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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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Wal-Mart stayed on top as its sales crept closer to half-a-trillion dollars. Apple moved into the top five. And UnitedHealth Group continued its steady climb. 

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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 operator today. At this time, I would like to welcome everyone to the Bath and Body Works Fourth Quarter twenty twenty four 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' fourth quarter and full year fiscal twenty twenty four earnings conference call. Joining me on the call today are Gina Boswell, Chief Executive Officer and Eva Barado, 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' twenty twenty three Form 10 K.

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 twenty twenty three was a fifty three week year. To provide the best understanding of the business, all category sales results, year to date market share data, loyalty metrics and selling metrics discussed during the call are on a comparable calendar basis, which is the thirteen weeks ended 02/01/2025 versus the thirteen weeks ended 02/03/2024. All other results discussed are on a reported basis, which is the thirteen weeks ended 02/01/2025 versus the fourteen weeks ended 02/03/2024.

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

Thank you, Luke, and good morning, everyone. We appreciate you joining us. On today's call, I'll start with a high level review of our key accomplishments in 2024, then I'll briefly walk through our fourth quarter results, including our growth drivers and the progress we've made against our strategic priorities. I'll also share a brief update on our 2025 expectations before turning it over to Eva to share more about our financial performance and guidance. Bath and Body Works is a global leader in personal care and home fragrance, and we make the world a brighter, happier place through the power of fragrance.

This purpose truly comes to life during the holiday season and I witnessed it firsthand in stores seeing our customers react to our beautifully curated holiday floor sets. I want to take a moment to thank our teams, especially our store and distribution center associates for delivering an outstanding customer experience during the critical fourth quarter. This past year can be best summarized as one of building momentum and establishing a strong foundation for long term growth. We successfully executed a number of key strategic initiatives to support our return to growth. For example, we launched collaborations with big names in pop culture through partnerships with companies like Netflix to better connect with our customers.

We successfully rolled out Everyday Luxuries, our prestige inspired line of fine fragrance mists and it is resonating with younger customers. We grew our active loyalty membership 6% year over year with approximately 80% of sales flowing through the program. We expanded our customer reach by growing category adjacencies such as men's, hair, lip and laundry. And we delivered approximately $155,000,000 of incremental cost savings through our Fuel for Growth program, bringing the two year total to over $300,000,000 significantly exceeding our initial targets. Turning to our Q4 performance, while we continue to see value seeking customer behavior and competitive intensity, we closed out the year strong.

Net sales in the quarter were $2,800,000,000 above the high end of our guidance. Importantly, our net sales improved sequentially in every quarter of 2024 when normalized for calendar shifts, of fifty third week last year and the shortened holiday calendar. At the same time, we continued our disciplined cost management and drove gross profit margin that exceeded our guidance and an SG and A rate that was in line with our guidance. Earnings per diluted share were $2.09 also beating the high end of our guidance range. So our strategy is working and we continue to focus on three priority areas.

First, accelerating top line growth. We're doing this in our core through what I call our three legged stool for growth product innovation, marketing and technology. And we're also extending our reach through adjacencies and international expansion. Second, we are enhancing operational excellence and efficiency through cost management and a continuous improvement mindset. And third, we are consistently deploying our strong cash flow to invest for growth and return value to shareholders through dividends and share repurchases.

Starting with top line growth, we drove positive dual channel traffic and conversion in Q4 with traffic exceeding the third party benchmarks we track. As a trusted gifting destination, our customers turn to us to celebrate the holiday season and they responded enthusiastically to our seasonal holiday collection. Timeless favorite holiday traditions rose to be the number one collection and our Home for the Holidays collection had the largest growth year over year up double digits. We launched innovative products in our core categories body care, home fragrance and soaps and sanitizers. Importantly, these categories performed in line with the market each maintaining their category leadership and unit market share in 2024.

Body care grew low single digits versus the prior year driven by successful seasonal fragrance launches and the strength of everyday luxuries. We rolled out everyday luxuries to all stores in early fall and customers responded positively to the incredible high quality fragrance and value it provides. The initiative is attracting a new, younger and more diverse customer base and we view it as a platform to drive long term growth. In 2025, we're expanding the collection with even more captivating fragrances and forms, including body cream and body wash to create perfect fragrance layering opportunities. Our on trend single fragrance launches in body care, Platinum in October and Perfect in Pink in November also performed well.

Each offers a unique olfactive appeal and aligns with current fashion trends. Metallic and pink were both prominent in collections from global fashion houses. Our home fragrance performance in the quarter was down slightly versus the prior year due in part to the timing of our promotional strategies. In the fall, we delivered successful and intentional new promotional strategy for candles aimed at bringing customers out early in anticipation of the shorter holiday season. This shifted some demand for candles from Q4 into Q3 as planned and resulted in a slight decline in the home fragrance category in Q4.

Importantly, in the second half of twenty twenty four, home fragrance was up slightly to last year, an improvement versus performance in the first half of the year. As the candle category leader, we are focused on sustaining customer interest through innovation and our fragrance expertise and I'm excited about our product pipeline for 2025. Wallflowers, our fragrance air freshener plug in performed well in the quarter. Fresh and clean fragrances like our new Clean House Vibes and our established Laundry Days are resonating with customers, especially as their mindset began shifting to spring cleaning in January. Soaps and sanitizers grew mid single digits in the quarter, driven by our convenient pocket back forms, moisturizing sanitizers and new one ounce sprays.

In Q4, the Quademic fueled demand for these products and our agile supply chain coupled with strong execution enabled us to meet that demand efficiently. I want to spend a moment on collaborations, which is a key element of our product and marketing strategy across our core business. Collaborations allow us to deliver highly differentiated storytelling that generates top of mind brand awareness with existing and new customers. They drive traffic and they enhance our cultural relevancy. We launched two collaborations in the fourth quarter that both performed well.

First, our cross category Emily in Paris collaboration which created buzz during the holidays and second, our Sweethearts collaboration which launched in January in time for Valentine's Day. And of course, we are all thrilled about the highly anticipated Disney Princess collaboration which launched this month. Customers are just as excited as we are about this. Our Disney TikTok post garnered over 1,000,000 organic views on the first day. I'm excited about our product pipeline and the newness we will bring to customers in 2025.

Next, customer experience. An important part of our growth strategy is to improve the in store and online customer experience through investments in marketing, loyalty and technology. We have successfully transitioned to a predominantly off mall retailer. Today, 57% of our North American stores are in off mall locations and we plan to continue increasing our off mall portfolio now with a target mix of 75% off mall over time given continued consumer preference. Our marketing and technology efforts, the second and third legs of our stool together contributed to record high customer retention rates and an improvement in attracting new to brand customers.

As we enter year three of the loyalty program, members continue to significantly outperform non loyalty customers, leading to increased spend, trips, cross channel purchases and higher customer retention. In Q4, we had approximately 39,000,000 active loyalty members, up 6% compared to the prior year. Additionally, our reward redemption rate is increasing, which is driving flywheel behavior and deepening brand connectivity, reflecting the strength and appeal of the loyalty program. And we have planned enhancements to the program in 2025, which we expect will excite customers and drive further improvements to redemption. Our technology roadmap remains on track as we enhance our systems and put in place foundational tools to enable more personalization and seamless customer engagement to drive long term growth.

Finally, we made progress extending our reach this quarter through growth in our adjacent categories and international expansion. We believe adjacencies are an opportunity to expand and diversify our product portfolio, applying our fragrance expertise and leadership to large addressable markets. Our adjacent categories of men's, hair, lip and laundry continue to materially outperform the shop. For the year, they represented approximately 10% of our business with potential to become a larger percentage of our mix in 2025 and beyond. Momentum in the men's business, which is included in body care, remains strong this quarter as we launched our first men's purchase with purchase set for the holiday season, which sold out in four days.

In 2025, we plan to launch more core fragrances in men's and we recently extended our successful Everyday Luxuries platform to men's. Lip, which is also included in our body care business delivers an immersive experience through our in store fixture drawing in younger customers. Lip was up approximately 50% year over year in the fourth quarter and we expect to launch exciting new lip products quarterly in 2025. Laundry, which is included in home fragrance is an exciting platform that we believe is positioned for long term growth, capitalizing on our differentiated fragrance expertise and elevated packaging. We are pleased with the early performance that followed the full rollout of laundry in Q3 and we expect to introduce new laundry forms beyond detergent and boosters in the future to fuel the platform's growth.

International expansion remains an important pillar of our long term strategy. International represents approximately 5% of our net sales and there is significant long term opportunity as we enter new markets and expand in existing markets. System wide retail sales were up nearly 10% in the quarter on a calendar adjusted basis, driven by 20% growth in the areas not affected by the war in the Middle East, while the regions affected by the war declined 4%. This is a significant improvement versus prior quarters as we have lapped the start of the war. And as we enter 2025, we expect the international business will once again become a positive contributor to top line growth.

Taken together, our focus on our growth drivers including our three legged stool of product innovation, marketing and technology and extending our reach through adjacencies and international expansion drove our return to growth in 2024 and we are eager to continue the momentum in 2025. Turning now to margins, we are enhancing operational excellence and efficiency by continuing to focus on cost discipline. Our Fuel for Growth program delivered approximately $155,000,000 of incremental cost savings in 2024 bringing the two year total to over $300,000,000 significantly exceeding our initial targets. Importantly, we're taking a continuous improvement mindset to manage costs and enhance operational efficiencies. This allows us to invest in the business while maintaining our margins.

Finally, we generated significant operating cash flow in 2024, nearly $900,000,000 and we remain disciplined in how we deploy that cash. We are reinvesting in the business and returning capital to shareholders through dividends and share repurchases. To summarize, I am pleased with our performance and the momentum we're building. As we enter 2025, we expect to drive growth through our product innovation, marketing and technology. These plans are multi year opportunities and we are in the early innings.

We expect to build on the innovation platforms we launched in 2024, including everyday luxuries and collaborations. And we expect to extend our reach through adjacencies and international expansion. Turning to our 2025 outlook, we expect 2025 net sales to be up 1% to 3% on a

we expect diluted earnings per share of $3.25 to $3.6 I'm confident that our strategy and focused execution will position the company to achieve sustainable profitable growth and to drive long term shareholder value. Before I turn the call over to EVA, I want to express a heartfelt thank you to our customers who share our passion for fragrance. With that, I'll turn it over to EVA.

Thank you, Gina, and good morning, everyone. In the fourth quarter, we reported earnings per diluted share of $2.09 exceeding our guidance of $1.94 to $2.07 This outperformance was driven by net sales exceeding our expectations, our ongoing cost discipline and a lower than expected tax rate. We delivered net sales of $2,800,000,000 which decreased 4% to the prior year and exceeded our guidance. The fourth quarter was impacted by the calendar shifts, the fifty third week last year and the five fewer shopping days between Thanksgiving and Christmas this year. Our net sales growth accelerated from the third quarter to the fourth quarter when normalized for these factors.

In U. S. And Canadian stores, net sales totaled $2,100,000,000 This was a decrease of 2% versus the prior year. Direct net sales were $595,000,000 a decrease of 9% compared to last year. However, when adjusting for buy online, pick up in store or BOPUS, direct sales outperformed stores.

BOPIS demand increased by 45% in the quarter versus last year and represents approximately 25% of total digital demand. International net sales were $84,000,000 down 10% from the prior year. Adjusted for the extra week, net sales were down mid single digits and in line with our expectations. Our fourth quarter gross profit rate of 46.7% exceeded expectations and expanded 80 basis points compared to the prior year. Gross profit versus prior year benefited from continued cost savings, distribution productivity and timing of certain costs.

We are pleased to have delivered both gross margin and net sales above guidance. I would note that our fourth quarter net sales performance was volume led with AURs down mid single digits. Mix adjusted AURs were down low single digits driven by the shorter holiday season, which resulted in fewer high AUR shopping days and strategically planned promotional days. SG and A as a percentage of net sales was 22.3% in line with our expectations. Our Fuel for Growth cost optimization plan delivered benefits of approximately $40,000,000 in the quarter and approximately $155,000,000 for the full year.

I am pleased with our team's outstanding work on this initiative. Fourth quarter operating income of $678,000,000 was 24.3% of net sales. With respect to inventory, we ended fourth quarter with total inventory up 3% to last year, in line with our expectations. Our inventory levels are clean heading into the spring. Turning to real estate, our portfolio remains healthy with 57% of our fleet in off mall locations.

For the full year, we opened 106 new North American stores, nearly all in off mall locations and permanently closed 61 stores, predominantly in malls. We expanded square footage 3% in the year. Internationally, our partners opened 44 net new stores during the year and we ended the year with five twenty nine stores. Turning now to our 2025 financial guidance. As Gene has said previously, we will continue to focus on three key areas.

First, accelerating top line growth in our core through product innovation, marketing and technology. We'll also continue extending our reach through adjacencies and international expansion. Second, enhancing operational excellence and efficiency through cost management. And finally, disciplined deployment of our strong cash flow. Our priorities are to invest for growth and return value to shareholders through dividends and share repurchases.

For the full year, we expect net sales results to range between 13% growth versus prior year. The midpoint of our guidance assumes growth consistent with the fourth quarter when adjusting for calendar impacts. We expect North American square footage growth of 2% to 3%, roughly in line with 2024. We expect international net sales to return to growth. We expect full year gross profit rate to be approximately 44%, supported by cost discipline, offset by product innovation and investment in real estate.

We expect full year SG and A to be approximately 27%. We are continuing marketing investments of approximately 3.5% of sales. We continue to invest in technology with spending up modestly versus 2024 largely in the back half of the year. We expect a modest wraparound benefit from our 2024 cost savings initiative. Our continuous improvement mindset will help drive efficiencies to offset investments in technology and wage inflation.

We expect full year net non operating expense of approximately two fifty five million dollars reflecting lower interest expense given our debt pay down throughout 2024. We expect an effective tax rate of approximately 26% and weighted average diluted shares outstanding of approximately $213,000,000 We have assumed $300,000,000 of share repurchases throughout the year. Considering these inputs, we are forecasting full year earnings per diluted share to be between $3.25 and $3.6 Turning now to the first quarter, our Q1 net sales outlook also reflects growth of 1% to 3% versus prior year. We expect Q1 system wide retail international sales up high single digits with reported net sales growth of double digits due to ship sales timing in Q1 this year. We expect first quarter gross profit rate to be approximately 43.3%, fifty basis points deleverage when compared to the prior year, driven primarily by a higher mix into international net sales.

Recall, in Q1 twenty twenty four, margins benefited from the lower international mix. We expect our first quarter SG and A rate to be approximately 30.2% comparable to Q1 twenty twenty four. Our first quarter outlook includes net non operating expense of approximately $65,000,000 a tax rate of approximately 29% and weighted average diluted shares outstanding of approximately $217,000,000 Considering all of these inputs, we are forecasting first quarter earnings per diluted share of $0.36 to $0.43 A few additional points on our guidance. As it relates to tariffs, we have included the impact of China in our guidance. We have not included other potential tariff impacts in our guidance due to the current uncertainty.

We will continue to monitor the situation closely and proactively pursue strategies to mitigate these impacts. Our 2025 net sales growth is expected to be generally consistent across the quarters. And finally, we are planning for inventory to be up mid single digits in the first half of twenty twenty five as we are accelerating certain holiday related inventory builds to support our growth goals while optimizing our supply chain capacity. Now for a quick update on capital allocation. We are strong cash flow generating business and our top priorities remain driving sustainable long term profitable growth through strategic investments in the business.

For the full year 2024, we invested approximately $245,000,000 into capital projects. The vast majority of these capital investments are reported as capital expenditures in our cash flow statement. We generated $725,000,000 in adjusted free cash flow in fiscal twenty twenty four, allowing us to deliver on our priorities of returning cash to shareholders and deleveraging our balance sheet. We've repurchased $514,000,000 principal amount of senior notes in 2024 and have now achieved our goal of 2.5x gross adjusted debt to EBITDAR. We paid out $177,000,000 in dividends and repurchased 10,400,000.0 shares of common stock for $400,000,000 in 2024.

In total, we returned approximately $577,000,000 to investors in 2024 through dividends and share repurchases. In 2025, we expect to invest between $250,000,000 and $270,000,000 in capital expenditures with a continued focus on real estate and technology. The increase in spend versus 2024 largely reflects some 2024 supply chain projects that moved into 2025. We expect to generate free cash flow of $750,000,000 to $850,000,000 in 2025, which includes working capital improvements from our Fuel to Growth initiative. We expect to continue our annual dividend of $0.8 per share.

As I previously said, our outlook includes the expectation to repurchase approximately $300,000,000 of shares. In summary, I'm proud of our team's hard work and focused execution in 2024, which enabled us to finish the year strong and build momentum entering 2025. With that, I'll turn

the call back to Gina for some closing remarks.

Thank you, Eva. As we close out our 2024 financial year, I'm pleased with the progress we're making and I'm excited about the momentum we're carrying into 2025. Our strategy is working and we're beginning to see results. We are laser focused on achieving sustainable long term profitable growth and creating value for our customers and shareholders.

As we look to the year ahead, we have a lot to be excited about. I will now turn the call over to the operator for questions.

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

Hey, good morning, everyone. Gina, I guess I wanted to ask, so building on the improvements exiting last year, sounds like you're excited about a lot. I mean, what are you most excited about as you look to 2025? And then maybe just regarding the 1Q trend, there's been a lot of buzz around Disney. Can you give us any color on the Disney collaboration?

Any KPIs you could share would be great. Thank you.

Thank you, and good morning, Ike. Great to hear from you. You're absolutely right. I think just stepping back, we're pleased with our Q4 performance, especially when you consider the calendar shifts that sequentially every quarter of twenty twenty four has improved. So that speaks to the momentum that is exciting.

It's great to close out the year and being able to build that as well as delivering sales and earnings that exceed. But I'm even more excited about our innovation pipeline. It's underpinned obviously by our fragrance leadership and our authority. And that's not just true of the core, it's the core and more as I like to say. So I'm excited by innovation around the core and the adjacent categories that we speak to.

And I'm pleased with how we started Q1. I think to your point, the Disney CoLab, I encourage everybody on the call to go into the stores because I think what you'll see is it's driving customer excitement. That's what happens when you see this reaction to exceptional product and storytelling brought to life. I think that is what Bath and Body Works does best better than anyone. And I think if we continue that with the product and the experience and the marketing that we've been talking about, I'm really confident that our portfolio is positioned for growth in 2025.

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

Great. Thanks and congrats on a nice quarter.

So Gina, maybe could you speak to drivers of the underlying revenue growth and in particular the traffic acceleration that you've seen in the last two quarters? And just confidence maybe on the sustainability of this revenue flexion, if you could elaborate on first quarter performance, maybe what you've seen so far and just tie in a bit on the product pipeline for 2025. And then EVA, just I guess maybe high level, what level of revenue growth is required to drive operating margin expansion from high teens today?

So, Evel, if you could start with the last part and then I'll pick up the first.

Sure, sure. So in terms of driving leverage, Matt, I would say there hasn't really been a change in our algorithm. It requires on the B and O line about 2% to 3% of sales growth and on the SG and A line, 2.5% to 3.5%

And I would say in terms of the traffic acceleration, we have a number of ways to drive traffic. We certainly have the things that we just spoke about, which is a very powerful collabs where you really have powerful brand connections like Disney. But frankly, as we saw Emily in Paris, we saw previously Stranger Things. I think this is our fifth major collab.

But it's the sustainability of it is really that three legged stool that we speak about. The product has to be compelling on trend and I was really pleased with how we delivered in the holiday against that. And certainly, the marketing, I mean, again, Disney is an example, but when we hit virality and we have organic TikTok views, we know we're meeting pretty much across the board all the customer cohorts to get them to come into the stores or to come online. And then technology, we're moving now with the loyalty in its third year, some of the personalization and things that we can do to trigger to make sure that we're meeting the customers where they're at and getting them excited about some of the traffic. Think about early access, that's traffic acceleration as well.

So these, we believe I believe are certainly sustainable and that's where my confidence is coming from for the growth in 2025.

Yes. And I'll come back, Matt, to your first quarter question and how the quarter started. Listen, we're pleased with how the quarter started. You heard Gina talk about Disney. And we have two months ahead of us, but we're pleased with how it started.

And we know our customers respond to innovation, and we're super excited what we have to offer as we progress throughout the year.

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

Thank you. Good morning. I wanted to gain a better understanding of your full year sales guidance. There's a lot happening. Candles are less of a pressure, adjacencies and collaborations are working, internationals returning to growth.

I guess I was just curious why you based your guidance on prior trends. Are there offsets we're not thinking about? Or is this a bar that you hope to beat?

Yes. Good morning, Lorraine. It's Eva. Overall, we always look to deliver or beat our expectations. We're very focused on that.

And I think as you think about the assumptions underlying our outlook, right, like you said at the midpoint, it assumes consistent trends with what we delivered in Q4, which has been an acceleration. We're assuming that there are no material changes to our promotional levels, and we have not assumed any improvement in the macro or consumer sentiment. And there's a lot of noise out there on that front. At the high, sales trends would accelerate, driven by the innovation that we're bringing, potentially some macro tailwinds or improvement in consumer sentiment. And we're excited about the newness, right, whether it's Disney that Gina spoke about, later we'll have a candle restage.

So a lot going on here and we'll look to deliver or exceed

And I'll add that we always have an agile model. So if we start to really catch the momentum further, we have an ability with our supply chain to meet that momentum.

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

Hi, good morning. Thanks for taking our question. We wondered if you could talk to any more detail around the winter semiannual sale and how it trended versus the summer semiannual sale and last year? And just how you think Co Labs will play a role and maybe reducing some emphasis on the semiannual sale in the quarters that you run it?

Great. Thank you. Nice to hear from you, Kate. I would say on the semiannual sale, it was generally the January, semiannual sale was generally in line with our expectation. We did have strength during the holidays and so our inventory levels, particularly those that were online, were lean heading into SaaS, so that's effective sales.

But we ended the year in a clean inventory position, which is, of course, an important metric of SaaS as well. And so we were pleased to deliver Q4 sales above the high end of our guidance. Summer SaaS, we always look at the learnings and the hindsight, and we'll be building that in, as we talk about in our last quarter into 2025. As it relates to the co labs, co labs are, as I said in my prepared remarks, a really important and distinguishing differentiated storytelling opportunity that we have and they drive traffic and excitement as well. So, I think that without speaking about co labs that we're expecting in the future, they're contemplated in our guidance.

We'll have more to talk about it. But when you have that level of traffic going in and sort of a bit of scarcity, if I may add, there's some level of scarcity too, that is a great approach to really pulsing not just with promotions and clearance and things like that with SaaS, but Colabs actually serve to drive traffic conversion and an overall brand heat that we like.

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

the questions. Congrats on a nice quarter. Just two for me, maybe one for Regina. You highlighted younger customer acquisition a lot today. Do you have any sense of the average age of the current customer?

How that's evolved over time? Any goals from a target perspective? And then for EVA, what does 2025 sales guidance assume as it relates to volume or units compared to AUR? Thanks a lot.

Thank you, Alex. Great to hear from you. I'll start on the younger customer. We actually when you're in 40% of households, the average age of the current customer is probably not as meaningful. We were across the board, but you're absolutely right that we think about younger customers as both an area of recent success and also continued opportunity.

And so I'd like to just break it down into three areas about how we're evolving and what we're getting after. First is their views of the brand, right? Second is how we reach them. And third are the products that we serve them. So if I just speak to that, the brand perception.

So we track the brand attributes quarterly and it has been gratifying to see that increasingly Bath and Body Works is seen as a more youthful brand. We noticed that they're taking notice of their experiences, they're more likely to come back. And in part that's driven by a rise in perceptions that we provide a high quality product, right? If you think and I'll speak about product in a second, but everyday luxuries, list, etcetera. In terms of reach, we're reaching them where they are on social media, on TikTok, via influencers and with increased cultural relevance, which is important to the younger customer.

And thanks to some of our messaging and our on trend messaging and our co labs, that's been working as well. And then finally, products, we always talk about how lip is a playground for the younger customer and the fixture and how that lights up, but also everyday luxuries are resonating well. And then finally, importance of our reformulations in the past couple of years. This is also important not just to the younger customer, but they certainly speak to that as well. So that's how we're seizing on this opportunity.

And I'm personally seeing them come into the stores. And so it's really gratifying to see the progress. So I'll give you the second question.

Yes. Alex, on your question about how to think about volume versus price, as I said, our promotional activities, we're not assuming a step up in promotional activity. So I would think about our guidance being volume led and will continue as we always do to be agile and adjust where the customer mindset is to maximize those top line as well as margins that we can drive. Thank you. Next question please.

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

Good morning. Thank you for taking my question. Wanted to drill down on international for a moment. You're expecting that to return to growth this year. I was hoping you could give a bit more color on what you expect the shape of the year to look like.

And then you flagged international as a headwind to gross margin in the first quarter. Is that the case for the full year? I know there's two different revenue streams there with the wholesale sell in as well as the royalty. So not sure if Q1 is a good indicator there. Thank you.

Yes. Thanks for the question, Mark. So a couple of things. Overall, let me take the full year first, right? As we look forward, we expect system wide retail sales to continue to grow in market through market expansion as well as growth in our existing markets.

On a net reported sales basis, I would think about the full year growth not really having an impact on margin. It returns to growth in the mid single digit range. ZIP code has an outsized impact on both top line and margin given we expect double digit growth there given timing of shipments and the step down last year. So there's more noise in the first quarter that's affecting the margin profile.

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

Hey, thanks guys. Let me go back to your tariff comments. Can you just remind us of what your large countries are in terms of exposure? I know you built in China, but you said nothing else at this point due to the uncertainty. So just where is your exposure by country?

And then separate, curious what you assume for the adjacent categories growth this year? You were 10% and you add them all up this year. Where do you think that number goes for twenty twenty five?

Yes, good morning. I'll take this is Eva. I'll take the tariff question first. So of our mix, about 10% of our supply is China, and we have included that in our outlook. And if you think about Canada and Mexico, they represent about 7% combined split relatively evenly.

So we're continuing to watch the market of what is going on. Canada particularly given our business there as well as our production. We will we're preparing to adapt to whatever market we're in and working on mitigation strategies to help offset any potential future impact. And as

Bath & Body Works (BBWI) Q4 2025 Earnings Call Transcript

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