

Speaker Change: We had over 37 million active loyalty members at the end of the second quarter, up 8% compared to the prior year.

Speaker Change: Loyalty members account for over 80% of U.S. failed, and these customers visit us more frequently, spend more, and have greater retention rates.

Speaker Change: Fair drawn to exciting member-only benefits of the program, such as early access opportunities or member appreciation events.

Gina Boswell: Bath & Body Works offers a wide array of price points, from a $2 pocket back to a $30 candle to a $60 o-departful. And we also offer a breadth of price points within categories using a good better best strategy so we can meet customers where they're at with a product they will love and trust. Extending our reach, we are growing our new category of Jason Sees, opening new store locations and expanding in international geographies.

Speaker Change: Our loyalty program has enabled us to be more targeted in our marketing and to pull back on Broadway's spend. We're also utilizing customer data to drive traffic in conversion.

Speaker Change: Our technology roadmap is on track and we're putting in place the foundational tools and systems needed to support future growth while enabling new capabilities that will increase customer engagement and provide a more seamless shopping experience across channels.

Gina Boswell: Our Jason categories of men's hair, lip and laundry continue to perform well, particularly among existing customers. We're also focused on attracting new to brand customers with these categories. In the back half of the year, we're rolling out a number of exciting product launches and marketing campaigns to drive increased awareness and buzz. Marcus, Our real estate portfolio remains healthy, and we continue to reshape the portfolio and move stores off mall with approximately 55% of our North American stores now in off mall locations.

Speaker Change: We recently upgraded our mobile app to a native mobile app which will further enhance our personalized targeting as we relab new capabilities such as app for all frictionless ordering and geo-targeting beginning later this year.

Speaker Change: We are launching a Bath & Body Works TikTok shop this quarter. This social commerce capability will provide a frictionless and convenient shopping channel to attract younger customers.

Speaker Change: Finally, our generative AI fragrance finder, Gingham Genius, will launch in the important fourth quarter, providing customers a personalized fragrance finding experience using large language models and the power of our data.

Gina Boswell: International markets remain an attractive pillar of our strategy. We believe there is tremendous growth opportunity as we enter new markets and expand in existing markets. International System-wide retail sales grew double digits in the second quarter in the areas not affected by the war in the Middle East, while pressure continued in those areas affected. At the end of the second quarter, we were operating in nearly 500 stores internationally, and we're accelerating our International Expansion Plan and now expect our partners to open approximately 50 net news stores this year up from our prior expectation of at least 35 net news stores.

Speaker Change: We believe these capabilities will increase customer traffic and sales over time through a seamless and convenient customer experience.

Speaker Change: Enhancing operational excellence and efficiency while we execute initiatives to drive the top line, we also continue to focus on margin. We're increasing our $20-24 cost savings guidance to $130 million from $100 million.

Speaker Change: The two-year program that started in 2023 is now expected to deliver $280 million in run rate savings, up from the initial plan of $200 million. All while preserving the key investments to support our top-line growth.

Gina Boswell: As we noted last quarter, our partners have opened the first standalone Bath & Body work store in London, and the first shop and shop in South Korea, and both are performing above our expectations. As we continue to expand globally, our fragrances are becoming known and loved throughout the world, and we are seeing strong customer adoption of our products. Engaging with customers, one way we measure our customer engagement and satisfaction is net promoter scores, which we're pleased to say is consistently at the top quartile of retailers measured.

Speaker Change: Looking ahead to the back half of the year, we are focused on executing with precision, continuing to bring newness to customers and demonstrating our strong value proposition across our product assortment.

Speaker Change: We will double down our focus on the core and continue to extend our reach through new category adjacencies and expansion of off-mall and international locations.

Speaker Change: Our full rollout of everyday luxuries and our Stranger Things Part 2 collab, both of which started within the past week, include integrated marketing in stores online and across media channels.

Gina Boswell: Building on that strong foundation is the strength of our loyalty program which we continue to advance. We had over 37 million active loyalty members at the end of the second quarter up 8% compared to the prior year. Loyalty members account for over 80% of U.S, sales, and these customers visit us more frequently, spend more, and have greater retention rates. They are drawn to exciting member-only benefits of the program, such as early access opportunities or member appreciation events.

Speaker Change: Taking all factors into account including first half sales trends and the chopier macro environment. As we look ahead to the remainder of the year, we believe it is prudent to adjust our full year revenue and earnings expectations.

Speaker Change: We're also increasing our share we purchase guidance to $400 million from $300 million to return value to shareholders.

Gina Boswell: Our loyalty program has enabled us to be more targeted in our marketing and to pull back on broad-based spend. We're also utilizing customer data to drive traffic in conversion. Our technology roadmap is on track, and we are putting in place the foundational tools and systems needed to support future growth, while enabling new capabilities that will increase customer engagement and provide a more seamless shopping experience across channels. We recently upgraded our mobile app to a native mobile app, which will further enhance our personalized targeting as we roll out new capabilities, such as app for all frictionless ordering and geo-targeting, beginning later this year.

Speaker Change: will give more details on these updates in her prepared comments.

Speaker Change: In summary, despite the tough environment in the first half of the year, we are in line with or exceeded our guidance. While I'm dissatisfied with the pace of our return to sales growth, I remain confident in our strategy and the progress we are making.

Speaker Change: With the strength of our high margin business model and strong cash flow generation, we are well positioned to invest in the strategies that will drive our return to growth and enhance long-term shareholder value.

Speaker Change: Before I turn the call over to Julie, I'd like to thank our teams for consistently providing tremendous service to our customers and for their efforts in delivering against our strategic priorities.

Speaker Change: With that, Julie will provide the merchandising overview.

Gina Boswell: We are launching a Bath & Body Works TikTok shop this quarter. This social commerce capability will provide a frictionless and convenient shopping channel to attract younger customers. Finally, our Generative AI Fragrance Finder, Kingdom Genius, will launch in the important fourth quarter, providing customers a personalized fragrance binding experience using large language models and the power of our data. We believe these capabilities will increase customer traffic and sales over time through a seamless and convenient customer experience.

Julie Rosen: Thank you, Gina. Across the portfolio, year to date, we maintain our unit market share driven by increases in home fragrance, offset by declines in body care and soaps and sanitizers.

Julie Rosen: In the quarter, home fragrance and body care cells were down low single digits to last year, with soaps and sanitizers declining mid-single digits.

Julie Rosen: As Gina mentioned, the semi-annual sales did not perform to our expectations. And while the defective performance across all categories, it disproportionately affected body hair.

Gina Boswell: Enhancing operational excellence and efficiency. While we execute initiatives to drive the top line, we also continue to focus on margin. We're increasing our 2024 cost savings guidance to $130 million from $100 million. The two-year program that started in 2023 is now expected to deliver $280 million in run rate savings up from the initial plan of $200 million, all while preserving the key investments to support our top-line growth. Looking ahead to the back half of the year, we are focused on executing with precision, continuing to bring newness to customers and demonstrating our strong value proposition across our product assortment.

Speaker Change: Our store presentation and marketing did not initially resonate with our customers. We adjust as a messaging and floor sets and while the results improved, performance remains below expectations.

Speaker Change: We will continue to evaluate and evolve our approach to the sale to optimize performance, including timing, marketing, merchandising and other considerations.

Speaker Change: Moving to other highlights, customers have responded favorably to the innovation we've rolled out this year.

Speaker Change: We are leaning into what is working

Speaker Change: Focusing on adjacencies, the men's business continues to be one of our fastest growing categories in body character in the second quarter.

Gina Boswell: We will double down our focus on the core and continue to extend our reach through new category adjacencies and expansion of off-mall and international locations. Our full roll-out of everyday luxuries and our Stranger Things Part 2 co-lab, both of which started within the past week, include integrated marketing in stores, online, and across media channels. Taking all factors into account, including first half sales trends and the chopier macro environment, as we look ahead to the remainder of the year, we believe it is prudent to adjust our full-year revenue and earnings expectations. We're also increasing our share repurchase guidance to $400 million from $300 million to return value to shareholders.

Speaker Change: as we highlighted Father's Day. As Gina mentioned, there is an exciting opportunity to capture new customers by growing customer awareness for this category.

Gina Boswell: As planned, we fully rolled out our lip fixture and expanded assortment to nearly all North American stores during the quarter. Lip continues to attract a younger customer while also doubling sounds of lip in those stores year-to-day.

Montrie: Montrie will roll out to all U.S. stores by the end of September, accompanied by the launch of a national advertising campaign to accelerate customer awareness on adoption.

Montrie: So, focusing on the core, we recently launched our Everyday Luxuries Collection in all North American stores.

Gina Boswell: Evil will give more details on these updates in her prepared comments. In summary, despite the tough environment in the first half of the year, we are in line with our exceeded our guidance. While unsatisfied with the pace of our return to sales growth, I remain confident in our strategy and the progress we are making.

Montrie: This prestige and fire line initially tested in 600 stores during the first quarter is a great opportunity to excite our existing customers while introducing new customers to our brand. The full rollout is generating customer, excitement and buzz.

Gina Boswell: With the strength of our high-margin business model and strong cash flow generation, we are well positioned to invest in the strategies that will drive our return to growth and enhance long-term shareholder value. Before I turn the call over to Julie, I'd like to thank our teams for consistently providing tremendous service to our customers and for their efforts in delivering against our strategic priorities.

Montrie: Also generating excitement and buzz is the recent launch of part two of our Stranger Things Collaboration.

Montrie: Whether it's Bridgetin or Stranger Things, these collaborations are exciting traffic drivers, as we evolve the Bath and Body Works brand to reach new customer segments.

Montrie: We have additional exciting collaboration offerings planned for later in the year.

Julie Rosen: With that, Julie will provide the merchandising overview. Thank you, Gina. Across the portfolio year-to-date, we maintained our unit market share driven by increases in home fragrance offset by declines in body care and soaps and sanitizers. In the quarter, home fragrance and body care sales were down low single digits to last year, with soaps and sanitizers declining mid-single digits.

Montrie: We are continuing to drive fragrance innovation, key to our core business.

Montrie: Today, we're building on the success with current on-trend fragrances in the marketplace, such as vanilla and milk. We also have two significant cross-categories fragrance launches planned for the fall season.

Montrie: While our customers continue to seek newness and innovation, they are also looking for value. This was evident in the performance of our soap refills and small-sized products like travel, which both grew nicely in the quarter.

Julie Rosen: As Gina mentioned, the semi-annual sales did not perform to our expectations. And while it affected performance across all categories, it disproportionately affected body care. Our store presentation and marketing did not initially resonate with our customers. We adjusted the messaging and floor sets, and while the results improved, performance remained below expectations. We will continue to evaluate and evolve our approach to the sale to optimize performance, including timing, marketing, merchandising and other considerations.

Montrie: We will appropriately position our mix of good, better, best to meet the consumer where they are while maintaining margin. As Gina noted, value is a combination of price and quality.

Gina Boswell: Our new marketing will reassert our product attributes.

Gina Boswell: Such as America's most loved candle brand. Our candles provide tremendous quality for the money and our marketing will convey the value more directly.

Julie Rosen: Moving to other highlights, customers have responded favorably to the innovation we've rolled out this year. We are leaning into what is working. Focusing on adjacent fees, the men's business continues to be one of our fastest growing categories in body care during the second quarter. As we highlighted Father's Day, as Gina mentioned, there is an exciting opportunity to capture new customers by growing customer awareness for this category. Library. As planned, we fully rolled out our lip fixture and expanded assortment to nearly all North American stores during the quarter.

Speaker Change: In summary, we are amplifying what worked in the first half of the year through storytelling and marketing. We are layering in big launches like everyday luxuries and new collaborations.

Speaker Change: We have new fragrances coming in our core categories, and we are building on the results we are generating in men's hair, lip and laundry, as we engage more customers with these offering.

Speaker Change: We are well positioned to execute in the second half of the year. I want to thank our teams for all their work, delivering a special experience to our customers this quarter. With that, I'll turn it over to Eva.

Julie Rosen: Lip continued to attract a younger customer while also doubling sales of lip in those stores year to day. Laundry will roll out to all US stores by the end of September, accompanied by the launch of a national advertising campaign to accelerate customer awareness and adoption. Focusing on the core, we recently launched our everyday luxuries collection in all North American stores. This prestigious buyer line initially tested in 600 stores during the first quarter is a great opportunity to excite our existing customers while introducing new customers to our brand.

Eva Boratto: Thank you Julie and good morning everyone. In the second quarter, we reported adjusted earnings per diluted share of 37 cents, exceeding our guidance of 31 to 36 cents per diluted share. Our outperformance in the quarter was primarily driven by stronger merchandise margin.

Speaker Change: Our team maintain operational discipline to achieve earnings that were above the high end of our EPS guidance despite next sales in line with the low end of our guidance.

Speaker Change: Moving through the P&L, second quarter net sales of $1.5 billion declined to 0.1% compared to prior year.

Julie Rosen: The full rollout is generating customer excitement and buzz. Also generating excitement and buzz is the recent launch of part two of our Stranger Things collaboration. Whether it's Bridgerton or Stranger Things, these collaborations are exciting traffic drivers as we evolve the Bath & Body Works brand to reach new customer segments. We have additional exciting collaboration offering planned for later in the year. We are continuing to drive fragrance innovation key to our core business.

Speaker Change: As discussed earlier, we experienced more cautious consumer backdrop, and our store-trastic was pressured throughout the quarter, similar to external benchmarks.

Speaker Change: In U.S. Inc. at Indian stores, NetSales total $1.1 billion, a decrease of 0.3% versus prior year.

Speaker Change: Directness sales were $297 million, a decline of 9.7% compared to last year. Directness sales performance was negatively impacted by growth and focus, which is recognized as store-net sales.

Julie Rosen: Today we're building on the success with current on-trend fragrances in the marketplace such as vanilla and milk. We also have two significant cross-category fragrance launches planned for the fall season. While our customers continue to seek newness and innovation, they are also looking for value. This was evident in the performance of our soap refills and small size products like travel, which both grew nicely in the quarter. We will appropriately position our mix of good better best to meet the consumer where they are while maintaining margins.

Speaker Change: When a justice for both of us direct out-perform stores, a nice improvement to previous quarters.

Speaker Change: Both this demand increased approximately 60% in the quarter and year-to-date represents approximately 23% of total digital demand.

Speaker Change: International Nest Fails were $89 million and increase of 2.2% from prior year, driven by product shipments.

Speaker Change: This was a significant improvement relative to first quarter results. I would also note there was some hopeful word of wholesaler's shipment as partners were building a mentoring for the fall season.

Julie Rosen: As Gina noted, value is a combination of price and quality. Our new marketing will reassert our product attributes, such as America's most loved candle brand. Our candles provide tremendous quality for the money and our marketing will convey the value more directly.

Speaker Change: Second Quarter Gross Profit Ray was 41% and increased of 110 basis points compared to prior year and the fourth consecutive quarter of Gross Profit Ray expansion. This was primarily driven by Merchysmarsan expansion of 130 basis points exceeding our expectations.

Julie Rosen: In summary, we are amplifying what worked in the first half of the year through storytelling and marketing. We are layering in big launches like everyday luxuries and new collaborations. We have new fragrances coming in our core categories and we are building on the results we are generating in men's hair, lift, and laundry as we engage more customers with these offerings. We are well positioned to execute in the second half of the year.

Speaker Change: AUR's increased 1% in the quarter, Driven by Mixed. We will continue to take the appropriate pricing and promotion actions to maximize sales and margins for the company.

Speaker Change: We titled managed expenses delivering SGNA as a percentage of that sales of 29.1% in line with expectations.

Julie Rosen: I want to thank our teams for all their work delivering a special experience to our customers this quarter.

Speaker Change: The benefit of our cost optimization work spans across both growth process and SG&A. In the second quarter, we deliver benefits of approximately $40 million.

Eva Boratto: With that, I'll turn it over to Eva. Thank you Julie and good morning everyone. In the second quarter, we reported adjusted earnings per diluted share of 37 cents, exceeding our guidance of 31 to 36 cents per diluted share. Our outperformance in the quarter was primarily driven by stronger merchandise margins. Our team maintained operational discipline to achieve earnings that were above the high end of our EPS guidance despite net sales in line with the low end of our guide.

Speaker Change: Second quarter total operating income of a hundred and eighty three million dollars decreased 2.7% and was 12% of next sale flat to last year's rate.

Speaker Change: Moving below the operating line, in the quarter, we replaced the solar state in certain eastern investments in Columbus, Ohio as we focus on our core business.

Eva Boratto: Johnson. Moving through the P&L, second quarter net sales of $1.5 billion declined 2.1 percent compared to prior year. As discussed earlier, we experienced a more cautious consumer backdrop and our store traffic was pressured throughout the quarter, similar to external benchmarks. In US and Canadian stores, net sales totaled $1.1 billion, a decrease of 0.3 percent versus prior year. Direct net sales were $297 million, a decline of 9.7 percent compared to last year.

Speaker Change: Our Justice Results excluded the $39 million pre-packed scheme related to the transaction.

Speaker Change: Our Justice Results also excludes a $44 million-realized tax benefit related to the release of evaluation allowance on a deferred tax asset.

Speaker Change: With respect to inventory, we ended the second quarter with total inventory up 6% compared to last year, in line with our expectations.

Speaker Change: The increase in inventory is supporting new product launches and new stores. Our inventory levels are well positioned heading into the second half of the year.

Eva Boratto: Direct net sales performance was negatively impacted by growth in BOPIS, which is recognized as store net sales. When adjusted for BOPIS, direct out-performed stores, a nice improvement to previous quarters. BOPIS demand increased approximately 60 percent in the quarter and year-to-date represents approximately 23 percent of total digital demand. International net sales were $89 million, an increase of 2.2 percent from prior year driven by product shipment. This was a significant improvement relative to first quarter result.

Speaker Change: As for real estate in the second quarter, we open 24 new, all small stores and permanently closed seven in most stores in North America.

Speaker Change: Internationally, our partners opened 11 net news stores in the second quarter, resulting in a total international store count of 497.

Speaker Change: Turning now to our fiscal 2024 guidance.

Speaker Change: Based on our first cap of the year sales trend of down 1.5%.

Speaker Change: as well as the chopier macroeconomic environment, we do not anticipate the sales acceleration as originally planned. We've updated our guidance accordingly. For the full year, we now expect the next sales to range between down 4% to down 2%.

Eva Boratto: I would also note there was some whole forward of wholesaler shipment as partners were building inventory for the fall season. Second quarter growth profit rate was 41 percent, an increase of 110 basis points compared to prior year, and the fourth consecutive quarter of growth profit rate expansion. This was primarily driven by merchandise margin expansion of 130 basis points exceeding our expectations. AURs increased 1 percent in the quarter driven by next. We will continue to take the appropriate pricing and promotion actions to maximize sales and margin for the company.

Speaker Change: and as a reminder, 2020-3 included a 53rd week, which added 81 million tenants sales and represents a headwind of approximately 100 basis points to our 2024 growth.

Speaker Change: For Clarity, we have provided the Quarterly Impact on Nest Sales due to the calendar shifts in our slide presentation.

Speaker Change: We now expect full-year gross profit rate to be approximately 44% and SGNA rate to be approximately 27%.

Eva Boratto: We tightly managed expenses delivering SGNA as a percentage of net sales of 29.1 percent in line with expectations. The benefit of our cost optimization work spans across both growth profit and SGNA in the second quarter we deliver benefits of approximately $40 million. Second quarter total operating income of $183 million decreased 2.7 percent and was 12 percent of net sales, flat to last year's rate. Moving below the operating line in the quarter we were pleased to sell our state in certain eastern investments in Columbus, Ohio as we focus on our core business.

Speaker Change: We now expect to deliver approximately $130 million of annual cost savings up from our previous guidance of $100 million, benefiting both Rose Profit and SGNA this year.

Speaker Change: We now expect full year adjusted net, non-operating expense

Speaker Change: of approximately $280 million.

Speaker Change: and adjusted effective tax rate of approximately 26.5% and weighted average diluted shares outstanding of approximately 222 million.

Speaker Change: Considering all of these inputs are updated full year guidance for adjusted earnings per diluted share is between $3.6 to $3.26 down 1% of the midpoint versus our previous guidance.

Eva Boratto: Our adjusted results exclude the $39 million pre-tax gain related to the transaction. Our adjusted results also exclude a $44 million realized tax benefit related to the release of evaluation allowance on a deferred tax asset. With respect to inventory we ended the second quarter with total inventory up 6 percent compared to last year in line with our expectation. The increase in inventory is supporting new product launches and new stores. Our inventory levels are well positioned heading into the second half of the year.

Speaker Change: Turning now to our third quarter guidance, we are forecasting a third quarter net sales range of flat to up to 0.5% versus the prior year.

Speaker Change: The third quarter will benefit by approximately 200 basis points from the shift to fiscal calendar resulting from the extra week in 2023.

Speaker Change: We expect third quarter gross profit rate to be approximately 43.5% comparable to prior year.

Speaker Change: In the third quarter, we are laughing the 140-based employee growth profit rate expansion we delivered last year.

Eva Boratto: As for real estate, in the second quarter, we opened 24 new all small stores and permanently close 7 in mall stores in North America. Internationally, our partners opened 11 net new stores in the second quarter, resulting in a total international store cap of 497. Turning now to our fiscal 2024 guidance, based on our first cap of the year sales trend of down 1.5%, as well as the choppy or macro economic environment, we do not anticipate the sales acceleration as originally planned.

Speaker Change: We expect our third quarter SGNA rate to be approximately 30.5% with the D-Leverage versus the prior year driven largely by higher marketing investment and wage inflation.

Speaker Change: These increases are partially offset by our cost reduction initiative.

Speaker Change: We expect third quarter net non-operating expense of approximately $70 million and a tax rate of approximately $27%. With weighted average diluted chairs outstanding of approximately $220 million.

Speaker Change: Considering these inputs, we are forecasting third quarter earnings per diluted share of between 41 and 47 cents.

Eva Boratto: We've updated our guidance accordingly. For the full year, we now expect net sales to range between down 4% to down 2%. And as a reminder, 2023 included a 53rd week, which added 81 million to net sales and represents a headwind of approximately 100 basis points to our 2024 growth. For clarity, we have provided the quarterly impact on net sales due to the calendar shifts in our slide presentation. We now expect full year growth profit rate to be approximately 44% and SGNA rate to be approximately 27%.

Speaker Change: Let me provide a quick update on capital allocation. Our top priority remains striving sustainable long-term profitable growth through investments in the business.

Speaker Change: Year to date, through the second quarter, our total capital investment was $101 million. We've tightened our full-year capital spending guidance to approximately $250 million, down from our prior range of $325 million.

Speaker Change: The reduction is largely driven by cost savings in our real estate build-outs and timing of multi-year supply chain investment.

Eva Boratto: We now expect to deliver approximately $130 million of annual cost savings up from our previous guidance of $100 million benefiting both growth profit and SGNA this year. We now expect full year adjusted net non-operating expense of approximately $280 million and adjusted effective tax rate of approximately 26.5% and weighted average diluted shares outstanding of approximately 222 million. Considering all of these inputs are updated full year guidance for adjusted earnings per diluted share is between $3.06 to $3.26 down 1% at the midpoint versus our previous guidance.

Speaker Change: We will continue a discipline mindset. During the quarter we paid out $45 million in dividend and it paid out $90 million here to date. Additionally, we recently announced a quarterly dividend of $20 per share, payable on September 6th.

Speaker Change: We expect to continue our annual dividend of 80 cents per share with the intention to increase the dividend over time with sustained earnings growth.

Speaker Change: During the quarter, we repurched 3.6 million shares of common stock for $150 million and an average price of $41.75 per share.

Speaker Change: Year to date, we've referred to a 5.8 million shares of common stuff for $249 million.

Eva Boratto: Turning now to our third quarter guidance, we are forecasting a third quarter net sales range of flat to up 2.5% versus the prior year. The third quarter will benefit by approximately 200 basis points from the shifted fiscal calendar resulting from the extra week in 2023. We expect third quarter growth profit rate to be approximately 43.5% comparable to prior year. In the third quarter, we are lapping the 140 basis point growth profit rate expansion we delivered last year. We expect our third quarter SGNA rate to be approximately 30.5% with the delivered versus the prior year driven largely by higher marketing investment and wage inflation.

Speaker Change: Our full-year guidance now reflects the expectation to repurchase $400 million of shares throughout fiscal 2024 and increased from our prior expectation of $300 million, as we view this as an attractive piece of free-tash at Card prices.

Speaker Change: In the quarter, we repurchased $91 million principal amount of senior notes and are gross adjusted debt to Eva Darb ratio improved to 2.7 times on a trailing 12 month basis.

Speaker Change: Year-to-date, we've repurchased $200 million of principal amount of senior notes. Currently we do not plan to pay down or repurchase additional debt this year.

Speaker Change: Next year we have approximately $314 million of debt maturing which we will pay down.

Eva Boratto: These increases are partially offset by our cost reduction initiative. We expect third quarter net non-operating expense of approximately $70 million and a tax rate of approximately 27% with weighted average diluted shares outstanding of approximately 220 million. Consider these inputs we are forecasting third quarter earnings per diluted share of between 41 and 47 cents.

Speaker Change: After Investing to the Business Weeks Back to Gender A

Speaker Change: Full here, adjusted free cash flow between 675 and 775 million and we'll put that toward our capital, return priorities of dividend and share of purchases as I just outlined. Now I'll turn the call back to Gina for some closing remarks.

Gina Boswell: Thank you, Eva. To close, despite a dynamic environment, Bath and Body Works has maintained its overall unit share performance here today, driven by the strength of our category portfolio, deep loyalty, and love for our brand and the exceptional customer experience our associates provide to our customers every day.

Eva Boratto: Let me provide a quick update on capital allocation. Our top priority remains driving sustainable long term profitable growth through investments in the business. Year-to-day through the second quarter, our total capital investment was $101 million. $250 million down from our prior range of $300 to $325 million. The reduction is largely driven by cost savings in our real estate buildouts and timing of multi-year supply chain investments. We will continue a discipline mindset. During the quarter, we paid out $45 million in dividend and it paid out $90 million a year-to-date.

Gina Boswell: Our field for growth plan is on track, and it allows us to continue making investments in technology, innovation, marketing, and loyalty.

Gina Boswell: While our QQ performance in a choppy or macro have tempered our expectations for the second half of the year, we are laser focused on execution and controlling the controllables.

Gina Boswell: I'm confident we have the right plan in place and are taking the right actions to position the business to navigate the near-term environment and deliver long-term sustainable, profitable growth and shareholder values. I will now turn the call over to the operator for questions.

Eva Boratto: Additionally, we recently announced a quarterly dividend of 20 cents per share payable on September 6th. We expect to continue our annual dividend of 80 cents per share with the intention to increase the dividend over time with sustained earnings growth. During the quarter, we repurchased 3.6 million shares of common stock for $150 million and an average price of $41.75 per share. Year-to-day, we repurchased 5.8 million shares of common stock for $249 million.

Speaker Change: Thank you, the floor is now open for questions. If you would like to ask a question, please press star one on your telephone keypad at this time. A confirmation tone will indicate your line is in the question queue.

Speaker Change: You may remove your question by pressing star 2 on your telephone keypad. For participants using speaker equipment, it may be necessary to pick up the ham set before pressing the star key.

Speaker Change: In the interest of time, we do ask that you please limit yourself to one question. Today's first question is coming from the Symiens Eagle of BMO Capital Markets. Please go ahead.

Speaker Change: Thank you everyone, morning, hope you have a nice summer.

Speaker Change: Gina, could you speak to how you're thinking about new category revenues as being attitude versus maybe a reallocation of customer's intended spend at the bodywork's just as they normalize those candle purchases. Like it's meant the odor and obviously feels clearly attitude, but how do you think about the other new categories?

Eva Boratto: Our full-year guidance now reflects the expectation to repurchase $400 million of shares throughout fiscal 2024 and increase from our prior expectation of $300 million as we view this as an attractive use of free cash at curb prices. In the quarter, we repurchased $91 million principal amount of senior notes and our gross adjusted debt to Evadar ratio improved to 2.7 times on a trailing 12 month basis. Year-to-date, we repurchased $200 million of principal amount of senior notes. Currently, we do not plan to pay down or repurchase additional debt this year. Next year, we have approximately $314 million of debt maturing which we will pay down.

Speaker Change: Maybe just I know you test a lot, maybe just speak any test, so can you confident in the incrementality of air, and then Eva, I think you maintain the free cash flow guide, but cut cap X nicely, so I know there's some moving pieces that you mentioned with Eastern Intaxes, so can you just bridge that gap? If that'd be helpful. Thanks everyone.

Speaker Change: Great, thank you. Thank you to me and I'd like to hear your voice, hope you had a lovely summer as well. I'll take the first question on the new categories. Overall those new categories were pleased.

Speaker Change: to see that they met their plan in the quarter, but even more importantly, I think that you're leading to is what else do they bring. We're satisfied on a couple of levels. First, these are large addressable markets.

Speaker Change: Not only do they meet the failed expectations for these specifically men's hair laundry and lift is what I'm referring to.

Eva Boratto: After investments in the business, we expect to generate full-year adjusted free cash flow between $675 and $775 million and we'll put that toward our capital return priorities of dividend and share repurchases as I just outlined.

Speaker Change: but they deliver against three other metrics that we track.

Speaker Change: The first is how many new-to-brand customers do they bring, right, in addition.

Speaker Change: Food Shop the entire shop.

Speaker Change: Secondly, the repeat, which we like what we see on the repeat usage behavior. Thirdly, the incrementality, which we're monitoring varies, but we like what we see on incrementality as well. To see those three metrics on these new categories, to see them hitting their failed.

Gina Boswell: Now, I'll turn the call back to Gina for some closing remarks. Thank you, Evadar. To close, despite a dynamic environment, Bath & Body Works has maintained its overall unit share performance year-to-date driven by the strength of our category portfolio, deep loyalty and love for our brand and the exceptional customer experience our associates provide to our customers every day. Our fuel for growth plan is on track and it allows us to continue making investments in technology, innovation, marketing and oil.

Speaker Change: and to the fact that some of them are not fully rolled out, I believe laundry will just be fully rolled out next month. Then we can turn on full marketing to drive accelerated growth from there.

Speaker Change: Yes, thanks for the questions, Timmy, and on free cash flow

Speaker Change: Obviously, if any of this is from taking our campus down, you have some other moving pieces on working capital, assumptions, overall were pleased where our free cash will stand some impacts of the eastern transaction as well.

Gina Boswell: University. While our QQ performance and a choppy or macro have tempered our expectations for the second half of the year, we are laser focused on execution and controlling the controllables. I'm confident we have the right plan in place and are taking the right actions to position the business to navigate the near term environment and deliver long term sustainable, profitable growth and shareholder value.

Timmy: Thank you.

Speaker Change: Take her next question please. The next question is coming from Lorraine Hutchinson of Bank of America, please go ahead.

Operator: I will now turn the call over to the operator for questions. Thank you. The floor is now open for questions. If you would like to ask a question, please press star one on your telephone keypad at this time. A confirmation tone will indicate your line is in the question queue. You may remove your question by pressing star two on your telephone keypad. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star key.

Lorraine Hutchinson: Thank you Good Morning to excluding the calendarships you're guiding in fourth quarter sales to be worse than what you expect for the third quarter. Can you walk us through the puts and takes and while you're expecting more challenging holiday season?

Operator: In the interest of time, we do ask that you please limit yourself to one question.

Lorraine Hutchinson: Yeah, if this is Eva's right, I'll start with the full year and then take you through through the quarters

Speaker Change: Our reduction in our sales guidance is really attributable to the sales trends that we saw.

Simeon Siegel: Today's first question is coming from Simeon Siegel of BMO Capital Markets. Please go ahead. Thank you, everyone. Good morning. I hope you have a nice summer. Gina, could you speak to how you're thinking about new category revenues as being additive versus maybe a reallocation of customers intended spend at Bath & Body Works just as they normalize those candle purchases? Men's deodorant obviously feels clearly additive, but how do you think about the other new categories?

Speaker Change: We are seeing a more value seeking customer now versus our prior expectations and as we said, the macro is chopier. Also, the case of growth...

Speaker Change: that we're seeing from our new customers is taking longer. So overall, they're the core drivers. As you look at the dynamics between two, three and two, four, we do have the shorter holiday.

Simeon Siegel: Maybe just I know you test a lot, maybe just speak any test. I could give you confidence in the incrementality there. I think you maintain the free catchable guide, but cut cat X nicely. I know there's some moving pieces that you mentioned with Eastern in taxes, so could you just bridge that gas if that be helpful? Thanks, everyone. Great. Thank you. Thank you, Simeon. I'd like to hear your voice. Hope you had a lovely summer as well.

Speaker Change: Season right five days shorter. We're working to utilize periods outside of between Black Friday and Christmas to drive our Q4 performance, but that is the key difference as we look at the, as we look at the quarterly trends.

Gina Boswell: I'll take the first question on the new categories. Overall, those new categories were pleased to see that they met their plan in the quarter, but even more importantly, I think that you're leading to is what else do they bring? We're satisfied on a couple of levels. First, these are large, addressable markets. Not only do they meet the sales expectations, so these specifically men's hair laundry and lip is what I'm referring to, but they deliver against three other metrics that we track.

Speaker Change: Thank you. Thank you. Thank you.

Speaker Change: The next question is coming from Alex straight in of work and Stanley, please go ahead.

Speaker Change: Great, thanks all for taking the question. I just wanted to hone in on the second quarter sales in terms of the cadence of the quarter, it sounds like you made some adjustments that had some benefits, so I just want to understand exactly.

Speaker Change: Now how you guys think about the short coming there and then what gives you guys confidence in the trend improving into the third quarter? Thanks a lot.

Gina Boswell: The first is how many new to brand customers do they bring, right? In addition to shop the entire shop. Secondly, the repeat, which we like what we see on the repeat usage behavior. Thirdly, the incrementality, which we're monitoring varies, but we like what we see on the incrementality as well. To see those three metrics on these new categories to see them hitting their sales. And to the fact that some of them are not fully rolled out, I believe laundry will just be fully rolled out next month, then we can turn on full marketing to drive accelerated growth from there.

Eva Boratto: Thanks Alex, this is Eva, I'll take that question. We did experience more cautious consumers throughout the quarter. We saw traffic pressured throughout the quarter consistent with external market data points.

Eva Boratto: And as we look, as we look going forward, well, sorry, on the quarter, you know, fasted pressure or more of that one month period of fast excluding that sales were down about once.

Eva Boratto: Yes, thanks for the questions, send me in on free cash flow. Obviously, a benefit from taking our capets down. You have some other moving pieces on working capital assumptions. Overall, we're pleased where our free cash flow stands, some impacts of the eastern transaction as well. Thank you.

Speaker Change: From a positive customer's gave her spine to our new myth.

Speaker Change: and as we excited the quarter of the tail end of the quarter-traffic improved and has been stronger in the first part of Q3 here and we've just had some exciting launches with everyday luxuries and stranger things and so overall we're looking forward to the quarter.

Lorraine Hutchinson: Take our next question, please. The next question is coming from Lorraine Hutchinson, a bank of America, please go ahead. Thank you, good morning. Excluding the calendars, just your guiding fourth quarter sales to be worse than what you expect for the third quarter. Can you walk us through the puts and takes and why you're expecting more challenging holiday season? Yeah, this is Eva, Lorraine.

Speaker Change: Thank you, thanks for watching.

Speaker Change: The next question is coming from Kate McShane of Goldman Sachs, please go ahead.

Kate Mcshane: Thank you for taking our question. Our question was around the semi-annual sale performance as well.

Kate Mcshane: Do you think there was any execution miss in the quarter or do you still think it's more of the macro? You did mention one of the things that you'd be looking at in the future was timing. Was there any change in timing of this year's...

Eva Boratto: I'll start with the full year and then take you through the quarters. You know, our reduction in our sales guidance is really attributable to the sales trends that we saw. We are seeing a more value-seeking customer now versus our prior expectations and as we said, the macro is chopier. Also, the pace of growth that we're seeing from our new customers is taking longer. So overall, they're the core drivers. If you look at the dynamics between Q3 and Q4, we do have the shorter holiday season, right? Five days shorter. We're working to utilize periods outside of between Black Friday and Christmas to drive our Q4 performance. But that is the key differences. As we look at the quarterly trends. Thank you.

Speaker Change: SAS and how are you thinking about maybe other elements as you approach the next semiannual sale?

Alexandra Straton: The next question is coming from Alex straight in of work.

Speaker Change: Take a, it's Julie, I'll take this question, so...

Speaker Change: I think that's an annual failed, didn't really resonate with customers the way it usually does because the store and the marketing didn't clearly convey that this was a tense whole major sale event.

Speaker Change: It was mostly positioned at the front of the store. It didn't really stream sale across the entire store and there was maybe a little bit too much elevation. We know that our customer likes newness along with sale and we're balancing the elevation and the sale at the same time.

Speaker Change: So we definitely had some learnings there. We immediately used our agile business model to adjust our messaging and floor sets and while results improved, the performance remained a lower expectation.

Speaker Change: We did end the sale in clean inventory position, so we feel that we managed the pricing well.

Alexandra Straton: And Stanley, please go ahead. Great. Thanks all for taking the question. I just wanted to hone in on the second quarter sales in terms of the cadence of the quarter. It sounds like you made some adjustments that had some benefits. I just want to understand exactly how you guys think about the shortcoming there. And then what gives you guys confidence in the trend improving into the end of the third quarter. Thanks a lot. Thanks Alex.

Speaker Change: We are taking the learnings to evolve next year's sales to make it more impactful. So yeah, we are evaluating the timing and the customer mindset. Tiny was exactly the same this year as it was last year as was duration.

Speaker Change: But, you know, the customer was not quite there in the mindset of full-on sales, so we are looking at the timing, we're looking at the marketing, we're looking at merchandising, and then just other considerations to optimize performance of both the sale and the full-price law sets surrounding the period on either side.

Gina Boswell: This is it. I'll take I'll take that question. We did experience more cautious consumers throughout the quarter. We saw traffic pressured throughout the quarter consistent with, you know, external market data points. And as we look as we look going forward. Well, sorry, on the quarter, you know, fast did pressure us more that one month period of fast excluding that sales were down about one from a positive customer. First day respond to our newness.

Speaker Change: Thank you. Next question, please? The next question is coming from Matthew. Boss of JP Morgan, please go ahead.

Matthew Boss: Great thanks. So Gina, could you elaborate on customer traffic relative to AUR trends that you're seeing today, Eric?

Matthew Boss: Maybe just how best to think about the balance between these two drivers multi year, given the increased focus on value that you cited. And then, Julie, if you could just elaborate, maybe on demand that you're seeing across categories in August or early customer response to your fall at Swarthins.

Gina Boswell: And as we exit the quarter at the tail end of the quarter traffic improve and has been stronger in the in the first parts of key three here. And we've just had some exciting launches with everyday luxuries and stranger things. And so overall, we're looking forward to the quarter.

Kate Mcshane: Thank you.

Julie Rosen: Thank you, thank you, hear you.

Julie Rosen: on all start with customer traffic relative to AOR trends.

Speaker Change: So, as we saw and was alluded to traffic was difficult in the quarter comparable to external trends. We do use obviously not just staff, but we use some of these co-labs to drive traffic and excitement and buzz.

Julie Rosen: The next question is coming from Kate McShane of Goldman Sachs. Please go ahead. Thank you for taking our question. Our question was around the semi annual sale performance as well. Do you think there was any execution miss in the quarter or do you still think it's more of the macro? You did mention one of the things you'd be looking at in the future was timing. Was there any change in timing of this year's SAS? And how are you thinking about maybe other elements as you approach the next semi annual sale?

Speaker Change: the A.U.R.

Speaker Change: Impact, you saw that we ended.

Speaker Change: is pretty much flat on mix adjusted AUR, so we felt pretty good that we could both balance the excitement, the staff and getting the clean inventory, but without it we felt very good actually about the way we used our agile model to promote.

Julie Rosen: Hey, Kate, it's Julie.

Julie Rosen: I'll take this question. So I think that semi annual sale didn't really resonate with customers the way it usually does because the store and the marketing didn't clearly convey that this was a tense whole major sale event. It was mostly positioned at the front of the store. It didn't really scream sale across the entire store and there was maybe a little bit too much elevation. We know that our customer likes newness along with sale and we're balancing the elevation and the sale at the same time.

Speaker Change: as needed to deliver.

Speaker Change: Then go to Eva and if I haven't fully answered your question, we can come back with Eva.

Eva Boratto: Yeah, but regarding Q3, as I said earlier, traffic has improved relative to Q2, our performance today has come to play this in line, in our guidance range that...

Eva Boratto: that we provided, and we just launched some of our newness with everyday luxuries and stranger things and we're really excited.

Julie Rosen: So we definitely had some new, you know, some learnings there. We immediately used our agile business model to adjust our messaging and floor sets and while results improved the performance remained lower expectations. We did end the sale in clean inventory position. So we feel that we manage the pricing well.

Speaker Change: Thank you.

Speaker Change: Thank you, the next question is coming from Christina Katari of Deutsche Bank. Please go ahead

Christina Katari: Hi, good morning and thanks for taking the question. I wanted to ask about your good, better, best strategy and your mention of having the available price coins for everyone.

Julie Rosen: We are taking the learnings to evolve next year's sale to make it more impactful. So yeah, we are evaluating the timing and the customer mindset. Timing was exactly the same this year as it was last year as was duration. But, you know, the customer was not quite there in the mindset of full on sale. So we are looking at the timing. We're looking at the marketing. We're looking at merchandising and then just other considerations to optimize performance of both the sale and the full price floor sets surrounding the period on either side.

Christina Katari: So, how do you think about the assortment for the balance of the year if you continue to see a consumer that is accelerating the value-seeking behavior, so that is part one.

Operator: Thank you.

Speaker Change: and I'm particularly sure that you're thinking about increasing your marketing efforts, what have you found to be working well and how successful have you been able to tie in your loyalty program data to drive greater ROI on that sense. Thank you.

Speaker Change: Thank you for the question. On the first part, you know, we do have.

Speaker Change: A wide array of price points, as I said, and the good, better, best, it's really value at every one of those levels, and so in my remarks I mentioned about elevating value.

Matthew Boss: Next question, please. The next question is coming from Matthew Boss with JP Morgan. Please go ahead. Great, thanks. So, Gina, could you elaborate on customer traffic relative to AUR trends that you're seeing today or maybe just how best to think about the balance between these two drivers multi-year given the increased focus on value that you cited. And then, Julie, if you could just elaborate maybe on demand that you're seeing across categories in August or early customer response to your follow-up sort. Thank you.

Speaker Change: Here we have just enormous and hopefully it's seen some of the slides showing the most loved candle.

Speaker Change: For our categories and our products, we offer tremendous value embedded. And so when we look at good better best, we can meet the customers wherever they are at. So if we find a very value-seeking customer, we can distort more towards good if that's sort of where we think they are.

Gina Boswell: I'll start with customer traffic relative to AUR trends. So, as we saw and was alluded to traffic was difficult and in the quarter comparable to external trends. We do use obviously not just SAS, but we use some of these co-labs to drive traffic and excitement and buzz. The AUR impact you saw that we ended pretty much flat and mixed-adjusted AUR. So, we felt pretty good that we could both balance the excitement, the SAS and getting the clean inventory.

Speaker Change: Similarly, better best. Do you see this in all the different categories that we have?

Speaker Change: We also use our promotion levels as well to make sure that we're meeting their mindset. So we're happy with the broad assortment that we have.

Speaker Change: and actually as we sit at the...

Speaker Change: Intersection of Maths and Prestige, whether there's people coming in coming out, we feel like we have something here and we definitely will be speaking more to the value that we offer. Now, value in general is, as you will know, not just about the price, it's about the quality and frankly it's about the experience.

Gina Boswell: But we felt very good actually about the way we used our agile model to promote as needed to deliver. I will then go to EVA and if I haven't fully answered your question, we can come back to EVA.

Speaker Change: So, as a customer, it's just stepping back. If you're looking at all three of those, we're going to be sharper on all. And that's why I'm really thrilled with our vertically integrated model too, because...

Speaker Change: The experience in the stores being sort of industry leading is also part of what value brings. So we're excited about good better bets now, in terms of marketing, what's working. We only started, I guess, a couple of quarters ago, our full funnel marketing. And that has been designed, obviously, to grow traffic, to grow new customers, to reach existing customers, and to reactivate any lapsed customers.

Eva Boratto: Yeah, regarding Q3, as I said earlier, traffic has improved relative to Q2. Our performance today is contemplated in line in our guidance range that we provided and we just launched some of our newness with everyday luxuries and stranger things and we're really excited. Thank you.

Speaker Change: It's only a couple quarters in place, but it's really moving the needle on awareness. We've seen awareness increases, we've seen familiarity increases, and of course ultimately over time moves down the funnel to more conversion.

Christina Katai: The next question is coming from Christina Katari of Deutsche Bank. Please go ahead. Hi, good morning and thanks for taking the question.

Christina Katai: I wanted to ask about your good, better, best strategy and your mention of having available price coins for everyone. So, how do you think about the equipment for the balance of the year if you continue to see a consumer that is accelerating the value-seeking behavior? So, that is part one. And in particular, you're thinking about sort of increasing your marketing efforts. What have you found to be working well and how successful have you been able to tie in your loyalty program data to drive greater ROI on that sense?

Speaker Change: Now, when we combine the marketing, which we have seen obviously combined with newness and innovation and the compelling price value proposition, it really pays off and we think that will continue to build.

Speaker Change: The co-labs as well, those are driving excitement to our core, I'm putting the brand at the center of culture and that's important from a marketing perspective as well as a product

Speaker Change: and then leveraging TikTok to catch a younger customer, I think that's been to be exciting as well.

Speaker Change: A few things more on this, stranger things, the first part of that, we drove 20 million video views and I think the best TikTok ever. So this marketing is really, I think, you know, putting us at the center of culture and attracting people and driving traffic as it needs to do. So we're confident with our plans to use marketing and our product and our entire value proposition to grow customership, and we have seen improvements from a year ago.

Christina Katai: Thank you. Thank you for the question. On the first part, you know, we do have a wide array of price points, as I said, and the good, better, best. It's really value at every one of those levels. And so in my remarks, I mentioned about elevating value. You know, we have just enormous and hopefully it's seen some of the slides showing the most loved candle. For our categories and our products, we offer tremendous value embedded.

Christina Katai: And so, when we look at good, better, best, we can meet the customers wherever they are at. So, if we find a very value-seeking customer, we can distort more towards good if that's sort of where we think they are. Similarly, better, best. You see this in all the different categories that we have. We also use our promotion levels as well to make sure that we're meeting their mindset. So, we're happy with the broad assortment that we have.

Speaker Change: Thank you, nothing wrong, please

Speaker Change: The next question is coming from Gina Telsey of Telsey Advisory Group, please go ahead.

Gina Telsey: Hi, good morning, everyone!

Gina Telsey: As you think about the semi-annual sale and Julie Eva, you know, which ever of you, do you think about the semi-annual sale and if you were to do it differently going forward, what would the changes be? How do you think about that? And in the newer categories that you have, to let the hair care do it or whatever?

Speaker Change: which is seeing greater traction than another and are any AURs being adjusted for some of the new categories given the headsets and see on elevation by the consumer in terms of pricing.

Christina Katai: And actually, as we sit at the intersection of mass and prestige, whether there's people coming in, coming out, we feel like we have something here. And we definitely will be speaking more to the value that we offer. Now, value in general is, as you will know, not just about the price. It's about the quality. And frankly, it's about the experience. So, as a customer, it's just stepping back. If you're looking at all three of those, we're going to be sharper on all. And that's why I'm really thrilled with our vertically integrated model too. Because the experience in the stores being sort of industry leading is also part of what value brings. So, we're excited about good, better bets.

Speaker Change: Hey Dana, it's Julie, nice to hear from you

Julie Rosen: So I think in the sale some of the things that we're thinking we would do differently as I mentioned is timing

Speaker Change: Um, I do think that we need to sort of get more in sync with the market and what the right timing is. If we move the timing of our sales in, it enables us.

Speaker Change: to let our first delivery of summer live a little bit longer. We had nice success there this year and it's crunched in three weeks. So I'm excited about the opportunity about moving out the timing and giving both of the units drops on either end of the sale.

Gina Boswell: Now, in terms of marketing, what's working, we only started, I guess, a couple of quarters ago, our full funnel marketing. And that has been designed, obviously, to grow traffic, to grow new customers, to reach existing customers, and to reactivate any lapsed customers. It's only a couple quarters in place, but it's really moving the needle on awareness. We've seen awareness increases. We've seen familiarity increases. And, of course, ultimately, over time, moves down the funnel to more conversion.

Speaker Change: An Opportunity to really sell and to really be able to tell our story as far as the new adjacencies.

Speaker Change: You know.

Speaker Change: Their new, right, and they're all at different

Speaker Change: Different stages of their rollout, so just as a reminder, you know, hair rolled out in Q1.

Speaker Change: We are testing and tinkering, not only pricing, I'm sure if you follow us what you do, you can see we have it every day deal, we've tried at a certain price, we offer a bundle at a certain price We're trying to figure out the sweet spot of pricing for all of these adjacent fees

Gina Boswell: Now, when we combine the marketing, which we have seen, obviously, combine with newness and innovation and the compelling price value proposition, it really pays off. And we think that will continue to build. The collabs as well, those are driving excitement to our core and putting the brand at the center of culture. And that's important from a marketing perspective, as well as a product. And then leveraging TikTok to catch a younger customer, I think that's going to be exciting as well.

Speaker Change: and Gain Trial because they're new. We also launched our travel size shampoo and conditioner this quarter, a great way to gain trial.

Speaker Change: and then, you know, we have men which has been in all stores for a while but we've rolled out some new ideas there that we're continuing again to figure out what is the right AUR.

Gina Boswell: A few things more on this. Stranger things. The first part of that, we drove 20 million video views, and I think the best TikTok ever. So this marketing is really, I think, you know, putting us at the center of culture and attracting people and driving traffic as it needs to do. So we're confident with our plans to use marketing and our product and our entire value proposition to grow customer ship, and we have seen improvements from a year ago. Thank you.

Speaker Change: What is the right way to attract more men to our brand? Lift, you know we're super excited about, we just rolled that out just in July. So it's only been a month to all North American stores.

Speaker Change: We have a routine of scrub masks

Speaker Change: Tint and it's really resonating with customers and the exciting thing here is we're seeing a younger customer.

Speaker Change: We see them linger at the new fixture, play with the assortment and them purchase, and year-to-date sales have been doubling in those stores

Dana Telsey: Next question please. The next question is coming from Dana Telsey of Telsey Advisory Group. Please go ahead.

Julie Rosen: Hi, good morning everyone. As you think about the semi-annual sale and Julie Eva, whichever of you, do you think about the semi-annual sale? And if you were to do it differently going forward, what would the changes be? How do you think about that? And in the newer categories that you have, the lip, the hair care, deodorant, whatever whichever, which is seeing greater traction than another? And are any AURs being adjusted for some of the new categories given the hesitancy on elevation by the consumer in terms of pricing? Thank you.

Speaker Change: and then laundry is just rolling out to all stores in the end of September and that's going to allow us to really have full marketing support so it's hard for me to tell you which one is going to be better than the other because they all haven't been equally in all stores

Speaker Change: But in it as always, you know, we test optimize and roll and then we continue to use our agile model to test for the best outcomes.

Speaker Change: Thank you.

Speaker Change: Thank you, and next question is coming from Olivier Tonne of Raymond James, please go ahead.

Julie Rosen: Hey Dana, it's Julie, nice to hear from you. So I think in the sale, some of the things that we're thinking we would do differently as I mentioned is timing. I do think that we need to sort of get more in sync with the market and what the right timing is. If we move the timing of our sales and it enables us to let our first delivery of summer live a little bit longer.

Olivier Tonne: Great, thank you. Could you talk a little bit about your AUR expectations in the second half of the year? You obviously started the year off a little bit choppy and then got unsetty or footing, but clearly the macros have become a bit more challenging. And as you think about second half plans, can you talk about some of the various initiatives you have to drive traffic?

Speaker Change: and then just following on that, can you talk a little bit about what drove the incremental cost savings in your confidence to maintain that level of cost mitigation to support the margins in the second half. Thank you.

Julie Rosen: We had nice success there this year and it's crunched in three weeks. So I'm excited about the opportunity about moving out the timing and giving both of the newness drops on either end of the sale. An opportunity to really sell and to really be able to tell our story as far as the new adjacencies, you know, they're new, right? And they're all at different stages of their rollout. So just as a reminder, you know, hair rolled out in Q1.

Speaker Change: All right, thanks for the question, this is Eva, I will take your third question, your first question, in that order. On the cost savings, listen, we're really pleased with what we've been able to deliver with our cost savings initiative. It's allowing us to reinvest in the business.

Speaker Change: Overall, at the same time, improving our sustainable cost structure. But to your specific question about the increase, it was really changes in move, some of our value engineering on our supply chainside. And just continue work that we do on SGANA.

Julie Rosen: We are testing and tinkering, not only pricing. I'm sure if you follow us, what you do, you can see we have it every day deal. We tried out a certain price. We offer a bundle of a certain price. We're trying to figure out the sweet spot of pricing for all of these adjacencies and gain trial because they're new. We also launched our travel size shampoo and conditioner, this quarter, a great way to gain trial.

Speaker Change: Going back to your AUR question, during two AURs were up one percent, I just wanted to emphasize that was an extraven, so on a comparable mixed basis we were flat.

Speaker Change: and as we look to the back part of the year, we're not providing specific AUR guidance. We want to make sure in this environment that we utilize one of our strengths.

Julie Rosen: And then, you know, we have men, which has been in all stores for a while. But we've rolled out some new ideas there that we're continuing again to figure out what is the right a you are? What is the right way to attract more men to our brand? Lip, we know we're super excited about. We just rolled that out just in July. So it's only been a month to all North American stores.

Speaker Change: Our agility to promote and to drive traffic where we need to and as we do that we'll always balance so driving revenue as well as delivering our margin expectations.

Speaker Change: and as for the various initiatives to drive traffic in the second half of his gene and there's...

Speaker Change: There's lots here, we're really confident in the back half because in part we have talked about this for seasons by our line, this just...

Julie Rosen: We have a routine of scrub masks tint and it's really resonating with customers and the exciting thing here is we're seeing a younger customer. We see them linger at the new fixture play with the assortment and then purchase and year-to-date sales have been doubling in those stores and then laundry is just rolling out to all stores in the end of September. And that's going to allow us to really have full marketing support.

Speaker Change: Actually launched full board this week.

Speaker Change: and all North America's stories and online. That's a big opportunity for us to excite.

Speaker Change: or existing customers, but also introduce new customers. And we've amplified our marketing behind that. We're also building on the success. Julie mentioned this in her remarks, but a lot of trend on trend fragrances such as vanilla and milk and watching those perform in the second half. We'll be, I'm sure, contributing.

Julie Rosen: So it's hard for me to tell you which one is going to be better than the other because they all haven't been equally in all stores. But in it as always, you know, we test optimize and roll and then we continue to use our agile model to test for the best outcomes. Thank you.

Speaker Change: and then we have some things that we can't yet talk about but we have one more collab, we have two significant cross-category fragrance launches planned for the fall season and the fact that we will have some of the new adjacencies now in old stores gives us more excitement for the second half.

Eva Boratto: The next question is coming from one of the autonomous Freeman James, please go ahead. Great, thank you. Could you talk a little bit about your AUR expectations in the second half of the year? You obviously started the year off a little bit choppy and then got unsettier footing, but clearly the macros would become a bit more challenging. And as you think about second half plans, can you just talk about some of the various initiatives you have to drive traffic?

Speaker Change: Thank you, the next question is coming from Bernie Shapiro of the retail tracker. Please go ahead.

Bernie Shapiro: Hey guys, I just want to follow up on this TikTok conversation and the prestige fragrances. First I want to confirm the prestige fragrances are the ones that I saw blew up on TikTok.

Speaker Change: and then Stimming that's true, when you launch on the TikTok shop can you just give us

Eva Boratto: And then just following on that, can you talk a little bit about what drove the incremental cost savings and your confidence to maintain that level of cost mitigation to support the margins in second half? Thank you. Great, thanks for the question. This is Eva. I will take your third question and your first question in that order on the cost savings. Listen, we're really pleased with what we've been able to deliver with our cost savings initiative.

Speaker Change: A little bit of information here, will you launch with the prestige fragrances or will be across all categories?

Speaker Change: Are you using your own influencers or content creators or are you doing this to the TikTok shop and TikTok shop tends to lean into promotions?

Speaker Change: BBW also has your own version of promotion, so could just give us a little insight to what this looks like, because I've seen TikTok shop be very successful I've personally been influenced by it, so I'm just curious to be able to give us a little insight there.

Eva Boratto: It's allowing us to reinvest in the business overall at the same time improving our sustainable cost structure. But to your specific question about the increase, it was really changes in move, some of our value engineering on our supply chain side and just continued work that we do on SGNA. Going back to your AUR question, during Q2, AURs were up 1%, I just want to emphasize that was mixed driven. So on a comparable mixed basis, we were flat.

Speaker Change: So, thank you for the question. It is true that every day luxuries did the love on TikTok. They weren't in all of our stores by the way, which is why bringing them back in the way that we're doing is really important to leverage that even further. We're early days, we're learning on TikTok shop. We will be using TikTok shop for at least a portion of our categories. And so we don't have some of the details yet to share around content creators. But we will be using their shop itself, which as you know is a more frictionless.

Eva Boratto: And as we look to the back part of the year, we're not providing specific AUR guidance. We want to make sure in this environment that we utilize one of our strengths, our agility to promote and to drive traffic where we need to. And as we do that, we'll always balance both driving revenue as well as delivering our margin expectations.

Speaker Change: Convenient Experience and, you know, like most things at Bath & Body Works, we test and react and tinker and we'll have more to share. I'm sure at upcoming quarters.

Speaker Change: Thank you, the next question is coming from Joanna Kim of PD Cowan. Please go ahead.

Gina Boswell: And as for the various initiatives to drive traffic in the second half, this is Gina. There's lots here. We're really confident in the back half, because in part we have talked about this precision fired line. This just actually launched full board this week in all North America stores and online. That's a big opportunity for us to excite our existing customers, but also introduce new customers. And we've amplified our marketing behind that.

Joanna Kim: Thanks for taking my question. Could you just talk about the candles and the sanitized categories what you saw there during the quarter and how you...

Speaker Change: Plan for those categories in the back house and also just curious on the marketing spend as you continue to invest there. What is the right level of marketing spend over time? Thank you.

Speaker Change: Hi there, it's Julie. I will take the candles and sanitizers question and then pass it back to Gina for the marketing. So as a reminder, candle performance was impacted by the right-sizing of our single-wick. We exited our majors in jar of forms. We are using that space for newer, more productive categories.

Gina Boswell: We're also building on the success. Julie mentioned this in her remarks, but a lot of trend on trend fragrances such as vanilla and milk and watching those perform in the second half will be I'm sure contributing. And then we have some things that we can't yet talk about, but we have one more collab. We have two significant cross category fragrance launches planned for the fall season. And the fact that we will have some of the new adjacencies now in all stores gives us more excitement for the second half. Thank you.

Speaker Change: Our Stranger Things initial launch was all candle-based, so we're trying to use some of these gloves to surprise and delight our customers to increase our sales, in candles, and gain some relevancy there.

Gina: We do know that customers are gravitating towards values, so we've been re-positioning our single work to amplify our value.

Marnie Shapiro: The next question is coming from learning Shapiro of the retail tracker. Please go ahead. Hey guys. I just want to follow up on this TikTok conversation and the prestige fragrances. First I want to confirm the prestige fragrances are the ones that I saw blew up blow up on TikTok. And then swimming that's true. When you launch on the TikTok shop, can you just give us a little bit of information here? Will you launch with the prestige fragrances or will be across all categories?

Marnie Shapiro: Are you using your own influencers or content creators or are you doing this through the TikTok shop? And TikTok shop tends to lean into promotions. And BBW also has your own version of promotion. So could you just give us a little insight to what this looks like? Because I've seen TikTok shop be very successful. I've personally been influenced by it. So I'm just curious if you can give us a little insight there.

Speaker Change: as far as sanitizers go.

Speaker Change: We are also in sanitizers, we continue to be impacted by the exit of the full size sanitizer. But I do want to point out that our pocketback continues to perform a performed well above shop. We launched a moisturizing pocketback in Q1, and our customer continues to respond positively. And that is along the lines of what we're always trying to do, which is to innovate in our course.

Speaker Change: and are as of...

Speaker Change: Relates to the marketing spend, obviously we're spending across different channels in marketing and across different categories, so you'll see.

Speaker Change: with some of the candle advertising as well supporting that. But I think your question was focused on the right level over time. And what we are doing, we're spending more obviously because we're putting full funnel marketing in place.

Gina Boswell: So, thank you for the question. It is true that these everyday luxuries sit below button TikTok. They weren't in all of our stores, by the way, which is why bringing them back in the way that we're doing is really important to leverage that even further. We're early days, we're learning on TikTok shop. We will be using TikTok shop for at least a portion of our categories. And so we don't have some of the details yet to share around content creators.

Speaker Change: and we're watching that work through marketing and modeling to make sure that we actually have the highest.

Speaker Change: You know, Rose, for sure, but also the impact to the whole shop and bringing relevancy and familiarity and awareness and all of those things that I mentioned. So as we continue to test that, we'll...

Gina Boswell: But we will be using their shop itself, which as you know, is a more frictionless, convenient experience. And you know, like most things at Bath & Body Works, we test and react and tinker and we'll have more to share, I'm sure, at upcoming quarters. Thank you.

Speaker Change: Either add to that or reallocate across different marketing expenditures.

Speaker Change: But my sense is that we will have more to go in terms of getting to competitive benchmarks there. But right now, we like what we see, the investments that we're making in marketing have strong profit-acreated returns and they have positively impacted the trend. Going back to Q3 of last year, actually.

Joanna Kim: The next question is coming from Joanna Kim of TD Cowan. Please go ahead. Thanks for taking my question.

Speaker Change: So we know that when we get the right levels and we combine it with a compelling price value equation that we're going to see benefits from the full plan on marketing investment.

Julie Rosen: Could you just talk about the candles and the sanitized categories, what you saw there during the quarter and how you plan for those categories in the back half and also just curious on the marketing spend as you continue to invest there. What is the right level of marketing spend over time? Thank you. Hi there. It's Julie. I will take the candles and sanitizers question and then pass it back to Gina for the marketing.

Speaker Change: Thank you.

Speaker Change: Thank you, the next question is coming from Paul Lashmai of City, please go ahead.

Speaker Change: Hi, this is Kelly on Propal thanks for taking your question. I just follow up on the AURs, just curious how promos played out during the semi-annual sale versus outside of that period.

Speaker Change: and then just specifically on the Campbell category, just to follow up on your comments there. Just given you a whole weakness, is there any thought that...

Julie Rosen: So as a reminder, candle performance was impacted by the right sizing of our single wick. We exited our majors and jar forms. We are using that space for newer, more productive categories. Our Stranger Things initial launch was all candle based. So we're trying to use some of these collapse to surprise and delight our customers to increase our sales and candles and gain some relevancy there. We do know that customers are gravitating towards values.

Speaker Change: is my make sense to reinvest on and price in that category given the consumer's seeking value. And just lastly, any update on the product costs or raw material cost given, we've seen just so embracing come down and what's embedded in the guidance. Thank you.

Speaker Change: Hi Kelly, this is Eva. Let me start with your promotion question. Overall, our promotions were comparable for the quarter. You know, we use our agile model when we promote the duration, the deaths.

Julie Rosen: So we've been repositioning our single wick to amplify our value. As far as sanitizers go, you know, we are also in sanitizers. We continue to be impacted by the exit of the full size sanitizer, but I do want to point out that our pocket back continues to perform it performed well above shop. We launched a moisturizing pocket back in Q1 and our customer continues to respond positively. And that is along the lines of what we're always trying to do, which is to innovate in our core.

Speaker Change: We did introduce some new promotions to drive traffic and excite our customers and we were pleased with the outcome. So, I'm not going to call up to me and you'll say specifically, it's a lever we use to drive our business.

Speaker Change: Moving to your question on wrong material cough.

Speaker Change: You know, overall I would say are most...

Speaker Change: key raw materials can continue to stabilize or trend down slightly. You know, we realized benefits last year, those continues. So nothing, nothing, nothing changed to call out here.

Julie Rosen: And as relates to the marketing spend, obviously we're spending across different channels and marketing and across different categories. So you'll see some of the candle advertising as well supporting that, but I think your question was focused on the right level over time. And what we are doing, we're spending more obviously because we're putting full funnel marketing in place. And we're watching that work through marketing and modeling to make sure that we actually have the highest, you know, row as for sure, but also the impact to the whole shop and bringing relevancy and familiarity and awareness and all of those things that I mentioned.

Speaker Change: and then as far as your question about candles and pricing, as I mentioned we know that we have a very value-seeking customer out there right now and we are using our single-week as a way to gain share and really promote the great price for the value.

Speaker Change: and that together with really talking about value in quality ways is really important and so really pushing on the most loved candle for our three wigs as well as using the single work I think we'll meet the requirement.

Julie Rosen: So as we continue to test that, we'll either add to that or reallocate across different marketing expenditures. But my sense is that we are, we will have more to go in terms of getting to competitive benchmarks there, but right now we like what we see. The investments that we're making in marketing have strong profit accretive returns and they have positively impacted the trend going back to Q3 of black. Sheer actually. So we know that when we get the right level and we combine it with a compelling price value equation that we're going to see benefits from the full panel marketing investment.

Speaker Change: I think we have time for one more question please.

Speaker Change: Thank you. Our last question is coming from current most minor of Piper Sandler. Please go ahead.

Speaker Change: Hey, good morning, thanks for taking the question. Can you provide a little bit of color on the different segment performance you're anticipating for the back half of the year and how we should be modeling direct versus store versus international. I think you said there was a little bit of pull forward for international. And then any color on how you're thinking about the broader promo environment to the back half would be great. Thank you.

Julie Rosen: Thank you. The next question is coming from Polish by a city. Please go ahead. Hi, this is Kelly on the politics for taking our question. I just a follow up on the on the AURs. Just curious how promos played out during the semi annual sale versus outside of that period. And then just specifically on the candle category to follow up on your comments there. Just given the overall weakness. Is there any thought that it might make sense to to reinvest on and price in that category given the consumers taking value.

Speaker Change: Yeah, this is Eva, in terms of our, in terms of our full year guidance

Eva Boratto: We do expect international sales to be down in the back half mid to high single-

Speaker Change: Digits, that's driven by the region affected by the war I also mentioned that there was some full forward.

Speaker Change: and...

Speaker Change: Oldtube Hill

Speaker Change: in terms of...

Julie Rosen: And just lastly, any update on the product cost or raw material cost given we've seen them to soy pricing come down and what's in that in the guidance. Thank you. Hi, Kelly. This is Eva. Let me start with your with your promotion question. Overall, our promotions were comparable for the quarter. You know, we use our agile model when we when we promote the duration, the depth. We did introduce some new promotions to drive traffic and an excite our our customers and we were pleased with with the outcome.

Speaker Change: Direct versus stores, right? We focus on an only-channel experience, focus has continued to grow nicely for us. We have now analyzed, you know, our anniversary, but it continues to deliver to deliver growth.

Speaker Change: and your question on the broader promo environment in the back half, all I can say is that we...

Speaker Change: We do, you know, we do our promo environment as dynamically as anyone, leveraging our agile model so we'll continue to do that and we have been seeing a discerning consumer for some time and the macro has gotten a chopper but we feel well positioned to use that agile model in the back half as well.

Julie Rosen: So I'm not going to call up some annual sales specifically. It's a lever we use to to drive our business moving to your question on on raw material cost. You know, overall, I would say are most key raw materials continue to stabilize. We're trend down slightly. You know, we realized benefits last year, those those continue. So nothing, no big change to call out here. And then as far as your question about candles and pricing, as I mentioned, we know that we have a very value seeking, you know, customer out there right now.

Speaker Change: Thank you, thank you. At this time I'd like to turn the floor back over to Mr. Long for closing comments.

Mr. Long: We want to thank you for joining today's call, a replay will be available for 90 days on our website. Thank you for your interest in back-body works.

Mr. Long: Thank you. Ladies and gentlemen, this concludes today's event. You may disconnect your lines at this time or welcome to the webcast and enjoy the rest of your day.

Julie Rosen: And we are using our single wig as a way to gain share and really promote the great price for the value. And that together with really talking about value in quality ways is really important. And so really pushing on the most loved candle for our three weeks, as well as using the single look, I think we'll we'll meet the requirement. I think we have time for one more question, please. Thank you.

Mr. Long: Music

Julie Rosen: Our last question is coming from Karin Wolfmeyer of Piper Sandler. Please go ahead. Thank you, Martin. Thank you for taking the question. Can you provide a little bit of color on the different segment performance here anticipating for the back half of the year and how we should be modeling direct versus store versus international. I think you said there was a little bit of pull forward for international. And then any color on how you're thinking about the broader promo environment for the back half would be great.

Mr. Long: [inaudible]

Julie Rosen: Thank you. Yeah, this is Eva. In terms of our in terms of our full year guidance, we do expect international sales to be down in the back half mid to high single digits. That's driven by the regions affected by the war. I also mentioned that there was some full forward in in Q2 in terms of in terms of direct versus stores, right. We focus on an omnichannel experience. So this has continued to grow nicely for us.

Julie Rosen: We have now annualized, you know, our anniversary, but it continues to deliver to deliver growth. And your question on the broader promo environment in the back half. All I can say is that we do, you know, we do our promo environment about as dynamically as anyone leveraging our agile model. So we'll continue to do that. I mean, we have been seeing a discerning consumer for some time and the macro has gotten shopier, but we feel well positioned to use that agile model in the back half as well. Thank you, thank you.

Luke Long: At this time, I'd like to turn the floor back over to Mr. Long for closing comments. We want to thank you for joining today's call. A replay will be available for 90 days on our website. Thank you for your interest in Bath & Body Works. Thank you.

Operator: Ladies and gentlemen, this concludes today's event. You may disconnect your lines at this time or walk off the webcast and enjoy the rest of your day. .

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Operator: [inaudible] a lot of work to do, she's got a lot of work[inaudible] do, she's[inaudible] a lot of work to do, she's got a lot of work to do, she's got a lot of work[inaudible] do, she's got a lot of work to do, she's got a lot of work Straton Straton Straton Straton St Straton Straton St Straton St Straton Straton St Good morning, my name is Dana and I will be your conference operator today.

Operator: At this time I would like to welcome everyone to the Bath & Body Works second quarter 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 one. I will now turn the call over to Luke Long, Vice President of Investory Relations. Luke, you may begin.

Luke Long: Good morning and welcome to Bath & Body Works 2nd quarter of 2024 earnings conference call. I'm pleased to recently joined the company and I look forward to continuing to connect with the investment community going forward. Joining me on the call today are Gina Boswell, Chief Executive Officer, Julie Rosen, President Retail, and Eva Boratto Chief Financial Officer. In addition to this call in this morning's press release, we've posted a slide presentation on our website that summarizes the information in these prepared remarks in addition to providing some related facts and figures regarding our operating performance and guidance.

Luke Long: Today's call contains certain forward-looking statements related to future events and expectations. For factors that could cause the action results to differ materially from these forward-looking statements, please refer to this morning's press release as well as the risk factors in Bath & Body Works 2023, Form 10K, and our quarterly report on Form 10Q, which will be filed at the end of today. Today's call also contains certain non-gap financial measures. Please refer to this morning's press release and supplemental materials for important disclosures regarding such measures, including reconciliation to the most comparable gap financial measure.

Luke Long: As you know, fiscal 2023 was a 53-week year to provide the best understanding of the business, all category sales results, year-to-date market share data, loyalty metrics, and the selling metrics discussed during the call are on a comparable calendar basis, which is the 13 weeks into August 3, 2024, first the 13 weeks into August 5, 2023. All other results discussed are on a reported basis, which is the 13 weeks into August 3, 2024, first the 13 weeks into July 29, 2023.

Luke Long: With that, I'll now turn the call over to China. Thank you, Luke, and good morning, everyone. We appreciate you joining us. I'll start with a high-level review of our second quarter results and our progress against our strategic priorities. You'll hear about the actions we are taking to drive growth in our core portfolio, extend our reach to new adjacencies and markets, how we're using our agile model to adapt to a dynamic environment, and how we're optimizing our business to reduce costs and expand margin.

Luke Long: Our performance came against a challenging backdrop of economic uncertainty and consumers highly focused on finding value. For the second quarter, net sales were $1.5 billion down 2% versus the prior year and in line with guidance. Second quarter adjusted earnings per deluded share of 37 cents exceeded our guidance by a penny. Our second quarter net sales performance was impacted by our semi-annual sale or SaaS, which fell short of our expectations. Without the impact of SaaS, our net sales would have been down 1% for the quarter.

Luke Long: Julie will go into more detail on the SaaS shortfall and importantly, how we will evolve SaaS going forward. The outperformance in our second quarter adjusted earnings per deluded share was driven by continued improvements in merchandise margin and solid execution on our fuel for growth initiatives. I want to emphasize my confidence in our strategy and the actions we're taking to position the company for long term, sustainable, profitable growth through our differentiated model.

Luke Long: This quarter we continue to invest in fortifying our operating foundation while building a platform for growth. Focused on five key strategies, elevating the Bath & Body Works brand and product, extending our reach, engaging with customers, enabling a seamless omnichannel experience, and enhancing operational excellence and efficiency. We are making good progress on each of these elements, elevating the brand and product. We are innovating across our portfolio and leveraging speed and scale to continuously evolve the quality, ingredients, packaging, efficacy, and fragrances of our products, and customers are responding positively to this newness and innovation.

Luke Long: In addition, given our broad product assortment and mass-deesh positioning, we are in a unique position to elevate value for our customers in this challenging environment. Elevating value is about offering exceptional product quality and an outstanding customer experience at an affordable price, and our vertically integrated model allows us to do just that. We work with the world's top fragrance houses, the very same used by the fragrance industry, to bring our customers the affordable luxuries they've come to expect.

Luke Long: A recent example of this is our everyday luxuries launch, our prestige-inspired line of fine fragrance myths, whether it's everyday luxuries supporting the next hot collab or driving innovations across our core portfolio, we are making important investments in product and marketing to solidify our category leadership and brand loyalty. That embody works offers a wide array of price points from a $2 pocket back to a $30 candle to a $60 o-departful. And we also offer a breadth of price points within categories, using a good, better best strategy so we can be customers where they're at with a product they will love and trust.

Luke Long: Extending our reach, we are growing our new category adjacencies, opening new store locations and expanding in international geographies. Our adjacent categories of men's hair, lip and laundry continue to perform well, particularly among existing customers. We're also focused on attracting new to brand customers with these categories. In the back half of the year, we're rolling out a number of exciting product launches and marketing campaigns to drive increased awareness and buzz. Our real estate portfolio remains healthy, and we continue to reshape the portfolio and move stores off mall with approximately 55% of our North American stores now in off mall locations.

Luke Long: International markets remain an attractive pillar of our strategy. We believe there is tremendous growth opportunity as we enter new markets and expand in existing markets. International system wide retail sales grew double digits in the second quarter in the areas not affected by the war in the Middle East, while pressure continued in those areas affected, at the end of the second quarter, we were operating in nearly 500 stores internationally and we're accelerating our international expansion plan and now expect our partners to open approximately 50 net news stores this year up from our prior expectation of at least 35 net news stores.

Luke Long: As we continue to expand globally, our fragrances are becoming known and loved throughout the world and we are seeing strong customer adoption of our products. Engaging with customers, one way we measure our customer engagement and satisfaction is net promoter scores, which we're pleased to say is consistently at the top quartile of retailers measured. Building on that strong foundation is the strength of our loyalty program which we continue to advance. We had over 37 million active loyalty members at the end of the second quarter up 8% compared to the prior year.

Luke Long: Loyalty members account for over 80% of US sales and these customers visit us more frequently spend more and have greater retention rates. They are drawn to exciting member only benefits of the program such as early access opportunities or member appreciation events. Our loyalty program has enabled us to be more targeted in our marketing and to pull back on broad base spend. We're also utilizing customer data to drive traffic and conversion. Our technology roadmap is on track and we're putting in place the foundational tools and systems needed to support future growth while enabling new capabilities that will increase customer engagement and provide a more seamless shopping experience across channels.

Luke Long: We recently upgraded our mobile app to a native mobile app which will further enhance our personalized targeting as you roll out new capabilities such as app for all frictionless ordering and geo targeting beginning later this year. We are launching a Bath & Body Works TikTok shop this quarter. This social commerce capability will provide a frictionless and convenient shopping channel to attract younger customers. Finally, our generative AI fragrance finder, gingham genius, will launch in the important fourth quarter providing customers a personalized fragrance finding experience using large language models and the power of our data.

Luke Long: We believe these capabilities will increase customer traffic and sales over time through a seamless and convenient customer experience. Enhancing operational excellence and efficiency. While we execute initiatives to drive the top line, we also continue to focus on margin. We're increasing our 2024 cost savings guidance to $130 million from $100 million. The two-year program that started in 2023 is now expected to deliver $280 million in run rate savings up from the initial plan of $200 million.

Luke Long: All while preserving the key investments to support our top line growth. Looking ahead to the back half of the year, we are focused on executing with precision, continuing to bring newness to customers and demonstrating our strong value proposition across our product assortment. We will double down our focus on the core and continue to extend our reach through new category agencies and expansion of off-mall and international locations. Our full rollout of everyday luxuries and our Stranger Things Part 2 collab, both of which started within the past week, include integrated marketing in stores, online and across media channels.

Luke Long: Taking all factors into account, including first half sales trends, and the chopier macro environment. As we look ahead to the remainder of the year, we believe it is prudent to adjust our full year revenue and earnings expectations. We're also increasing our share repurchase guidance. In summary, despite the tough environment in the first half of the year, we are in line with or exceeded our guidance. While I'm dissatisfied with the pace of our return to sales growth, I remain confident in our strategy and the progress we are making.

Luke Long: With the strength of our high margin business model and strong cash flow generation, we are in the same way as the first half of the year. We are well positioned to invest in the strategies that will drive our return to growth and enhance long-term shareholder value. Before I turn the call over to Julie, I'd like to thank our teams for consistently providing tremendous service to our customers and for their efforts in delivering against our strategic priorities.

Luke Long: With that, Julie will provide the merchandising overview. Thank you, Gina. Across the portfolio, year to date, we maintained our unit market share driven by increases in home fragrance offset by declines in body care and soaps and sanitizers. In the quarter, home fragrance and body care sales were down low single digits to last year, with soaps and sanitizers declining mid-single digits. As Gina mentioned, the semi-annual sales did not perform to our expectations.

Luke Long: And while it affected performance across all categories, it disproportionately affected body care. Our store presentation and marketing did not initially resonate with our customers. We adjusted the messaging and floor sets and while the results improved, performance remained below expectations. We will continue to evaluate and evolve our approach to the sale to optimize performance, including timing, marketing, merchandising, and other considerations. Moving to other highlights, customers have responded favorably to the innovation we've rolled out this year.

Luke Long: We are leaning into what is working. Focusing on adjacent fees, the men's business continues to be one of our fastest growing categories in body care during the second quarter. As we highlighted Father's Day, as Gina mentioned, there is an exciting opportunity to capture new customers by growing customer awareness for this category. As planned, we fully rolled out our lip fixture and expanded assortment to nearly all North American stores during the quarter.

Luke Long: We continue to attract a younger customer while also doubling sales of lip in those stores year to day. Laundry will roll out to all US stores by the end of September, accompanied by the launch of a national advertising campaign to accelerate customer awareness and adoption. Focusing on the core, we recently launched our everyday luxuries collection in all North American stores. This procedure inspired line, initially tested in 600 stores during the first quarter, is a great opportunity to excite our existing customers while introducing new customers to our brand.

Luke Long: The full rollout is generating customer excitement and buzz. Boss, also generating excitement and buzz is the recent launch of part two of our Stranger Things Collaboration. Whether it's Bridgerton or Stranger Things, these collaborations are exciting traffic drivers as we evolved the Bath & Body Works brand to reach new customer segments. We have additional exciting collaboration offering planned for later in the year. We are continuing to drive fragrance innovation key to our core business.

Luke Long: Today, we're building on the success with current on-trend fragrances in the marketplace such as vanilla and milk. We also have two significant cross category fragrance launches planned for the fall season. While our customers continue to seek newness and innovation, they are also looking for value. This was evident in the performance of our soap refills and small-sized products like travel, which both grew nicely in the quarter. We will appropriately position our mix of goods that are best to meet the consumer where they are while maintaining margin.

Luke Long: As Gina noted, value is a combination of price and quality. Our new marketing will reassert our product attributes, such as America's most loved candle brand. Our candles provide tremendous quality for the money and our marketing will convey the value more directly. In summary, we are amplifying what worked in the first half of the year through storytelling and marketing. We are layering in big launches like everyday luxuries and new collaborations. We have new fragrances coming in our core categories and we are building on the results we are generating in men's hair, lip and laundry as we engage more customers with these offerings.

Luke Long: We are well positioned to execute in the second half of the year. I want to thank our teams for all their work delivering a special experience to our customers this quarter. With that, I'll turn it over to Eva. Thank you, Julie. Good morning, everyone. In the second quarter, we reported adjusted earnings for diluted share of 37 cents, exceeding our guidance of 31 to 36 cents per diluted share. Our outperformance in the quarter was primarily driven by stronger merchandise margins.

Luke Long: Our team maintained operational discipline to achieve earnings that were above the high end of our EPS guidance despite net sales in line with the low end of our guidance. Moving through the P&L, second quarter net sales of $1.5 billion declined 2.1% compared to prior year. As discussed earlier, we experienced a more cautious consumer backdrop and our store traffic was pressured throughout the quarter similar to external benchmarks. In US and Canadian stores, net sales totaled $1.1 billion, a decrease of 0.3% versus prior year.

Luke Long: Direct net sales were $297 million, a decline of 9.7% compared to last year. Direct net sales performance was negatively impacted by growth and focus, which is recognized at store net sales. When adjusted for Bobus, direct out-performed stores, a nice improvement to previous quarters. Bobus demand increased approximately 60% in the quarter, and year-to-date represents approximately 23% of total digital demand. International net sales were $89 million, and increased of 2.2% from prior year, driven by product shipments.

Luke Long: This was a significant improvement relative to first quarter results. I would also note there was some pull forward of wholesaler shipments as partners were building inventory for the fall season. Second quarter growth profit rate was 41%, an increase of 110 basis points compared to prior year, and the fourth consecutive quarter of growth profit rate expansion. This was primarily driven by merchandise margin expansion of 130 basis points exceeding our expectations. AURs increased 1% in the quarter, driven by mix.

Luke Long: We will continue to take the appropriate pricing and promotion actions to maximize sales and margin for the company. We tightly managed expenses delivering SG&A as a percentage of net sales of 29.1% in line with expectations. The benefit of our cost optimization work spans across both growth profit and SG&A, in the second quarter we deliver benefits of approximately $40 million. Second quarter total operating income of $103 million decreased 2.7% and was 12% of net sales, flat to last year's rate.

Luke Long: Moving below the operating line, in the quarter we were pleased to sell our state in certain eastern investments in Columbus, Ohio as we focus on our core business. Our adjusted results exclude the $39 million pre-tax gain related to the transaction. Our adjusted results also exclude a $44 million realized tax benefit related to the release of evaluation allowance on a deferred tax asset. With respect to inventory, we ended the second quarter with total inventory up 6% compared to last year in line with our expectation.

Luke Long: The increase in inventory is supporting new product launches and new stores. Our inventory levels are well positioned heading into the second half of the year. As for real estate, in the second quarter we open 24 new off-mall stores and permanently close 7 in mall stores in North America. Internationally, our partners open 11 net new stores in the second quarter resulting in a total international store count of 497. Turning now to our fiscal 2024 guidance, based on our first cap of the year sales trend of down 1.5% as well as the choppy or macro economic environment, we do not anticipate the sales acceleration as originally planned.

Luke Long: We updated our guidance accordingly. For the full year, we now expect net sales to range between down 4% to down 2%. And as a reminder, 2023 included a 53rd week, which added 81 million to net sales and represents a headwind of approximately 100 basis points to our 2024 growth. For clarity, we have provided the quarterly impact on net sales due to the calendar shifts in our slide presentation. We now expect full-year gross profit rate to be approximately 44% and S-GNA rate to be approximately 27%.

Luke Long: We now expect full-year adjusted net non-operating expense of approximately $280 million and adjusted effective tax rate of approximately 26.5% and weighted average diluted shares outstanding of approximately 222 million. Considering all of these inputs are updated full-year guidance for adjusted earnings per diluted share is between $3.06 to $3.26 down 1% at the midpoint versus our previous guidance. Turning now to our third quarter guidance, we are forecasting a third quarter net sales range of flat to up 2.5% versus the prior year.

Luke Long: The third quarter will benefit by approximately 200 basis points from the shifted fiscal calendar resulting from the extra week in 2023. We expect third quarter gross profit rate to be approximately 43.5% comparable to prior year. In the third quarter, we are laughing the 140 basis point gross profit rate expansion we delivered last year. We expect our third quarter S-GNA rate to be approximately 30.5% with the delivered versus the prior year driven largely by higher marketing investment and wage inflation.

Luke Long: These increases are partially offset by our cost reduction initiative. We expect third quarter net non-operating expense of approximately $70 million and a tax rate of approximately 27% with weighted average diluted shares outstanding of approximately 220 million. Considering these inputs, we are forecasting third quarter earnings per diluted share of between 41 and 47 cents. Let me provide a quick update on capital allocation. Our top priority remains driving sustainable long term profitable growth through investments in the business.

Luke Long: Year to day through the second quarter, our total capital investment was $101 million. We have tightened our full year capital spending guidance to approximately $250 million down from our prior range of $300 to $325 million. The reduction is largely driven by cost savings in our real estate buildouts and timing of multi-year supply chain investment. We will continue a disciplined mindset. During the quarter, we paid out $45 million in dividend and have paid out $90 million a year to date.

Luke Long: Additionally, we recently announced a quarterly dividend of 20 cents per share payable on September 6th. We expect to continue our annual dividend of $0.80 per share with the intention to increase the dividend over time with sustained earnings growth. During the quarter, we repurchased $3.6 million shares of common stock for $150 million and an average price of $41.75 per share. Year-to-day, we repurchased $5.8 million shares of common stock for $249 million. Our full-year guidance now reflects the expectation to repurchase $400 million of shares throughout fiscal 2024 and increase from our prior expectation of $300 million as we view this as an attractive use of free cash at curb prices.

Luke Long: In the quarter, we repurchased $91 million principal amount of senior notes and our gross adjusted debt to Eva Dar ratio improved to 2.7 times on a trailing 12 month basis. Year-to-day, we repurchased $200 million of principal amount of senior notes. Currently, we do not plan to pay down or repurchase additional debt this year. Next year, we have approximately $314 million of debt maturing which we will pay down. After investments in the business, we expect to generate full-year adjusted free cash flow between $675 and $775 million and we'll put that toward our capital return priorities of dividend and share repurchases as I just outlined.

Luke Long: Now, I'll turn the call back to Gina for some closing remarks. Thank you, Eva. To close, despite a dynamic environment, Bath and Body Works has maintained its overall unit share performance year-to-date, driven by the strength of our category portfolio, deep loyalty and love for our brand and the exceptional customer experience our associates provide to our customers every day. Our fuel for growth plan is on track and it allows us to continue making investments in technology, innovation, marketing and loyalty.

Luke Long: While our QQ performance and a chopper macro have tempered our expectations for the second half of the year, we are laser focused on execution and controlling the controllables. I'm confident we have the right plan in place and are taking the right actions to position the business to navigate the near term environment and deliver long-term sustainable, profitable growth and shareholder value. I will now turn the call over to the operator for questions.

Luke Long: Thank you. The floor is now open for questions. If you would like to ask a question, please press star one on your telephone keypad at this time. A confirmation tone will indicate your line is in the question Q. You may remove your question by pressing star two on your telephone keypad. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star key. In the interest of time, we do ask that you please limit yourself to one question.

Luke Long: Today's first question is coming from Simeon Siegel of BMO Capital Markets. Please go ahead. Thank you, everyone. Morning. Hope you have a nice summer. Gina, could you speak to how you're thinking about new category revenues as being additive versus maybe a reallocation of customer-intended spend at Bathamatti Works, just as they normalize those candle purchases? Men's the older and obviously feels clearly additive, but how do you think about the other new categories?

Luke Long: Maybe just I know you test a lot to maybe just speak any test to give you confidence in the incrementality there. And then I think you maintain the free cash flow guide, but cut cap X nicely. So I know there's some moving pieces that you mentioned with Eastern and taxes, so could you just bridge that gas if that would be helpful? Thanks everyone. Thank you. Thank you, Simeon. I like to hear your voice.

Luke Long: I hope you had a lovely summer as well. I'll take the first question on the new categories. Overall, those new categories were pleased to see that they met their plan in the quarter, but even more importantly, I think that you're looting to is what else do they bring? We're satisfied on a couple of levels. First, these are large, addressable markets. Not only do they meet the sales expectations for these specifically men's hair laundry and lip is what I'm referring to.

Luke Long: But they deliver against three other metrics that we track. The first is how many new to brand customers do they bring? In addition to shop the entire shop. Secondly, the repeat, which we like what we see on the repeat usage behavior. Thirdly, the incrementality, which we're monitoring varies, but we like what we see on incrementality as well. To see those three metrics on these new categories, to see them hitting their sales.

Luke Long: And to the fact that some of them are not fully rolled out, I believe laundry will just be fully rolled out next month. Then we can turn on full marketing to drive accelerated growth from there. Yes, thanks for the question, Simeon. On free cash flow, obviously a benefit from taking our capets down. You have some other moving pieces on working capital assumptions. Overall, we're pleased where our free cash flow stands, some impacts of the eastern transaction as well.

Luke Long: Thank you. We'll take our next question, please. The next question is coming from Lorraine Hutchinson, a bank of America. Please go ahead. Thank you. Good morning, excluding the calendarships, your guiding force quarter sales to be worse than what you expect for the third quarter. Can you walk us through the puts and takes and why you're expecting more challenging holiday season? Yeah, this is Eva Lorraine. I'll start with the full year and then take you through the quarter.

Luke Long: Our reduction in our sales guidance is really attributable to the sales trends that we saw. We are seeing a more value-seeking customer now versus our prior expectations. And as we said, the macro is chopier. Also, the pace of growth that we're seeing from our new customers is taking longer. So overall, they're the core drivers. If you look at the dynamics between Q3 and Q4, we do have the shorter holiday season right five days shorter.

Luke Long: We're working to utilize periods outside of between Black Friday and Christmas to drive our Q4 performance. But that is the key differences. We look at the, as we look at the quarterly trends. Thank you. The next question is coming from Alex straight in of work. And Stanley, please go ahead. Great. Thanks all for taking the question. I just wanted to hone in on the second quarter sales in terms of the cadence of the quarter.

Luke Long: It sounds like you made some adjustments that had some benefits. So I just want to understand exactly how you guys think about the short coming there. And then what gives you guys confidence in the trend improving into the third quarter. Thanks a lot. Thanks, Alex. I'll take that question. We did experience more cautious consumers throughout the quarter. We saw traffic pressured throughout the quarter consistent with, you know, external market data points.

Luke Long: And as we look, as we look going forward, well, sorry, on the quarter, you know, the past did pressure us more that one month period of fast excluding that sales were down about one month. From a positive customer's day, respond to our newness. And as we exit the quarter at the tail end of the quarter traffic improves and has been stronger in the first parts of Q3 here. And we've just had some exciting launches with everyday luxuries and stranger things.

Luke Long: And so overall, we're looking forward to the quarter. Thank you. The next question is coming from Kate McShane of Goldman Sachs. Please go ahead. Thank you for taking our question. Our question was around the semi annual sale performance as well. Do you think there was any execution miss in the quarter or do you still think it's more of the macro? You did mention one of the things you'd be looking at in the future was timing.

Luke Long: Was there any change in timing of this year's SAS? And how are you thinking about maybe other elements as you approach the next semi annual sale? Hey, Kate, it's Julie. I'll take this question. So I think that semi annual sale didn't really resonate with customers the way it usually does because the store and the marketing didn't clearly convey that this was a tense whole major sale event. It was mostly positioned at the front of the store.

Luke Long: It didn't really scream sale across the entire store. And there was maybe a little bit too much elevation. We know that our customer likes newness along with sale and we're balancing the elevation and the sale at the same time. So we definitely had some new, you know, some learnings there. We immediately used our agile business model to adjust our messaging and floor sets and while results improved the performance remained lower expectations.

Luke Long: We did end the sale in clean inventory position. So we feel that we manage the pricing well. We are taking the learnings to evolve next year's sale to make it more impactful. So yeah, we are evaluating the timing and the customer mindset timing was exactly the same this year as it was last year as was duration. But, you know, the customer was not quite there in the mindset of full on sale.

Luke Long: So we are looking at the timing. We're looking at the marketing. We're looking at merchandising. And then just other considerations to optimize performance of both the sale and the full price floor sets surrounding the period on either side. Thank you. Next question, please. The next question is coming from Matthew boss of JP Morgan. Please go ahead. Great, thanks. So, Gina, could you elaborate on customer traffic relative to AUR trends that you're seeing today or maybe just how best to think about the balance between these two drivers multi year given the increased focus on value, of the U that you cited.

Luke Long: And then Julie, if you could just elaborate, maybe on demand that you're seeing across categories in August or early customer response to your follow-up sort. Thank you. I'll start with customer traffic relative to AOR trends. So as we saw and was alluded to traffic was difficult and in the quarter comparable to external trends. We do use obviously not just SAS, but we use some of these co-labs to drive traffic and excitement and buzz.

Luke Long: The AOR impact you saw that we ended pretty much flat and mixed-adjusted AOR. So we felt pretty good that we could both balance the excitement, the staff and getting the clean inventory. But without, we felt very good actually about the way we used our Agile model to promote as needed to deliver. I will then go to Eva and if I haven't fully answered your question, we can come back to Eva. Yeah, Matt, regarding Q3, as I said earlier, traffic has improved relative to Q2.

Luke Long: Our performance today is contemplated in line in our guidance range that that we provided. And we just launched some of our newness with everyday luxuries and stranger things. And we're really excited. Thank you. The next question is coming from Christina Katari of Deutsche Bank. Please go ahead. Hi, good morning and thanks for taking the question. I wanted to ask about your good, better best strategy and your mention of having available price coins for everyone.

Luke Long: So how do you think about the equipment for the balance of the year if you continue to see a consumer that is accelerating the value-seeking behavior? So that is part one. And in particular, you're thinking about sort of increasing your marketing efforts. What have you found to be working well and how successful have you been able to tie in your loyalty program data to drive greater ROI on that spend? Thank you.

Luke Long: Thank you for the question. On the first part, we do have a wide array of price points, as I said, and the good, better, best. It's really value at every one of those levels. And so in my remarks, I mentioned about elevating value. You know, we have just enormous and hopefully it's seen some of the slides showing the most loved candle. For our categories and our products, we offer tremendous value embedded.

Luke Long: And so when we look at good, better best, we can meet the customers wherever they are at. So if we find a very value-seeking customer, we can distort more towards good if that's sort of where we think they are. Similarly, better best. You see this in all the different categories that we have. We also use our promotion levels as well to make sure that we're meeting their mindset. So we're happy with the broad assortment that we have.

Luke Long: And actually, as we sit at the intersection of mass and prestige, whether there's people coming in, coming out, we feel like we have something here. And we definitely will be speaking more to the value that we offer. Now, value in general is, as you will know, not just about the price. It's about the quality. And frankly, it's about the experience. So as a customer, it's just stepping back. If you're looking at all three of those, we're going to be sharper on all.

Luke Long: And that's why I'm really thrilled with our vertically integrated model, too, because the experience in the stores being sort of industry leading is also part of what value brings. So we're excited about good, better best. Now, in terms of marketing, what's working, we only started, I guess, a couple of quarters ago, our full funnel marketing. And that has been designed, obviously, to grow traffic, to grow new customers, to reach existing customers, and to reactivate any lapsed customers.

Luke Long: It's only a couple quarters in place, but it's really moving the needle on awareness. We've seen awareness increases. We've seen familiarity increases. And, of course, ultimately, over time, moves down the funnel to more conversion. Now, when we combine the marketing, which we have seen, obviously, combined with newness and innovation and the compelling price value proposition, it really pays off. And we think that will continue to build the collapse as well. Those are driving excitement to our core and putting the brand at the center of culture.

Luke Long: And that's important from a marketing perspective, as well as a product. And then leveraging TikTok to catch a younger customer, I think that's going to be exciting as well. A few things more on this. Stranger things. The first part of that, we drove 20 million video views. And I think the best TikTok ever. So this marketing is really, I think, you know, putting us at the center of culture and attracting people and driving traffic as it needs to do.

Luke Long: So we're confident with our plans to use marketing and our product and our entire value proposition to grow a customer ship. And we have seen improvements from a year ago. Thank you, next question. The next question is coming from Dana Telsey of Telsey Advisory Group. Please go ahead. Hi, good morning everyone. As you think about the Simeon you'll sail, Julie Eva, whichever of you, do you think about the Simeon you'll sail?

Luke Long: And if you were to do it differently going forward, what would the changes be? How do you think about that? And in the newer categories that you have, the lift, the haircare, deodorant would have been, whichever, which is seeing greater traction than another. And are any AURs being adjusted for some of the new categories given the hesitancy on elevation by the consumer in terms of pricing? Thank you. Hey, Dana, it's Julie nice to hear from you.

Luke Long: So I think in the sail, some of the things that we're thinking we would do differently as I mentioned is timing. I do think that we need to sort of get more in sync with the market and what the right timing is. If we move the timing of our sales and it enables us to let our first delivery of summer live a little bit longer, we had nice success there this year and it's crunched in three weeks.

Luke Long: So I'm excited about the opportunity about moving out the timing and giving both of the newness drops on either end of the sail, an opportunity to really sell and to really be able to tell our story. As far as the new adjacencies, you know, they're new, right? And they're all at different stages of their rollout. So just as a reminder, you know, hair rolled out in Q1. We are testing and tinkering not only pricing.

Luke Long: I'm sure if you follow us, what you do, you can see we have it every day deal. We've tried at a certain price. We offer a bundle of a certain price. We're trying to figure out the sweet spot of pricing for all of these adjacencies and gain trial because they're new. We also launched our travel size, shampoo and conditioner, this quarter, a great way to gain trial. And then, you know, we have men, which has been in all stores for a while, but we've rolled out some new ideas there that were continuing again to figure out what is the right a you are, what is the right way to attract more men to our brand.

Luke Long: Lip, you know, we're super excited about. We just rolled that out just in July. So it's only been a month to all North American stores. We have a routine of scrub masks tint and it's really resonating with customers and the exciting thing here is we're seeing a younger customer. We see them linger at the new fixture play with the assortment and them purchase and year to date sales have been doubling in those stores and then laundry is just rolling out to all stores in the end of September.

Luke Long: And that's going to allow us to really have full marketing support. So it's hard for me to tell you which one is going to be better than the other because they all haven't been equally in all stores. But in it as always, you know, we test optimize and roll and then we continue to use our agile model to test for the best outcome. Thank you. The next question is coming from Olivia Tonga, Freeman James, please go ahead.

Luke Long: Great, thank you. Could you talk a little bit about your AUR expectations in the second half of the year? You obviously started the year off a little bit choppy, and then got unsetty or funny, but clearly the macros would become a bit more challenging. And as you think about second half plans, can you just talk about some of the various initiatives you have to drive traffic? And then just following on that, can you talk a little bit about what drove the incremental cost savings and your confidence to maintain that level of cost mitigation to support the margins in second half?

Luke Long: Thank you. Great, thanks for the questions, Simeon. I will take your third question, your first question in that order. On the cost savings, listen, we're really pleased with what we've been able to deliver with our cost savings initiative. It's allowing us to reinvest in the business overall at the same time improving our sustainable cost structure. But to your specific question about the increase, it was really changes in move, some of our value engineering on our supply chain side, and just continue work that we do on S-GNA.

Luke Long: Going back to your AUR question, during Q2, AURs were up 1%, I just want to emphasize that was mixed-driven. So on a comparable mixed basis, we were flat. And as we look to the back part of the year, we're not providing specific AUR guidance. We want to make sure in this environment that we utilize one of our strengths, our agility to promote and to drive traffic where we need to. And as we do that, we'll always balance both driving revenue as well as delivering our margin expectations.

Luke Long: And as for the various initiatives to drive traffic in the second half, this is Gina. There's lots here. We're really confident in the back half because in part we have talked about this prestigious buyer line that's just actually launched full board this week in all North America store them online. That's a big opportunity for us to excite our existing customers, but also introduce new customers. And we've amplified our marketing behind that.

Luke Long: We're also building on the success of Julie mentioned this in her remarks, but a lot of trend on trend fragrances such as vanilla and milk and watching those perform in the second half will be I'm sure contributing. And then we have some things that we can't yet talk about, but we have one more collab. We have two significant cross category fragrance launches planned for the fall season. And the fact that we will have some of the new adjacencies now in all stores gives us more excitement for the second half.

Luke Long: Thank you. The next question is coming from Marnie Shapiro of the retail tracker. Please go ahead. Hey guys, I just want to follow up on this TikTok conversation and the prestige fragrances because I personally want to confirm the prestige fragrances are the ones that I saw blew up blow up on TikTok. And then swimming that's true. When you launch on the TikTok shop, can you just give us a little bit of information here?

Luke Long: Will you launch with the prestige fragrances or will be across all categories? Are you using your own influencers or content creators or are you doing this through the TikTok shop? And TikTok shop tends to lean into promotions. And BBW also has your own version of promotion. So could you just give us a little insight to what this looks like? Because I've seen TikTok shop be very successful. I've personally been influenced by it.

Luke Long: So I'm just curious if you can give us a little insight there. So, thank you for the question. It is true that these everyday luxuries sit below button TikTok. They weren't in all of our stores, by the way, which is why bringing them back in the way that we're doing is really important to leverage that even further. We're early days, we're learning on TikTok shop. We will be using TikTok shop for at least a portion of our categories.

Luke Long: And so we don't have some of the details yet to share around content creators. But we will be using their shop itself, which, as you know, is a more frictionless, convenient experience. And, you know, like most things at Bath & Body Works, we test and react and tinker and we'll have more to share, I'm sure, at upcoming quarters. Thank you. The next question is coming from Joanna Kim of TD Cowan. Please go ahead.

Luke Long: Thanks for taking my question. I could just talk about the candles and the sanitized categories, what you saw there during the quarter and how you plan for those categories in the back half. And also just curious on the marketing spend as you continue to invest there. What is the right level of marketing spend over time? Thank you. Hi there. It's Julie. I will take the candles and sanitizers question and then pass it back to Gina for the marketing.

Luke Long: So as a reminder, candle performance was impacted by the right sizing of our single wick. We exited our majors in jar form. We are using that space for newer, more productive categories. Our Stranger Things initial launch was all candle based. So we're trying to use some of these collapse to surprise and delight our customers to increase our sales and candles and gain some relevancy there. We do know that customers are gravitating towards values.

Luke Long: So we've been repositioning our single wick to amplify our value as far as sanitizers go. You know, we are also in sanitizers. We continue to be impacted by the exit of the full size sanitizer. But I do want to point out that our pocket back continues to perform it performed well above shop. We launched a moisturizing pocket back in Q1 and our customer continues to respond positively. And that is along the lines of what we're always trying to do, which is to innovate in our core.

Luke Long: And as relates to the marketing spend obviously we're spending across different channels and marketing and across different categories. So you'll see some of the candle advertising as well supporting that. But I think your question was focused on the right level over time. And what we are doing, we're spending more obviously because we're putting full funnel marketing in place. And we're watching that work through marketing and modeling to make sure that we actually have the highest, you know, row as for sure, but also the impact to the whole shop and bringing relevancy and familiarity and awareness and all of those things that I mentioned.

Luke Long: So as we continue to test that will either add to that or reallocate across different marketing expenditures. But my sense is that we are, we will have more to go in terms of getting to competitive benchmarks there. But right now we like what we see. The investments that we're making in marketing have strong profit of creative returns and they have positively impacted the trend going back to Q3 of last. Deer, actually.

Luke Long: So we know that when we get the right levels and we combine it with a compelling price value equation that we're going to see benefits from the full-time marketing investment. Thank you. The next question is coming from Polish by FCity. Please go ahead. Hi. This is Kelly on the politics for taking our question. I just a follow up on the on the AURs. Just curious how promos played out during the semi annual sale versus outside of that period?

Luke Long: And then just specifically on the candle category, just a follow up on your comments there. Just given the overall weakness, is there any thought that it might make sense to reinvest in price in that category given the consumers taking value. And just lastly, any update on the product cost or raw material cost given we've seen just soy pricing come down and wasn't that in the guidance. Thank you. Hi, Kelly. This is Eva.

Luke Long: Let me start with your promotion question. Overall, our promotions were comparable for the quarter. You know, we use our agile model when we when we promote the duration, the depth. We did introduce some new promotions to drive traffic and an excite our our customers and we were pleased with with the outcome. So I'm not going to call up some annual sale specifically. It's a lever we use to to drive our business moving to your question on on raw material cost.

Luke Long: You know, overall, I would say our most key raw materials continue to stabilize or trend down slightly. You know, we realized benefits last year, those those continue. So nothing, no big change to call out here. And then as far as your question about candles and pricing, as I mentioned, we know that we have a very value seeking, you know, customer out there right now and we are using our single wig as a way to gain share and really promote the great price for the value.

Luke Long: And that together with really talking about value in quality ways is really important. And so really pushing on the most loved candle for our three weeks as well as using the single look, I think will will will meet the requirement. I think we have time for one more question, please. Thank you. Our last question is coming from Karin Wolfmeyer of Piper Sandler. Please go ahead. Thank you, Martin. Thank you for taking the question.

Luke Long: Can you provide a little bit of color on the different segment performance here anticipating for the back half of the year and how we should be modeling. I mean, direct versus store versus international, I think you said there was a little bit of pull forward for international. And then any color on how you're thinking about the broader promo environment that the back half would be great. Thank you. Yeah, this is Eva.

Luke Long: In terms of our in terms of our full year guidance, we do expect international sales to be down in the back half mid to high single digits. That's driven by the regions affected by the war. I also mentioned that there was some full forward in in Q2 in terms of in terms of direct versus stores, right. We focus on an omnichannel experience, but this has continued to grow nicely for us. We have now annualized, you know, our anniversary, but it continues to deliver to deliver growth.

Luke Long: And your question on the broader promo environment and the back half, all I can say is that we we do, you know, we do our promo environment as dynamically as anyone leveraging our agile model. So we'll continue to do that. I mean, we have been seeing a discerning consumer for some time and the macro has gotten shopier, but we feel well positioned to use that agile model in the back half as well.

Luke Long: Thank you. At this time I'd like to turn the floor back over to Mr. Long for closing comments. We want to thank you for joining today's call. A replay will be available for 90 days on our website. Thank you for your interest in Bath & Body Works. Thank you. Ladies and gentlemen, this concludes today's event. You may disconnect your lines at this time or walk off the webcast and enjoy the rest of your day.