Bath & Body Works, Inc.

Good morning. My name is Ted, and I will be your conference operator today. At this time, I would like to welcome everyone to the Bath & Body Works second quarter 2023 earnings conference call. Please be advised that today's conference is being recorded. During the question and answer portion, you may ask a question from the phone by pressing star 1. I will now turn the call over to Ms. Heather Hollander, Vice President, Investor Relations at Bath & Body Works. Heather, you may begin.

Thank you. Good morning, and welcome to Bath and Body Works' second quarter 2023 earnings conference call. Today's call may contain forward-looking statements related to future events and expectations. Please refer to this morning's press release and the risk factors in Bath and Body Works' 2022 Form 10-K for factors that could cause the actual results to differ materially from these forward-looking statements. Today's call 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. Joining me on the call today are Gina Boswell, Chief Executive Officer, Julie Rosen, President, Retail, and Eva Barado, Chief Financial Officer. I'll now turn the call over to Gina.

Thank you, Heather, and good morning, everyone. Thank you for joining us today. Before I discuss our performance and progress in the quarter, I'd like to thank our teams for consistently delivering terrific service to our customers, remaining agile in a dynamic environment, and executing on our strategic initiatives. We're also very pleased to have welcomed Eva Barado as Bath & Body Works' new CFO at the beginning of this month. She is a seasoned executive with over three decades of financial, operational, and retail experience, and she's already hit the ground running. You'll, of course, hear from Eva on today's call. Now moving on to our second quarter results. Net sales were in line with our expectations, declining 3.6% compared to the prior year. Adjusted diluted earnings per share of 40 cents were better than planned, with the majority of the outperformance driven by the benefits of our cost optimization initiatives, increased average unit retails, or AURs, and improved merchandise margins. In fact, Year-over-year merchandise margin rate increased modestly for the first time in nine quarters. I continue to be very pleased with our team's ability to drive efficiency in the business while building the capabilities to drive future growth. In the second quarter, we once again showcased our exceptional innovation capabilities. With the completed rollout of our new hand soaps, all of which are formulated without parabens, sulfates, and dyes, continued delivery of newness through our gingham fragrance collection, the addition of grooming to our men's offering, the successful limited launch of our new fragrant hair care line in July, which has received a very positive response from our customers, and finally, the launch of hand-soaked refill cartons in July, providing our customers with a convenient, sustainable solution. We were also pleased with our Mother's Day results and executed well in our June semi-annual sales. delivering merchandise margin rates above our expectations. From a category perspective in the second quarter, our body care sales increased versus the prior year. Home fragrance and soaps and sanitizer sales declined, as expected, driven by post-pandemic normalization. Importantly, year to date, we've increased unit share across these product categories. As expected, we continue to see some pressure on basket size during the quarter. To be clear, we aren't seeing any trade down in our business, but we've observed that the customer is carefully managing their spending against the backdrop of a challenging macroeconomic environment. As we look ahead to the remainder of the year, we remain focused on delivering innovation and building capabilities to position our company for above industry growth when our categories normalize. Our revenue is approximately 40% above 2019 levels, and we have diverse opportunities and multiple initiatives designed to deliver long-term top-line growth and margin expansion. We're making progress on the five key areas that I outlined on our last call. First, elevating the brand through innovation and upgrades to our forms, packaging, and merchandising. Second, extending our reach through adjacencies and international growth. Third, engaging with our customers by fully leveraging the strength of our loyalty programs enhanced technology, and more personalization. Fourth, enabling a seamless omnichannel experience by advancing our digital platforms and connecting them with our stores. And finally, enhancing operational excellence to drive efficiency. Julie will speak to our progress in brand elevation and extending our reach in a moment, but I'd like to dig a little deeper on the other three. So turning to our work to better engage with our customers. We are deepening our connection across the customer journey, building on our history of connecting with the customer through fragrance, outstanding products, and a terrific shopping experience, whether online or in-store. Our customer segmentation analysis identified the customer groups that represent our biggest growth opportunities and has given us a better understanding of their unique needs and motivations. These insights are now informing our innovation, merchandising, and marketing, and enabling us to be more effective and efficient in reaching our target customer segments. We're also building our technology capabilities to implement a more personalized, targeted approach to marketing and promotion rooted in data and analytics. Through this work, we plan to increase trial of new product, encourage cross-channel and cross-category shopping, build a customer's basket, and drive incremental trips. Now that we have successfully completed the vast majority of our IT separation from Victoria's Secret, we will begin testing personalized marketing and optimized promotion this fall, then apply these capabilities more broadly and derive more value from them beginning next year. Our loyalty program continues to be a key component of customer engagement. This August, we anniversary the national launch of our loyalty program, and we remain pleased with our enrollment of nearly 38 million members with loyalty sales representing approximately three-quarters of our U.S. sales since launch. While we'll continue to build on our impressive enrollment, our primary focus is on increasing engagement. For example, in the second quarter, we not only invited our loyalty members to vote for the featured fragrances in our laundry product, we then gave them exclusive access to a preview sample event. Next, we gave our loyalty members a sneak preview of our Halloween collection and an exclusive early Halloween shopping event prior to the national launch. We have more benefits planned, and we're excited to test new capabilities such as accelerators in the third quarter. Beyond that, we're focused on fully integrating our loyalty experience throughout our channels. We are still in the early innings of our loyalty program, and we are confident in our ability to drive more sales and improve merchandise margins while attracting more customers to the programs. Moving to the next area of focus, which is enabling a seamless omnichannel experience. Although we have a strong, profitable digital business, our digital assets are largely transactional. As we move to more experiential, integrated platforms, we plan to drive higher sales, more discovery, and larger baskets through personalized landing pages, immersive content, and product recommendations. In the second quarter, we introduced personalized recommendations on our website and mobile app. This month, we'll begin to deliver personalized email content. Later in the third quarter, we plan to test immersive video content on our website and mobile app, with a broader launch plan for the fourth quarter. As you know, we completed our national rollout of buy online, pick up in store, or BOCUS, in the first quarter. BOCUS orders increased 25% in the second quarter, as customers are increasingly choosing this convenient option. And approximately 30% of Bopas customers made an additional purchase in-store when they picked up their order, which is a testament to the power of the outstanding in-store experience delivered by our talented associates, iconic fragrances, and compelling assortment. Delivering a seamless omnichannel experience will allow us to convert more single-channel customers to dual-channel customers, which on average increases spend threefold. Finally, we are enhancing operational excellence and efficiency through $200 million of planned annual cost savings across the company. We are on track to deliver approximately $150 million of those savings in 2023, and Eva will share additional details on our plans for the second half of the year shortly. Eva will also provide an update to our fiscal 2023 guidance, which reflects our bottom line outperformance in the second quarter, and sales expectations for the second half of the year. As I touched on earlier, the customer has been cautious in managing their spending amidst a softer macroeconomic backdrop. However, they are still responding to newness, innovation, and our compelling seasonal events. We are taking action to deliver innovation and build the capabilities that will allow us to better serve our customers, drive above industry growth, and deliver margin expansion. BAP and Body Works has a highly differentiated business model positioned at the intersection of consumer goods and retail, and a strong fleet of profitable stores, both off-mall and in-mall, that position us close to the customer. We have a vertically integrated supply chain, which allows us to respond quickly to changing customer and macro trends, along with a strong balance sheet and a history of superior growth and free cash flow generation. As we navigate macroeconomic pressures, I am confident that we have a diverse set of opportunities to profitably grow the business and create value for our shareholders, building on the strong foundation that exists today. With that, I'll turn the call over to Julie.