The conference call for Bath & Body Works' fourth quarter 2023 earnings has begun. The operator introduces the participants and mentions that the call will be recorded. Mike McGuire, Interim Head of Investor Relations, introduces the CEO, President Retail, and CFO. He also mentions that a slide presentation and a press release have been posted on the company's website. The call may contain forward-looking statements and non-GAAP financial measures. Gina Boswell thanks the team and highlights their success in delivering a great customer experience and executing strategic initiatives.

The fourth quarter performance of Bath & Body Works exceeded expectations, with net sales and earnings both growing compared to the previous year. The CEO is pleased with the progress made in the past year, but acknowledges that there is still more work to be done. The increase in earnings was driven by strong merchandise margin and a planned pricing strategy. Promotional activities were similar to the previous year, but with slightly longer durations. The holiday season was successful, with positive customer response to core merchandise and traditional favorites. The omnichannel strategy was effective during events such as Black Friday and Candle Day weekend.

The company is seeing positive results from their decisions in the candle category and the men's shop continues to grow with the addition of new products and influencer marketing. They are also expanding into new categories and focusing on five key growth drivers: innovation, international growth, customer engagement, omnichannel experience, and operational excellence. The company's focus on creating great products and utilizing marketing and technology initiatives is crucial for their growth.

The company is focused on growing net sales to reach their long-term target of $10 billion by increasing spend with existing customers and gaining new customers. They have invested in various marketing strategies to reach a larger market of 175 million consumers and increase brand loyalty. This includes a new brand campaign, expanding into new channels, and collaborating with influencers. They have also invested in customer segmentation analysis to better understand their core customer segments and have made investments in lower funnel channels. These efforts have resulted in 9 billion media impressions in the fourth quarter.

The company's full funnel marketing and predictive customer retention model led to a 2% increase in retained customers in the fourth quarter. They have invested in separating their IT systems from Victoria's Secret and building foundational tools for future growth. They have also improved the digital experience with features like social proofing and BOPIS enhancements, leading to an 88% increase in focus order fulfillment and a 3% increase in total digital conversion. They plan to roll out personalized landing pages, immersive content, and a new AI-driven digital fragrance finder in the second half of the year. The company is pleased with their initiatives and excited about future opportunities. The loyalty program launched in August 2022 has seen strong enrollment and has driven 80% of US revenue, with those who redeem rewards spending more with the brand.

In the fourth quarter, the company introduced point accelerators to help customers redeem rewards more frequently and plans to bring more enhancements to the loyalty program in 2024. The holiday season saw high enrollment and record sales penetration rates for loyalty members. The company is cautiously optimistic about customer spending for the year, but expects net sales and operating income to be down in the first half before seeing growth in the second half. The company remains focused on executing strategic initiatives, creating efficiencies, reducing leverage, and returning cash to shareholders.

In the fourth quarter, the company saw strong holiday sales driven by core fragrances and new seasonal collections. They strategically placed gift sets at the front of shops and expanded price points, resulting in record high gift set sales. The men's business is also growing rapidly, attracting a younger and more diverse customer base through new marketing activations and product offerings. The body care category is also experiencing strong growth, particularly in new forms like grooming and antiperspirant deodorant.

The company had a successful fourth quarter due to the introduction of new scents in their fragrance collection and strong sales in the sanitizer, body care, and travel categories. Home fragrance sales were down as expected, but the company had a successful loyalty event and saw growth in wallflower bulbs. New scents and sustainability initiatives are planned for the upcoming year.

The company has successfully reformulated their total body care assortment to be sulfate and paraben-free and has rolled out their fragrance haircare line to the North American fleet, attracting new customers. They have also relaunched their lip product assortment in 380 stores and plan to expand to all North American stores by July. The launch of their laundry line in a limited number of stores has also been successful in attracting new customers. The company's top priority is investing in the business for long-term growth, and in fiscal year 2023, they invested $298 million into real estate and technology projects.

The company has made investments in technology to improve the shopping experience for customers and generate profitable growth. They have a goal to reduce leverage ratio and have made progress in doing so by repurchasing senior notes and shares of common stock. They plan to continue prioritizing investments in the business and expect to generate free cash flow to put towards dividends, share repurchases, and deleveraging. They also plan to increase the annual dividend over time and repurchase shares throughout fiscal 2024. They may also consider debt repurchases depending on market conditions.

In the fourth quarter, the company reported adjusted earnings per share of $2.06, which exceeded their outlook. This was due to strong merchandise margin and net sales outperformance, as well as a lower tax rate. Net sales for the quarter were $2.9 billion, with a 2% decline on a comparable 13-week basis. U.S. and Canadian stores saw a 4% increase in net sales, while direct net sales declined by 8%. International net sales also declined by 1%, largely due to challenges in the Middle East.

In the fourth quarter, the company's international retail sales declined in areas affected by the war in the Middle East, but increased in other areas. Gross profit rate and merchandise margin rate both improved compared to the previous year, driven by AUR increases and deflation. However, there was also a decrease in SG&A due to investments in marketing and technology, as well as cost optimization initiatives. The company has exceeded its goal of $100 million in cost savings for 2023. Total operating income for the quarter was $696 million, and for the full year it was 17.3% of net sales. Inventory was managed efficiently, with total inventory dollars remaining flat compared to the previous year.

In the spring, the company feels confident about their inventory levels and their real estate portfolio, with 99% of their fleet profitable and stores performing better than before the pandemic. They have increased their off-mall locations and plan to continue doing so. They opened 94 new off-mall stores and closed 39 mall stores in the past year. Internationally, they opened 27 new stores and ended the year with 485 stores. The company expects net sales to range between down 3% to flat in 2024, with the 53rd week in 2023 adding $80 million to net sales and $0.05 to diluted EPS. They plan to invest in marketing and technology to drive customer acquisition and retention, and also plan to grow through product adjacencies.

The company is focused on building awareness of their men's shop and recent product rollouts while also expanding internationally. They expect category normalization to continue but at a slower rate. They have increased their cost optimization goal and expect positive net sales growth in the second half of the year. The company also anticipates improved merchandise margin and higher marketing investments, but also higher wage inflation. They have provided an outlook for the first quarter, including a decrease in net sales and a gross margin rate of approximately 42.5%.

The company expects first quarter AURs to remain flat, with an expected SG&A rate of 30.5% of net sales. They also anticipate net non-operating expenses of $70 million and a tax rate of 28%. With these factors in mind, they are forecasting first quarter earnings per diluted share of $0.28 to $0.33. The company is confident in their ability to achieve their long-term targets of $10 billion in net sales and a 20% operating income margin. During the Q&A session, participants are asked to limit their questions to one and one follow-up. The company also discusses the drivers of the 2% increase in AURs in the fourth quarter.

In response to a question about why AURs (average unit retail) would go from flat in the first quarter to an increase for the year, Gina Boswell and Julie Rosen explain that the company is constantly balancing the need to keep engagement and traffic strong with the desire to increase pricing. They have taken select price increases in 2023, and have a very thoughtful and planned pricing strategy. They also use bundles and other opportunities to manage AUR, and have robust strategies and testing in place.

The speaker discusses the level of innovation and newness that can be expected in the company's stores and online in fiscal year 2024. This includes new adjacencies such as men's, hair, lip, and laundry products, which have already shown growth and will continue to expand. The men's shop is fully rolled out to all stores and is attracting a younger and more diverse customer base. Laundry products have been rolled out to 200 stores and will be in half the fleet by the middle of the year. The company has also added marketing efforts to support these new products.

The feedback from customers about the new laundry detergent and fragrance hair care at Bath & Body Works has been positive, with a 14% increase in new customers. The company is confident in their positioning and is also seeing growth in their Lip category. They are constantly testing and optimizing new launches, and are excited about the potential for these new lines. The Merchandise margin has also improved by 290 basis points and is expected to continue improving.

During a conference call, a question was asked about the drivers of pricing and promotions and how they differ from last year. Gina Boswell, along with Eva Boratto, responded by stating that they were pleased with the progress made in improving margins over the last few quarters. They expect merchandise margins to expand by 50 basis points, despite continued deflation and cost reduction initiatives. They also mentioned that they will continue to reinvest in reformulation and that the margin profile of new adjacencies will improve over time. They did not disclose the size of the men's segment.

Alex Straton asked about first quarter sales guidance during the earnings call. He also asked about the company's investment in reformulations and packaging innovation, as well as their plans for leveraging buying and occupancy expenses. Gina Boswell and Eva Boratto provided answers to his questions.

The speaker asks two questions about the company's performance in the fourth quarter and the gross margin. The company responds by explaining that their sales declined compared to the previous year and that they are seeing a cautious consumer trend. They also mention that their gross margin for the full year includes continued improvement in merchandising margins, but costs and investments are causing deleverage.

Gina Boswell, along with Julie and Eva, addressed a question from Matthew Boss about the drivers behind top line improvement and revenue growth for the company. They discussed the building blocks of their full year outlook and considered various scenarios, including both internal and external factors. Four key factors were identified as driving the return to growth in the second half of the year: the moderation of the decline in candles and sanitizers, growth in core categories, the rollout of new adjacencies, and seasonal storytelling.

The company's top line growth is expected to be driven by a variety of factors, including the expansion of men's products, investments in marketing and loyalty programs, and the normalization of candles and sanitizers. The normalization of candles and sanitizers has improved and the company has maintained its leading market share in these categories. The company expects to see a return to growth in the third quarter, but factors such as one less week between Thanksgiving and Christmas may affect the outlook for the fourth quarter. In February, traffic was lower.

The company's initial floor set did not perform well, so they quickly adjusted and brought in new products. They are expecting a flat AUR for the first quarter and moderate improvement for the full year. They are reducing their reliance on direct mail and increasing personalization to help with pricing. The competitive landscape is also a factor in their pricing strategy.

The company has an agile model and product assortment which allows them to respond to changes in both margin and top line volume. In 2023, they raised prices and are constantly testing alternative pricing strategies to increase AUR. They do not plan to be more promotional over time and believe their products are affordable luxuries meant to be used daily and replenished often. They use an operating model to increase or decrease promotions and hope to reduce reliance on broad-based promos by using data and analytics to deliver more personalized messages. In February, there was pressure on traffic.

Eva Boratto, Gina Boswell, and Julie discuss the fourth quarter results for a company. They mention a severance charge and sales outperforming, leading to higher SG&A costs. They also mention that February traffic was initially pressured but improved during the month. The improvement was not solely due to promotions, but also adapting to customers. The company is guiding for flat AUR in the first quarter. The analysts then ask about the elevation strategy and which categories are optimal for price elevation or premiumization, specifically in packaging.

Gina Boswell and Julie Rosen discuss the categories in which their company operates, which they describe as "masstige" or a combination of mass market and prestige. They mention elevating the products through innovation, formulations, and packaging, while still keeping the price within the masstige range. They also mention that there has not been a discernible change in income or age demographics among their customers, and that they are seeing a positive response to their elevated products, particularly in their neutral collection. They strive to cater to various mindsets of their customers and stay on top of market trends.

The company has recently upgraded the packaging for their men's shower gels and relaunched their Champagne Toast product in new bottles. They are constantly striving for a balance between fun and neutral products, but have seen positive responses to their more elevated and pretty products. They are able to quickly react and ensure they have enough of these products due to their agile model. The new tools have received positive feedback for their sophistication and the call concludes with thanks to the team. A replay will be available on the website for 90 days.

This summary was generated with AI and may contain some inaccuracies.