Q1 2025 Bath & Body Works Inc Earnings Call

Okay.

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

Melissa: At this time I'd like to welcome everyone to the Bath and body works first quarter 2025 earnings conference call.

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

Melissa: During the question and answer portion you May ask a question from the phone by pressing star one.

Luc long: I'll now turn the call over to Luc long Vice President of Investor Relations. Luke you may begin.

Speaker Change: Good morning, and welcome to Bath <unk> body works first quarter 2025 earnings conference call.

Daniel: Joining me on the call today are Daniel <unk>, Chief Executive Officer, and <unk> Chief Financial Officer.

Speaker Change: In addition to this call in this morning's press release, we have posted a slide presentation on our website that summarizes the information in these prepared remarks.

Speaker Change: <unk>, providing some related facts and figures regarding our operating performance and guidance.

Speaker Change: As a reminder, some of the comments today may include forward looking statements related to future events and expectations for.

Speaker Change: For factors that could cause the actual results to differ materially from these forward looking statements. Please refer to the risk factors and Bath <unk> body works 2024 Form 10-K.

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

Daniel: With that I'll turn the call over to Daniel.

Daniel: Hello, everyone and thank you for joining us I'm excited to be with you today for my first Boston <unk> earnings call.

Daniel: I want to begin by thanking the board for their trust and confidence in me I'd also like to thank Eva and the leadership team and the thousands of associates, who have warmly welcomed me over the last few days.

Daniel: It is truly a privilege to lead a brand at beloved at Bath <unk> body work.

Daniel: One that has an incredibly strong foundation and has a meaningful play in homes and in our customers' daily lives.

Daniel: With more than 50000 dedicated associates working in our 1900 vibrant North American stores.

Daniel: <unk> integrated predominantly U S based supply chain and our loyalty program with approximately 39 million members.

Daniel: We are well positioned for growth.

Daniel: But today as consumers are dynamic we must meet them, where they are positioning ourselves as the leading global brand and home fragrance and beauty.

Daniel: With this backdrop, we see a clear opportunity to transform Falcon body work to accelerate our growth.

Daniel: Our customer connection and continue evolving for the future.

Daniel: In my first 10 days I have been incredibly energized by what I've seen.

Daniel: Our customers are passionate and loyal many of our highly engaged customers shop with us 10 or more times a year.

Daniel: And our strong innovation ensures that we always have something new for them.

Daniel: That is an extraordinary strength.

Daniel: We also have a significant opportunity to grow the brand by attracting new consumers, especially younger audiences and met.

Daniel: When I joined I spoke to many of you about my philosophy.

Daniel: We will accelerate growth by putting the consumer at the center of everything we do.

Daniel: We will execute that philosophy by listening to our consumers to capa inside you.

Daniel: Using those insights to create innovative and coveted product.

Daniel: Turning bold and emotional brand and product story.

Daniel: And bringing it all to life in an integrated and elevated omnichannel marketplace globally.

Daniel: And the good news this philosophy is already in motion here at Boston bodywork, our Disney collaboration and everyday luxury are great. Examples of what happened when we listen to our customers build composite product tell emotional story and deliberate all seamlessly across all our channels.

Daniel: But there is an opportunity to execute that philosophy more consistently and with greater focus to connect more intensely with consumers across multiple touch points.

Daniel: And to be less reliant on promotions to drive growth.

Daniel: Over the next few months.

Daniel: I'll work closely with the leadership team to identify the short and medium term lever, we can pull to deliver quick wins and define our long term strategy, which we will communicate in the coming quarters.

Daniel: Some of the levers we are exploring all digital.

Daniel: There is an opportunity with our current site to better deliver what customers expect enhanced functionality improved aesthetics and a compelling storytelling is the standard that consumers expect.

Daniel: There was a fast path to improvement that boost conversion brand equity and engagement.

Daniel: Second packaging and labeling.

Daniel: We've made real strides in formula quality, but our packaging doesn't emphasize it we can.

Daniel: Can do more to signal better for you ingredient, especially to health conscious and younger consumers.

Daniel: Okay.

Daniel: Thirdly distribution too.

Daniel: To attract consumers to attract new consumers, we must be in that call.

Daniel: That means exploring new forms of distribution beyond our own channels strategically and thoughtfully.

Daniel: And finally international expansion.

Speaker Change: Today International represents about 5% of our business, but from my experience at both Nike and Burberry I know the international growth is an incremental it can define an error in the coming weeks I'll be on the ground with our partners and customers internationally to explore how we scale effectively.

Speaker Change: As I mentioned, we will be sharing a clear strategy in the coming quarters.

Speaker Change: One that puts the consumer at the center and commit to fewer bolder priority.

Speaker Change: Our strategy will address opportunities to accelerate growth through consistent repeatable and Europe will drive it.

Eva: Now I'll turn it over to Eva.

Eva: Thank you Daniel and good morning, everyone last week, we welcome Daniel and our Townhall with associates from across the comfortable Daniel shared his consumer centric philosophy, his personal journey and engage directly with associates across the company the energy level here at BBW is high and associate.

Eva: They're eager to accelerate growth under his leadership.

Eva: I look forward to partnering with Daniel and the rest of the leadership team as we plan for Bath, <unk> skincare and work to unlock value.

Eva: With that let's turn to acquire I'll begin with a high level summary of our first quarter results and key business drivers.

Eva: Then share more detail on our Q1 financial performance and provide an update on our Q2 and fiscal year 2025 guidance building on the preliminary results we shared last Monday.

Eva: As shared last week, we delivered another strong quarter with net sales up 3% coming in at the high end of our guidance range and earnings per diluted share of <unk> 49.

Eva: Exceeding the high end of our range amid a challenging macro backdrop, we remain disciplined and decisive in our actions and our Q1 performance is evidence of that.

Eva: As a reminder, we have been focused on three priority areas.

Eva: First accelerating top line growth across our core while also extending our reach through Adjacencies and international expansion.

Eva: Second enhancing operational excellence and efficiency through cost discipline and continuous improvement mindset, which is particularly critical in this current environment.

Eva: Third consistently deploying our strong cash flow to invest in growth opportunities and return value to shareholders through dividends and share repurchases.

Eva: Let's take a closer look at our top line performance and key growth drivers in the quarter in.

Eva: In the first quarter, we delivered our strongest underlying sales growth since 2021, and we drove positive dual channel traffic exceeding third party benchmarks we track.

Eva: We brought innovation again, this quarter, giving customers a reason to visit our stores and reinforcing our industry leadership.

Eva: Customers have always trusted us for our high quality products at accessible price points.

Eva: And even in this environment. They continue to have a strong appetite for compelling units in Q1 consumer excitement around fragrance innovation drove growth across all three core categories.

Eva: Our Disney collaboration was an undeniable success and exceeded our expectations customers lined up outside our stores to be the first to purchase one of our six Disney Princess Fragrances. This was our largest co lab today featuring 85 Skus.

Eva: Cross category.

Eva: Consumers also actively engaged with us online driving a record $1 8 billion impressions.

Eva: Consumers also responded positively to our thoughtful gift assortments in the quarter as they celebrated meaningful amendments during Valentine's day, Easter and start to mother's day proving that gifting isn't just a Q4 driver.

Eva: Moving to our performance across our key categories in the quarter.

Eva: Finally care grew low single digits driven by success in our Disney Princess line strength in everyday luxury and our single fragrance launch Sweetest song, we expanded our everyday luxury line to body cream and body wash in the quarter, creating new.

Eva: New fragrance layering opportunities for our customers.

Eva: Home fragrance grew low single digits, driven by our single week candles, Wallflowers and hold sprays as consumers sought to diverse.

Eva: And elevate ways to infuse their spaces with fragrance.

Eva: So since Sanitizers grew mid single digits, driven by our convenient on the go assortment, including our one ounce sanitizer spray and pocket back.

Eva: Our innovation and collaboration pipeline is strong and we're excited about the fragrance experiences, we're bringing to customers. This summer, including our cross category coast to coast collection inspired by iconic coastal destinations.

Eva: We've launched entre and fragrances like off the vine and we brought back our true Blue Spa collection due to strong demand from our customers. This is one of the most customer requested collections.

Eva: We're also relaunching some of our original fragrances with updated efficacious formulas that are made without sulfates parabens validate and artificial dyes.

Eva: Beyond product innovation, we continue to improve our customer experience both in store and online.

Eva: We are building on the success of our brick and mortar strategy with the introduction of new in store innovations.

Eva: Our newer stores feature elevated design, a more open layout interactive fragrance bars, and integrated technology, creating a more immersive elevated and seamless shopping experience, which meets the expectations of today's consumer.

Eva: Our talented store design team has cost engineer the new stores to match the build cost of our traditional model, achieving similar payback periods and driving higher sales.

Eva: Our loyalty program is performing well and driving increased spend trip frequency cross channel purchases and retention in Q1, we had approximately 39 million active loyalty customers up 4% compared to the prior year.

Eva: We are now in the third year following the full U S rollout of the loyalty program and we continue to make enhancements to elevate the customers' experience. Most recently, we increased our loyalty reward redemption options, giving members greater access to our most loved.

Eva: Body care business, which we expect will drive higher engagement and redemption.

Eva: With our large loyalty base in place the greatest opportunity now lies in deepening engagement and increasing value from existing members.

Eva: Increasing reward redemption drives higher trip frequency stronger sales and deeper brand engagement, we see an opportunity to grow sales with our most loyal customers, while also increasing loyalty among more casual shoppers.

Eva: Finally, we extended our reach this quarter through adjacent category growth.

Eva: Our adjacent categories mens lip care and laundry continued to represent approximately 10% of total sales.

Eva: Our mens category, which is included in body care remains a compelling avenue to expand our customer base and we are also hyper focused on increasing awareness.

Eva: To increase visibility and engagement for our men's assortment, we're elevating father's day this year with an enhanced marketing strategy store positioning and an expanded product lineup, including a new mens single fragrance launch in an exclusive pearl.

Eva: <unk> with purchased set this.

Eva: This builds on insights from the 2020 for holiday season, where we saw strong results from our first men's purchase with purchase offer.

Eva: International expansion remains an important pillar of our long term strategy as Daniel mentioned earlier with significant opportunity for long term growth.

Eva: International retail sales grew approximately 10% this quarter.

Eva: Turning to margins, we remain steadfast in our disciplined approach to cost management, leveraging a continuous improvement mindset and operational efficiencies to drive sustained financial strength.

Eva: Our predominantly U S based supply chain is a source of competitive advantage, allowing us to respond quickly and remain agile as the landscape evolves, while our exposure in China is limited to approximately 10% of global spend we are taking proactive measures to mitigate global trade.

Eva: Policy shifts and offset our tariff exposure over time.

Eva: Now I will transition to details on our financial performance and guidance. We delivered net sales of $1 4 billion up two 9% to the prior year at the high end of our guidance range again, our strongest underlying sales performance since 2021 fuel fire.

Eva: Disney collaboration in U S and Canadian stores net sales totaled $1 1 billion, an increase of four 3% versus the prior year.

Eva: Direct net sales were $250 million a.

Eva: A decrease of four 3% compared to last year. However, when adjusted for buy online pickup in store, which is reported as store sales direct outperformed stores.

Eva: Focused demand increased by 29% in the quarter versus last year and represented approximately 30% of total digital demand.

Eva: International which represents approximately 5% of total net sales generated $64 million of net sales in the first quarter, an increase of 10, 1% versus the prior year due to timing of ship sales and was in line with expectations.

Eva: Our first quarter gross profit rate of 45, 4% exceeded expectations and increased 160 basis points compared to the prior year.

Eva: Gross profit rate expansion versus the prior year was driven by 100 basis point improvement in merchandise margin, primarily driven by low single digit mix. Adjusted AUR increases, we also drove favorable buying and occupancy leverage due to net sales growth. This.

Eva: Quarter <unk> expenses were flat.

Eva: SG&A as a percentage of net sales was 37% slightly higher than our expectations, primarily driven by incremental investments in marketing and store associate training.

Eva: First quarter operating income was 209 million 14, 7% of net sales an improvement of 120 basis points versus prior year.

Eva: With respect to inventory we ended the first quarter with total inventory up 7% to prior year.

Eva: This was slightly above our initial plan due to tariffs on purchases as well as strategic pull forward to help mitigate tariff impacts.

Eva: However, our underlying inventory levels remain healthy.

Eva: Turning to real estate, our portfolio remains healthy with 57% of our fleet in off mall locations in the first quarter. We opened 13, new North American stores, all in off mall locations and permanently closed eight stores all in malls.

Eva: <unk>.

Eva: Internationally, our partners opened 14, new stores and COVID-19 stores during the quarter and we ended the quarter with 524 stores.

Eva: Net closures in the first quarter were planned and were predominantly in low performing stores in the middle East.

Eva: Our international expansion plans for 2025 remain on track with at least 30 planned net new store openings.

Eva: Turning now to our 2025 financial guidance, our full year and second quarter guidance includes the anticipated impact of all tariff rates currently in effect and levied by the U S government and other countries and excludes the anticipated financial impact of this.

Eva: CEO transition.

Eva: For the full year 2025, we are maintaining both our net sales guidance of 1% to 3% growth and our earnings per share guidance range of $3 25 to $3 60.

Eva: Building on our Q1 outperformance our current projections of the business proactive tariff mitigation strategies and our strong predominantly U S supply chain. We believe we are well positioned to absorb the tariffs at current levels.

Eva: If there are material changes in future tariffs, we will revisit our guidance for the full year you can find additional commentary on the details of our guidance in our slide presentation.

Eva: Turning now to the second quarter, we expect Q2 net sales of flat to 2% growth to prior year, reflecting the current trends in our business and we are lapping some accounting items in the prior year largely loyalty.

Eva: We expect Q2 systemwide international retail sales to be up high single digits with reported net sales decline of mid single digits due to ship sales timing in Q1 this year.

Eva: We expect second quarter gross profit rate to be approximately 41% flat to prior year, including the impact of tariffs, we expect our second quarter SG&A rate to be approximately 30%, reflecting wage rate inflation and investments in technology.

Eva: Our second quarter outlook includes net non operating expense of approximately $65 million and a tax rate of approximately 29%.

Eva: And weighted average diluted shares outstanding of approximately $212 million.

Eva: Considering these inputs we are forecasting second quarter earnings per diluted share of 33 to 38.

Eva: We expect inventory to remain elevated in the first half up about 10%.

Eva: This above this is above our initial expectations due to tariffs related cost impacting inventory as a reminder, first half inventory levels reflect additional holiday related inventory builds to support our growth goals.

Eva: Now for a quick update on capital allocation, we are strong cash flow generating business, our top priority remains driving sustainable long term profitable growth through strategic investments in the business to support. This we continue to plan capital expenditures of 250.

Eva: To $270 million during the year with a focus on real estate and technology in the first quarter, our total capital expenditures were $37 million.

Eva: Our full year free cash flow expectations remain in the range of $750 to $850 million and reflects working capital improvements driven by our fuel for growth initiatives in Q1, we returned $43 million to shareholders through dividend and.

Eva: We repurchased four 3 million shares of common stock for $135 million at an average price of $31 24 per share.

Eva: We continue to assume $300 million in share repurchases for the year, though as we've demonstrated we will be opportunistic our business generates strong key free cash flow and we view our shares in an attractive investment at current levels.

Eva: In summary, I'm proud of our Q1 performance and energized by the opportunity to accelerate our growth in the future our agile business model positions us well to compete effectively in today's dynamic environment. The teams continue to execute with discipline focusing on what we can.

Eva: Troll and we're excited about the strength of our innovative pipeline for the second half of the year I would like to extend my gratitude to our teams across the company for their hard work and strong execution now, let's open it up for Q&A.

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

Eva: 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.

Eva: To allow for as many questions as possible, we ask that you each keep to one question and one follow up thank you.

Eva: Our first question comes from the line of Simeon Siegel with BMO capital markets. Please proceed with your question.

Simeon Siegel: Good morning, Hi, everyone Danielle welcome to the company and the wonderful World of Analyst Q&A.

Simeon Siegel: Maybe to start could you share a bit more about what brought you to bath and body works a bit different than your prior company. I know you are literally just started but this was very encouraging quarter. So perhaps any early look do you have it what you think is going right versus any high level areas of opportunity that youre excited by and then Eva obviously, great to see the return to this level of growth can you just.

Simeon Siegel: Elaborate a little bit more on the go forward topline commentary, maybe just specifically you mentioned current trends within the guide.

Simeon Siegel: Collaborate.

Simeon Siegel: Elaborate there sorry, and then on just the loyalty account to comment thanks, guys.

Speaker Change: Good morning, everyone and thank you Simeon.

Speaker Change: Right to be on this call. Let me break that question down a little bit. So firstly, let me talk about what attracted me to bulk and body work and as you can tell from the accident.

Simeon Siegel: Having grown up in.

Simeon Siegel: The brand in the way that many of our consumers have but as I went through the selection process with the board I really really research the company and I Love what I discovered.

Simeon Siegel: Let me, let me first speak from the heart I believe that the best business did connect product with purpose.

Simeon Siegel: From <unk>, we empower all consumers to express themselves, whether that through self care or home or beauty, we bring the power of fragrant into People's lives and helping them feel more confident more joyful and more authentically themselves.

Simeon Siegel: That's a meaningful mission and it's one I'm really really proud to be a portal.

Simeon Siegel: And then the emotional connection is matched by the strength of our business.

Simeon Siegel: This is what I found when I really dug into the company 1900, North American stores $39 million also loyalty members are passionate and knowledgeable team of 50000 store associates.

Simeon Siegel: On a vertically integrated domestic supply chain and that is an amazing foundation to accelerate growth by reaching new consumers elevating our product experience is telling compelling brand stories and doing that in new ways.

Simeon Siegel: I know I don't when it comes to like whats going right.

Simeon Siegel: Obviously, it's a quality quarter.

Simeon Siegel: It's great to see the growth, but what I find really encouraging is that my philosophy for growth, which is about putting the consumer at the center, making sure that we listened to those insights we create coveted on innovative products that meet those needs that we tell bold brand and emotional product.

Simeon Siegel: Stories, and we bring it to life in an omnichannel integrated marketplace globally, I can see where that is working here as I said in my opening remarks Disney is a good example of where that works, but I do see opportunity to do that more consistently more frequently and more focused.

Simeon Siegel: On bringing new consumers to the sticky platform that we've built.

Speaker Change: Great and good morning, Simeon Thanks for the question. So in terms of the drivers of sales go forward. Let me start with Q1, we were really pleased with the 3% growth that we drove while also expanding margins and is as you dissect Q1 does.

Speaker Change: <unk> was the key driver of the quarter and I would say the balance of the quarter really perform more consistently with the growth. We were seeing in Q4. So besides squeezing other products that stood out was AGL, particularly for women and our gifting that grew double.

Speaker Change: Digits, so as we enter Q2.

Speaker Change: We're entering in those in those trends of floor. The Q4 as we exited Q1 Q2 was also our lowest quarter of innovation given the prominence of of SaaS, but we're confident in the outlook in Q2, we're going to amplify.

Speaker Change: Further stay we've created space in the quarter to really amplify reposition it in the shop enhanced marketing we're focused on SaaS execution. As you know last year, we had some challenges and we also have the startup Halloween. So we feel good about the outlook that we provided.

Simeon Siegel: For Q2, and overall for the year, maybe just jumping as Youll look at the back half. We also continue to have innovation Halloween and port <unk>.

Simeon Siegel: Our 10-Q, two but also continues into Q3, we're launching an elevated ceramic candle and we have more co labs coming in in the back half of the year. So theres plenty of innovation that gives us confidence in really maintaining our top line of 1% to 3% growth for the year.

Speaker Change: Thank you. Our next question comes from the line of Matthew Boss with Jpmorgan. Please proceed with your question.

Speaker Change: Mr. <unk> your line is live.

Speaker Change: Great Thanks, and welcome Daniel.

Speaker Change: So maybe Daniel with your clear focus on accelerating growth could you walk through the building blocks of opportunity relative to the Companys recent return to low single digit growth, maybe just areas you see for market share opportunity and any investments that you see required to accomplish your plan.

Matt: Hi, Matt Thanks for the question.

Matt: I'm going to start with the <unk>.

Speaker Change: Caveat that it's still early days on 10 days in and my focus right now is continuing to listen and learn.

Speaker Change: Frankly, I don't know what I don't know yet I am listening to the leadership team listening to our employees our store associates of course listening to our consumers and you our investors.

Speaker Change: As I said in my opening remarks, we will come back and share a clear strategy in the coming quarters and that strategy will have some key component.

Speaker Change: We will be guided by a clear and compelling vision.

Speaker Change: It will put the consumer at the center of everything that we do.

Speaker Change: We will focus on fewer bolder priorities, and we will target opportunities to accelerate the growth through consistent and repeatable growth drivers.

Speaker Change: We will provide a clear roadmap on consistent Kpis. So you can track our progress and we can hold ourselves accountable for that growth in.

Speaker Change: In my opening remarks, I mentioned, a few things that went well.

Speaker Change: We're getting underway now.

Speaker Change: We're not sitting around and waiting to pine on strategy and then start work there are clear opportunities as far as I see them in the short and medium term, our digital refresh packaging and labeling alternative distribution and international so.

Speaker Change: I think thats, all im going to stay really about our strategy at this point and then to your second point on financials.

Speaker Change: The investments required to accomplish the plan.

Speaker Change: I am Super aware that a successful consumer good companies need to grow the top and the bottom line simultaneously, it's not an either or.

Speaker Change: As I said.

Speaker Change: We're going to be doing fewer things so edit to amplify is important less breadth more that fewer priorities and so I'll know.

Speaker Change: Asking.

Speaker Change: For more investment and making sure that the investment that we have today is aimed at the greatest opportunities to drive growth.

Speaker Change: And if I could just add Daniel good morning that we're always looking for efficiencies to offset new investment areas. I think we've done that over the last couple of years with our fuel for growth program and where we're diligent about that and just to give you. An example during Q1, we exited one of our third party.

Speaker Change: <unk> fulfillment centers, we expect this can drive two improvements one improve cost that's reflected in the outlook, we provided today as well as improve customer satisfaction. So we're going to consistently mine for four of those areas to help offset investments.

Speaker Change: That's great color best of luck.

Speaker Change: Thank you. Our next question comes from Lorraine Hutchinson with Bank of America. Please proceed with your question.

Lorraine Hutchinson: Thank you good morning.

Lorraine Hutchinson: Daniel It sounds like one of the first things you can impacted marketing can you talk about plans there and then over the longer term I was just curious to hear about any early work you've done on the potential to accelerate growth globally and also what those new forms of distribution beyond your own channels might look like.

Lorraine Hutchinson: Thank you.

Speaker Change: Hi, and thanks for the question.

Lorraine Hutchinson: When it comes to adjusting marketing I do think that the business has made progress in marketing.

Lorraine Hutchinson: As we mentioned traffic is up and exceeded benchmark in the first quarter, but I do believe that there is much much more we can do to connect emotionally with our consumers and we can do that online and offline in that part of the work that I mentioned in terms of the bits to refresh that getting underway now.

Lorraine Hutchinson: And I also believe our marketing has to be less about price and promotion, we need to give our consumers compelling stories and reasons to buy that are not linked to price.

Lorraine Hutchinson: And then finally I do think that there is an opportunity to focus more of our marketing dollars on the innovation that we have and that we have coming.

Lorraine Hutchinson: We believe that we have made meaningful strides in improving the ingredients of our products and we have not taken advantage of that by telling that story in a compelling way consistently to our consumers and we know that that is something that's important to them.

Speaker Change: So the next part of your question really relating to international.

Speaker Change: I've said before I do see international as a significant opportunity.

Speaker Change: I'm still learning about the international business, what's working what's not working what are the impediments to accelerating growth and I am going to spend some time. This summer on the ground with our international partners with our international consumers really getting onto the first but I'm pretty sure that our strategy will pick.

Speaker Change: Our priority markets the areas, where we believe that the all the most the largest opportunities to accelerate growth and we must match that opportunity with the right business model, so more to come in that way, but it is something that.

Speaker Change: It's going to be spending a lot of time on in the coming months.

Speaker Change: And then finally on <unk>.

Speaker Change: Policy distribution.

Speaker Change: So you're going to hear me say this frequently.

Speaker Change: Put the consumer at the center of referencing that we do and consumers see our brands not channels I do believe one of the greatest opportunities that this company has is to plug in new consumers to our ecosystem and our new consumers.

Speaker Change: Not necessarily we don't necessarily in that Paul So, we'll think about this strategically and thoughtfully, but reaching new consumers through new platforms.

Speaker Change: It's definitely something that we're looking at right away.

Speaker Change: The next question.

Speaker Change: Our next question comes from the line of Alex Greene with Morgan Stanley. Please proceed with your question.

Alex Greene: Great. Thank you.

Speaker Change: Maybe first for Eva first.

Speaker Change: <unk> fragrance and body care grew low single digits in the fourth quarter and kind of kind of hovered in that range for a few quarters.

Speaker Change: What do you view as the right long term growth rates for those categories should they be better than low single digits or is this where things kind of hover and then secondly, just could you go through your plan for the semiannual sale, maybe just remind us the timeframe last year and walk through any change in approach year over year that you might be using thanks a lot.

Speaker Change: Sure. Good morning, Alex Thanks, I'll take your second question first around the semiannual sale as I said previously last year, we all know it didn't perform to our expectations. So we've taken some core learnings to drive stronger performance. This year first we're going to start semiannual sale a couple of <unk>.

Speaker Change: <unk> later than prior year and really this is to do two things one to give us space to amplify father's day and elevate men's that critically important with <unk> as well as our timing will be more consistent with.

Speaker Change: With the general market and when summer sales occur.

Speaker Change: We're amplifying our marketing to ensure our customers know of the change in timing and also about the exciting products that will have to offer.

Speaker Change: And importantly, we believe we have.

Speaker Change: A great product offering that consumers are going to love overall, theres not really any material changes to the duration is going to be a couple of days shorter, but overall the duration generally generally consistent.

Speaker Change: Yes.

Speaker Change: As you look at the core as you look at the core categories.

Speaker Change: Body care and home have been have been great have been great categories. You see the market go growing you see fragrance scale growing so we would expect particularly body care you would get more than than low single digit growth over over time growing with the market.

Speaker Change: On the home as you know the candle market has been has been pressured.

Speaker Change: We haven't seen the camera market return to growth yet.

Speaker Change: Did this quarter increase our market share modestly in our strategies, but overall, we're pleased in this market where there is pressure on candles were overall growing home fragrance, but we're going to look for ways to innovate to continue to drive growth there.

Speaker Change: And while gifting a small right that is that is an area that grew really nicely. It was up double digits. This quarter and just reinforces that we can be a gifting destination no matter what time of the year. It is customers will come to us whether it's Valentine's day Easter mother's day.

Speaker Change: And hopefully father's day.

Speaker Change: Thank you. Our next question comes from the line of Ike <unk> with Wells Fargo. Please proceed with your question.

Ike: Hey, good morning.

Ike: Two questions for you if that's okay.

Ike: I was curious would you have raised guidance excluding tariffs when you when you look at the full year view issuing and then I guess just simply this is kind of what gives you the confidence in the back half for.

Ike: For 1% to 3% revenue growth.

Ike: The compares are a little bit tougher so I'm, just kind of curious where the confidence comes from there. Thank you.

Ike: Yeah. Thanks, Thanks for the question and good morning all.

Ike: On the back half of the year I will say what gives us confidence is the innovation that we have plan I mentioned a couple of things earlier, we have we're launching a new an elevated ceramic candle in the back part of the year, we have additional collaboration coming off of.

Ike: The Disney Princess and we know how well those have performed for us and Halloween is an important time of the year for us.

Ike: <unk>.

Ike: We have some new and exciting products with elevated storytelling and new fragrances to bring there. So that's what really gives us the confidence is as we've said quarter after quarter our customers respond when we have when we have great innovation.

Ike: Now on the on your question on the tariffs on the tariff front overall.

Ike: Overall, let me give a little context before before I answer. Your specific question. We would have raised guidance. The guidance that we've provided includes all of the tariffs that had been announced prior to last Night's Court ruling which has already been appealed.

Ike: And if you think about the guidance and absorbing that it was our delivery of margin expansion and our opportunities to mitigate some of those terrorists through the levers we're pulling it.

Ike: If tariffs were to continue at current levels for the remainder of the year, we'd probably be at the lower half of the guidance range.

Ike: And if they were to moderate or be reduced we would be at the upper half and what I would say is to your real question all else equal if tariffs hadn't changed from the initial 10%, yes, we would have been increasing our guidance.

Ike: Today, and it's it's a dynamic time for us I'm really pleased with our position our agile model and we will compete in any environment.

Speaker Change: Thank you. Our next question comes from the line of Paul Lajoie with Citi. Please proceed with your question.

Speaker Change: Lee on for Paul Thanks for taking our question just wondering if you could elaborate on the strength of the merch margin and <unk>.

Speaker Change: <unk> in the first quarter, how much do you attribute.

Speaker Change: That to the Disney co lab versus sort of the underlying core business and any benefits.

Speaker Change: The carryforward and then and then just secondly could you just give more detailed accounting of these collabs, where do you see the licensing.

Speaker Change: Revenue to your partners.

Speaker Change: That show up in the P&L, if any color there would be helpful. Thank you.

Speaker Change: Great. Thanks for the question.

Speaker Change: We're really pleased with our gross margin performance in the in the first quarter, we expanded gross margins 160 basis, we exceeded our.

Speaker Change: Our guidance of 210.

Speaker Change: Basis points. So as you dissect that first merch margin was up about 100 basis points. This is primarily driven by we had mix adjusted AUR is up low single digits as well as our cost savings work, where we were able to improve some of our product cost.

Speaker Change: Through our value engineering as well as our transportation costs.

Speaker Change: No.

Speaker Change: <unk> were flat leverage was also favorable 50 basis points and I would say there were a couple of things driving that first as I mentioned previously we exited from a fulfillment center that's driving improvements that will of course continue for the remainder of the year. We also had some low.

Speaker Change: Our store asset depreciation expenses, we evaluated our useful lives.

Speaker Change: So as you as you look at that performance there are those opportunities that.

Speaker Change: Enabled us to really be able to offset the terrorists and hold our guidance for the remainder of the year.

Speaker Change: And the royalty payments hits hits merch margin.

Speaker Change: Thank you. Our next question comes from the line of Mark <unk> with Baird. Please proceed with your question.

Speaker Change: Good morning. This is Amy <unk> on the line or Mark. Thank you for taking our question.

Speaker Change: Strong performance on the Disney collaboration is exciting could you provide any commentary about the potential size of the opportunities you have in the pipeline on the collaboration side compared to Disney and how we should think about the pace and timing of those collaborations through the rest of the year and in the second half. Thank you.

Speaker Change: Yes. Thanks for the question I think the timing as I referenced will be in the back half of the year, we'll have more to say in in due time.

Speaker Change: Listen each of the KOL labs are different sizes. The Disney princesses was our most expansive with six.

Speaker Change: With six Princess is over 80 to over 82 Skus in the back half of the year, we have more than one co lab plan and what I would say there meaningful enough that they are going to be a contributor to our back half growth at our full year up 1% to 3%.

Speaker Change: Thanks for the question.

Speaker Change: Thank you. Our next question comes from the line of Jonna Kim with TD Cowen. Please proceed with your question.

Jonna Kim: Thank you for taking my question carrying value pricing strategy.

Speaker Change: Some competitors are taking pricing due to tariffs.

Speaker Change: What is your take on pricing throughout the year.

Speaker Change: And then also any early learnings from the Disney partnership, where you're able to bring in new customers and heartwarming, some strategies or trying to retain those customers that that comes into the partnership. Thank you very much.

Speaker Change: Yes, so overall as you as you look at.

Speaker Change: Our tariff mitigation strategies right.

Speaker Change: AUR was was the lever and we're going to stay flexible we're going to ensure that we're meeting the customer where their mindset is the customer continues to be value seeking.

Speaker Change: Were pleased in the first quarter that our AUR mix adjusted were up low single digits and it just speaks to the ability of our agile model to respond to.

Speaker Change: To customers.

Speaker Change: Brian and then I'll just follow up with the.

Speaker Change: Second part of that question around.

Speaker Change: New consumers so.

Speaker Change: I think we should be pleased with the results that we got from Disney we should be pleased that that philosophy around growth model, but when we bring the right products when we listen to consumers and bring the right products <unk> brand story, we definitely drive traffic to the brand, but at the same time I'd say, we do see trends in the sector with.

Speaker Change: Younger people and we know that that's a big part of our opportunity to accelerate growth and I believe that when we do bring them to the brand.

Speaker Change: They joined this platform that's remarkably sticky.

Speaker Change: We've seen the effect of our loyalty program and driving repeat purchases repeat visits increased spend so it remains a big opportunity to bring new consumers to the brand with about three collaborations or through other products and growth levers that we have.

Speaker Change: Got it thank you very much.

Speaker Change: Thank you. Our next question comes from the line of Kate Mcshane with Goldman Sachs. Please proceed with your question.

Kate Mcshane: Hi, good morning, Thanks for taking our question.

Kate Mcshane: We just wanted to ask about the new store format that you mentioned on the call today and if this is the same initiatives as the King and plus that you had mentioned several quarters ago.

Eva: Okay. This is Eva yes, the new store format is that is the gaming room, plus that we mentioned and we're really pleased with how the format is performing its brought some modernization to it some better navigation some better technology some additional.

Kate Mcshane: <unk> and financially they're outperforming the stores and we're building them a comparable cost to the returns are favorable.

Kate Mcshane: And I'll just jump in there, which is I had the opportunity to spend.

Kate Mcshane: Two days, this weekend, and asking and plus dawn I really like what I see.

Speaker Change: Do think it's a material improvement in terms of brand experience on in terms of the overall store layout.

Kate Mcshane: I believe that we can iterate on it forever I do believe that.

Kate Mcshane: We can go further in terms of offering services in terms of some of the engagement that we offer on in terms of using our stores as a marketing vehicle to bring more new consumers to the brand so.

Speaker Change: I think that we're going to continue to iterate on it and we see it as a very positive step, but with more to deliver.

Speaker Change: Okay.

Speaker Change: And historical numbers for us you'd like it in by the end of the year.

Speaker Change: We're Kate I think overall our.

Speaker Change: The format is going and all of the new stores, we build in and.

Speaker Change: And remodel so.

Speaker Change: That's how you should think about it.

Speaker Change: We have not accelerated our capex on these stores either I would say.

Speaker Change: Thank you. Our next question comes from the line of Olivia Tong with Raymond James. Please proceed with your question.

Olivia Tong: Thanks, and good morning.

Speaker Change: I wonder.

Speaker Change: Understand how a little bit more about how you think about the current backdrop and your view on your pricing opportunity clear.

Speaker Change: Clearly repair of exposure at lower than peers, but do you view that their need to price as an opportunity to push price as well for you or perhaps an opportunity to consolidate more market share and then Daniel you mentioned the desire to expand more aggressively outside of the U S.

Speaker Change: Can you talk about how you think about doing that or are there certain markets that are particularly attractive do you think about markets that so far don't have a ton of competition.

Speaker Change: Maybe you have to convince the audience a little bit more or is it more thinking about established markets where.

Speaker Change: When that have already been improvements. Thank you so much.

Speaker Change: Yeah, Olivia I'll say.

Speaker Change: Start with your pricing question when all set.

Speaker Change: The dynamic market out there and we're going to stay agile, we know customers are value seeking and we're in a great position that we bring great products at a great value where were reset so we'll we'll be agile.

Speaker Change: And and read and react to the customer in the market.

Speaker Change: Thank you and then on international.

Speaker Change: I'll, just kind of repeat what I said, which of course is an opportunity to accelerate growth.

Speaker Change: I've had a strong track record of doing that at both Nike and Bob right and I'm looking forward to getting on the ground. This summer with our partners with our international consumers and really understanding what it is that needs to change I am in agreement with you that we will be focusing on.

Speaker Change: A select group of markets and we'll be matching those markets with the basic model that makes sense. So there isn't a one size fits all strategy in my mind in terms of international expansion, it's going to be which market prioritizing those on which basis model leads to the best growth outcomes and financial outcome for the business.

Speaker Change: Yeah.

Speaker Change: Thank you. Our next question comes from the line of Crying Wolf Meyer with Piper Sandler. Please proceed with your question.

Speaker Change: Hey, Tim Good morning, Thanks, so much for taking the question.

Speaker Change: Like to touch a little bit on that.

Speaker Change: One how you're thinking about lapping some of the bigger launches and as.

Speaker Change: We progressed through the year, such as men's that's been doing particularly well everyday luxuries, how should we be thinking about.

Speaker Change: <unk> through those and then also I think the adjacent categories as a percent of sales hasnt changed meaningfully in the past couple of quarters can you just touch a little bit on your strategy behind those categories is there a goal to get those as a larger piece of the mix or are you pretty pleased with with how they are doing right now. Thank you.

Speaker Change: Yeah.

Speaker Change: Our all star occur and then and maybe Daniel I'll have something to to jump to jump in.

Speaker Change: So first on on the launches such as men's everyday luxury.

Speaker Change: We see those as foundational to build upon those versus thinking about them as we have to we have to lap.

Speaker Change: Everyday luxuries was in the full fleet in that by the end of the second quarter of last year. So weak for women's it's continued to perform well with broad new fragrances, we introduced body cream and customers really responded favorably.

Speaker Change: On the Adjacencies, they did grow faster than the overall that our overall growth. So the rate of growth is is greater I would say given the predominance of Disney and the impact in first quarter, you don't see it as a as a percent of total with the 10% being consistent.

Speaker Change: But we're pleased with where we're positioned and look forward to continuing to drive growth.

Speaker Change: Thanks, Steve and let me just let me just jump in and say well my.

Speaker Change: <unk> around Adjacencies are I do think that the business should feel proud about the business that they fill in the adjacencies. They all segments, we've entered with large addressable market.

Speaker Change: As Eva said, it's growing above shop, but.

Speaker Change: I'll come back to something I mentioned earlier, which is I do believe we're going to need to focus you to edit to amplify fewer bigger things.

Speaker Change: And less breadth more depth I think that when we do that.

Speaker Change: To put more marketing heft behind fewer priority and it also tells our consumer.

Speaker Change: Most important so.

Speaker Change: Of course, we want to make sure that we continue to build the basket of existing consumers through the adjacencies that we have but really the focus is on the adjacencies building, new consumers and bringing new consumers to the brand.

Speaker Change: Thank you next question please.

Speaker Change: Our next question comes from the line of Ashley Hogan with Jefferies. Please proceed with your question.

Speaker Change: Hi, This is Sidney answer Ashley Thanks for taking our question wondering if you can share any underlying assumptions you have for the fragrance category and then just curious how you think about the long term mix of online versus in store with kind of the extra digital initiatives. Thanks.

Speaker Change: Yes, we'll start with the online software high so.

Speaker Change: I'll kind of go back to my growth philosophy here. The most important thing that we do is listen to the consumer and the most important thing that we do is meet the consumer where they are so we're not setting a target that is.

Speaker Change: Broadridge to business, but we do expect our digital business to be in line or slightly above market penetration and we have got an opportunity to grow that.

Speaker Change: We know that that is where the overall segment is growing so we do expect to see accelerated growth in that area, but.

Speaker Change: We won't do something that forces the consumer into a channel mix, but not right for them.

Speaker Change: Yes, and on your fragrance category as we all know fragrances on trend and growing nicely and as we look at our business as the category leader in each of our businesses right. We're going to always look to grow with the market and grow and grow share.

Speaker Change: And we're excited about the newness that we're bringing and we will look to continue to drive momentum with that newness.

Speaker Change: Thank you. Our next question comes from the line of Adrienne <unk> with Barclays. Please proceed with your question.

Speaker Change: Good morning, this is <unk> on for Adrienne.

Speaker Change: So maybe for either first you noted.

Speaker Change: Positive dual channel traffic and maintained market share can you elaborate on what drove the traffic outperformance and whether you see this trend sustaining into Q2 and what is incorporated into full year guidance regarding market share and then a quick one for Daniel Obviously this company generates strong free cash flow in the $300 million in buybacks for Ria.

Speaker Change: <unk>, how are you approaching capital allocation under your leadership, particularly the tradeoffs between returning capital and funding new growth initiatives. Thank you.

Speaker Change: Yes.

Speaker Change: Yeah. Thanks for the question.

Speaker Change: Overall in Q1, as we said earlier, we drove positive traffic dual channel in both of our in stores and online and we outperformed outperformed the.

Speaker Change: Benchmarks that that we track as we look at the trends they are embedded.

Speaker Change: They are embedded in the Q2 guidance that that we that we provided that we provided today.

Speaker Change: We don't guide to market share, but what I will tell you is we strive to look to gain market share grow with the market gain share.

Speaker Change: Thanks, David So on capital allocation I would say.

Speaker Change: 10 days in it's probably too early to be signaling what we're doing in terms of capital allocation or changes to capital allocation.

Speaker Change: I'm going to work, obviously with the board and with Eva on that but again my focus is making sure that the investment that we are using today is focused in the right priority growth areas and so that will be the first place I'm looking.

Speaker Change: Thank you. Our final question. This morning comes from the line of Dana Telsey with Telsey Advisory Group. Please proceed with your question.

Dana Telsey: Hey, good morning, everyone. As you think about the comment that you had traffic in both channels that exceeded third party benchmarks.

Speaker Change: Are you seeing in your opening our stores versus the enclosed mall stores and Daniel any way that you're thinking about malls versus open air given the significant shift that's going to open air and how they are doing and what are you how you're thinking about the online channel and if any website enhancements should be cut.

Speaker Change: Thank you.

Speaker Change: Thanks, Dana for the question I'll start with the with the mall versus off mall performance consistent with prior of prior quarters off mall stores performed better than mall stores, largely driven by stronger stronger conversion.

Speaker Change: <unk>.

Speaker Change: So that's pretty consistent no change in trends there John.

Speaker Change: Totally I've just been in both malls and off mall locations on the off mall locations. Unlike the Adjacencies I like the fact that we're next the big anchors and traffic like Walmart target and then driving strong traffic through our doors when it comes to.

Speaker Change: Website enhancements again, something that we're going to be prioritizing I'm pleased with the underlying Tech Foundation that the company has invested in it does allow for some rapid change in this area, we will be bringing some.

Speaker Change: Our call feature enhancements.

Speaker Change: In August to the App, but really looking to try to bring a much bigger aesthetic change too.

Speaker Change: Digital platforms.

Speaker Change: In the coming couple of quarters that is something that team is prioritizing and something that we are going to be getting off the straight away and I do think that as well as.

Speaker Change: Allowing all consumers to connect more emotionally to the brand to telling better product story. It will drive conversion and growth. It is both it has had on half it is content and coma.

Speaker Change: Great.

Speaker Change: We want to thank everyone 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: Thank you. This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.

Speaker Change: [music].

Speaker Change: [music].

Speaker Change: [music].

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

Speaker Change: At this time I'd like to welcome everyone to the Bath and body works first quarter 2025 earnings conference call.

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

Speaker Change: During the question and answer portion you May ask a question from the phone by pressing star one.

Speaker Change: I'll now turn the call over to Luc Clark Vice President of Investor Relations. Luke you may begin.

Speaker Change: Good morning, and welcome to Bath <unk> body works first quarter 2025 earnings conference call.

Speaker Change: Joining me on the call today are Daniel <unk>, Chief Executive Officer, and <unk> Chief Financial Officer.

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

Speaker Change: As a reminder, some of the comments today may include forward looking statements related to future events and expectations for.

Speaker Change: For factors that could cause the actual results to differ materially from these forward looking statements. Please refer to the risk factors and Bath <unk> body works 2024 Form 10-K.

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

Daniel: With that I'll turn the call over to Daniel.

Daniel: Hello, everyone and thank you for joining us I'm excited to be with you today.

Speaker Change: Boston <unk> earnings call.

Speaker Change: I want to begin by thanking the board for their trust and confidence in me I'd also like to thank Eva and the leadership team and the thousands of associates, who.

Speaker Change: Who have warmly welcomed me over the last few days.

Speaker Change: It is truly a privilege to lead a brand at beloved at Bath <unk> body with.

Speaker Change: One that has an incredibly strong foundation and has a meaningful place in homes and in our customers' daily lives.

Speaker Change: With more than 50 dedicated.

Speaker Change: Working in our 1900 vibrant North American stores.

Speaker Change: Vertically integrated predominantly U S based supply chain and a loyalty program with approximately 39 million members.

Speaker Change: We are well positioned for growth.

Speaker Change: But today's consumer is our dynamic we must meet them, where they are positioning ourselves as the leading global brand and home fragrance and beauty.

Speaker Change: With this backdrop, we see a clear opportunity to transform Bath <unk> body works to accelerate our growth.

Speaker Change: Our customer connection and continue evolving for the future.

Speaker Change: In my first 10 days I have been incredibly energized by what I've seen.

Speaker Change: Our customers are passionate and loyal.

Speaker Change: Many of our highly engaged customers shop, with us 10 or more times a year.

Speaker Change: And our strong innovation ensures that we always have something new for them.

Speaker Change: That is an extraordinary strength.

Speaker Change: We also have a significant opportunity to grow the brand by attracting new consumers, especially younger audiences unmet.

Speaker Change: When I joined I spoke to many of you about my philosophy.

Speaker Change: We will accelerate growth by putting the consumer at the center of everything we do.

Speaker Change: We will execute that philosophy by listening to our consumers to GAAP inside you.

Speaker Change: Using those insights to create innovative and collaborative product.

Speaker Change: Selling bold and emotional brand and product story.

Speaker Change: And bringing it all to life in an integrated and elevated omnichannel marketplace globally.

Speaker Change: And the good news. This philosophy is already in motion here at Bath <unk> body Webb, our Disney collaboration and everyday luxury a great example of what happened when we listen to our customers build composite product title emotional story and deliberate all seamlessly across all our channels.

Speaker Change: But there is an opportunity to execute that philosophy more consistently and with greater focus to connect more intensively with <unk> across multiple touch points.

Speaker Change: And to be less reliant on promotions to drive growth.

Speaker Change: Over the next few months.

Speaker Change: I'll work closely with the leadership teams to identify the short and medium term lever, we can pull to deliver quick wins and define our long term strategy, which we will communicate in the coming quarters.

Speaker Change: Some of the levers we are exploring all digital.

Speaker Change: There is an opportunity with our current site to better deliver what customers expect.

Speaker Change: <unk> functionality improved aesthetics, and a compelling storytelling is the standard that consumers expect.

Speaker Change: There was a fast path to improvement that boots conversion brand equity and engagement.

Speaker Change: Second packaging and labeling.

Speaker Change: We've made real strides in formula quality, but our packaging doesn't emphasize it we can do more to signal better for you ingredient, especially to health conscious and younger consumers.

Speaker Change: Thirdly distribution to attract can seem it to attract new consumers, we must be in that path.

Speaker Change: That means exploring new forms of distribution beyond our own channel strategically and thoughtfully.

Speaker Change: And finally international expansion.

Speaker Change: Today International represents about 5% of our business, but from my experience at both Nike and cooperate I know the international growth is an incremental it can define an error in the coming weeks I'll be on the ground with our partners and customers internationally to explore how we scale effectively.

Speaker Change: As I mentioned, we'll be sharing a clear strategy in the coming quarters.

Speaker Change: And that puts the consumer at the center.

Speaker Change: The fewer balls that priority.

Speaker Change: Our strategy will address opportunity to accelerate growth through consistent repeatable and Europe will drive it.

Eva: Now I'll turn it over to Eva.

Speaker Change: Thank you Daniel and good morning, everyone. Lastly, we welcome Danielle at our town Hall with associates from across the comfortable Daniel shared his consumer centric philosophy, his personal journey and engage directly with associates across the company the energy level here at BBW, It's high and associate.

Speaker Change: They're eager to accelerate growth under his leadership.

Speaker Change: I look forward to partnering with Daniel and the rest of the leadership team as we plan for Bath <unk> body works future and work to unlock value.

Speaker Change: With that let's turn to your quarter I'll begin with a high level summary of our first quarter results and key business drivers.

Speaker Change: Then share more detail on our Q1 financial performance and provide an update on our Q2 and fiscal year 2025 guidance building on the preliminary results we shared last Monday.

Speaker Change: As shared last week, we delivered another strong quarter with net sales up 3% coming in at the high end of our guidance range and earnings per diluted share of <unk> 49.

Speaker Change: Exceeding the high end of our range.

Speaker Change: The challenging macro drop backdrop, we've remained disciplined and decisive in our actions and our Q1 performance is evidence of that.

Speaker Change: As a reminder, we have been focused on three priority areas first accelerating top line growth across our core while also extending our reach through Adjacencies and international expansion.

Speaker Change: Second enhancing operational excellence and efficiency through cost discipline and continuous improvement mindset, which is particularly critical in this current environment.

Speaker Change: Third consistently deploying our strong cash flow to invest in growth opportunities and return value to shareholders through dividends and share repurchases.

Speaker Change: Let's take a closer look at our top line performance and key growth drivers in the quarter in.

Speaker Change: In the first quarter, we delivered our strongest underlying sales growth since 2021, and we drove positive dual channel traffic exceeding third party benchmarks we track.

Speaker Change: We brought innovation again, this quarter, giving customers a reason to visit our stores and reinforcing our industry leadership.

Speaker Change: Customers have always trusted us for our high quality products at accessible price points.

Speaker Change: And even in this environment. They continue to have a strong appetite for compelling units in Q1 consumer excitement around fragrance innovation drove growth across all three core categories.

Speaker Change: Our Disney collaboration was an undeniable success and exceeded our expectations customers lined up outside our stores to be the first to purchase one of our six Disney Princess Fragrances. This was our largest co lab today featuring 85 Skus.

Speaker Change: Cross category.

Speaker Change: Consumers also actively engaged with us online driving a record one 8 billion impressions.

Speaker Change: Consumers also responded positively to our thoughtful gift assortments in the quarter as they celebrated Lulu formal notes during Valentine's day, Easter and the start till others day proving that gifting isn't just a Q4 driver.

Speaker Change: Moving to our performance across our key categories in the quarter.

Speaker Change: Bonnie care grew low single digits, driven by success in our Disney Princess line strength in everyday luxury and our single fragrance launch Sweetest Star, we expanded our everyday luxury fly to body cream and body wash in the quarter, creating new.

Speaker Change: New fragrance layering opportunities for our customers.

Speaker Change: Home fragrance grew low single digits, driven by our single week candles, Wallflowers and Ho sprays as consumers sought to diverse.

Speaker Change: And elevate ways to infuse their spaces with fragrance.

Speaker Change: So since Sanitizers grew mid single digits, driven by our convenient on the go assortment, including our one ounce to amortize our spray and pocket back.

Speaker Change: Our innovation and collaboration pipeline is strong and we're excited about the fragrance experiences, we're bringing to customers. This summer, including our cross category coast to coast collection inspired by iconic coastal destinations.

We've launched our on trend fragrances like off the vine and we brought back our true Blue Spa collection due to strong demand from our customers. This is one of the most customer requested collections.

Speaker Change: We're also relaunching some of our original fragrances with updated efficacious formulas that are made without sulfate paravent validate and artificial dyes.

Speaker Change: Beyond product innovation, we continue to improve our customer experience both in store and online.

Speaker Change: We are building on the success of our brick and mortar strategy with the introduction of new in store innovations.

Speaker Change: Our newer stores feature elevated design, a more open layout interactive fragrance bars, and integrated technology, creating a more immersive elevated and seamless shopping experience, which meets the expectations of today's consumer.

Speaker Change: Our talented store design team has cost engineer the new stores to match the build cost of our traditional model, achieving similar payback periods and driving higher sales.

Speaker Change: Our loyalty program is performing well and driving increased spend trip frequency cross channel purchases and retention in Q1, we had approximately 39 million active loyalty customers up 4% compared to the prior year, we are now.

Speaker Change: The third year following the full U S rollout of the loyalty program and we continue to make enhancements to elevate the customers' experience. Most recently, we increased our loyalty reward redemption options, giving members greater access to our most loved body care.

Speaker Change: Our business, which we expect will drive higher engagement and redemption.

Speaker Change: With our large loyalty base in place the greatest opportunity now lies in deepening engagement and increasing value from existing members.

Speaker Change: Increasing reward redemption drives higher trip frequency stronger sales and deeper brand engagement, we see an opportunity to grow sales with our most loyal customers, while also increasing loyalty among more casual shoppers.

Speaker Change: Finally, we extended our reach this quarter through adjacent category growth.

Speaker Change: Our adjacent category mens lip care and laundry continue to represent approximately 10% of total sales.

Speaker Change: Our men's category, which is included in body care remains a compelling avenue to expand our customer base and we are also hyper focused on increasing awareness.

Speaker Change: To increase visibility and engagement for our men's assortment, we're elevating father's day this year with an enhanced marketing strategy store positioning and an expanded product lineup, including a new mens single fragrance launch in an exclusive PERC.

Speaker Change: <unk> with purchased set this builds on insights from the 2020 for holiday season, where we saw strong results from our first men's purchase with purchase offer.

Speaker Change: International expansion remains an important pillar of our long term strategy as Daniel mentioned earlier with significant opportunity for long term growth.

Speaker Change: International retail sales grew approximately 10% this quarter.

Speaker Change: Turning to margins, we remain steadfast in our disciplined approach to cost management, leveraging a continuous improvement mindset and operational efficiencies to drive sustained financial strength.

Speaker Change: Our predominantly U S based supply chain is a source of competitive advantage, allowing us to respond quickly and remain agile as the landscape evolves, while our exposure in China is limited to approximately 10% of global spend we are taking proactive measures to mitigate global trade.

Speaker Change: Policy shifts and offset our tariff exposure over time.

Speaker Change: Now I will transition to details on our financial performance and guidance, we delivered net sales of $1 4 billion up.

Speaker Change: Two 9% to the prior year at the high end of our guidance range again, our strongest underlying sales performance since 2021 fueled by our Disney collaboration in U S and Canadian stores net sales totaled $1 1 billion an increase of.

Speaker Change: Four 3% versus the prior year direct net sales were $250 million.

Speaker Change: A decrease of four 3% compared to last year. However, when adjusted provide online pickup in store, which is reported as store sales direct outperformed stores.

Speaker Change: Focused demand increased by 29% in the quarter versus last year and represented approximately 30% of total digital demand.

Speaker Change: International which represents approximately 5% of total net sales generated $64 million of net sales in the first quarter, an increase of 10, 1% versus the prior year due to timing of ship sales and was in line with expectations.

Speaker Change: Our first quarter gross profit rate of 45, 4% exceeded expectations and increased 160 basis points compared to the prior year.

Speaker Change: Gross profit rate expansion versus the prior year was driven by a 100 basis point improvement in merchandise margin, primarily driven by low single digit mix. Adjusted AUR increases, we also drove favorable buying and occupancy leverage due to net sales growth. This.

Speaker Change: Quarter <unk> expenses were flat.

Speaker Change: SG&A as a percentage of net sales was 37% slightly higher than our expectations, primarily driven by incremental investments in marketing and store associate training.

Speaker Change: First quarter operating income was $209 million 14, 7% of net sales an improvement of 120 basis points versus prior year.

Speaker Change: With respect to inventory we ended the first quarter with total inventory up 7% to prior year. This was slightly above our initial plan due to tariffs on purchases as well as strategic pull forward to help mitigate tariff impacts however, our underlying inventory level.

Speaker Change: <unk> remained healthy.

Speaker Change: Turning to real estate, our portfolio remains healthy with 57% of our fleet in off mall locations in the first quarter. We opened 13, new North American stores, all in off mall locations and permanently closed eight stores all in la.

Speaker Change: Yes.

Speaker Change: Internationally, our partners opened 14, new stores and COVID-19 stores during the quarter and we ended the quarter with 524 stores.

Speaker Change: Net closures in the first quarter were planned and were predominantly in low performing stores in the middle East are.

Speaker Change: Our international expansion plans for 2025 remain on track with at least 30 planned net new store openings.

Speaker Change: Turning now to our 2025 financial guidance, our full year and second quarter guidance includes the anticipated impact of all tariff rates currently in effect and levied by the U S government and other countries and excludes the anticipated financial impact of the seat.

Speaker Change: Oh transition.

Speaker Change: For the full year 2025, we are maintaining both our net sales guidance of 1% to 3% growth and our earnings per share guidance range of $3 25 to $3 60.

Speaker Change: Building on our Q1 outperformance our current projections of the business proactive tariff mitigation strategies and our strong predominantly U S supply chain. We believe we are well positioned to absorb the tariffs at current levels.

Speaker Change: If there are material changes in future tariffs, we will revisit our guidance for the full year you can find additional commentary on the details of our guidance in our slide presentation.

Speaker Change: Turning now to the second quarter, we expect Q2 net sales of flat to 2% growth to prior year, reflecting the current trends in our business and we are lapping some accounting items in the prior year largely loyalty.

Speaker Change: We expect Q2 systemwide international retail sales to be up high single digits with reported net sales decline of mid single digits due to ship sales timing in Q1 this year.

Speaker Change: We expect second quarter gross profit rate to be approximately 41% flat to prior year, including the impact of tariffs, we expect our second quarter SG&A rate to be approximately 30%, reflecting wage rate inflation and investments in technology.

Speaker Change: Our second quarter outlook includes net non operating expense of approximately $65 million and a tax rate of approximately 29%.

Speaker Change: Weighted average diluted shares outstanding of approximately $212 million.

Speaker Change: Considering these inputs we are forecasting second quarter earnings per diluted share of 33 to 38.

Speaker Change: We expect inventory to remain elevated in the first half up about 10%.

Speaker Change: This above this is above our initial expectation due to tariff related costs impacting inventory as a reminder, first half inventory levels reflect additional holiday related inventory builds to support our growth goals.

Speaker Change: Now for a quick update on capital allocation, we are strong cash flow generating business, our top priority remains driving sustainable long term profitable growth through strategic investments in the business to support. This we continue to plan capital expenditures of 250.

Speaker Change: To $270 million during the year with a focus on real estate and technology in the first quarter, our total capital expenditures were $37 million.

Speaker Change: Our full year free cash flow expectations remain in the range of $750 to $850 million and reflects working capital improvement driven by our fuel for growth initiatives in Q1, we returned $43 million to shareholders through dividend and.

Speaker Change: We repurchased four 3 million shares of common stock for $135 million at an average price of $31 24 per share.

Speaker Change: We continue to assume $300 million in share repurchases for the year, though as we've demonstrated we will be opportunistic our business generates strong key free cash flow and we view our shares in an attractive investment at current levels.

Speaker Change: In summary, I'm proud of our Q1 performance and energized by the opportunity to accelerate our growth in the future our agile business model positions us well to compete effectively in today's dynamic environment. The team continues to execute with discipline focusing on what we can.

Speaker Change: Troll and we're excited about the strength of our innovative pipeline for the second half of the year I would like to extend my gratitude to our teams across the company for their hard work and strong execution now, let's open it up for Q&A.

Speaker Change: Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.

Speaker Change: Formation tone will indicate your line is in the question.

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.

Speaker Change: To allow for as many questions as possible, we ask that you each keep to one question and one follow up thank you.

Speaker Change: Our first question comes from the line of Simeon Siegel with BMO capital markets. Please proceed with your question.

Simeon Siegel: Good morning, Hi, everyone Daniel welcome to the company and the wonderful World of analyst Q&A glad to have you.

Simeon Siegel: Maybe to start could you share a bit more about what brought you to bath <unk> body works a bit different than your prior company I know you're literally just started but this was very encouraging quarter. So perhaps any early looks you have it what you think is going right versus many any high level areas of opportunity that youre excited by and then Eva obviously, great to see the return to this level of growth can you just.

Speaker Change: Elaborate a little bit more on the go forward top line commentary, maybe just specifically you mentioned current trends within the guide sorry to elaborate.

Speaker Change: Elaborate there sorry, and then on just the loyalty accounting comments thanks, guys.

Speaker Change: Good morning, everyone.

Speaker Change: Thank you Simeon it's great to be on this call. Let me break that question down a little bit. So first let me talk about what attracted me to Bath <unk> body works and as you can tell from the accident.

Speaker Change: I haven't grown up.

Speaker Change: But with the brand in the way that many of our consumer tab, but as I went through the selection process with the board I am really really restarts the company and I Love, what I discovered let.

Speaker Change: Let me, let me first speak from the heart I believe that the best business did connect product with purpose.

Speaker Change: At Bath <unk> body works, we empower all consumers to express themselves, whether that through self care or home or beauty, we bring the power of fragrant into People's lives and helping them feel more confident more joyful and more authentically themselves.

Speaker Change: That's a meaningful mission and it's one I'm really really proud to be a portal.

Speaker Change: The emotional connection is matched by the strength of our business.

Speaker Change: What I found when I really dug into the COVID-19, 100, North American stores.

Speaker Change: $9 million also loyalty members are passionate and knowledgeable team of 50000 store associates.

Speaker Change: And our vertically integrated domestic supply chain and that is an amazing foundation.

Speaker Change: To accelerate growth by reaching new consumers elevating our products and experiences telling compelling brand story and doing that in new ways.

Speaker Change: Now when it comes to like whats going right.

Speaker Change: Obviously, it's a quality quarter.

Speaker Change: It's great to see the growth, but what I find really encouraging is that my philosophy for growth, which is about putting the consumer at the center, making sure that we listen to those insights we create coveted and innovative products that meet those needs that we tell bold brand and emotional product.

Speaker Change: Story, and we bring it to life in an omnichannel integrated marketplace globally, I can see where that is working here as I said in my opening remarks Disney is a good example of where that works, but I do see opportunity to do that more consistently more frequently and more focus.

Speaker Change: On bringing new consumers to the <unk>.

Speaker Change: Key platform that we've built.

Simeon Siegel: Great and good morning, Simeon Thanks for the question. So in terms of the drivers of sales go forward. Let me start with Q1, we were really pleased with the 3% growth that we drove while also expanding margins and as you dissect Q1.

Simeon Siegel: Disney was the key driver of the quarter and I would say the balance of the quarter really perform more consistently with the growth. We were seeing in Q4. So besides gives the other products that stood out was AGL, particularly for women and our gifting that grew double.

Simeon Siegel: Digits. So as we enter Q2 right we're entering in those in those trends of where the Q4 as we exited Q1 Q2 was also our lowest quarter of innovation given the prominence of of SaaS, but we're confident in.

Simeon Siegel: And the outlook in Q2, we're going to amplify father's day, we've created space in the quarter to really amplify reposition it in the shop enhanced marketing we're focused on SaaS execution. As you know last year, we had some challenges and we also have the startup hollow.

Simeon Siegel: So we feel good about the outlook that we provided for for Q2 and overall for the year, maybe just jumping as Youll look at the back half. We also continue to have innovation Halloween is important.

Simeon Siegel: Darts in Q2, but also continued into Q3, we're launching an elevated ceramic candle.

Simeon Siegel: And we have more co labs coming in in the back half of the year. So theres plenty of innovation that gives us confidence in really maintaining our top line of 1% to 3% growth for the year.

Speaker Change: Thank you. Our next question comes from the line of Matthew Boss with Jpmorgan. Please proceed with your question.

Speaker Change: Mr. <unk> your line is live.

Speaker Change: Great Thanks, and welcome Daniel.

Speaker Change: So maybe Daniel with your clear focus on accelerating growth could you walk through the building blocks of opportunity relative to the company's recent return to low single digit growth, maybe just areas you see for market share opportunity and any investments that you see required to accomplish your plan.

Speaker Change: Hi, Matt and thanks for the question.

Speaker Change: I'm going to start with the caveat that it's still early days on time day, then and my focus right now is continuing to listen and learn.

Speaker Change: Frankly, I don't know what I don't know yet I am listening to the leadership team listening to our employees our store associate of course listening to our consumers and you our investors.

Speaker Change: As I said in my opening remarks, we will come back and share a clear strategy in the coming quarters and that strategy will have some key component will be guided by a clear and compelling vision.

Speaker Change: It will put the consumer at the center of everything that we do.

Speaker Change: We will focus on fewer bolder priorities, and we will target opportunities to accelerate the growth through consistent and repeatable growth drivers.

Speaker Change: We will provide a clear roadmap on consistent kpis.

Speaker Change: You can track our progress and we can hold ourselves accountable for that growth in.

Speaker Change: In my opening remarks, I mentioned, a few things that.

Speaker Change: We're getting underway now.

Speaker Change: We're not sitting around and waiting to peanuts strategy and then start work there are clear opportunities as far as I see them in the short and medium term, our digital refresh packaging and labeling alternative distribution and international so.

Speaker Change: I think that all I'm going to stay really about our strategy at this point and then to your second point on financials.

Speaker Change: And the investments required to accomplish the plan.

Speaker Change: I am Super aware that a successful consumer good companies need to grow the top and the bottom line.

Speaker Change: Italy is not an either or.

Speaker Change: As I said.

Speaker Change: We're going to be doing fewer things. So edit to amplify is important last breath more depth fewer priorities and so I'll know.

Speaker Change: Asking.

Speaker Change: For more investment and making sure that the investment that we have today is aimed at the greatest opportunities to drive growth.

Speaker Change: And if I could just add Daniel good morning that we're always looking for efficiencies to offset new investment areas. I think we've done that over the last couple of years with our fuel for growth program and we're diligent about that and just to give you. An example during Q1, we exited one of our third party.

Speaker Change: Arty fulfillment centers, we expect this can drive two improvements one improve cost thats reflected in the outlook, we provided today as well as improved customer satisfaction. So we're going to consistently mine for for those areas to help offset investments.

Speaker Change: That's great color best of luck.

Lorraine Hutchinson: Thank you. Our next question comes from Lorraine Hutchinson with Bank of America. Please proceed with your question.

Lorraine Hutchinson: Thank you good morning.

Speaker Change: Daniel It sounds like one of the first things you can impacted marketing can you talk about plans there and then over the longer term I was just curious to hear about any early work you've done on the potential to accelerate growth globally and also what those new forms of distribution beyond your own channels might look like.

Lorraine Hutchinson: Thank you.

Lorraine Hutchinson: Hi, and thanks for the question.

Lorraine Hutchinson: When it comes to adjusting marketing I do think that the business has made progress in marketing.

Lorraine Hutchinson: As we mentioned traffic is up and exceeded benchmark in the first quarter, but I do believe that there is much much more we can do to connect emotionally with our consumers and we can do that online and offline in that part of the work that I mentioned in terms of the bits to refresh that getting underway now.

Lorraine Hutchinson: And I also believe our marketing has to be less about price and promotion, we need to give our consumers compelling stories and reasons to buy that are not linked to price.

Lorraine Hutchinson: And then finally I do think that there is an opportunity to focus more of our marketing dollars on the innovation that we have and that we have coming.

Lorraine Hutchinson: We believe that we have made meaningful strides in improving the ingredients of our products and we have not taken advantage of that by telling that story in a compelling way consistently to our consumers and we know that that is something that's important to them.

Speaker Change: So the next part of your question really relating to international.

Lorraine Hutchinson: I've said before I do see international as a significant opportunity.

Lorraine Hutchinson: I'm still learning about the international business, what's working what's not working what are the impediments to accelerating growth and I am going to spend some time. This summer on the ground with our international partners with our international consumers really getting under the Hood, but I'm pretty sure that our strategy will pick.

Lorraine Hutchinson: Priority market the areas, where we believe that the all the most the largest opportunities to accelerate growth and we must match that opportunity with the right business model, so more to come in that way, but it is something that.

Lorraine Hutchinson: It's going to be spending a lot of time on in the coming months.

Lorraine Hutchinson: And then finally on <unk>.

Lorraine Hutchinson: Partly distribution.

Lorraine Hutchinson: So you're going to hear me say this frequently we put the consumer at the center referencing that we do and can see mode C.

Lorraine Hutchinson: Brands not channels I do believe one of the greatest opportunities that this company has is to plug in new consumers to our ecosystem and our new consumers.

Lorraine Hutchinson: <unk> are not necessarily we're not necessarily in that Paul. So we'll think about this strategically and thoughtfully, but reaching new consumers through new platforms is definitely something that we're looking at right away.

Lorraine Hutchinson: The next question.

Speaker Change: Our next question comes from the line of Alex Greene with Morgan Stanley. Please proceed with your question.

Alex Greene: Great. Thank you.

Speaker Change: Maybe first for Eva first both home fragrance and body care grew low single digits in the fourth quarter or kind of hop right in that range for a few quarters.

Speaker Change: Or do you view as the right long term growth rates for those categories should they be better than low single digit service, where it makes sense kind of hover and then secondly, just could you go through your plan for the semiannual sale, maybe just remind us the timeframe last year and walk through any obtained an approach year over year that you might be using thanks a lot.

Speaker Change: Sure. Good morning, Alex Thanks, I'll take your second question first around the semiannual sale as I said previously last year, we all know it didn't perform to our expectations. So we've taken some core learnings to drive stronger performance. This year first we're going to start semiannual sale a couple of weeks.

Speaker Change: <unk> later than prior year and really this is to do two things one to give us space to amplify father's day and elevate men's that critically important <unk> C as well as our timing will be more consistent with.

Speaker Change: With the general market and when summer sales occur.

Speaker Change: We're amplifying our marketing to ensure our customers know of the change in timing and also about the exciting products that will have to offer.

Speaker Change: And importantly, we believe we have a.

Speaker Change: Great product offering that consumers are going to love overall, theres not really any material changes to the duration is going to be a couple of days shorter, but overall the duration generally generally consistent.

Speaker Change: So as you as you look at the core as you look at the core categories.

Speaker Change: <unk> body care and home have been have been great have been great categories. You see the market go growing you see fragrance scale growing so we would expect particularly body care you would get more than the low single digit growth over over time growing with the market on the.

Speaker Change: Home as you know the candle market has been has been pressured.

Speaker Change: We haven't seen the camera market returned to growth yet.

Speaker Change: Did this quarter increase our market share modestly in our strategies, but overall, we're pleased in this market where there is pressure on candles were overall growing home fragrance, but we're going to look for ways to innovate to continue to drive growth there.

Speaker Change: And while gifting a small right that is that is an area that grew really nicely. It was up double digits. This quarter and just reinforces that we can be a gifting destination no matter what time of the year. It is customers will come to us whether it's Valentine's day Easter mother's day.

Speaker Change: And hopefully father's day.

Speaker Change: Thank you. Our next question comes from the line of Ike Bartow with Wells Fargo. Please proceed with your question.

Ike Bartow: Hey, good morning.

Ike Bartow: EBIT two questions for you if that's okay just curious.

Ike Bartow: Curious would you have raised guidance excluding tariffs when you when you looked at the full year view of the year to issuing and then I guess just simply this is kind of what gives you the confidence in the back half.

Ike Bartow: For 1% to 3% revenue growth.

Speaker Change: Mostly the compares are little bit tougher, so I'm kind of curious where the confidence comes from there. Thank you.

Ike Bartow: Yeah. Thanks, Thanks for the question and good morning all.

Ike Bartow: On the back half of the year I will say what gives us confidence is the innovation that we have plan I mentioned a couple of things earlier, we have we're launching a new an elevated ceramic candle in the back part of the year. We have additional collaboration is coming off of the Disney.

Ike Bartow: Princess and we know how well those have performed for us and Halloween is an important time of the year for us.

Ike Bartow: And we have some new and exciting products with elevated storytelling and new fragrances to bring there. So that's what really gives us the confidence as we said quarter after quarter our customers respond when we have when we have great innovation.

Ike Bartow: Now on the on your question on the tariffs on the tariff front overall.

Ike Bartow: Overall, let me give a little context before before I answer. Your specific question. We would have raised guidance. The guidance that we provided includes all of the tariffs that had been announced prior to last Night's Court ruling which has already been appealed.

Ike Bartow: Do you think about the guidance and absorbing that it was our delivery of margin expansion and our opportunities to mitigate some of those terrorists through the levers we're pulling.

Ike Bartow: If tariffs were to continue at current levels for the remainder of the year, we'd probably be at the lower half of the guidance range.

Ike Bartow: And if they were to moderate or be reduced we would be at the upper half and what I would say is to your real question all else equal if tariffs hadn't changed from the initial 10%, yes, we would have been increasing our guidance.

Ike Bartow: Today, and it's it's a dynamic time for us I'm really pleased with our position our agile model and we will compete in any environment.

Speaker Change: Thank you. Our next question comes from the line of Paul Lajoie with Citi. Please proceed with your question.

Speaker Change: Lee on for Paul Thanks for taking our question just wondering if you could.

Speaker Change: Elaborate on the strength of the merch margin and AUR to the first quarter, how much do you attribute.

Speaker Change: That to the Disney co lab versus sort of the underlying core business and any benefits that carry forward and then and then just secondly could you just give more detail on the accounting of these collabs, where do you see the licensing.

Speaker Change: To your partners, where does that show up in the P&L if any color there would be helpful. Thank you.

Speaker Change: Great. Thanks for the question.

Speaker Change: We're really pleased with our gross margin performance in the in the first quarter, we expanded gross margins 160 basis, we exceeded our.

Speaker Change: Our guidance of 210.

Speaker Change: Basis points. So as you dissect that first merch margin was up about 100 basis points. This is primarily driven by we had mix adjusted AUR is up low single digits as well as our cost savings work, where we were able to improve some of our product cost.

Speaker Change: Through our value engineering as well as our transportation costs.

Speaker Change: No.

Speaker Change: <unk> were flat leverage was also favorable 50 basis points and I would say there were a couple of things driving that first as I mentioned previously we exited from a fulfillment center that's driving improvements that will of course continue for the remainder of the year. We also had some lower.

Speaker Change: Our store asset depreciation expenses, we evaluated our useful lives.

Speaker Change: So as you as you look at that performance there are those opportunities that.

Speaker Change: Enabled us to really be able to offset the tariffs and hold our guidance for the remainder of the year.

Speaker Change: And the royalty payment hits hits merch margin.

Speaker Change: Thank you. Our next question comes from the line of Mark <unk> with Baird. Please proceed with your question.

Speaker Change: Good morning. This is Amy <unk> on the line or Mark. Thank you for taking our question.

Speaker Change: Strong performance on the Disney collaboration is exciting could you provide any commentary about the potential size of the opportunities you have in the pipeline on the collaboration side compared to Disney and how we should think about the pace and timing of those collaborations through the rest of the year and in the second half. Thank you.

Speaker Change: Yes. Thanks for the question I think the timing as I referenced Dolby in the back half of the year, we'll have more to say in in due time.

Speaker Change: Listen each of the co labs are different sizes that Disney princesses was our most expansive with six with six Princess is over 80 to over 82 skus in the back half of the year, we have more than one co lab plan and what I would say there meaning.

Speaker Change: Full enough that they're going to be a contributor to our back half growth at our full year up 1% to 3%.

Speaker Change: Thanks for the question.

Speaker Change: Thank you. Our next question comes from the line of Jonna Kim with TD Cowen. Please proceed with your question.

Jonna Kim: Thank you for taking my question curious about your pricing strategy.

Jonna Kim: I would imagine some competitors are taking pricing due to tariffs.

Jonna Kim: What is your take on pricing throughout the year.

Jonna Kim: And then also any early learnings from the Disney partnership, where you're able to bring in new customers.

Jonna Kim: What are some strategies, you're trying to retain those customers that come through the partnership. Thank you very much.

Jonna Kim: Yes, so overall as you as you look at.

Jonna Kim: Our tariff mitigation strategies right.

Jonna Kim: AUR was was the lever and we're going to stay flexible we're going to ensure that we're meeting the customer where their mindset is the customer continues to be value seeking.

Jonna Kim: We were pleased in the first quarter that our AUR mix adjusted were up low single digits and it just speaks to the ability of our agile model to respond to.

Jonna Kim: To customers.

Jonna Kim: Great and then I'll just follow up with that.

Jonna Kim: Second part of that question around.

Jonna Kim: You can see them so.

Jonna Kim: So.

Speaker Change: I think we should be pleased with the results that we got from Disney we should be pleased that that philosophy around growth model that when we bring the right product list when we listen to consumers, bringing the right products to Telemarket brand story, we definitely drive traffic to the brand, but at the same time I'd say, we do see trends in the sector with.

Speaker Change: Younger people and we know that that's a big part of our opportunity to accelerate growth and I believe that when we do bring them to the brand.

Jonna Kim: They joined this platform that is remarkably sticky.

Jonna Kim: We've seen the effect of our loyalty program and driving repeat purchases repeat visits increased spend so it remains a big opportunity to bring new consumers to the brand whether that's through collaborations or through other products and growth levers that we have.

Jonna Kim: Got it thank you very much.

Speaker Change: Thank you. Our next question comes from the line of Kate Mcshane with Goldman Sachs. Please proceed with your question.

Kate Mcshane: Hi, good morning, Thanks for taking our question.

Kate Mcshane: Wanted to ask about the new store format that you mentioned on the call today and if this is the same initiatives as the gingham plus that you had mentioned several quarters ago.

Eva: Okay. This is Eva yes, the new store format is that is the gaming room, plus that we mentioned and we're really pleased with how the format is performing its brought some modernization to it some better navigation some better technology some additional <unk>.

Eva: <unk> and financially they're outperforming.

Eva: These stores and we're building them a comparable cost to the returns are favorable.

Kate Mcshane: And I'll just jump in there, which is I had the opportunity to spend.

Kate Mcshane: Two days, this weekend, and arguing and plus dawn I really like what I see I do think the material improvement in terms of brand experience and in terms of the overall store layout that said I believe that we can iterate on it forever I do believe that.

Kate Mcshane: We can go further in terms of offering services in terms of some of the engagement that we offer and in terms of using our stores as a marketing vehicle to bring more new consumers to the brand.

Kate Mcshane: I think that we're going to continue to iterate on it and we see it as a very positive step, but with more to deliver.

Kate Mcshane: And as vehicles number of stores, you would like it and by the end of the year.

Kate Mcshane: We're at Kate I think overall, our the format is going and all of the new stores, we build in and.

Kate Mcshane: And remodel so.

Kate Mcshane: That's how you should think about it.

Kate Mcshane: We have not accelerated our capex on these stores either I would say.

Speaker Change: Thank you. Our next question comes from the line of Olivia Tong with Raymond James. Please proceed with your question.

Olivia Tong: Thanks, and good morning.

Olivia Tong: I wonder.

Olivia Tong: Understand how a little bit more about how you think about the current backdrop and your view on your pricing opportunity clear.

Olivia Tong: Clearly repair of exposure, but lower than peers, but do you view that their need to price as an opportunity to push price as well for you or perhaps an opportunity to consolidate more market share and then Daniel you mentioned the desire to expand more aggressively outside of the U S.

Olivia Tong: You talk about how you think about doing that or are there certain markets that are particularly attractive do you think about markets that so far don't have a ton of competition.

Speaker Change: Maybe you have to convince the audience a little bit more or is it more thinking about established markets where.

Speaker Change: With that have already been improvement. Thank you so much.

Olivia Tong: Yes, Olivia I'll see.

Speaker Change: Start with your pricing question when all set.

Speaker Change: The dynamic market out there and we're going to stay agile, we know customers are value seeking and we're in a great position that we bring great products at a great value where were reset so we'll we'll be agile.

Olivia Tong: And and read and react to the customer in the market.

Olivia Tong: Thank you and then on international.

Olivia Tong: I'll, just kind of repeat what I said, which of course is an opportunity to accelerate growth.

Olivia Tong: I've had a strong track record of doing that at both Nike and Bob right and I'm looking forward to getting on the ground. This summer with our partners with our international consumers and really understanding what it is that needs to change I am in agreement with you that we will be focusing on.

Olivia Tong: A select group of markets and we'll be matching those markets with the business model that makes sense.

Olivia Tong: So there isn't a one size fits all strategy in my mind in terms of international expansion, it's going to be which market prioritizing those on which basis model leads to the best growth outcomes and financial outcome for the business.

Speaker Change: Thank you. Our next question comes from the line of Karen <unk> with Piper Sandler. Please proceed with your question.

Karen: Hey, Tim Good morning, Thanks, so much for taking the question.

Karen: Like to touch a little bit on that.

Olivia Tong: One how you're thinking about lapping some of the bigger launches.

Olivia Tong: We progressed through the year, such as men's that's been doing particularly well everyday luxuries, how should we be thinking about.

Speaker Change: <unk> through those and then also I think the adjacent categories as a percent of sales hasnt changed meaningfully in the past couple of quarters can you just touch a little bit on your strategy behind those categories is there a goal to get those as a larger piece of the mix or are you pretty pleased with with how they are doing right now. Thank you.

Speaker Change: Yeah.

Speaker Change: Our all star occur and then and maybe Daniel I'll have something to jump to jump in.

Speaker Change: So first on on the launches such as men's everyday luxury.

Speaker Change: We see those as foundational to build upon those versus thinking about them as we have.

Speaker Change: We have to lap.

Speaker Change: Everyday luxury was in the full fleet and that by the end of the second quarter of last year. So weak for women's it's continued to perform well with broad new fragrances, we introduced body cream and customers really responded favorably.

Speaker Change: On the Adjacencies, they did grow faster than the overall that our overall growth. So they're their rate of growth is is greater I would say given the predominance of Disney and the impact in first quarter, you don't see it as a as a percent of total with the 10% being consistent.

Speaker Change: But we're pleased with where we're positioned and look forward to continuing to drive growth.

Speaker Change: Thanks, Steve and let me just let me just jump in and say well my observations around Adjacencies are I do think that the business should feel proud about the business today bill in the Adjacencies. They all segments, we've entered with large addressable market.

Speaker Change: As Eva said, it's growing above shop.

Olivia Tong: I'll come back to something I mentioned earlier, which is I do believe we're going to need to focus edit to amplify fewer bigger thing.

Olivia Tong: Ill, let Brett more depth I think that when we do that.

Olivia Tong: To put more marketing heft behind fewer priority and it also tells our can FEMA.

Olivia Tong: Most important so.

Olivia Tong: Of course, we want to make sure that we continue to build the basket of existing consumers through the adjacencies that we have but really the focus is on the adjacencies building, new consumers and bringing new consumers to the brand.

Olivia Tong: Thank you next question please.

Speaker Change: Our next question comes from the line of Ashley Hogan with Jefferies. Please proceed with your question.

Ashley Hogan: Hi, This is Sydney Entre Ashley Thanks for taking our question wondering if you can share any underlying assumptions you have for the fragrance category and then just curious how you think about the long term mix of online versus in store with kind of the extra digital initiatives. Thanks.

Speaker Change: Yes, we'll start with the online software hi.

Olivia Tong: <unk>.

Olivia Tong: I'll kind of go back to my growth philosophy here the.

Olivia Tong: The most important thing that we do is listen to the consumer and the most important thing that we do is meet the consumer where they are so we're not setting a target that is.

Olivia Tong: For our digital business, but we do expect our digital business to be in line or slightly above market penetration and we have got an opportunity to grow that we know that is where the overall segment is growing that we do expect to see accelerated growth in that area, but.

Olivia Tong: We won't we won't do something that forces the consumer into a channel mix, but not right for them.

Speaker Change: Yes, and on your fragrance category as we all know fragrances on trend and growing nicely and as we look at our business as the category leader in each of our businesses right. We're going to always look to grow with the market and grow and grow share and we're excited about the newness.

Speaker Change: That we're bringing and we will look to continue to drive momentum with that newness.

Speaker Change: Thank you. Our next question comes from the line of Adrienne <unk> with Barclays. Please proceed with your question.

Speaker Change: Good morning. This is <unk> on for AGM, So maybe for Eva first you noted.

Speaker Change: Positive dual channel traffic and maintained market share can you elaborate on what drove the traffic outperformance and whether you see this trend sustaining into Q2 and what is incorporated into full year guidance regarding market share and then a quick one for Daniel Obviously this company generates strong free cash flow in the $300 million in buybacks, where we.

Olivia Tong: Reaffirmed how are you approaching capital allocation under your leadership, particularly the tradeoffs between returning capital and funding new growth initiatives. Thank you.

Olivia Tong: Yes, thanks for the question.

Speaker Change: Overall in Q1, as we said earlier, we drove positive traffic dual channel in both of our in stores and online and we outperformed outperformed the <unk>.

Speaker Change: Benchmarks that that we track as we look at the trends they are embedded.

Speaker Change: They're embedded in the Q2 guidance that that we that we provided that we provided today.

Olivia Tong: We don't guide to market share, but what I will tell you is we strive to look to gain market share grow with the market gain share.

Speaker Change: Thanks, Stephen So on capital allocation I would say.

Olivia Tong: 10 days in it's probably too early to be signaling what we're doing in terms of capital allocation or changes to capital allocation.

Olivia Tong: Im going to work, obviously with the board and with IBRA on that but again my focus is making sure that the investment that we are using today is focused in the right priority growth areas and so that will be the first place I'm looking.

Dana Telsey: Thank you. Our final question. This morning comes from the line of Dana Telsey with Telsey Advisory Group. Please proceed with your question.

Dana Telsey: Hey, good morning, everyone. As you think about the comment that you had traffic in both channels that exceeded third party benchmarks. What are you seeing in your opening our stores versus the enclosed mall stores and Daniel any way that you're thinking about malls versus open air given the significant shift that's going.

Dana Telsey: To open air and how they are doing and what are you how you're thinking about the online channel and if any website enhancements should be coming thank you.

Dana Telsey: Thanks, Dana for the question I'll start with the with the mall versus off mall performance consistent with prior of prior quarters off mall stores performed better than mall stores, largely driven by stronger stronger conversion.

Dana Telsey: <unk>.

John: So thats pretty consistent no change in trends there John.

Speaker Change: Doug Lee I've, just been in both malls and off mall locations on the off mall locations I like the Adjacencies.

Speaker Change: The fact that we're next the big anchors and traffic like Walmart target and that driving strong traffic through our doors when it comes to.

Dana Telsey: Website enhancements again, something that we're going to be prioritizing I'm pleased with the underlying Tech Foundation that the company has invested in it does allow for some rapid change in this area, we will be bringing some.

Dana Telsey: I would call feature enhancements.

Dana Telsey: In August to the App, but really looking to try to bring a much big aesthetic change too.

Dana Telsey: Digital platforms.

Dana Telsey: In the coming couple of quarters that is something that team is prioritizing and something that we're going to be getting off the straight away and I do think that as well as allow.

Dana Telsey: Allowing consumers to connect more emotionally to the brand to telling better product story. It will drive conversion and growth. It is both it has had on heart it is content and coma.

Dana Telsey: Great.

Speaker Change #102: We want to thank everyone for joining today's call a replay will be available for 90 days on our website.

Speaker Change #101: You for your interest in Bath <unk> body works.

Dana Telsey: Okay.

Speaker Change #103: Thank you. This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.