Bath & Body Works, Inc.

Good morning. My name is Melissa, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Bath and Body Works third quarter 2025 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'll now turn the call over to Luke Long, Vice President of Investor Relations. Luke, you may begin.

Good morning and welcome to Bath and Body Works' third quarter 2025 earnings conference call. Joining me on the call today are Daniel Heaf, 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 and provides 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 the risk factors in Bath and Body Works 2024 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 gap financial measure. With that, I'll turn the call over to Daniel.

Thank you, Luke, and good morning. Let me begin by acknowledging that our third quarter results and our lower expectations for the fourth quarter don't live up to the expectations we all have for this brand. I joined Boston Body Works to accelerate growth, and I remain confident in our ability to do so. Today, I will set out a clear diagnosis for what's been challenging our performance and the actions we are already taking to address it. While the consumer environment is tougher, this is no excuse, as we continue to underperform the sector. We're focused on addressing the issues within our control to return to growth. Our transformation started the week I joined with our no regret move, and the whole company is working with the utmost urgency. But this will take time. 2026 will be a year of investing behind our brand to strengthen our fundamentals and position our business for sustainable long-term growth. Before I outline what must change, let me ground you in what endures. the competitive advantages that give us the right to win. We are a market leader in attractive, growing consumer categories. We are an iconic American brand recognized worldwide. We have a vault of beloved fragrance franchises, with each of our top five franchises generating over $100 million in annual revenue, and our largest fragrance generating over $250 million yearly. We operate more than 2,400 stores around the world, employ a community of exceptional associates, have 40 million active loyalty members, and benefit from a fast, largely domestic supply chain. Our business model generates strong margins and high free cash flow conversions. Despite these strengths and the revenue growth in recent quarters, I concluded that swift and decisive action is needed to build the engine to drive sustainable long-term growth. From my first day, we have refocused on putting the consumer at the center of everything we do and listening closely to their feedback and insights. This has guided a disciplined end-to-end review of every aspect of our business, product, brand, digital, stores, operations, and talent. The plan we are announcing today and the actions we are taking and the strategic investments that we are making are the result of that comprehensive review, not a reaction to a single quarter. Let me first give you the diagnosis in four clear points. Firstly, we pursued adjacency to attract new consumers, but that strategy has not delivered the growth we expected and it reduced focus in investing in our core category. Secondly, collaborations that should have been used to drive excitement, energy, and equity into our brand have been used to carry quarters. Thirdly, as these strategies and other tactics have not delivered growth, we have relied on deeper and more frequent promotions. Great value and exciting deals have been part of our brand and that will not change. However, over-reliance on promotion delivers diminishing returns and erodes brand equity and that is what has happened here. While all these efforts appeal to our existing consumers, they did not grow our customer base and we have not attracted a younger consumer. Finally, Our organization has become slow and inefficient. Unnecessary complexity has reduced our speed, dampened our innovation, and we prioritize efforts that were not targeted to acquiring a new and younger consumer. Unlocking the next phase of growth requires decisive action. We are investing in new talent, focusing our teams on the highest value work, and moving at the speed of the consumer. while optimizing expenses to fuel innovation and long-term performance. Our strategy is guided by what we have seen working in the marketplace. Over the years, consumers have evolved. They seek greater efficacy, ingredient-led products, modern packaging, emotive storytelling, and elevated multi-channel experiences. Our competitors have risen to meet those needs. We have not. In some cases, as with our formulations, we have invested in these attributes, but we have not communicated them consistently and effectively. Today, we are announcing a holistic growth plan to revitalize Bath & Body Works across brands, products, and the marketplace, designed to drive value for our stakeholders. We are reclaiming our legacy as an innovative brand rooted in nature and benefits, and leading the world in scent and self-care. This plan, the Consumer First Formula, focuses our investment behind our four largest revenue-driving opportunities. These strategic priorities have already been communicated across the organization, and work is well underway. The first pillar of our plan is to create disruptive, and innovative products that serve the needs of today's consumer. Desire will be designed. We will develop products in our core categories to deliver luxury scents with benefits, created to be accessible to everybody. Thoughtfully sourced and ingredient-led, refocusing on what made Bath and Body Works distinct. In 2026, we will reinvest in our core categories we are returning to best-in-class product leadership in body care, home fragrance, and soaps and sanitizers. Two consumer muses designed with deep consumer insights guide our every decision. Jen, who demands bold fragrance, fun, seasonality, and value. And Zoe, who craves clean products with elevated scent and design at an accessible price point. These two muses keep us true to today's consumer while providing opportunities to engage new and younger consumers. We are making changes to better serve these muses, embedding consumer insights at the start of product development, accelerating new franchise development, and leveraging rapid testing to inform our innovation. we'll start to see these new products in the second half of 2026. From body care to home fragrance, we are introducing new forms, vessels, and formulas in our core categories that will drive growth and elevate the overall experience. To sharpen our focus and make our in-store experience less overwhelming, we will cut our assortment and reduce complexity, concentrating on fewer more on-trend product priorities. Starting in the first half of next year, you will see thoughtful edits to our assortment and selective category exits such as hair and men's grooming as we refocus on the core. The second pillar of our strategy is to reignite our brand and reclaim cultural relevance. In 2026, we will market fewer, bolder, more targeted product moments with stronger creator advocacy and a more aspirational positioning. You can already see early proof points of this strategy in our Touch of Gold collection. We are recruiting a network of influencers to ignite social buzz while communicating credible science-based claims that differentiates our products from our competitors. We will make big bigger by elevating and amplifying two iconic Bath and Body Works centers New consumers will discover and love these fragrances when we treat them with the reverence they deserve, elevate, and market them properly. We will deliver more impactful visual experiences in all our channels and across social platforms. The third pillar of our strategy is winning in the marketplace. Discovery should feel effortless. We will make it simpler for a new and young consumer to find us, love us, and buy us wherever they shop. We will elevate our owned retail channels and thoughtfully expand our distribution to new channels, positioning ourselves directly in the path of our consumer. As part of this, we will continue to enhance our app and website to increase engagement, to make product discovery easier, to deliver richer brand and product stories, and to reduce purchase friction. This work is already well underway. For example, our mobile homepage has undergone a refresh, and in early 2026, we will invest in a permanently lower and more competitive free shipping threshold. We will also expand thoughtfully into marketplaces and select wholesale channels, with Amazon expected to go live in the first half of 2026. In anticipation of an Amazon launch, we are carving brand-dilutive gray market selling by restricting bulk purchases from resellers online and in-store. Amazon will enable us to reach new consumers and re-engage last ones, and we will launch with a curated assortment of evergreen hero products and, over time, introduce products designed to acquire a new consumer. Our brand-operated channels will always carry the widest assortment and offer the most immersive brand storytelling. And to encourage new consumers to enter our operated stores, we will pilot updated merchandising, improved navigation, and refresh retail marketing in 2026. Our final pillar is operating with speed and efficiency. We expect to fund investments through better execution, tightening inventory, shortening cycle times, and implementing a multi-year cost savings program. Consistent with the focus of the Consumer First formula, this initiative prioritizes high-value, consumer-focused activities funded through value engineering and sourcing optimization. We have planned to deliver $250 million in cost savings over the next two years, with over half identified for 2026. These savings will be reinvested into revenue-generating activities in product and brand. A transformational plan requires transformational leadership, and we are putting the right leaders in the right roles with clear accountability. Earlier this month, we welcomed Mally Bernstein as our Chief Commercial Officer, overseeing the full marketplace across stores, digital, and wholesale channels. She brings extensive multi-channel retail experience within our sector, backed by a proven track record of impressive results. We're equally thrilled to welcome Veronique Gabay as our product and merchandising advisor. Her creative vision, strategic insight, and global experience in beauty will add invaluable perspective to our transformation. In addition, We also now have in place new leaders across digital, wholesale, and human resources, and we will continue to invest in talent to support the execution of our plan. As a result of our no regret moves that I outlined six months ago, some of our strategic actions are already visible to the consumer, but it will take time before we see the benefits in our financial performance. I believe that we have the foundation the plan and the focus to deliver sustainable growth and shareholder value. We are acting with urgency and clarity, putting the consumer at the center of every decision. I am confident in Barton Body Works' future and the immense opportunity we have in front of us. And now I'll hand over to Eva.