Bath & Body Works(BBWI) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net sales for Q3 2024 were $1.6 billion, an increase of 3% compared to the prior year, with earnings per diluted share at$ 0.49, exceeding guidance [8][34] - Gross profit rate was 43.5%, a decline of 10 basis points year-over-year, while SG&A as a percentage of net sales was 30%, better than expectations [38][39] - Total operating income decreased by 1.3% to $218 million, representing 13.5% of net sales [41] Business Line Data and Key Metrics Changes - Each category, including Body Care, Home Fragrance, and Soaps & Sanitizers, grew low-single digits year-over-year [11] - Body Care saw double-digit growth in Fine Fragrance Mist, driven by the Everyday Luxuries rollout [15] - Home Fragrance performance was boosted by growth in the candle business, aided by targeted marketing investments [13] Market Data and Key Metrics Changes - In U.S. and Canadian stores, net sales totaled$ 1.2 billion, up 4.4% year-over-year, while international net sales were $69 million, down 11.1% due to war-affected markets [36][37] - System-wide retail sales grew double-digits in regions not affected by the war, but declined in impacted areas [24][37] Company Strategy and Development Direction - The company is focused on its 5E strategy: elevating the brand, extending reach, engaging customers, enabling omnichannel experiences, and enhancing operational excellence [12] - Strategic investments are being made in adjacent categories, which now represent approximately 10% of the business, with potential for growth [20][21] - The company is reshaping its real estate portfolio, with 55% of North American stores in off-mall locations [23] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in returning to sustainable profitable growth, emphasizing strong demand during the holiday season [31][55] - The company does not expect normalization in the candle market to materially impact business in 2025 and beyond [14][60] - Management highlighted the importance of product innovation and customer engagement in driving future growth [10][26] Other Important Information - The company plans to repurchase$ 400 million in shares and has paid out $134 million in dividends year-to-date [50][49] - The loyalty program has approximately 38 million active members, representing over 80% of U.S. sales [27][117] - The company is leveraging TikTok Shop to reach younger demographics, with plans for further engagement during the holiday season [28][124] Q&A Session Summary Question: Impact of candle normalization on business - Management stated that they do not expect candle normalization to have a material impact beyond 2024, citing market leadership and successful collaborations [58][60] Question: Gross margin performance - Management explained that gross margin met expectations, with strategic promotions impacting results, and they aim for a target gross margin of 45% [64][66] Question: Category trends and traffic cadence - Management noted positive customer response to seasonal merchandise and strong traffic throughout the quarter, driven by new product launches [69][73] Question: Revenue growth expectations - Management indicated that they are pleased with growth performance and expect continued momentum, despite calendar shifts impacting Q4 [78][80] Question: Marketing as a percentage of sales - Marketing accounted for about 3.5% of sales annually, with a 100 basis point increase year-over-year in Q3 [91] Question: Learnings from collaborations - Collaborations are driving growth in core products and enhancing brand awareness, with successful campaigns generating significant customer engagement [92][93] Question: International sales expectations - Management expects mid-single-digit declines in international sales for Q4, primarily due to war-affected regions [110] Question: Loyalty program effectiveness - The loyalty program is showing strong engagement, with increased redemption rates and higher spending from active members [118] Question: TikTok Shop plans - The company plans to leverage TikTok Shop for holiday season activations, measuring success through return on ad spend and customer metrics [125]