Q4 2024 Bath & Body Works Inc Earnings Call
Speaker Change: Good morning. My name is Melissa and I will be your conference operator today.
Speaker Change: At this time, I would like to welcome everyone to the Bath & Body Works 4th 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 1.
Speaker Change: I will now turn the call over to Luke Long, Vice President of Investor Relations. Luke, you may begin.
Speaker Change: Good morning and welcome to Bath and Body Works fourth quarter and full year fiscal 2024 earnings conference call.
Gina Boswell: Joining me on the call today are Gina Boswell, Chief Executive Officer, and Eva Boratto, Chief Financial Officer.
Gina Boswell: In addition to this call and this morning's press release, we have posted a slide presentation on our website that summarizes the information in these prepared remarks in addition to providing some related facts and figures regarding our operating performance and guidance.
Gina Boswell: As a reminder, some of the comments today may include forward-looking statements related to future events and expectations.
Gina Boswell: For factors that could cause the actual 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 10-K.
Today's call also contains certain
Gina Boswell: Please refer to this morning's press release and supplemental materials for important disclosures regarding such measures, including reconciliations to the Most Comparable Gap Financial Measure.
Gina Boswell: 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 selling metrics discussed during the call are on a comparable calendar basis.
Gina Boswell: Which is the 13 weeks ended February 1st, 2025 versus the 13 weeks ended February 3rd, 2024.
Gina Boswell: All other results discussed are on a reported basis, which is the 13 weeks ended February 1st, 2025, versus the 14 weeks ended February 3rd, 2024. With that, I'll turn the call over to Gina.
Gina Boswell: Thank you, Luke, and good morning, everyone. We appreciate you joining us.
Gina Boswell: On today's call, I'll start with a high-level review of our key accomplishments in 2024. Then I'll briefly walk through our fourth quarter results, including our growth drivers and the progress we've made against our strategic priorities.
Gina Boswell: I'll also share a brief update on our 2025 expectations before turning it over to Eva to share more about our financial performance and guidance.
Gina Boswell: Bath & Body Works is a global leader in personal care and home fragrance, and we make the world a brighter, happier place through the power of fragrance.
Gina Boswell: I want to take a moment to thank our teams, especially our store and distribution center associates, for delivering an outstanding customer experience during the critical fourth quarter.
Gina Boswell: This past year can be best summarized as one of building momentum and establishing a strong foundation for long-term growth.
Gina Boswell: We successfully executed a number of key strategic initiatives to support our return to growth.
Gina Boswell: We grew our active loyalty membership 6% year over year, with approximately 80% of sales flowing through the program.
Gina Boswell: We expanded our customer reach by growing category adjacencies such as men's, hair, lip, and laundry.
Gina Boswell: And we delivered approximately $155 million of incremental cost savings through our Fuel for Growth program, bringing the two-year total to over $300 million, significantly exceeding our initial targets.
Gina Boswell: Turning to our Q4 performance, while we continue to see value-seeking customer behavior and competitive intensity, we closed out the year strong.
Gina Boswell: Net sales in the quarter were $2.8 billion above the high end of our guidance.
Gina Boswell: Importantly, our net sales improved sequentially in every quarter of 2024 when normalized for calendar shifts, the 53rd week last year, and the shortened holiday calendar.
Gina Boswell: At the same time, we continued our disciplined cost management and drove gross profit margin that exceeded our guidance and an SG&A rate that was in line with our guidance.
Gina Boswell: Earnings per diluted share were two dollars and nine cents also beating the high end of our guidance range.
Gina Boswell: So our strategy is working, and we continue to focus on three priority areas. First, accelerating top-line growth.
Gina Boswell: We're doing this in our core through what I call our three-legged stool for growth.
Product Innovation, Marketing, and Technology.
Gina Boswell: And we're also extending our reach through adjacencies and international expansion.
Gina Boswell: Second, we're enhancing operational excellence and efficiency through cost management and a continuous improvement mindset.
Gina Boswell: And third, we are consistently deploying our strong cash flow to invest for growth and return value to shareholders through dividends and share repurchases.
Starting with top-line growth.
Gina Boswell: As a trusted gifting destination, our customers turned to us to celebrate the holiday season and they responded enthusiastically to our seasonal holiday collection.
Gina Boswell: Timeless favorite holiday traditions rose to be the number one collection and our home for the holidays collection had the largest growth year-over-year up double digits.
Gina Boswell: We launched innovative products in our core categories, body care, home fragrance, and soaps and sanitizers.
Gina Boswell: Importantly, these categories performed in line with the market, each maintaining their category leadership and unit market share in 2024.
Gina Boswell: We rolled out everyday luxuries to all stores in early fall and customers responded positively to the incredible high-quality fragrance and value it provides.
Gina Boswell: The initiative is attracting a new, younger and more diverse customer base and we view it as a platform to drive long-term growth.
Are on-trend single-fragrance launches in body care?
Gina Boswell: Platinum in October and Perfect in Pink in November also performed well. Each offers a unique olfactive appeal and aligns with current fashion trends. Metallic and pink were both prominent in collections from global fashion houses.
Gina Boswell: Our home fragrance performance in the quarter was down slightly versus the prior year, due in part to the timing of our promotional strategies.
Gina Boswell: In the fall, we delivered a successful and intentional new promotional strategy for candles aimed at bringing customers out early in anticipation of the shorter holiday season.
Gina Boswell: This shifted some demand for candles from Q4 into Q3 as planned and resulted in a slight decline in the home fragrance category in Q4.
Gina Boswell: Importantly, in the second half of 2024, home fragrance was up slightly to last year, an improvement versus performance in the first half of the year.
Unknown Speaker
Speaker Change: As the candle category leader, we are focused on sustaining customer interest through innovation and our fragrance expertise, and I'm excited about our product pipeline for 2025.
Speaker Change: Wallflowers, our fragrance air freshener plug-in, performed well in the quarter.
Speaker Change: Fresh and clean fragrances like our new Clean House Vibes and our established Laundry Days are resonating with customers especially as their mindset began shifting to spring cleaning in January.
Speaker Change: Soaps and sanitizers grew mid-single digits in the quarter, driven by our convenient pocket back forms, moisturizing sanitizers, and new one ounce sprays.
Speaker Change: In Q4, the quaddemic fueled demand for these products, and our agile supply chain coupled with strong execution enabled us to meet that demand efficiently.
Speaker Change: I want to spend a moment on collaborations, which is a key element of our product and marketing strategy across our core business.
Speaker Change: Collaborations allow us to deliver highly differentiated storytelling that generates top-of-mind brand awareness with existing and new customers. They drive traffic and they enhance our cultural relevancy.
Speaker Change: We launched two collaborations in the fourth quarter that both performed well.
First,
Speaker Change: Our cross-category Emily in Paris collaboration, which created buzz during the holidays. And second, our Sweethearts collaboration, which launched in January in time for Valentine's Day.
Speaker Change: And of course, we are all thrilled about the highly anticipated Disney Princess collaboration, which launched this month.
Speaker Change: Customers are just as excited as we are about this. Our Disney TikTok post garnered over 1 million organic views on the first day.
Speaker Change: I'm excited about our product pipeline and the newness we will bring to customers in 2025.
Unknown Speaker
Speaker Change: Next, customer experience. An important part of our growth strategy is to improve the in-store and online customer experience through investments in marketing, loyalty, and technology.
We have successfully transitioned to a predominantly off-mall retailer.
Speaker Change: Today, 57% of our North American stores are in off-mall locations, and we plan to continue increasing our off-mall portfolio, now with a target mix of 75% off-mall over time, given continued consumer preference.
Speaker Change: Our marketing and technology efforts, the second and third legs of our stool, together contributed to record-high customer retention rates.
and an improvement in attracting new-to-brand customers.
Speaker Change: As we enter year three of the loyalty program, members continue to significantly outperform non-loyalty customers.
Speaker Change: leading to increased spend, trips, cross-channel purchases, and higher customer retention.
Speaker Change: In Q4, we had approximately 39 million active loyalty members, up 6% compared to the prior year.
Speaker Change: Additionally, our reward redemption rate is increasing, which is driving flywheel behavior and deepening brand connectivity, reflecting the strength and appeal of the loyalty program.
Speaker Change: And we have planned enhancements to the program in 2025, which we expect will excite customers and drive further improvements to Redemption.
Speaker Change: Our technology roadmap remains on track as we enhance our systems and put in place foundational tools to enable more personalization and seamless customer engagement to drive long-term growth.
Speaker Change: Finally, we made progress extending our reach this quarter through growth in our adjacent categories and international expansion.
Speaker Change: We believe adjacencies are an opportunity to expand and diversify our product portfolio, applying our fragrance expertise and leadership to large addressable markets.
Speaker Change: For the year, they represented approximately 10% of our business, with potential to become a larger percentage of our mix in 2025 and beyond.
Speaker Change: Momentum in the men's business, which is included in body care, remains strong this quarter, as we launched our first men's Purchase with Purchase set for the holiday season, which sold out in four days.
Speaker Change: Lip, which is also included in our body care business, delivers an immersive experience through our in-store fixture, drawing in younger customers.
Speaker Change: Lip was up approximately 50% year over year in the fourth quarter, and we expect to launch exciting new lip products quarterly in 2025.
Speaker Change: Laundry, which is included in Home Fragrance, is an exciting platform that we believe is positioned for long-term growth.
capitalizing on our differentiated fragrance expertise and elevated packaging.
Speaker Change: We're pleased with the early performance that followed the full rollout of Laundry in Q3, and we expect to introduce new laundry forms beyond detergent and boosters in the future to fuel the platform's growth.
International expansion remains an important pillar of our long-term strategy.
Speaker Change: International represents approximately 5% of our net sales and there's significant long-term opportunity as we enter new markets and expand in existing markets.
Speaker Change: System-wide retail sales were up nearly 10% in the quarter on a calendar-adjusted basis.
Speaker Change: driven by 20% growth in the areas not affected by the war in the Middle East, while the regions affected by the war declined 4%.
Speaker Change: This is a significant improvement versus prior quarters as we have lapped the start of the war.
Speaker Change: And as we enter 2025, we expect the international business will once again become a positive contributor to top line growth.
Speaker Change: Taken together, our focus on our growth drivers, including our three-legged stool of product innovation, marketing, and technology, and extending our reach through adjacencies and international expansion, drove our return to growth in 2024, and we are eager to continue the momentum in 2025.
Speaker Change: Turning now to margins, we are enhancing operational excellence and efficiency by continuing to focus on cost discipline.
Speaker Change: Our Fuel for Growth program delivered approximately 155 million dollars of incremental cost savings in 2024, bringing the two-year total to over 300 million dollars, significantly exceeding our initial targets.
Speaker Change: Importantly, we're taking a continuous improvement mindset to manage cost and enhance operational efficiencies.
Speaker Change: This allows us to invest in the business while maintaining our margins.
Speaker Change: Finally, we generated significant operating cash flow in 2024, nearly 900 million dollars, and we remain disciplined in how we deploy that cash.
Speaker Change: We are reinvesting in the business and returning capital to shareholders through dividends and share repurchases.
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Speaker Change: To summarize, I am pleased with our performance and the momentum we're building. As we enter 2025, we expect to drive growth through our product innovation, marketing, and technology. These plans are multi-year opportunities, and we are in the early innings.
Speaker Change: We expect to build on the innovation platforms we launched in 2024, including everyday luxury and collaborations. And we expect to extend our reach through adjacencies and international expansion.
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Speaker Change: Turning to our 2025 outlook, we expect 2025 net sales to be up 1% to 3% on a year-over-year basis.
Speaker Change: and we expect diluted earnings per share of $3.25 to $3.60.
Speaker Change: I'm confident that our strategy and focused execution will position the company to achieve sustainable profitable growth and to drive long-term shareholder value.
Speaker Change: Before I turn the call over to Eva, I want to express a heartfelt thank you to our customers who share our passion for fragrance.
With that, I'll turn it over to Eva.
Eva: Thank you, Gina, and good morning everyone. In the fourth quarter, we reported earnings per diluted share of $2.09, exceeding our guidance of $1.94 to $2.07.
Eva: The SAL performance was driven by net sales exceeding our expectations, our ongoing cost discipline, and a lower than expected tax rate.
Eva: The fourth quarter was impacted by the calendar shifts, the 53rd week last year, and the five fewer shopping days between Thanksgiving and Christmas this year.
Eva: Are net sales growth accelerated from the third quarter to the fourth quarter when normalized for these factors?
Eva: In U.S. and Canadian stores, net sales totaled $2.1 billion. This was a decrease of 2% versus the prior year. Direct net sales were $595 million, a decrease of 9% compared to last year.
Eva: However, when adjusting for buy online, pick up in store, or BOPUS, direct sales outperform stores.
Eva: Both its demand increased by 45% in the quarter versus last year and represents approximately 25% of total digital demand.
Eva: Gross profit versus prior year benefited from continued cost savings, distribution productivity, and timing of certain costs. We are pleased to have delivered both gross margin and net sales above guidance.
Eva: I would note that our fourth quarter net sales performance was volume-led, with AURs down mid-single digits.
Eva: Mix-adjusted AURs were down low single digits driven by the shorter holiday season which resulted in fewer high AUR shopping days and strategically planned promotional days.
Eva: SG&A as a percentage of net sales was 22.3% in line with our expectations.
Eva: Our Fuel for Growth Cost Optimization Plan delivered benefits of approximately $40 million in the quarter and approximately $155 million for the full year.
Eva: I am pleased with our team's outstanding work on this initiative.
Eva: Fourth quarter operating income of $678 million was 24.3% of net sales.
Eva: With respect to inventory, we ended fourth quarter with total inventory up 3% to last year. In line with our expectations, our inventory levels are clean heading into the spring.
Eva: Turning to real estate, our portfolio remains healthy with 57% of our fleet in off-mall locations.
Eva: For the full year, we opened 106 new North American stores, nearly all in off-mall locations, and permanently closed 61 stores, predominantly in malls.
We expanded square footage 3% in the year.
Eva: Internationally, our partners opened 44 net new stores during the year and we ended the year with 529 stores.
Turning now to our 2025 Financial Guidance.
Speaker Change: As Gina said previously, we will continue to focus on three key areas. First, accelerating top-line growth in our core through product innovation, marketing, and technology.
Speaker Change: will also continue extending our reach through adjacencies and international expansion.
Second, enhancing operational excellence and efficiency through cost management.
Speaker Change: and finally disciplined deployment of our strong cash flow. Our priorities are to invest for growth and return value to shareholders through dividends and share repurchases.
Speaker Change: For the full year, we expect net sales results to range between 1 and 3% growth versus prior year. The midpoint of our guidance assumes growth consistent with the fourth quarter when adjusting for calendar impact.
Speaker Change: We expect North American square footage growth of two to three percent, roughly in line with 2024. We expect international net sales to return to growth.
Speaker Change: We expect full-year gross profit rate to be approximately 44 percent, supported by cost discipline, offset by product innovation and investment in real estate.
Speaker Change: We expect a modest wraparound benefit from our 2024 Cost Savings Initiative. Our continuous improvement mindset will help drive efficiencies to offset investments in technology and wage inflation.
Speaker Change: We expect full year net non-operating expense of approximately $255 million, reflecting lower interest expense given our debt pay down throughout 2024.
Speaker Change: We expect an effective tax rate of approximately 26% and weighted average diluted shares outstanding of approximately 213 million.
Speaker Change: We have assumed $300 million of share repurchases throughout the year.
Speaker Change: Considering these inputs, we are forecasting full year earnings per diluted share to be between $3.25 and $3.60.
Speaker Change: We expect Q1 system-wide retail international sales up high single digits with reported net sales growth of double digits due to ship sales timing in Q1 this year.
Speaker Change: We expect first quarter gross profit rate to be approximately 43.3 percent, 50 basis points de-leveraged when compared to the prior year, driven primarily by a higher mix into international net sale.
Speaker Change: Recall, in Q1 2024, margins benefited from the lower international mix.
Speaker Change: We expect our first quarter SG&A rate to be approximately 30.2%, comparable to Q1-24.
Speaker Change: Our first quarter outlook includes net non-operating expense of approximately $65 million, a tax rate of approximately 29%, and weighted average diluted share outstanding of approximately $217 million.
Speaker Change: Considering all of these inputs, we are forecasting first quarter earnings per diluted share of 36 cents to 43 cents.
A few additional points on our guidance.
Speaker Change: As it relates to terrorists, we have included the impact of China in our guidance.
Speaker Change: We have not included other potential tariff impacts in our guidance due to the current uncertainty. We will continue to monitor the situation closely and proactively pursue strategies to mitigate these impacts.
Speaker Change: Our 2025 net sales growth is expected to be generally consistent across the quarters.
Speaker Change: And finally, we are planning for inventory to be up mid-single digits in the first half of 2025.
Speaker Change: As we are accelerating certain holiday related inventory bills to support our growth goals while optimizing our supply chain capacity.
Speaker Change: For the full year 2024, we invested approximately $245 million into capital projects. The vast majority of these capital investments are reported as capital expenditures in our cash flow statement.
Speaker Change: We generated $725 million in adjusted free cash flow in fiscal 2024, allowing us to deliver on our priorities of returning cash to shareholders and deleveraging our balance sheet.
Speaker Change: We repurchased $514 million principal amount of senior notes in 2024 and have now achieved our goal of two and a half times growth adjusted debt to EBITDAR.
Speaker Change: We paid out $177 million in dividends and repurchased 10.4 million shares of common stock for $400 million in 2024.
Speaker Change: In total, we returned approximately $577 million to investors in 2024 through dividends and share repurchases.
Speaker Change: In 2025, we expect to invest between $250 and $270 million in capital expenditures, with a continued focus on real estate and technology.
Speaker Change: The increase in spend versus 2024 largely reflects some 2024 supply chain projects that moved into 2025.
Speaker Change: We expect to generate free cash flow of $750 to $850 million in 2025, which includes working capital improvements from our Field of Growth Initiative.
Speaker Change: We expect to continue our annual dividend of $0.80 per share. As I previously said, our outlook includes the expectation to repurchase approximately $300 million of shares.
Gina Boswell: In summary, I'm proud of our team's hard work and focused execution in 2024, which enabled us to finish the year strong and build momentum entering 2025. With that, I'll turn the call back to Gina for some closing remarks.
Thank you, Eva.
Speaker Change: As we close out our 2024 financial year, I'm pleased with the progress we're making and I'm excited about the momentum we're carrying into 2025.
Gina Boswell: Our strategy is working and we're beginning to see results. We are laser focused on achieving sustainable, long-term, profitable growth and creating value for our customers and shareholders.
Speaker Change: You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys to allow for as many questions as possible. We ask that you each keep to one question and one follow up thank you.
Mike <unk>: Our first question comes from the line of Mike <unk> with Wells Fargo. Please proceed with your question.
Mike: Hi, good morning, everyone.
Mike <unk>: Gino I guess I wanted to ask so building on the improvements exiting last year.
Mike <unk>: It sounds like Youre excited about loving what are you. Most excited about as you look through 2025, and then maybe just regarding the <unk> trend.
Mike <unk>: A lot of buzz around Disney can you give us any color on the Disney collaboration any kpis you could share would be great. Thank you.
Mike <unk>: Thank you and good morning, Ike great to hear from you.
Mike <unk>: Youre absolutely right I think just stepping back we're pleased with our Q4 performance, especially when you consider the calendar shifts that sequentially every quarter of 2024 has improved so that speaks to the momentum that it's exciting it's great to close out the year.
Mike <unk>: And being able to build that as well as delivering sales and earnings that exceed.
Mike <unk>: But I'm, even more excited about our innovation pipeline.
Mike <unk>: Underpinned, obviously by our fragrance leadership in our authority and that's not just true of the core it's the core and more as I like to say, so I am excited by innovation around the core and the adjacent categories that we speak to.
Mike <unk>: And I am pleased with how we started Q1 I think to your point the Disney Co lab.
Mike <unk>: Encourage everybody on the call to go into the stores because I think what Youll see is it's driving customer excitement.
Mike <unk>: That's what happens when you see this reaction to exceptional product and storytelling brought to life I think that is what Bath <unk> body works does best better than anyone and I think if we continue that with the product and the experience and the marketing that we've been talking about are really confident that our portfolio is positioned for <unk>.
Mike <unk>: Growth in 2025.
Mike <unk>: Thank you next question please.
Speaker Change: Thank you. Our next question comes from the line of Matthew Boss with Jpmorgan. Please proceed with your question.
Matthew Boss: Great Thanks, and congrats on a nice quarter.
Mike <unk>: <unk>.
So China, maybe could you speak to drivers of the underlying revenue growth and in particular, the traffic acceleration that you've seen in the last two quarters and just confidence may be on the sustainability of this revenue inflection if you could elaborate on first quarter performance, maybe what you've seen so far.
Mike <unk>: And just tying a bit on the product pipeline for 2005.
Mike <unk>: Then just I guess, maybe high level what level of revenue growth is required to drive operating margin expansion from high teens today.
Mike <unk>: So if you could start with the last part and then I'll pick up the first sure sure. So in terms of in terms of driving leverage out I would say there hasnt really been a change in our algorithm requires on the <unk> line about 2% to 3% of sales growth and on the SG&A line two five.
Mike <unk>: To three 5% percent sales growth.
Mike <unk>: And I would say in terms of the traffic acceleration, we have a number of ways to drive traffic.
Mike <unk>: We certainly have the things that we just spoke about which is a very powerful co labs, where you really powerful.
Mike <unk>: Powerful brand connections like Disney, but frankly, we saw Emily in Paris, we saw.
Mike <unk>: Previously Stranger things I think this is our fifth major co lab, but it's the sustainability of it is really that three legged stool that we speak about the the product has to be compelling on trend and I was really pleased with how we delivered in the holiday against that and.
Mike <unk>: And certainly the marketing I mean.
Mike <unk>: Again Disney as an example, but when we hit virality and we have organic talking to US. We know we're meeting pretty much across the board all the customer cohorts to get them to come into the stores or to come online and then technology. We're moving now with the loyalty in its third year some of the personalization.
Mike <unk>: <unk> and things that we can do to trigger to make sure that we're meeting the customers where they are at and getting them excited about some of the traffic and think about early access that's traffic acceleration as well. So these we believe I believe are certainly sustainable and Thats, where my confidence is coming from for the growth in 2025.
Speaker Change: I'll come back to your to your first quarter question and how the quarter started let's say, we're pleased with how the quarter started you heard Gina talk about Disney and we have two months ahead of us, but we're pleased with how it started and we know our customers respond to innovation and where we're super excited what we.
Speaker Change: Have to offer as we progress throughout the year.
Speaker Change: Thank you next.
Speaker Change: Next question please.
Speaker Change: Thank you. Our next question comes from the line of Lorraine Hutchinson with Bank of America. Please proceed with your question.
Lorraine Hutchinson: Thank you good morning, I wanted to gain a better understanding of your full year sales guidance. There's a lot happening candles are less of a pressure adjacencies and collaborations are working internationals returning to growth I guess I was just curious why you base your guidance on prior trends are there offsets we're not thinking about or is this a bar that you hoped.
Speaker Change: To beat.
Lorraine Hutchinson: Yes, good morning, Lorraine, it's Eva.
Lorraine Hutchinson: Overall, we always look to deliver or beat our expectations. We're very focused on that and I think you know as you think about the assumptions underlying our our outlook right like you said at the midpoint. It assumes consistent trends with what we delivered in Q4, which has been an acceleration.
Lorraine Hutchinson: We're assuming that there are no material changes to our promotional levels and we have not assumed any improvement in the macro or consumer or consumer sentiment and you know theres a lot of noise out there on that front at the high.
Lorraine Hutchinson: Sales trends would accelerate driven by the innovation that we're bringing potentially some.
Lorraine Hutchinson: Macro tailwind or improvement in consumer sentiment and we're excited about about the newness right, whether it's Disney that Chinas spoke about later, we'll have the candle restage. So a lot a lot going on here and we.
Lorraine Hutchinson: We will look to to deliver or exceed our expectation.
Lorraine Hutchinson: And I'll add that we always have an agile model so.
Lorraine Hutchinson: If we can start to.
Lorraine Hutchinson: Really catch the momentum further we have an ability with our supply chain to meet that momentum.
Lorraine Hutchinson: Thank you next question.
Lorraine Hutchinson: Okay.
Speaker Change: Thank you. Our next question comes from the line of Kate Mcshane with Goldman Sachs. Please proceed with your question.
Speaker Change: Hi, good morning, Thanks for taking our question we wondered if you could talk to any more detail around the winter semiannual sale and how it trended versus the summer semiannual sale in last year and just how you think collapse will play a role and maybe reducing some emphasis on the semiannual sale in the quarters that you run it.
Speaker Change: Great. Thank you nice to hear communicate I would say on the semiannual sale.
Speaker Change: It was generally the January annual sales generally in line with our expectations. We did have strength during the holidays and so our inventory levels, particularly those that were online where lean heading into SaaS. So that prospective sales, but we ended the year in a clean inventory position, which is of course, an important metric of SaaS as well.
Speaker Change: So we were pleased to deliver Q4 sales above the high end of our guidance. Some SaaS, we always look at the learnings in hindsight and we will be building that in.
Speaker Change: As we talked about in our last quarter into 2025 as it relates to the KOL labs.
Speaker Change: Co labs are as I said in my prepared remarks are really important and distinguishing differentiated storytelling opportunity that we have and they drive traffic and excitement as well so.
Speaker Change: Think that.
Speaker Change: Without speaking about Collabs that we're expecting in the future. They are contemplated in our guidance, we will have more to talk about it but when you have that level of.
Speaker Change: Traffic going in and sort of.
Speaker Change: Bitter scarcity, if I may add there is some level of scarcity too.
Speaker Change: That is a great approach to really pulsing not just with.
Speaker Change: Promotions and clearance and things like that with SaaS on coal labs actually serve to drive traffic conversion and an overall brand heat that we like.
Speaker Change: Thank you next question please.
Speaker Change: Thank you. Our next question comes from the line of Alex Greene with Morgan Stanley. Please proceed with your question.
Alex Greene: Thanks, all for taking the question congrats on a nice quarter just two for me.
Alex Greene: For Gino you highlighted a younger customer acquisition a lot today.
Alex Greene: Give any funds valve or the age of the car and customer how that's evolved over time any goals from a target perspective, and then Bert for Eva what does 2025 sales guidance assume as it relates to volume or units compared to EUR. Thanks a lot.
Speaker Change: Thank you Alex a great to hear from you I'll start on the younger customer.
Alex Greene: We actually one year and 40% of households, the average age of the current customers.
Alex Greene: Is probably not as meaningful and we were across the board, but you're absolutely right that the we think about younger customers as both an area of recent success and also continued opportunity and so I'd like to just breaks down into three areas about how we're evolving into what we're getting after first is their views of the brand right.
Alex Greene: <unk> is how we reach them and third are the products that we serve them. So if I just speak to that the brand perception. So we track the brand attributes quarterly and it has been gratifying to see that increasingly Bath <unk> body works is seen as a more youthful brand we noticed that they are taking notice of their.
Alex Greene: <unk> are more likely to come back and in part that's driven by horizon perceptions that we provide a high quality product right. If you think can also become a product in a second but everyday luxuries lifts et cetera.
Alex Greene: In terms of reach we're reaching them, where they are on social media on kick talked by and Influencers.
Speaker Change: And with increased cultural relevance, which is important to the younger customer and thanks to some of our messaging and our entre and messaging and our co labs thats been working as well and then finally products. We always talk about how lip is a playground for the younger customer and the fixture and how that lights up.
Speaker Change: But also everyday luxuries are resonating well and then finally importance of our re formulations in the past couple of years. This is also important not just to the younger customer but.
Speaker Change: The certainly speak to that as well so that's how we are.
Speaker Change: Seizing on this opportunity and I'm personally seeing them come into the stores and so it's really gratifying to see the progress. So I'll give you. The second yes, Alex on your on your question about how to think about volume versus versus price as I said.
Speaker Change: Our promotional activities, we're not assuming a step up in promotional activity. So I would think about our guidance being being volume led and will continue as we always do to be agile and adjust where the customer mindset is to to maximize both topline as well as margins that we can drive.
Speaker Change: Thank you.
Speaker Change: Next question please.
Thank you. Our next question comes from the line of Mark <unk> with Baird. Please proceed with your question.
Mark: Good morning, Thank you for taking my question.
Speaker Change: I wanted to drill down on international for a moment youre expecting that to return to growth. This year was hoping you could give a bit more color on what you expect the shape of the year to look like and then you flagged international as a headwind to gross margin in the first quarter.
Speaker Change: That's the case for the full year I know there is two different revenue streams, there with the wholesale sell in as well as the royalty so not sure. If Q1 is a good indicator there. Thank you.
Speaker Change: Yeah. Thanks for the thanks for the question Mark.
Speaker Change: So a couple of things overall, let me take the full year for straight and as we look forward. We expect system wide retail sales to continue to grow in market through market expansion as well as growth in our in our existing markets.
Speaker Change: On a net reported sales basis I would think about the full year growth not really having an impact on margin. It returns to growth in the mid single digit range ZIP code Q1 has an outsized impact on both topline and margin.
Speaker Change: Given.
Speaker Change: We expect double digit growth there given timing of shipments and the step down last year. So there's more noise in the in the first quarter, that's affecting the margin profile.
Speaker Change: Thank you next question please.
Speaker Change: Thank you. Our next question comes from the line of Paul Lajoie with Citi. Please proceed with your question.
Paul Lajoie: Hey, Thanks, guys.
Speaker Change: If you go back to your tariff comments.
Speaker Change: Can you just remind us what your large countries are in terms of exposure I know you've built in China, but.
Speaker Change: Nothing else at this point due to the uncertainties with just where is your exposure by country and then separately curious what you assume for the adjacent categories growth. This year with 10% when you add them all up this year, what do you think that number goes for 25.
Speaker Change: Yeah. Good morning, I'll take this is Eva I'll take the tariff question first.
Speaker Change: So of our over mix about 10% of our supply ish China.
Speaker Change: And we have included.
Speaker Change: That in our outlook and as you think about Canada and Mexico. They represent about 7% combined split split relatively evenly. So we're continuing to watch the market what is going on Canada, particularly given our our business there as well as our as.
Speaker Change: Well as our production.
Speaker Change: We will we're preparing to adapt to whatever market. We're in and we are working on mitigation strategies to help offset any potential future impact.
Speaker Change: And as it relates to the Adjacencies.
Speaker Change: Adjacencies as we talked about in our remarks in aggregate grew above shop and that was consistent with the first half of the year. So it's good to see that.
Speaker Change: And we're measuring performance not just in terms of the category growth, but also the instrumentality that they bring the new customer reach et cetera, we.
Speaker Change: We do expect that Adjacencies will become a larger percentage of our mix in 'twenty five and beyond and.
Speaker Change: What I like about Adjacencies and specifically, we're talking about men's which is the largest one here, but lift laundry hair.
Speaker Change: They they're large addressable markets and many of them.
Men's I would love that to graduate into from Adjacencies into future core and that is certainly the plan. So yes, the direction of travel is fire.
Speaker Change: And it's built into our guidance as well.
Speaker Change: Thank you next question please.
Speaker Change: Thank you. Our next question comes from the line of Cristina <unk> with Deutsche Bank. Please proceed with your question.
Cristina: Hi, good morning, and thanks for taking the question.
Speaker Change: I just wanted to touch on.
Speaker Change: Your level of newness that you have talked about obviously, an exciting pipeline that you have planned for us. So can you just sort of contextualize the level of product newness you have planned in 2025, you obviously talked about everyday luxury is expanding I think I heard body creams and washes, but obviously also have a much bigger start to collaborations in the year with the Disney law.
Speaker Change: You also talked about Kendall restage later, so how does the overall level of newness or just the product staging changes compared to what we saw in 2023. Thank you.
Speaker Change: Thank you for the question in 2023 well.
Speaker Change: First of all and newness in general is the lifeblood of the industry and certainly for Bath <unk> body works, where every bit is newness focused as we had been in the past couple of years and I think to your point, Steve mentioned many of them.
Speaker Change: We are developing more and more platforms from which newness is the sort of gift that keeps on giving so that notion of everyday luxury is on how we can really use our differentiated expertise in taking a single fragrance and putting across all the ancillary products is a strength and an asset that we lever.
Speaker Change: Yes, some of the co labs also bring it to life through through categories and honestly, we speak about some of the adjacent categories additional platforms that they represent we talked about lift and how we.
Speaker Change: Are going to be bringing additional lip products quarterly so how it compares is it we're leaning in in terms of.
Speaker Change: The percentage, but most importantly, the quality that we want to bring in the fact that it's on trend and meeting the broad cross section of customers that we serve and we're obviously existing customers know us for many of these but we're also obviously approaching new customers at different age ranges. So we're excited with what we have in store for 'twenty five.
Speaker Change: Thank you next question please.
Speaker Change: Thank you. Our next question comes from the line of Dana Telsey with Telsey Advisor Group. Please proceed with your question.
Dana Telsey: Hi, Good morning, everyone. As you think about the buildup of the loyalty program I think it grew 6%.
Dana Telsey: How are you thinking about that for 'twenty, five and beyond and the new customers, you're capturing any differentiation in their demographic profile and then Eva on cost savings how do you see the opportunities for cost savings going forward and is there any particular categories to be focused on thank you.
Dana Telsey: Thanks, Dana great to hear from you.
Dana Telsey: In terms of our loyalty program.
Dana Telsey: <unk>.
Dana Telsey: When we're thinking about not just the yogurt, we're pleased with the enrollment increase for sure. The fact that we grew 6% year over year.
Dana Telsey: And we're really pleased that as.
Dana Telsey: Our active member count continues to grow we get even better quality of the loyalty members. So the increased spend the trips the cross channel purchases all those sort of force multipliers were excited about and of course, the higher customer retention.
Dana Telsey: And we've got a lot of sort of enhancements planned for loyalty go forward and that I think will be exciting both two of the existing customers as well as the new customers.
Dana Telsey: We have noticed <unk>.
Dana Telsey: Improvement in the new customer trend and certainly an improvement in the existing customer and if you recall, we broke down customers and some sort of psychographic segments and all of 2024. It was great to see that the fragrance fashionista, which is sort of double the lifetime value of any of the other customers have grown every quarter.
Dana Telsey: So we're I think hitting the mark on both existing customers and new customer improvements over that and that is a credit to loyalty, but as well as our marketing message our stellar product not to mention our fantastic experiences in store.
Speaker Change: So I will hand, it to EBIT for your cost savings sure. Thanks for the question Dana and good morning.
Speaker Change: Overall, we were extremely pleased with what we've delivered over the past two years $300 million of incremental savings between 'twenty, three and 'twenty four and we see this now is embedded in our DNA and how we're managing the overall P&L.
Speaker Change: We will continue to mind for opportunities right, we are value engineering programs with our product going on.
Speaker Change: Certainly.
Speaker Change: How we work eliminating the non value piece, what we won't affect our things that will affect our our topline that our experience in the stores right, we want to maintain that that.
Speaker Change: Great customer experience that we have so we will continue to look for efficiencies and we will have more to come.
Speaker Change: Thank you next question please.
Speaker Change: Thank you. Our next question comes from the line of Olivia Tong with Raymond James. Please proceed with your question.
Olivia Tong: Great. Thanks, Good morning, one short term and then one on margins first on their short term.
Speaker Change: The midpoint of your Q1 guide suggests that.
Speaker Change: This Q1 growth similar to Q4 normalizing for timing, we've heard obviously a number of companies talking about pretty tough January because of the weather and other external factors. So wondering if you saw that as well and if so what's driving the improvement. Since then to result in a recovery to offset tougher January for the rest of the.
Speaker Change:
Speaker Change: Quarter, and then on margins for fiscal 'twenty five.
Speaker Change: You mentioned that Youre looking for flattish margins, but obviously, there's a lot of lot of puts and takes in the middle before you get back to flat. So can you talk about some of those as well as the margin impact of the tariffs.
Embedded into your outlook. Thank you.
Speaker Change: Yeah. Thanks, Thanks for that let me start with your with your Q1 in January.
Speaker Change:
Speaker Change: We did see we won in Q4 in November December and the holiday period. As we said previously January was a bit a bit lighter, but we were in line with with external markets.
Speaker Change: We win on our newness and our innovation and I'll say again, we're pleased with how we started the quarter we saw.
Speaker Change: We'll have an important two months ahead as we build towards mother's day.
Speaker Change: And Easter, but we're pleased with how the quarter started and will continue to focus and execute to deliver on the outlook we provided today.
Speaker Change: On gross margins.
Speaker Change: For for the year.
Speaker Change: Overall I would say we're.
Speaker Change: We're getting the benefit of wrath of our cost reduction initiatives that we drove last year.
Speaker Change: No I would think about is largely largely flattish from from a leverage perspective and.
Speaker Change: Terrorists, it's a pretty de Minimis impact as we've baked in as we've baked in China, only and we have some pressure on merch margin given mix of our product and some of the newness that we're bringing in as we've said.
Speaker Change: Those products tend to start at lower margins and as we scale margin improves. So overall, we're pleased with the outlook that we provided.
Speaker Change: Thank you next question please.
Speaker Change: Thank you. Our next question comes from the line of Jay sole with UBS. Please proceed with your question.
Speaker Change: Hi, this is not only culture on for Jay. Thanks, So much for taking our question.
Speaker Change: I wanted to ask about free with the recent moves lower in Ocean freight rates do you expect freight to be a tailwind to margins this year and what type of impact you have incorporated in the guide. Thank you.
Speaker Change: Hey, Thanks for the question I would say from Ocean freight, it's really not a material impact for us.
Speaker Change: A big driver of our overall savings we've driven over the last two years has been in the transportation and move and move areas, but but on the ocean and freight I wouldn't it's not material.
Speaker Change: Thank you next question please.
Speaker Change: Thank you. Our next question comes from the line of Korean Wolf Meyer with Piper Sandler. Please proceed with your question.
Speaker Change: Good morning, Thanks for taking the question I'd like to dive a little bit deeper into the SG&A guidance for the year.
Speaker Change: It looks like it's roughly going to be about flat as a percent of sales can you give us any context on.
Speaker Change: Where we could see some more leverage and what could drive some more leverage over the course of the year, where there might be some upside and then how to think about the cadence of that spend over the course of the year. Thank you.
Speaker Change: Yeah. Thanks for the question.
Speaker Change: Overall from a leverage point on SG&A, you would expect to see two and a half to three 5%.
Speaker Change: Top line sales growth two to leverage SG&A.
As you look at our outlook on the SG&A front, we have increased our investment in technology and 25 versus 24, it's more back half weighted and that's as we continue to on our modernization Tech journey multi year initiative that that we have.
Speaker Change: Okay. Next question. Please thank you.
Speaker Change: Thank you. Our next question comes from the line of Ashley Hogan with Jefferies. Please proceed with your question.
Ashley Hogan: Hey, Thanks for taking my question I'm curious if you could talk a little bit more about the underlying expectations for the fragrance industry. As we're just starting to hear from some other other companies that the category is normalizing a bit thanks.
Speaker Change: Thank you for the question.
Speaker Change: We being the fragrance leader in some of these categories.
Speaker Change: Obviously monitor a bit more in the rearview mirror in terms of how how it's showing up and it has been pretty buoyant. So I can't speak for.
Speaker Change: For others, but what we have been seeing is that especially in some of our customers. It continues to be a very sort of transport in place right.
Speaker Change: One of the things I like about it is <unk>.
Speaker Change: Correctly line.
Speaker Change: Lined up with your neural pathways and so the consumer sentiment.
It's a place where I think from an industry perspective, theres a lot to like about this industry across different channels for we sit we are at the center of mass and prestige and I think that is uniquely positioned to really being able to meet a broad set of customers that really want a bit of fragrance and thats why.
I'll just say on the on the Disney Co Lab, you can go to a park and you can go to all these other things are you can have a little piece of Disney and your life from a fragrance point of view so I'm.
Speaker Change: I think the industry is a fantastic place to be and as a leader.
Speaker Change: This portfolio as well so thank you for the question.
Speaker Change: Thank you next week.
Speaker Change: And our final question comes from the line of Marni Shapiro with the retail tracker. Please proceed with your question.
Speaker Change: Hi, Thanks for taking my question.
Speaker Change: Two quick ones first is I'm curious if you can talk a little bit about some subscription.
Speaker Change: Have you had people enroll what this looks like what you think it can be over time and I'm.
Speaker Change: The 25% off is easily recouped because those customers are not going to get say the buy three get three promotions fell just been a regular cadence easier to model I'm guessing for you and then my second question is just a simple one.
Speaker Change: I'm, sorry, but I have to know what should see Christmas or selling the best.
Speaker Change: [laughter] Oh, let's.
Speaker Change: Let's see if we can share I know you may not get the best but you get our favorites. Okay. That's funded under sense friction you know obviously this is designed to.
Speaker Change: Two really.
Speaker Change: Address the Replenishable nature of our fragrances and so it's small today.
Speaker Change: But it is growing.
Speaker Change: And I think I don't have the exact what it could be as a percent over time and you're absolutely right on the 25%. This notion that is very convenient right to be able to get this.
Speaker Change: So there is a level of stickiness, we had a version of subscription before we renamed it and we actually had a broader assortment than it had been wallflowers right because and the idea. There was some people don't always remember that the wallflower bolt is actually running dry actually now we've broadened the assortment, including things like laundry right.
Speaker Change: Our more replenishable as well and we really like what we see with respect to the growth but it is.
Speaker Change: Early days on friction.
Speaker Change: Which princess selling the best and we're only early days without too early 10 days than I can tell you I went last night and in my local store and my personal preference Tiana was knocking it out of the park.
Speaker Change: Hope you enjoy one of the six so thank you. Thank you for that question believe US are alright that concludes our Q&A. 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 <unk> body works.
Speaker Change: Okay.
Speaker Change: Thank you. This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.