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F500-2021-257-L Brands

The company sells beauty and personal care products. L Brands recently spun off Victoria’s Secret into its own publicly traded business and changed name to Bath &amp; Body Works.

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Women's intimates and personal-care product retailer L Brands owns Bath and Body Works, Victoria’s Secret, and PINK. In May the company said it has agreed to call off a sale of 55% of Victoria's Secret to private equity firm Sycamore Partners.

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This year's Fortune 500 marks the 65th running of the list.

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Bath & Body Works (BBWI): Company Profile, Stock Price, News, Rankings

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Bath & Body Works

bath & body works

Good morning. My name is Melissa, and I will be your conference call operator today. At this time, I would like to welcome everyone to Bath and Body Works Third Quarter 2024 Earnings Conference Call. Please be advised that today's conference is being recorded. I will now turn the call over to Luke Long, Vice President of Investor Relations.

Good morning and welcome to Bath and Body Works' 3rd quarter 2024 earnings conference call. Joining me on the call today are Gina Boswell, Chief Executive Officer and Eva Borado, Chief Financial Officer. In addition to this call and this morning's press release, we have posted a slide presentation on our website that summarizes the information in these prepared remarks, in addition to providing some related facts and figures regarding our operating performance and guidance. As a reminder, some of the comments today may include forward looking statements related to future events and expectations. For factors that could cause the actual results to differ materially from these forward looking statements, please refer to this morning's press release as well as the risk factors in Bath and Body Works 2023 Form 10 ks and our quarterly report on Form 10Q which will be filed this week.

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. Fiscal 2023 was a 53 week year. Provide the best understanding of the business, all category sales results, year to date market share data, loyalty metrics and selling metrics discussed during the call are on a comparable calendar basis, which is the 13 weeks ended November 2, 2024 versus the 13 weeks ended November 4, 2023. All other results discussed are on a reported basis, which is the 13 weeks ended November 2, 2024 versus the 13 weeks ended October 28, 2023.

With that, I'll turn the call over to Gina.

Thank you, Luke, and good morning, everyone. We appreciate you joining us. I'll start with a high level review of our Q3 results, including the customer behavior we're observing, the actions we're taking to drive growth and the progress we've made against our strategic priorities. Then Eva will walk through our financials in more detail. We delivered a strong quarter.

Net sales were $1,600,000,000 up 3% versus the prior year and earnings per diluted share were $0.49 We beat our guidance on both the top and bottom line and we are raising our full year guidance to fully reflect this outperformance. I've spent a lot of time in our stores over the past few months and I've seen firsthand how customers are responding positively to our seasonal merchandise and storytelling. Witnessing our beautifully arranged floor sets along with our store associates' unique ability to meet our customers' needs is always a great reminder of the strength of our retail experience and the team that enables it. Our continued product innovation coupled with improved demand generation, the compelling value of our products and our team's strong execution drove positive store traffic and conversion for the quarter. Our store traffic exceeded the 3rd party benchmarks we track.

Each of our categories body care, home fragrance and soaps and sanitizers grew low single digits year over year and year to date we maintained our overall leading unit market share. And with this quarter's results, our net sales performance adjusted for calendar shifts has sequentially improved each quarter during 2024. Our strategic investments and focused execution of our 5E strategy are driving momentum toward long term profitable growth. As a reminder, the 5Es of our strategy are elevating the Bath and Body Works brand and core products, extending our reach to new adjacencies and markets, engaging with customers in new ways, enabling a more seamless omnichannel experience and finally, enhancing operational excellence and efficiency. All of this is underpinned by the hard work of our talented associates.

We made progress on each of the 5 Es in the quarter, starting with elevating the brand and core products. We are innovating across our portfolio and are continually raising the quality of our products, including updating the ingredients, packaging and fragrances to meet and create customer demand. Our home fragrance performance in the quarter was fueled by growth in the candle business as we drove targeted marketing investments coupled with a successful new promotional event. The team strategically timed this new event to align with this year's holiday calendar. We executed well and met the customer mindset.

As we noted when we reported our Q2 results, it is a competitive market with a value conscious consumer, a trend that has continued. And as the category leader in home fragrance, we are reasserting our differentiation as America's most loved candle brand through storytelling that conveys the quality and value of our products, through a compelling assortment at a range of price points and by utilizing our speed and agility to meet the market where it is, driving unit share gains in the quarter. And while normalization of the candle market has impacted us this year, on a unit basis, it has moderated each quarter and we do not expect it to have a material impact on our business in 2025 beyond. Fragrance is core to who we are and we drove growth in Body Care by delivering compelling fragrances. For example, customers responded positively to the full North American rollout of Everyday Luxuries.

This helped drive double digit growth in buying fragrance myths during the quarter. Everyday Luxuries is connecting with a younger customer and as a platform it has the potential to drive growth for years to come. Body Care also benefited from our on trend single fragrance launches of Vanilla Romance and Platinum. And we're excited about the launch of our latest cross category fragrance Perfect in Pink, which we debuted in the final week of Q3. Soaps and sanitizers growth was driven by strength in core sanitizers, moisturizing sanitizer forms and a new 1 ounce spray.

I also want to spend a moment on collaborations. As a reminder, collaborations are a key element of our strategy to drive growth in our core products. They deliver highly differentiated storytelling that generates top of mind brand awareness with existing customers and attracts new customers. Our selective approach to collaborations not only drives traffic, it also enhances our brand's cultural relevancy. In the Q3, we launched Part 2 of our Stranger Things collaboration.

This was primarily focused on the home fragrance category and generated buzz around our Halloween floor set, which exceeded last year. We also announced our Emily in Paris cross category collaboration. This kicked off with a successful early access event at the start of Q4 and the full launch is just around the corner. On the 2nd pillar of our 5E strategy, extending our reach, we are growing our new category adjacencies, opening additional store locations and expanding in international geographies to drive growth. Adjacencies are an opportunity to expand and diversify our product portfolio, applying our fragrance expertise to large addressable markets.

We evaluate adjacent category performance based on their incrementality to the basket, repeat purchase rates and ability to attract new customers. Our adjacent categories of men's hair, lip and laundry continue to perform well and year to date represent approximately 10% of our business with potential to become a larger percentage of our mix in 2025 and beyond. I'll share a few of the highlights from the quarter. Today, men's, which is included in our body care business, is our largest adjacency. And we see significant opportunity as we continue to increase awareness.

Momentum in the men's business remains strong this quarter as we continue to evolve our marketing and launch new fragrances. For example, customers responded well to our new vanilla noir fragrance. In lip, which is also included in our body care business, you can expect to see additional launches of exciting products like gloss and lipstick, which we're confident will continue to excite younger customers. In laundry, which is included in home fragrance, we completed the full U. S.

Rollout in September. We believe it is an exciting platform for long term growth that capitalizes on our differentiated fragrance expertise. Moving to real estate, we continue to reshape the portfolio and move stores off mall. Approximately 55% of our North American stores are in off mall locations and the portfolio remains very healthy. International markets are an attractive pillar of our strategy.

Today, international represents approximately 5% of our net sales and there's significant long term opportunity as we enter new markets and expand in existing markets. System wide retail sales grew double digits in Q3 in the areas not affected by the war in the Middle East. While our business continues to be pressured in the regions affected by the war, where we saw system wide retail sales decline double digit, the year over year impact began to moderate in October. At the end of the Q3, we celebrated the opening of our 5 100th international store in London. Our partner store openings this year remain on track with approximately 50 net new stores this year.

Next is our focus on engaging with customers and enabling a seamless omnichannel experience. Our teams have made strides in marketing, loyalty and technology. We are employing multiyear strategies in these areas that are key enablers of sustainable long term growth. And these efforts are already having a positive impact on the business. For example, during Q3, we achieved record high customer retention rates and an improvement in attracting new to brand customers.

We're especially encouraged by the strong growth within our highest value customer segment called the Fragrance Fashionistas. This group, which purchases up to 30 fragrances a year, has grown every quarter this year. We also continue to advance our loyalty program, which has industry leading satisfaction ratings and represents over 80% of our sales. In Q3, we had approximately 38,000,000 active loyalty members, up 4% compared to the prior year. Loyalty customers visit us more frequently, spend more, have higher cross channel and cross category purchase behavior and higher retention rates than those outside the program.

Our technology roadmap is on track. We are building the foundational tools and systems to support long term growth and enabling new capabilities to increase customer engagement and provide a more seamless cross channel shopping experience. In Q3, we successfully launched our everyday luxuries line on TikTok shop, allowing us to reach younger customers where they are. According to Fiverr, nearly 54% of Gen Z customers will discover holiday gifts on TikTok this season. We intend to continue to leverage this important platform to connect with this audience using highly engaging content to boost brand awareness throughout the holiday period.

Finally, enhancing operational excellence and efficiency. While we execute initiatives to engage our customers and drive top line growth, we continue to be focused on cost discipline. Our fuel for growth plan is progressing and we now expect to deliver $150,000,000 of incremental cost savings by year end, bringing the 2 year total to $300,000,000 significantly exceeding our initial targets. Additionally, our beauty park continues to be a significant competitive advantage driving speed and operational agility. With around 85% of our products manufactured in North America, we believe we are relatively well positioned for any potential tariff fluctuations.

To summarize the quarter, I'm pleased with our strong performance and the momentum we're building. As we enter Q4, our key holiday selling we're poised to drive strong demand and are excited to offer compelling products with gifts available at a wide range of price points. Our fulfillment centers and stores are fully staffed and ready to deliver an exceptional retail experience, while our omnichannel approach ensures customers can shop seamlessly wherever and whenever they choose. Over the long term, our strategy and the actions we're taking position the company to return sustainable profitable growth, driving meaningful shareholder value creation. Before I turn the call over to Eva, I'd like to thank our teams for their outstanding execution, for delivering against our strategic priorities and for consistently providing great service to our customers.

to Eva. Thank you, Gina, and good morning, everyone. We executed well in the Q3 and delivered earnings per diluted share of $0.49 beating our guidance of $0.41 to $0.47 per diluted share. This outperformance was driven by net sales and our ongoing cost discipline. As discussed earlier, consumers responded favorably to product innovation and compelling value proposition.

We delivered net sales of $1,600,000,000 an increase of 3% versus prior year, beating our guidance on the top line as well. As expected, the calendar shift benefited net sales by approximately 200 basis points in the quarter. In U. S. And Canadian stores, net sales totaled $1,200,000,000 an increase of 4.4 percent versus prior year.

Direct net sales were $321,000,000 an increase of 1.5% compared to last year. As a reminder, BOPUS net sales are recognized as store net sales. When adjusted for BOPUS, direct outperformed stores. BOPUS demand increased approximately 40% in the quarter and year to date represents approximately 25 percent of total digital demand. International net sales were $69,000,000 down 11.1% from the prior year.

The decline was entirely driven by the markets affected by the war in the Middle East, which currently represents about half of our total international business. Our system wide retail sales performance continues to be strong in areas not affected by the war, growing double digits year over year. International was an approximate 70 basis point headwind to Q3 net sales growth. 3rd quarter gross profit rate of 43.5 percent was in line with expectations and a decline of 10 basis points compared to prior year. Gross profit benefited from continued cost savings, offset by strategically planned promotion activities in the quarter.

AURs increased 1% in the quarter, driven by mix. We will continue to utilize our agile business model and we will take the appropriate pricing actions to maximize sales and margin for the company. Our nimble supply chain allows us to quickly respond to the competitive marketplace and consumer preferences and demand. SG and A as a percentage of net sales of 30% was better than our expectations, a result of our disciplined management of our home office costs. There were also some shifts in the timing of spend from Q3 into Q4.

Finally, I would note that Q3 SG and A reflects an incremental year over year 100 basis point of marketing investment consistent with prior quarters. The benefits of our fuel for growth cost optimization work spans across both gross profit and SG and A. In the Q3, we delivered benefits of approximately $35,000,000 As Gina mentioned, the expected 2024 Fuel for Growth contribution now totals $150,000,000 up from our prior estimate of $130,000,000 The increase is largely in margin. I am pleased with our team's outstanding work on this initiative. 3rd quarter total operating income of $218,000,000 decreased 1.3% and was 13.5% of net sales.

With respect to inventory, we ended the Q3 with total inventory down 2% to last year. Heading into the holiday season, our inventory levels are well positioned. For real estate, in the Q3, we opened 35 new off mall stores and permanently closed 19 in mall stores in North America. Internationally, our partners opened 13 net new stores in the 3rd quarter, resulting in a total international store count of 510. Turning now to our financial guidance.

Our Q4 sales expectations include some unique elements given the calendar shift, the 53rd week last year and the 5 fewer shopping days between Thanksgiving and Christmas. The midpoint of our Q4 net sales guidance assumes growth that is consistent with our Q3 results when adjusting for these calendar impacts. Our reported sales are expected to be down 6.5% to down 4.5% versus the prior year. We expect 4th quarter gross profit rate to be approximately 46.3 percent, an improvement of 40 basis points versus prior year, reflecting our fuel for growth savings and distribution productivity. We expect 4th quarter SG and A rate to be approximately 22.4%, up approximately 40 basis points to last year, largely due to our marketing investments, which we begin to lap in the quarter.

We expect 4th quarter net non operating expense of approximately $70,000,000 a tax rate of approximately 26.4 percent with weighted average diluted shares outstanding of approximately 217,000,000. Considering these inputs, we are forecasting 4th quarter earnings per diluted share of between $1.94 $2.07 Now I will highlight our fiscal 2024 guidance. For the full year, we now expect net sales range to be down 2.5% to down 1.7%, the 53rd week in 2023 added $81,000,000 to net sales and represents a headwind of approximately 100 basis points to our 2024 growth. We've provided the quarterly impact on net sales due to the calendar shifts in our slide presentation. We continue to expect gross margin rate of approximately 44% and SG and A rate of approximately 27%.

We are raising and narrowing our full year guidance for adjusted earnings per diluted share to between $3.15

up 2% at the midpoint versus our prior guidance, reflecting the Q3 outperformance and our Q4 outlook. Now for a quick update on capital allocation. Our top priority remains driving sustainable long term profitable growth through investments in the business. Year to date through the Q3, our total capital expenditures were $166,000,000 Our full year capital investment plan remains approximately $250,000,000 the vast majority of which will be reported as capital expenditures in our cash flow statement. During the quarter, we paid out $44,000,000 in dividends and we have paid out $134,000,000 year to date.

Additionally, we recently announced a quarterly dividend of $0.20 per share payable on December 6. We expect to continue our annual dividend of $0.80 per share with the intention to increase the dividend over time with sustained earnings growth. During the quarter, we repurchased 3,200,000 shares of common stock for $99,000,000 at an average price of $30.87 per share. Year to date, we repurchased 9,000,000 shares of common stock for $348,000,000 Our full year guidance reflects the expectation to repurchase $400,000,000 Our gross adjusted debt to EBITDAR ratio is 2.7 times on a trailing 12 month basis. Year to date, we repurchased $200,000,000 principal amount of senior notes.

And in July of next year, we have $314,000,000 of debt maturing, which we will pay down. After investments in the business, we continue to expect to generate full year adjusted free cash flow between $675,000,000 $775,000,000 As outlined, we'll put that towards our capital return priorities of dividend and share repurchases. Lastly, we will not be providing any guidance on 2025 until we report our Q4 2024 results. I'm pleased with the momentum in the business we are building as we head into the holiday season and execute against our strategy. With that, I'll turn the call back to Gina for some closing remarks.

Thank you, Eva. To close, I'd like to thank our teams for delivering Q3 net sales and earnings above the high end of our range, and I am pleased to raise our full year guidance to reflect the outperformance. We are laser focused on executing the all important Q4 and building on our momentum. Our focused investments are working and we're beginning to see results. We have the right strategy in place and are taking the right actions to position the business to navigate this volatile near term environment and to return to long term sustainable profitable growth as we enter 2025.

We have a best in class team executing. And as we look to the new year, we have a lot to be excited about. I will now turn the call over to the operator for questions.

Thank you. At this time, we'll be conducting a question and answer session. Our first question comes from the line of Lorraine Hutchinson with Bank of America. Please proceed with your question. Good morning.

slide deck that you don't expect candle normalization to have a material impact on business in 2025 beyond. Is this a change? And what drives you your confidence that this pressure is behind you?

Thank you, Lorraine. Good to hear from you.

We as I said in the remarks, we are the candle category leaders. So we are looking at the market as a whole. We've been exerting our leadership and as a result of amplifying also our quality messaging and meeting the customer where they are, We've seen the candles certainly gain share market unit market share and we drove growth. The comment that we made was we don't expect candle normalization impact beyond. We have seen some of the levers, for example, for us when we shine some of our collaborations on candles, Stranger Things Part 2, fall seasonal assortment.

The customers really responded to some of these seasonal bringbacks as well and that's road growth in the candle market. So effectively, we see that as behind us. It had been normalizing and impacting us in 2024 moderated And we're all about putting the innovation, the collaborations and the marketing brand building activities behind this leading having leading market share as well allows us to see that picture. Thank you for the question.

Thank you. Our next question comes from the line of Mark Bolchwager with Baird. Please proceed with your question.

ask on gross margin. I think this is the Q1 in quite some time where you didn't deliver upside to the gross margin guidance and even with some of the outperformance in the fuel for growth initiative. So hoping you could just talk us through some of the puts and takes there. And then just bigger picture, guidance implies about 17% EBIT margin this year.

for this business? Or do you think the sustainable top line growth will require higher levels of investment moving forward? Thank you.

Thanks for that question, Mark. This is Eva. I'll take that one. We delivered right in line with our expectations on gross margin. We benefited from the cost savings.

We are lapping significant improvements last year in gross margin. It was about 140 basis points expansion. And we did have some incremental strategically planned promotions that we're pleased with the returns on both the top line as well as the bottom line. So we're pleased with our margin performance. As you ask your question longer term, our target gross margins are 45%.

Our guidance for this year implies about 44%. So we're pleased with the progress we've continued to make to improve our margins and remain focused on moving toward those target margins of 45% and 20% at the OI level.

Thank you. Our next question comes from the line of Matthew Boss with JPMorgan. Please proceed with your question.

Great, thanks. So Gina, could you elaborate on category trends versus plan you saw in the Q3? And maybe the cadence of traffic that you saw as the quarter progressed, what you're seeing so far in November? And then for Eva, just on gross margin, if you could maybe bridge the 40 basis points gross margin expansion in the Q4, just maybe walk through the drivers?

Thanks, Matt. I will start and I'll ask Eva to chime in as well. As we said, the categories themselves, the body care, home fragrance and soaps and sanitizers grew in the quarter compared to last year. So low single digits, it was great actually to see the positive response that customers had to our seasonal merchandise. They continue to seek our newness and innovation.

And so things like everyday luxuries, which was lifting the fine fragrance mist very nicely, and our seasonal fragrance launches like vanilla romance and platinum, these are on trend fragrances, which lifted those categories. Overall, it was great to see the categories as a whole respond to this level of newness and innovation and it's supported by the competitive value proposition that we provide and also increasing the demand driving investments in the marketing side. So that's it from the category side. Over to you Eva for the remainder.

Sure. So on the gross margin, Matt, overall the 40 basis point expansion is largely driven by B and O, continued benefits from our direct fulfillment as we optimize our network. We also do have some home office cost reductions that benefit the B and O line as well. So we're pleased with the Q4 gross margin expectations. In terms of traffic trends in the quarter, overall, we were really pleased with traffic throughout the quarter.

Traffic was up in our stores throughout the quarter and it was driven by the newness that we brought everyday luxuries launch drove traffic, our fall candles, our traffic exceeded external benchmarks. And finally, I'll go back to Halloween. It feels like a long time ago, but our Halloween performed really well, up double digits, which was amplified by our Stranger Things Part 2 CoLab. So as you have 3 legs of the stool working together, our promotion, our product amplified by our marketing, we're really pleased with the response we got from customers.

Thank you. Take our next question please.

Thank you. Our next question comes from the line of Alex Drayton with Morgan Stanley. Please proceed with your question.

Perfect. Thanks so much. Just first on revenue, it looks like when you adjust out the 53rd week dynamics, you actually are delivering that growth you hoped for in the back half. Do you see it that way? And then what's holding you back from the mid single digit to high single digit hopes you have longer term?

And then one quick final one is just on anything you can provide on the margin profile of the adjacencies as they become a bigger part of the revenue base? Thanks a lot.

Hi, Alex. This is Eva. I'll take the first couple of parts of the question and Jean will take the 3rd part. As you looked at our Q3 performance and our expected Q4 performance, when you normalize for the calendar shifts at the mid what we delivered in Q3 as well as at the mid and the high, we continue to drive growth. Obviously, on a reported basis, Q4 has a significant number of calendar shifts, the 53rd week and the shorter shopping time between Thanksgiving and Christmas.

So overall, we're pleased and we're pleased how we're entering the quarter and the momentum that we've built. On the adjacencies, overall, it's factored into our gross margin outlook. I don't want to comment specifically on any given product, but a typical rule of thumb is as products mature, as they scale, we can improve our gross margins. And I'll turn it back to Gina looking longer term.

So, thank you. I think let me just comment on adjacencies and go longer term as well. As it relates to adjacencies, we mentioned that it was in aggregate about 10% of our business. And just to remind us about the goal of adjacencies, it's really to extend our reach, increase penetration, diversify the portfolio while still growing the core. And in this quarter, adjacencies in the aggregate grew above SHOP.

That is consistent with the first half of the year. So the sequential improvement was driven by the core. And so to have both adjacency and core driving, is really important. On the as I said, Eva said as well, we're not going to comment specifically on 2025, but we should expect to see improved health in our core categories. We should see the adjacent categories continue to grow in both size and contribution.

And we're really pleased with where we sit right now. Thank you. Next question, please.

Thank you. Our next question comes from the line of Paul Lejuez with Citi. Please proceed with your question.

Hey, thanks guys. Sorry if I just did both. What was the Q3 merch margin and what is your plan for merch margin in 4Q? And anything you could share on AUR on like for like and what's driving that mix, the AUR being up 1, what is driving that higher? Thanks.

Yes. Paul, this is Eva. On the margin, I would say merch margin was flattish to last year. And as I said earlier, we continue to benefit from some of our initiatives to improve cost. We're lapping a very strong improvement last year offset by some of the promotional activities.

As you look at Q4, I would say, merch margin pretty flattish as well and really the improvement year over year we're driving from our B

and O efficiencies. And I'll add on the like for like and the mix. It's great to see mix driving AUR up 1%. And really it's a function of the combination of product price and marketing coming together. But we have a good better best product mix and that's great to see in this with a wide variety of price points.

We're elevating the value that we deliver to our customers and the innovation. So overall, we're pleased with where we sit in this environment and excited to see the results show up in the P and L. Thank you for the question. Next question please.

Thank you. Our next question comes from the line of Simeon Siegel with BMO Capital Markets. Please proceed with your question.

Thanks. Hey, good morning everyone. Nice to see the progress. Eva, could you how much was marketing as a percent of sales? How are you thinking about that going forward?

And then Gina, just can you maybe to dig into the Colab learnings a little bit? I know it's still relatively early, but you have a few in place. I know you're great with data. So I'm just curious how you would frame the learnings and the benefits maybe you're seeing so far. Like would you characterize them as driving new customers, driving greater frequency of existing, boosting the current shoppers annual spend?

Does it smooth out otherwise seasonal purchases? I'm just trying to think through if you could share, because it seems like you're creating catalyst as opposed to relying on what had been specific holidays or seasons do that for you. So any color there would be helpful. Thank you.

Yes, Sameet. I'll start with the marketing. Overall, on an annual basis, it's about 3.5% of our sales. In the quarter, it was about 100 basis points step up from LY. And you see in Q4, right, we're beginning to lap the marketing investment, but there's still a step up bringing us to the full annual 3.5%.

And as it relates to your question on CoLab learnings, this is really driving the growth in the core products and it's generating that top of mind awareness with both existing customers and attracting new customers as well. And on top of that really delivering a highly differentiated storytelling. So we've got a selective approach when it comes to Colabs. Not only does it drive traffic, which is a measure that we use to answer your question, but it's also enhancing our brand cultural relevancy. So examples of that, Stranger Things Part 2 really generated buzz in the Halloween floor set, which exceeded expectations as Eva discussed.

Our Emily in Paris cross category collaboration kicked off with a successful early access event, at the start of this quarter and the full launch of that is right around the corner. And so in total, the metrics are traffic, they're brand building relevancy, particularly for the 18 to 34 year old customer, because the way we choose these is the complementarity of what the Bath and Body Works customer is and the Netflix property in this case that we would be working with. So that's the overall CoLab learnings and we're really pleased with success so far. What's great about having Bridgerton out of the gate success is that there's a pipeline of people who would want to work with us and we can be very choosy from that perspective. Thank you for the question.

Thank you. Our next question comes from the line of Kate McShane with Goldman Sachs. Please proceed with your question.

Hi, good morning. Thanks for taking our question. Last quarter you mentioned that the adjacent categories were performing well, particularly with existing customers, but it was taking some time to build the brand awareness and generate a greater number of new to brand customers. I don't think we've heard similar language today and just wondered if anything has changed there.

Actually, the adjacencies are delivering as we expected and there's a strong delivery there. Nothing's changed from that perspective, although what we do watch is for adjacencies, we want to make sure that we got the incrementality that is building the baskets. So no change there it is. Repeat rates are still very strong. So we're excited by that.

And depending on the category, whether it's men's, hair, lip and laundry, varying degrees of the percentage of customers that are new to the brand. So we're pleased actually with the progress. These are still at varying degrees of penetration and percentage of our total portfolio, but no change and they're contributing as well as the core. So it's great to see that. Thank you.

Thank you. Our next question comes from the line of Jonah Kim with TD Cowen. Please proceed with your question.

Thanks for taking my question. Obviously, you had some nice momentum with newness this year. Could you talk about how much of the sales is driven by newness now? And as we think about next year, if you plan to ramp that up? And just also wanted to get some color around the cadence of newness as well as far as you can provide some color around it?

Yes. Thank you for the question. We talk quite a bit about the core and more and that usually refers to the core categories, which we commented on all 3 big categories being up in sales. We also talk about more and more is the adjacencies, but it's also around the level of newness.

And we are every bit is driven by newness as we have in the hey days of Bath and Body Works, which I'm pleased to see. The customer will always come for newness and innovation. It is especially scalable, relevant newness. And so we're going to continue to work that winning recipe. There's no particular ramp on newness next year, but as a percentage of the portfolio, we'll continue to be the lifeblood of this business.

And we're excited by the pipeline that we see. Thank you. Next question, please.

Thank you. Our next question comes from the line of Ike Boruchow with Wells Fargo. Please proceed with your question.

Hey, good morning, everyone. Eva, maybe first one for you. Just on the international side, maybe excluding the calendar shifts, what's the expectation for 4Q and the timing of return to growth given the headwinds there? And then this follow-up for Gena. Just it doesn't sound like it, especially based on your tone and your Q4 outlook, but just because of the gross margin, the lack of robust upside you guys have been putting up, but also the revenue upside.

Just trying to understand, is there any kind of strategic shift in your view where you need to give up a little bit more of the gross margin to drive more productivity and more market share gains? And it sounds like that's what you're trying to message, but I just want to double click into that. Thanks.

Thanks, Ike, for the question. Overall, as we look at international, a couple of things I just want to highlight for you. First, in the areas not affected by the war system wide retail, sales grew double digits. We actually saw an acceleration and that's underpinning the health of the business, right? And that was store openings and comps and we feel really good about the acceptance of the brand there.

Now the war affected regions represent about half of our business and they continue to be pressured. In October, we saw a bit of relief as we began to annualize the start of the war, but it's really difficult to predict the dynamics there. For the Q4 from a reported sales perspective, I would expect sales to be down mid single digits. And if you think about our commentary last quarter, you look at the back half of the year, we're largely in line with our commentary last quarter. So we'll have more to say about 2025 on our earnings call, but we see international as a great opportunity for longer term growth and entering

Bath & Body Works Q3 2025 Earnings Call Transcript | Fortune

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Bath & Body Works (BBWI) Q3 2025 Earnings Call Transcript

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