The paragraph outlines the introduction to Bath & Body Works' First Quarter 2025 Earnings Conference Call. Melissa, the conference operator, opens the call and hands over to Luke Long, Vice President of Investor Relations. Luke welcomes participants and introduces key speakers: CEO Daniel Heaf and CFO Eva Boratto. He mentions a slide presentation on their website and notes that some comments may involve forward-looking statements with associated risks detailed in the company's 2024 Form 10-K. Non-GAAP financial measures are also discussed. Daniel Heaf then speaks, expressing his enthusiasm for joining the company and appreciation for the welcome and trust given by the Board and team.

The paragraph highlights the new leader's strategic vision for Bath & Body Works, emphasizing the brand's strong foundation, customer loyalty, and growth potential. With 50,000 employees and a significant consumer base, the brand aims to enhance its global presence in home fragrance and beauty. The focus is on customer-centered growth, innovative products, attracting younger audiences and men, and leveraging an integrated omnichannel approach. Recent successful initiatives like the Disney collaboration demonstrate the effectiveness of this strategy.

The paragraph outlines a strategy focused on enhancing consumer connection and reducing reliance on promotions to drive growth. Key areas of focus include improving the digital experience on the company's website, enhancing packaging to highlight product quality, expanding distribution channels, and increasing international presence, which currently accounts for 5% of their business. The leadership team will work to identify short and medium-term strategies for quick wins, while developing a long-term plan to be communicated in future quarters. The strategy aims to put consumers at the center with bold priorities to accelerate growth through consistent and durable methods. Daniel hands over to Eva Boratto at the end of the paragraph.

In the paragraph, the speaker discusses welcoming Daniel to a company Townhall, highlighting his consumer-focused approach and interactions with associates. The company, Bath & Body Works, is experiencing high energy and optimism under Daniel's leadership, aiming to accelerate growth and unlock value. The speaker then provides a summary of the company's strong first-quarter financial performance, with net sales increasing by 3% and earnings per share surpassing expectations. The company's strategy focuses on accelerating growth, improving operational efficiency, and investing in opportunities while returning value to shareholders. The first-quarter results showed the strongest sales growth since 2021, with increased traffic across multiple channels.

In the recent quarter, innovation drove customer engagement and reinforced industry leadership, particularly with a successful Disney collaboration that featured 85 SKUs and generated significant excitement and online engagement. The company's product lines, including Body Care, Home Fragrance, and Soaps & Sanitizers, experienced growth due to new product offerings like the Disney Princess fragrances, everyday luxuries extension, and popular single Wick candles. The period also highlighted a shift in consumer gifting habits around holidays like Valentine's Day and Easter, showing that gifting is not limited to Q4. The company continues to focus on innovation and has exciting new fragrance experiences planned for the summer.

The company is enhancing its product offerings by introducing new, trendy fragrances and relaunching popular collections with improved formulas free from harmful ingredients. Besides product innovation, they are upgrading the in-store and online shopping experience with modern store designs and integrated technology. Their loyalty program is thriving, with 39 million active members, showing a 4% increase from the previous year. Enhancements in the program are aimed at increasing customer engagement, reward redemption, and sales, particularly focusing on maximizing value from existing loyal customers while also attracting more casual shoppers.

The paragraph highlights the company's growth strategy and financial performance for the quarter. It emphasizes the expansion into adjacent categories like men's, lip, hair, and laundry, now making up 10% of total sales. The men's category in Body Care is being promoted through special marketing for Father's Day and new product launches. International expansion is identified as a key growth area, with a 10% increase in international retail sales. The company maintains strong cost management and operational efficiencies, benefiting from a primarily U.S.-based supply chain. Financially, the company achieved net sales of $1.4 billion, a 2.9% increase from the previous year, supported by a successful Disney collaboration. U.S. and Canadian stores saw a 4.3% rise in net sales, while direct net sales fell by 4.3%.

In the first quarter, adjusted retail performance showed direct sales outperforming store sales, with focused demand increasing by 29% and representing 30% of digital demand. International sales, accounting for 5% of total sales, grew by 10.1% to $64 million, aligning with expectations. The gross profit rate rose to 45.4%, driven by improvements in merchandise margin and favorable buying and occupancy leverage. SG&A increased slightly due to investments in marketing and training, while operating income improved to 14.7% of net sales. Inventory was up 7%, slightly exceeding plans due to tariffs and strategic moves. The real estate portfolio remains strong, with 57% of stores off-mall. In North America, 13 new stores opened off-mall, and 8 mall-based stores closed. Internationally, 14 new stores opened and 19 closed, resulting in a total of 524 stores, with planned closures primarily in the Middle East.

The company plans to open at least 30 new international stores by 2025 and is maintaining its 2025 financial guidance, expecting 1% to 3% growth in net sales and earnings per share (EPS) of $3.25 to $3.60. The guidance accounts for current tariffs but excludes impacts from a CEO transition. If tariffs change significantly, the guidance will be revisited. For Q2, the company anticipates flat to 2% net sales growth year over year, high single-digit growth in international retail sales, and a mid-single-digit decline in reported net sales owing to shipping timing. The gross profit rate is projected to remain at 41%, with SG&A at approximately 30% due to wage inflation and tech investments. Net nonoperating expenses are estimated at $65 million, with a tax rate of 29% and 212 million diluted shares outstanding, resulting in a forecasted EPS of $0.33 to $0.38 for Q2. Inventory is expected to be elevated by about 10% in the first half of the year.

The paragraph discusses a company's financial performance and capital allocation strategy. Despite tariff-related costs affecting inventory, the company's first-half inventory levels were as expected to support growth goals. The company is prioritizing sustainable, long-term profitable growth through strategic investments in real estate and technology, with capital expenditures planned between $250 million to $270 million for the year, as $37 million was spent in Q1. The company expects full-year free cash flow of $750 million to $850 million, improved by their Fuel for Growth initiatives. In Q1, they returned $43 million to shareholders via dividends and repurchased 4.3 million shares for $135 million, maintaining a target of $300 million in share repurchases for the year. The company is optimistic about its growth potential due to its agile business model and innovative pipeline and expresses gratitude to its team for strong performance, concluding with an invitation to a Q&A session led by an operator.

In this paragraph, Simeon Siegel welcomes Daniel Heaf to Bath & Body Works and asks him about his transition from a different company, as well as his early impressions of the company's performance and opportunities. Daniel expresses his enthusiasm for joining Bath & Body Works, highlighting his thorough research and admiration for the company. He emphasizes the brand's mission to connect product with purpose, empowering consumers through fragrance, self-care, and beauty. Daniel is proud of the company's meaningful mission and its strong business foundation.

The paragraph discusses the company's strong foundation for growth, emphasizing its large number of stores, extensive loyalty program, and dedicated team. The company's strategy focuses on consumer-centric growth, creating innovative products, and telling compelling brand stories. The company achieved 3% growth in Q1, with Disney being a significant contributor, alongside successful products like EDL and gifts for women. As they move into Q2, despite it being a low innovation period due to the prominence of SaaS, the outlook remains positive, and there are plans to focus on promoting Father's Day.

The paragraph discusses the company's strategic focus on enhancing growth, particularly through innovations and market repositioning. It highlights initiatives such as boosting marketing efforts, launching new products like an elevated ceramic candle, and planning collaborations to drive growth. Daniel Heaf, a new leader within the company, addresses his initial focus on understanding the company's dynamics by listening to stakeholders, including employees and investors. He emphasizes that a clear strategic plan will be developed and shared in the coming quarters, centered around consumer needs and a focus on bold priorities to consistently drive growth.

The paragraph outlines the company's strategy to achieve growth by setting clear road maps and KPIs, focusing on digital refresh, packaging, labeling, alternative distribution, and international opportunities. The company aims to grow both top and bottom lines by concentrating on fewer, more impactful initiatives rather than seeking additional investment. It emphasizes efficiency and offsets new investments through its Fuel for Growth program, exemplified by exiting a third-party fulfillment center to improve costs and customer satisfaction. Daniel mentions the need for fewer but deeper priorities, while Eva Boratto adds that they continuously seek efficiencies. The discussion ends with Lorraine Hutchinson from Bank of America asking about marketing plans.

Daniel Heaf discusses the company's progress in marketing and its plans for global growth. He highlights the importance of connecting emotionally with consumers and moving away from price-focused marketing. Heaf emphasizes the need to tell compelling stories about product innovation and improvements. Regarding international expansion, he sees significant potential and plans to identify priority markets and develop appropriate business models after gaining deeper insights into current challenges and opportunities.

The paragraph discusses the company's strategic focus on third-party distribution and consumer engagement. The speaker emphasizes the importance of reaching new consumers through different platforms and channels by putting consumers at the center of their strategy. Alex Straton from Morgan Stanley asks questions related to the company's growth expectations for Home Fragrance and Body Care categories and the plans for the semiannual sale. Eva Boratto responds, noting the company's intention to drive stronger performance for the sale this year by starting it later to amplify Father's Day and align with the general market's summer sales timing.

The paragraph discusses the company's increased marketing efforts to inform customers about a change in timing and their new product offerings. The duration of the promotion is slightly shorter but generally consistent. The Body Care and Home categories are performing well, with Body Care expected to see growth in line with the market, while the candle market remains under pressure. However, the home fragrance sector is experiencing overall growth. The gifting segment, despite being small, showed significant double-digit growth this quarter, indicating the company's potential as a gifting destination year-round. The paragraph also includes questions directed at Eva from Ike Boruchow of Wells Fargo regarding the company's guidance, tariffs, and revenue growth confidence.

In the paragraph, Eva Boratto expresses confidence in their company's performance for the latter half of the year, driven by new product innovations such as an elevated ceramic handle and collaborations with Disney Princess. She highlights Halloween as a key period with exciting new products. In addressing a question about tariffs, Boratto explains that their guidance accounts for current tariffs, with margin expansion and mitigation strategies in place. If tariffs remain, they expect to be at the lower range of guidance, but if reduced, they’d be at the upper range. She concludes by expressing satisfaction with their flexible business model and competitiveness. The operator then introduces the next question from a Citi analyst.

In the first quarter, the company experienced strong gross margin performance, expanding it by 160 basis points and exceeding guidance by 210 basis points. The improvement in merch margin, which was up by 100 basis points, was driven by a mix of adjusted average unit retail prices (AURs) increasing slightly, and cost savings from value engineering and reduced transportation costs. The company also benefitted from exiting a fulfillment center and lower store asset depreciation expenses. These factors allowed them to offset tariffs while maintaining guidance for the year. Royalty payments from collaborations, such as with Disney, impact the merch margin. Additionally, the Disney collaboration contributed positively to the performance.

The paragraph involves a discussion about collaborations and pricing strategies. Eva Boratto explains that the potential opportunities for collaborations are expected to contribute to growth in the latter half of the year, noting that while each collaboration varies in size, they plan to have multiple collaborations that will impact growth. She mentions the significant scale of their Disney Princesses collaboration, which included six princesses and 82 SKUs. In response to a question about pricing strategy amidst tariffs, Boratto states they aim to remain flexible and cater to value-seeking customers, leveraging their agile model. Daniel Heaf mentions that they are satisfied with the results from their Disney collaboration in attracting new consumers.

The paragraph discusses a company's strategy for growth by bringing the right products and brand stories to attract consumers, particularly younger ones, which presents significant growth opportunities. The loyalty program has proven effective in encouraging repeat purchases, visits, and increased spending. They aim to attract new consumers through collaborations and other initiatives. The discussion then shifts to a new store format called Gingham Plus. Eva Boratto confirms it's the same initiative mentioned earlier, highlighting its modernization, improved navigation, technology, and engagement, leading to better financial performance at comparable costs. Daniel Heaf adds that after spending time in a Gingham Plus store, he sees it as a significant improvement in brand experience and store layout, though there's room for further iteration.

In the paragraph, the speakers, Eva Boratto and Daniel Heaf, discuss the company's strategy regarding store formats, pricing opportunities, and international expansion. Eva Boratto mentions the company plans to implement a new store format in all new and remodeled locations without accelerating capital expenditures. She highlights the importance of staying agile in response to a dynamic market, focusing on delivering value to customers. Daniel Heaf adds that the company aims to expand aggressively outside the U.S. and is considering various markets for this expansion, although he doesn't specify whether they are focusing on markets with existing competition or those that need market development.

The speaker emphasizes the importance of international expansion by leveraging a tailored approach focusing on specific markets and business models that align with each market's unique requirements, rather than adopting a one-size-fits-all strategy. They plan to engage with international partners and consumers to identify necessary changes to accelerate growth effectively. Following this, Korinne Wolfmeyer from Piper Sandler asks about managing product launches, particularly the men's everyday luxury line, and their approach to adjacent categories. Eva Boratto responds by viewing these product lines as foundational for future growth rather than just cyclical offerings, noting the successful performance of new fragrances and the men's line.

In this section of the article, Eva and Daniel discuss the company's favorable response to the introduction of a body cream and highlight the significant growth seen in their adjacent markets. They emphasize the need to focus on fewer but more impactful initiatives, suggesting that concentrating marketing efforts will clarify for consumers what is most important. The aim is to broaden the consumer base by leveraging these adjacencies while ensuring existing customers add more items to their purchase basket. Sydney Wagner, speaking for Ashley Helgans from Jefferies, asks about the Fragrance category's future assumptions and the balance between online and in-store sales considering digital efforts. Daniel reiterates the importance of listening to consumer feedback.

The paragraph discusses a company's strategy to meet consumers where they are by focusing on growing their digital business in line with market penetration without forcing consumers into an unsuitable channel mix. The fragrance category is highlighted as being on trend, with plans to maintain category leadership and drive growth through new offerings. The discussion then shifts to a Q&A format with Adrienne Yih of Barclays, questioning about factors driving dual-channel traffic and market share sustainability into Q2, to which Eva Boratto responds that positive traffic trends were noted both in stores and online during Q1 and are factored into the Q2 guidance. Finally, a question is addressed to Daniel regarding the balance between returning capital and funding new initiatives, noting the company's strong free cash flow and buyback plans.

The paragraph discusses strategic priorities and observations regarding market performance and store locations. Daniel Heaf indicates it's too early to detail capital allocation strategies, focusing instead on investing in priority growth areas. In response to a question from Dana Telsey, Eva Boratto and Daniel Heaf comment on store performance trends, noting that off-mall stores, especially those near major anchors like Walmart and Target, are performing better than mall stores due to stronger conversion rates. Additionally, there's consideration of online channel improvements, though details are not provided.

The company is prioritizing website enhancements and is pleased with the existing technology foundation that allows for rapid changes. Feature enhancements to their app are expected in August, with more significant digital platform changes planned in the coming quarters. These improvements aim to foster stronger emotional connections with the brand, improve product storytelling, and drive conversion and growth by integrating content and commerce. The call concluded with thanks to participants and information about the availability of a replay.

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