The conference call for Bath & Body Works' second quarter 2024 earnings has begun, with Donna as the operator and Luke Long as the Vice President of Investor Relations. Other speakers include the CEO, President of Retail, and CFO. A slide presentation is available on the company's website and the call may contain forward-looking statements and non-GAAP financial measures. The fiscal year 2023 was a 53-week year.

In the second quarter, the company's net sales were down 2% due to economic uncertainty and consumer focus on value. However, adjusted earnings per share exceeded expectations due to improvements in merchandise margin and successful execution of growth initiatives. The company is confident in their strategy and taking actions to ensure long-term profitable growth.

The company is focused on five key strategies to grow their business, including elevating the brand and product, extending their reach, engaging with customers, enabling a seamless omni-channel experience, and enhancing operational excellence. They are investing in innovation and speed to continuously improve their product quality and offer affordable luxuries to customers. They also have a wide range of price points and are expanding into new categories, store locations, and international markets.

The company's categories of men's, hair, lip, and laundry are performing well among existing customers and efforts are being made to attract new customers. The company is also focusing on international expansion, with plans to open 50 net new stores this year. Customer engagement and satisfaction are measured through net promoter scores, which consistently rank in the top quartile of retailers. The loyalty program has over 37 million active members, accounting for over 80% of U.S. sales.

The company's loyalty program has been successful in attracting and retaining customers through exclusive benefits and targeted marketing. The company is also utilizing data and technology to drive traffic and sales, including a new mobile app and social commerce capabilities. Additionally, the company is focused on enhancing operational excellence and efficiency, with an increased cost savings goal of $130 million by 2024. This will allow the company to continue investing in initiatives to support top line growth while also improving margins.

The company is focused on executing their plans and bringing new products to customers. They will continue to focus on their core products and expand to new categories and locations. They are adjusting their revenue and earnings expectations for the year and increasing their share repurchase guidance. Despite a tough environment, they are meeting or exceeding their guidance and are confident in their strategy. The merchandising overview shows that they have maintained their unit market share, with increases in Home Fragrance offsetting declines in other categories.

The company's Home Fragrance and Body Care sales were down in the quarter, with soaps and sanitizers being the main reason for the decline. The semiannual sale did not meet expectations, particularly in the Body Care category. The company is working on improving their store presentation and marketing to optimize performance. The company's new product innovations have been well-received by customers, especially in the men's and lip categories. The company is also expanding their laundry and Everyday Luxuries collections, as well as launching a collaboration with Stranger Things.

In the second quarter, Bath & Body Works had successful collaborations with popular shows and plans for more in the future. They are also focusing on fragrance innovation and catering to customer demand for value. The company will continue to market their high-quality products and launch new collections. They are well positioned for success in the second half of the year and have exceeded their earnings guidance.

The company's outperformance in the quarter was mainly due to stronger merchandise margins, despite net sales being in line with expectations. US and Canadian stores saw a slight decrease in net sales, while direct net sales were negatively impacted by growth in BOPIS. International net sales saw an increase due to product shipments. The gross profit rate increased by 110 basis points, driven by merchandise margin expansion. AURs also increased by 1% due to mix. The company tightly managed expenses, delivering SG&A in line with expectations. The company's cost optimization efforts have benefited both gross profit and SG&A.

In the second quarter, the company saw a decrease in operating income and an increase in inventory to support new product launches and store openings. They also sold their stake in certain investments and received a tax benefit. They opened new stores and closed some in-mall stores. Due to a slower sales trend and a 53rd week in the previous year, the company has adjusted their full-year guidance for net sales to be down 4% to down 2%. They also expect a gross profit rate of 44% and an SG&A rate of 27%.

The company has increased its expected annual cost savings to $130 million and has updated its guidance for adjusted earnings per diluted share. For the third quarter, they are forecasting a net sales range of flat to up 2.5% and a gross profit rate of 43.5%. They also expect increased marketing investment and wage inflation to drive a higher SG&A rate, but this will be partially offset by cost reduction initiatives. The company's top priority is driving sustainable growth through investments in the business, and their total capital investment for the year so far is $101 million.

The company has adjusted its full year capital spending guidance to $250 million, with a focus on cost savings and disciplined spending. They have paid out dividends and repurchased shares of common stock, with plans to increase their annual dividend and repurchase $400 million of shares in fiscal 2024. The company has also improved their debt-to-EBITDA ratio and plans to generate adjusted free cash flow of $675 million to $775 million, which will be used for capital return priorities such as dividends and share repurchases.

Bath & Body Works has maintained its unit share performance despite a dynamic environment, thanks to its strong category portfolio, loyal customer base, and exceptional customer experience. The company's Fuel for Growth plan is on track and allows for investments in technology, innovation, marketing, and loyalty. While Q2 performance and macro factors have tempered expectations for the second half of the year, the company remains focused on execution and controlling what it can. The operator then asks a question about new category revenues and their potential impact on customer spending. Gina discusses how the company tests new categories and their potential for incrementality. Eva then addresses the company's free cash flow and CapEx, mentioning Easton and taxes as factors.

The company is happy with the results of their new product categories, which have met sales expectations and brought in new customers and repeat usage. They are also monitoring the incrementality of these categories. The company expects a decrease in sales for the fourth quarter compared to the third quarter, due to a more value-seeking customer and choppier macro environment. The decrease in sales guidance is also attributed to the sales trends seen in the third quarter.

In paragraph 15, the speaker talks about the slower growth from new customers and the shorter holiday season affecting the quarterly trends. They also mention working to drive Q4 performance outside of the holiday season. In the next question, Eva Boratto discusses the cautious consumers and traffic pressure experienced in the second quarter, but notes that customers responded well to new products and traffic has improved in the beginning of Q3. The following question is about the performance of the semiannual sale and whether it was affected by macro factors or execution issues.

Julie Rosen, responding to a question from Kate, discusses the performance of the semiannual sale and the changes they are considering for next year's sale. She mentions that the sale did not resonate with customers due to the store and marketing not clearly conveying it as a major event. They are evaluating the timing, marketing, and merchandising to optimize performance. In response to a question from Matthew Boss, Gina elaborates on the balance between customer traffic and average unit retail (AUR) trends, citing an increased focus on value from customers.

The speaker, Gina Boswell, is responding to a question about customer demand and traffic in August. She mentions using collaborations to drive traffic and excitement, and balancing this with clean inventory and promotions. Another speaker, Eva Boratto, adds that traffic has improved in Q3 and their performance is in line with their guidance. The next question is about the company's good, better, best strategy and how they are addressing value-seeking behavior. The speaker also asks about the success of their marketing efforts and the use of loyalty program data to drive ROI.

The company offers a wide range of price points and values in their products, and they aim to elevate value for their customers. They use their promotion levels and their vertically integrated model to provide a high-quality and enjoyable experience for customers. Their full funnel marketing strategy, which has been in place for a few quarters, is already showing positive results in increasing awareness and attracting new, existing, and lapsed customers.

The company has seen increases in awareness and familiarity, which has led to more conversions. Combining marketing, newness and innovation, and a compelling price value proposition has been successful and will continue to build. Collaborations and leveraging TikTok have also helped attract a younger customer. The company is confident in their plans to use marketing and product to grow customership. When asked about the semiannual sale, the company stated they may make changes to the timing in the future. In terms of new categories, they are seeing traction in lip, hair care, and deodorant, and are considering adjusting AURs to account for consumer hesitancy towards higher prices.

The company is planning to adjust the timing of their sale to allow for longer sales of their summer products. They are also working on pricing and marketing strategies for their new product lines, including hair, travel size, men's, lip, and laundry. The success of these products is still being evaluated, but the company is using an agile model to test and optimize their strategies.

The operator introduces Olivia Tong's question about AUR expectations for the second half of the year. Eva Boratto answers the question, stating that they are pleased with their cost savings initiative and will continue to reinvest in the business. She also mentions that AURs were up 1% in Q2 due to mixed factors and that they will focus on driving traffic in the second half while balancing revenue and margin expectations. Gina Boswell adds that there are various initiatives in place to drive traffic.

The company is confident in its upcoming performance, with the launch of a prestige-inspired line in all North America stores and online. They have also amplified their marketing efforts and have plans for more collaborations and fragrance launches in the fall. The company is also planning to launch on TikTok shop, potentially with the prestige fragrances, and will use their own influencers and promotions to attract customers.

Bath & Body Works is bringing back their candles and sanitizers in a more strategic way in order to increase sales. They are currently testing the use of TikTok Shop for a portion of their categories and plan to share more details in upcoming quarters. The brand's candle sales were impacted by the exit of their mason jar forms, but they are using collaborations and repositioning their single wick candles to increase sales. The PocketBac sanitizers continue to perform well, especially the moisturizing version that was launched in Q1. The brand is also investing in marketing to increase awareness and sales.

Gina Boswell, a spokesperson for the company, stated that they are always trying to innovate in their core. They are currently spending more on marketing to improve their ROAs and bring relevancy and awareness to their products. They will continue to test and potentially increase their marketing expenditures to reach competitive benchmarks. The company has seen positive impacts from their marketing investments since Q3 of last year. Regarding AURs, promos played a significant role during the semiannual sale, but the company is considering reinvesting in price for their candle category due to overall weakness and consumer demand for value.

The speaker responds to a question about promotions and raw material costs. They mention that promotions were comparable for the quarter and that raw material costs have stabilized or slightly decreased. They also discuss the use of single wick candles to attract value-seeking customers. The speaker then addresses a question about segment performance and mentions that there was some pull forward for international sales. They also mention that promotions will continue to be used to drive business.

The company expects international sales to decline in the second half of the year due to the effects of the war and a pull forward in sales in the second quarter. They focus on an omnichannel experience and have seen growth in their direct and store sales. They use an agile model for promotions and feel well positioned for the back half of the year despite a discerning consumer and a choppy macro environment. The call has now ended.

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