Release Date: August 28, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Net sales for the second quarter were $1.5 billion, in line with guidance.
- Adjusted earnings per diluted share of $0.37 exceeded guidance by a penny.
- Continued improvements in merchandise margin and solid execution on cost-saving initiatives.
- Strong performance in new category adjacencies such as Men's, Hair, Lip, and Laundry.
- International expansion with double-digit growth in unaffected regions and plans to open 50 net new stores this year.
Negative Points
- Net sales were down 2% versus the prior year.
- The semi-annual sale fell short of expectations, impacting overall performance.
- Store traffic was pressured throughout the quarter, reflecting a cautious consumer backdrop.
- Direct net sales declined by 9.7% compared to last year.
- Full-year revenue and earnings expectations were adjusted downward due to a choppier macroeconomic environment.
Q & A Highlights
Q: Gina, could you speak to how you're thinking about new category revenues as being additive versus maybe a reallocation of customers' intended spend at Bath & Body Works, just as they normalize those candle purchases?
A: Gina Boswell, CEO: We're satisfied on a couple of levels. First, these are large addressable markets, not only do they meet the sales expectations for Men's, Hair, Laundry, and Lip, but they deliver against three other metrics: new-to-brand customers, repeat usage behavior, and incrementality. We like what we see on all three fronts.
Q: Excluding the calendar shift, you're guiding in fourth quarter sales to be worse than what you expect for the third quarter. Can you walk us through the puts and takes and why you're expecting a more challenging holiday season?
A: Eva Boratto, CFO: Our reduction in sales guidance is due to a more value-seeking customer and a choppier macro environment. The pace of growth from new customers is taking longer. The shorter holiday season, five days shorter, is also a factor. We're working to utilize periods outside of Black Friday and Christmas to drive Q4 performance.
Q: Can you talk about the cadence of the second quarter sales and what gives you confidence in the trend improving into the end of the third quarter?
A: Eva Boratto, CFO: We experienced a more cautious consumer and pressured traffic throughout the quarter. SaaS pressured us more than expected, but excluding SaaS, sales were down about 1%. Traffic improved at the tail end of the quarter and has been stronger in the first part of Q3. We have exciting launches like everyday luxuries and Stranger Things.
Q: Do you think there was any execution miss in the semi-annual sale performance, or do you still think it's more of the macro?
A: Julie Rosen, President: The semi-annual sale didn't resonate with customers as the store and marketing didn't clearly convey it as a major sale event. We adjusted our messaging and floor sets, but performance remained below expectations. We are evaluating timing, marketing, and merchandising to optimize future sales.
Q: Could you elaborate on customer traffic relative to AUR trends that you're seeing today?
A: Gina Boswell, CEO: Traffic was difficult in the quarter, comparable to external trends. AUR impact was flat on a comparable mix basis. We used our agile model to promote as needed to deliver results. Traffic has improved relative to Q2, and we have exciting launches planned.
Q: How do you think about the assortment for the balance of the year if you continue to see a consumer that is accelerating value-seeking behavior?
A: Gina Boswell, CEO: We have a wide array of price points and a good-better-best strategy to meet customers where they are. Value is not just about price but also quality and experience. Our vertically integrated model allows us to offer tremendous value at every level.
Q: Could you talk about your AUR expectations in the second half of the year and initiatives to drive traffic?
A: Eva Boratto, CFO: We are not providing specific AUR guidance but will use our agility to promote and drive traffic while balancing revenue and margin expectations. Gina Boswell, CEO: We have exciting launches like everyday luxuries and Stranger Things, and more collabs and cross-category fragrance launches planned for the fall season.
Q: Can you provide a little bit of color on the different segment performance you're anticipating for the back half of the year and how we should be modeling direct versus store versus international?
A: Eva Boratto, CFO: We expect international sales to be down mid to high single digits in the back half due to regions affected by the war. Focus continues to grow nicely for us, and we focus on an omnichannel experience.
Q: Could you talk about the candles and sanitizers categories and how you plan for those categories in the back half?
A: Julie Rosen, President: Candle performance was impacted by the right-sizing of our single wick. We are using collabs to drive excitement in candles. In sanitizers, we continue to be impacted by the exit of the full-size sanitizer, but PocketBac continues to perform well.
Q: Can you provide more details on the TikTok shop launch and how it will be executed?
A: Gina Boswell, CEO: We are early days in learning on TikTok Shop. We will be using TikTok Shop for at least a portion of our categories. We will use their shop for a more frictionless, convenient experience and will test and react as needed.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
