Bath & Body Works, Inc.

Good morning. My name is Donna, and I will be your conference operator today. At this time, I would like to welcome everyone to the Bath and Body Works second quarter 2024 earnings conference call. Please be advised that today's conference is being recorded. During the question and answer portion, you may ask a question from the phone by pressing star 1. I will now turn the call over to Luke Long, Vice President of Investor Relations. Luke, you may begin.

Good morning, and welcome to Bath & Body Works' second quarter 2024 earnings conference call. I'm pleased to have recently joined the company, and I look forward to continuing to connect with the investment community going forward. Joining me on the call today are Gina Boswell, Chief Executive Officer, Julie Rosen, President Retail, and Eva Burado, Chief Financial Officer. In addition to this call and this morning's press release, We've 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. Today's call contains certain 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-K, and our quarterly report on Form 10-Q, which will be filed at the end of today. 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. As you know, fiscal 2023 was a 53-week year. To provide the best understanding of the business, all category sales results Year-to-date market share data, loyalty metrics, and the selling metrics discussed during the call are on a comparable calendar basis, which is the 13 weeks ended August 3rd, 2024 versus the 13 weeks ended August 5th, 2023. All other results discussed are on a reported basis, which is the 13 weeks ended August 3rd, 2024 versus the 13 weeks ended July 29th, 2023. With that, I'll now 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 second quarter results and our progress against our strategic priorities. You'll hear about the actions we are taking to drive growth in our core portfolio, extend our reach to new adjacencies and markets, how we're using our agile model to adapt to a dynamic environment, and how we're optimizing our business to reduce costs and expand margins. Our performance came against a challenging backdrop of economic uncertainty and consumers highly focused on finding value. For the second quarter, net sales were $1.5 billion, down 2% versus the prior year and in line with guidance. Second quarter adjusted earnings per diluted share of 37 cents exceeded our guidance by a penny. Our second quarter net sales performance was impacted by our semi-annual sale, or SAS, which fell short of our expectations. Without the impact of SAS, our net sales would have been down 1% for the quarter. Julie will go into more detail on the SAS shortfall and, importantly, how we will evolve SAS going forward. The outperformance in our second quarter adjusted earnings per diluted share was driven by continued improvements in merchandise margin and solid execution on our Fuel for Growth initiatives. I want to emphasize my confidence in our strategy and the actions we're taking to position the company for long-term, sustainable, profitable growth through our differentiated model. This quarter, we continue to invest in fortifying our operating foundation while building a platform for growth focused on five key strategies, elevating the Bath & Body Works brand and product, extending our reach, engaging with customers, enabling a seamless omnichannel experience, and enhancing operational excellence and efficiency. We are making good progress on each of these elements. Elevating the brand and product. We are innovating across our portfolio and leveraging speed and scale to continuously evolve the quality, ingredients, packaging, efficacy, and fragrances of our products. And customers are responding positively to this newness and innovation. In addition, given our broad product assortment and mastige positioning, we are in a unique position to elevate value for our customers in this challenging environment. Elevating value is about offering exceptional product quality and an outstanding customer experience at an affordable price. And our vertically integrated model allows us to do just that. We work with the world's top fragrance houses, the very same used by the fragrance industry. to bring our customers the affordable luxuries they've come to expect. A recent example of this is our Everyday Luxuries launch, our prestige-inspired line of fine fragrance mists. Whether it's Everyday Luxuries supporting the next hot collab or driving innovations across our core portfolio, we are making important investments in product and marketing to solidify our category leadership and brand loyalty. Bath & Body Works offers a wide array of price points, from a $2 pocketback to a $30 candle to a $60 eau de parfum. And we also offer a breadth of price points within categories, using a good, better, best strategy so we can meet customers where they're at with a product they will love and trust. Extending our reach. We are growing our new category adjacencies, opening new store locations, and expanding in international geographies. adjacent categories of men's hair lip and laundry continue to perform well particularly among existing customers we're also focused on attracting new to brand customers with these categories in the back half of the year we're rolling out a number of exciting product launches and marketing campaigns to drive increased awareness and buzz a real estate portfolio remains healthy and we continue to reshape the portfolio and move stores off-mall, with approximately 55% of our North American stores now in off-mall locations. International markets remain an attractive pillar of our strategy. We believe there is tremendous growth opportunity as we enter new markets and expand in existing markets. International system-wide retail sales grew double digits in the second quarter in the areas not affected by the war in the Middle East, while pressure continued in those areas affected. At the end of the second quarter, we were operating in nearly 500 stores internationally. And we're accelerating our international expansion plan and now expect our partners to open approximately 50 net new stores this year, up from our prior expectation of at least 35 net new stores. As we noted last quarter, our partners have opened the first standalone Bath & Body Works store in London, and the first shop-and-shop in South Korea, and both are performing above our expectations. As we continue to expand globally, our fragrances are becoming known and loved throughout the world, and we are seeing strong customer adoption of our products. Engaging with customers. One way we measure our customer engagement and satisfaction is net promoter scores, which we're pleased to say is consistently at the top quartile of retailers measured. Building on that strong foundation is the strength of our loyalty program, which we continue to advance. We had over 37 million active loyalty members at the end of the second quarter, up 8% compared to the prior year. Loyalty members account for over 80% of U.S. sales, and these customers visit us more frequently, spend more, and have greater retention rates. They are drawn to exciting member-only benefits of the program, such as early access opportunities or member appreciation events. Our loyalty program has enabled us to be more targeted in our marketing and to pull back on broad-based spend. We're also utilizing customer data to drive traffic and conversion. Our technology roadmap is on track, and we are putting in place the foundational tools and systems needed to support future growth while enabling new capabilities that will increase customer engagement and provide a more seamless shopping experience across channels. We recently upgraded our mobile app to a native mobile app, which will further enhance our personalized targeting as we roll out new capabilities such as app for all, frictionless ordering, and geo-targeting beginning later this year. We are launching a Bath and Body Works TikTok shop this quarter. This social commerce capability will provide a frictionless and convenient shopping channel to attract younger customers. Finally, our generative AI fragrance finder, Gingham Genius, will launch in the important fourth quarter, providing customers a personalized fragrance finding experience using large language models and the power of our data. We believe these capabilities will increase customer traffic and sales over time through a seamless and convenient customer experience. Enhancing operational excellence and efficiency. While we execute initiatives to drive the top line, we also continue to focus on margin. We're increasing our 2024 cost savings guidance to $130 million from $100 million. The two-year program that started in 2023 is now expected to deliver $280 million in run rate savings up from the initial plan of $200 million. all while preserving the key investments to support our top-line growth. Looking ahead to the back half of the year, we are focused on executing with precision, continuing to bring newness to customers and demonstrating our strong value proposition across our product assortment. We will double down our focus on the core and continue to extend our reach through new category adjacencies and expansion of off-mall and international locations. Our full rollout of everyday luxuries and our Stranger Things Part 2 CoLab, both of which started within the past week, include integrated marketing in stores, online, and across media channels. Taking all factors into account, including first-half sales trends and the choppier macro environment, as we look ahead to the remainder of the year, we believe it is prudent to adjust our full-year revenue and earnings expectations. We're also increasing our share repurchase guidance, to $400 million from $300 million to return value to shareholders. Eva will give more details on these updates in her prepared comments. In summary, despite the tough environment in the first half of the year, we are in line with or exceeded our guidance. While I'm dissatisfied with the pace of our return to sales growth, I remain confident in our strategy and the progress we are making. With the strength of our high margin business model and strong cash flow generation, We are well positioned to invest in the strategies that will drive our return to growth and enhance long-term shareholder value. Before I turn the call over to Julie, I'd like to thank our teams for consistently providing tremendous service to our customers and for their efforts in delivering against our strategic priorities. With that, Julie will provide the merchandising overview.