The conference call for Bath & Body Works' first quarter 2024 earnings is being conducted by Donna, the conference operator. The call is being recorded and attendees are welcomed by Mike McGuire, Interim Head of Investor Relations. Other participants include CEO Gina Boswell, President Julie Rosen, and CFO Eva Boratto. A slide presentation has been posted on the website and the call may contain forward-looking statements. Non-GAAP financial measures will also be discussed. All results and metrics will be on a comparable calendar basis.

In the second paragraph of the article, the speaker, Gina Boswell, discusses the reported results for the first quarter of the fiscal year 2024. These results were better than expected, with net sales of $1.4 billion and earnings per diluted share of $0.38, which was above the high end of their guidance. Boswell credits the exceptional team for their hard work and dedication in achieving these results. She also mentions that they have narrowed their full year guidance ranges, but are taking a cautious approach due to the dynamic consumer spending environment. Finally, Boswell highlights the customer's positive response to their new products and marketing activities as a key driver of their Q1 performance.

The company is seeing growth in newer product categories such as men's, hair, lip, and laundry. They are expanding their lip fixtures and accelerating laundry to all US stores. They have also introduced a new brand collaboration with Netflix and launched a new Everyday Luxuries collection. The Home Fragrance category performed as expected, with a decline in candles due to normalization. Transactions were up, but customers are carefully managing their spending, leading to a decline in basket size. The company maintained strong unit share overall, but their international business was impacted by the war in the Middle East. They are still committed to growing outside of North America and have opened stores in new markets, including their first standalone store in London.

The company has recently opened a store in South Korea and plans to add more international locations. Their focus has been on elevating the Bath & Body Works brand, engaging with customers, and enhancing operational excellence. They measure their success through "customership," which refers to the demand generated among current and potential customers. Their goal is to bring more customers to the brand more often and with more love for their products. They have seen positive results from their marketing and technology initiatives, with a 10% improvement in net customer count and a focus on their most valuable customer segment, fragrance fashionistas.

In the first quarter, the company saw a positive response to their new fragrance offerings and an increase in customer visits. Their loyalty program also saw growth, with an 18% increase in active members and a high satisfaction rating. The company plans to further drive enrollment in the program and offer more exclusive events and point accelerators. Additionally, their technology initiatives are on track and making progress towards their goals.

The speaker acknowledges the challenges of establishing Bath & Body Works as an independent company and the efforts being made to improve technology systems for future growth. They then hand the call over to Julie, who discusses the success of the first quarter and the importance of new products. A partnership with Netflix was particularly successful, with the Bridgerton collection performing well. Overall, Body Care sales grew and specific categories, such as fine fragrance mist and men's products, were highlights.

The company had a successful limited launch of their Everyday Luxuries collection of fine fragrance mist, which went viral on social media and outperformed the shop. They plan to relaunch the line in all North American stores in the fall. The men's business is growing rapidly, but customer awareness is still relatively low. The company is investing in new media channels to increase visibility and expand this category. Travel sales were strong, while home fragrance sales declined slightly. The company maintained market leadership in both candles and soaps & sanitizers, with soaps seeing an increase due to refills.

The company is pleased with the performance of their refills and have received positive customer feedback. They have also expanded their assortment and have seen growth in gift sets. The company plans to continue driving growth through innovation and new products. They have also expanded their lip product assortment and are on track to complete the rollout to all North American stores. The company is also accelerating the rollout of their laundry line. The CFO then provides an update on capital allocation, stating that their top priority is driving growth through investments in the business.

The company plans to invest $300 million to $325 million in capital projects for the year, with a focus on brick and mortar stores and technology. They expect to generate free cash flow of $675 million to $775 million, which will go towards dividends, share repurchases, and debt reduction. They paid out $45 million in dividends during the quarter and plan to continue their annual dividend of $0.80 per share with the intention to increase it over time. The company also repurchased 2.2 million shares of common stock for $99 million during the quarter and plans to repurchase approximately $300 million of shares throughout fiscal 2024. They are committed to reducing their leverage ratio to approximately 2.5 times and repurchased $109 million in senior notes in the first quarter. The company reported earnings per diluted share of $0.38, exceeding their guidance of $0.28 to $0.33 per diluted share, due to better-than-expected net sales and buying and occupancy costs. Net sales for the quarter declined 0.9%, but outperformed expectations due to strong floorsets in March.

The change in year-over-year net sales benefitted from the extra week in 2023, but was offset by weaker international ship sales and decreased average dollar sale. Transactions were up, driven by conversion. US and Canadian store sales were in line with Q4 of 2023. Direct net sales declined, but BOPIS (buy online, pick up in store) continued to grow and now represents 25% of direct demand. International net sales declined due to the war in the Middle East, but total international system-wide retail sales were roughly flat. Sales outside of the affected areas were up mid-teens and sales in affected areas improved sequentially.

The company believes in the international market and it is a key driver of long-term growth. In the first quarter, there was an increase in gross profit rate and merchandise margin rate due to lower international sales and transportation costs. SG&A expenses were flat and the company expects $100 million in cost savings for fiscal year 2024. Inventory levels increased to support new product launches and stores. The company's real estate portfolio is mostly in off-mall locations. The company opened 15 new off-mall stores and closed 11 stores in malls. The company ended the quarter with 486 stores internationally. The company's fiscal 2024 financial guidance will be discussed.

The company is providing guidance for the full year and second quarter of 2024, taking into account the 53rd week in 2023. They are narrowing their guidance ranges and raising the midpoint while maintaining the high end. Net sales are expected to range between down 2.5% to flat for the full year, with a headwind of approximately 100 basis points due to the extra week in 2023. They expect net sales to turn positive in the second half of the year. Gross profit rate is expected to be 43.7%, with the benefits of cost optimization weighted towards gross profit. SG&A rate is expected to be 26.7%. Net non-operating expenses remain unchanged. The company's guidance for earnings per diluted share is between $3.05 to $3.35. For the second quarter, they are forecasting a sales range of down 2% to flat, with a gross profit rate of approximately 40%. They will begin to lap merchandise margin rate expansion in the prior year.

The company is forecasting moderate improvement in merch margin rate, but also expects higher buying and occupancy expenses due to investments in store real estate. AURs are expected to be flat in the second quarter. The SG&A rate is expected to increase due to higher marketing investments and wage inflation, but partially offset by cost reduction initiatives. The company also expects second quarter earnings per diluted share of between $0.31 and $0.36. The CEO is pleased with the company's start to the year and is confident in their strategic initiatives. The first question from an analyst asks about the benefits of the company's marketing campaign, new product categories, and collaborations, and the CEO responds by saying that they are seeing positive results in terms of incremental customers and visits, as well as potential for better pricing.

Gina Boswell and Eva Boratto discuss the initiatives and investments that have been made to increase brand awareness and drive sales growth. They mention the success of recent collaborations and media activities, as well as the positive impact on gross margin. They also touch on the leverage point for B&O, stating that they are aiming for 2-3% sales growth and have been able to leverage flat B&O in Q1 due to strong execution.

The speaker responds to a question about the impact of Middle East-driven pressure on the company's international business. They mention that the pressure is only affecting a small portion of the business and that the company is still on track for growth. They also mention plans for opening new stores in various markets to offset the pressure. The speaker concludes by stating that the pressure is expected to moderate in the affected markets.

During the Q1 earnings call, the company discussed their guidance and performance in international markets. They expect international performance to improve in Q2 and gross margin to be comparable to 2023. A question was asked about the AURs, which were down 1% compared to guidance. The company had already reported product misses in the fourth quarter, but AUR still underperformed. The question also inquired about product costs, which the company did not provide specific information on.

The company had previously mentioned in an earnings call that they had a floor set in February that was not successful, so they used promotions to increase traffic. However, they were able to achieve flat average unit retail (AUR) in the back part of the quarter due to strong floorsets with new products. They expect to see a modest increase in AUR for the full year. The product cost remained flat in the quarter and the company has identified cost savings within cost of goods sold to support their improved gross margin outlook for the year. In the first quarter, net sales outperformed the initial plan, with Body Care seeing low-single digit growth and Home Fragrance seeing a mid-single digit decline due to candle normalization.

In the fourth quarter, the candle business declined due to a decrease in single-wick candles, but the company maintained its market leadership. Soap and sanitizer sales were also down, with refills and pocketbacs performing well. The company has been successful in executing cost savings, with $250 million saved over two years. Traffic was flat, but transactions were up due to conversion.

The company saw stronger traffic in stores during the second half of the quarter, and overall they continue to execute well. The new products introduced in the quarter were successful. The company is balancing the need to keep engagement and traffic strong with their desire to increase pricing, using their agile operating model to test for the best outcomes. They did not take widespread ticket increases in the quarter, but did take selective pricing actions on certain product launches. Overall, AUR is still up from pre-pandemic levels.

Ike Boruchow asks about the AUR and the calendar impact on the first quarter. Eva Boratto responds that AUR improved on the exit of the quarter but did not meet expectations. She also explains that the calendar impact will vary for different retailers in the next three quarters and there will be a headwind in the fourth quarter.

The speaker addresses a question about the company's calendar shift and AUR. They state that the first quarter benefited from a 200 basis point shift, the second quarter had a negligible impact, and the third quarter is expected to have a similar positive impact. The fourth quarter will see a reversal of these benefits. The AUR was soft at the beginning of the quarter but improved as the March floorset was strong. The speaker emphasizes the company's use of agile promotion to drive traffic and conversion while balancing margin rates. They also mention that they are always adjusting to meet customer needs and maintain quality. The next question is from Olivia Tong of Raymond James.

Julie Rosen, speaking on behalf of the company, addresses the impact of retail competition on their business. She mentions that they are always focused on staying ahead of their competition by offering innovative products and utilizing their vertically integrated model and unique immersive selling environment. These competitive advantages allow them to react quickly and create transportive experiences for their customers, setting them apart from other retailers.

The company prioritizes the quality of its fragrances and works with top fragrance houses to deliver products in various forms. They closely monitor competition and have seen positive trends in May. There are no planned differences in average unit retail (AUR) for different merchandise categories throughout the year. The company is excited about new categories and plans to offer surprise and delight promotions to increase AUR.

The company is focused on being an omnichannel player, with no specific advantage to direct or stores. They want to encourage dual shopping and are excited about their new adjacencies. The men's category is the fastest growing, with new forms and products driving growth. The lip and hair categories are also seeing success, with a younger customer base and new fragrances being popular. The company will continue to optimize their assortment and has seen success with new customers trying their products.

The company has recently launched travel-sized shampoo and conditioner in response to customer demand, and they are pleased to announce that their laundry products will be available in all US stores by late fall. They have been testing and adjusting their assortments in different stores to optimize their offerings. In addition to these adjacencies, the company has also introduced new scents, an expanded SPF assortment, and a partnership with Netflix. The executives express their excitement about these innovations and their potential to drive growth in the back half of the year. They emphasize the importance of both growing the core business and expanding into new categories as key strategies for growth.

The speaker is asked about their expectations for the Home Fragrance category and their business in the back half of the year. They mention four elements that will contribute to growth, including moderating normalization of candles and sanitizers, growth in core categories, reaching more consumers, and driving loyalty and engagement through marketing investments. They also mention using marketing models and technology to measure ROI and target customers.

The company is seeing promising results from their personalized marketing strategies and plans to continue investing in technology to optimize their efforts. They expect to return to growth in the second half of the year, with a focus on attracting new and younger customers through their new product launches. They also plan to target more men through increased marketing and media efforts.

In the first quarter, 43% of loyalty program enrollees were new customers, and the company expects both new and existing customers to benefit from the program. Clickstream data will be used to recommend products to customers. A replay of the call will be available for 90 days.

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