Bath & Body Works sales drop amid demand

Bath & Body Works reported lower second quarter net sales, but the retailer also posted higher operating income and net income as it handles weak underlying demand. The company, which operates across the United States and internationally, recorded net sales of $1.51bn for the quarter ended 1 August, representing a 2.3% decrease from the previous year. This dip in sales can be largely attributed to the ongoing challenges in the domestic retail market, particularly in brick-and-mortar stores, which have been facing increased competition from online retailers.

Profitability grows despite sales drop

Despite the decrease in net sales, Bath & Body Works managed to increase its profitability. Operating income increased to $216m from $157m, a 37.6% increase year-over-year. This growth can be attributed to the company’s focus on cost-cutting measures and streamlining its operations. Net income rose to $118m from $64m, indicating a 84.4% increase, demonstrating the company’s ability to improve its bottom line even in the face of declining sales.

Earnings per diluted share climbed to $0.58 from $0.30, marking a 93.3% increase, while adjusted earnings per share (EPS) reached $0.62 from $0.37, indicating a 67.6% increase. This significant improvement in earnings per share suggests that the company’s profitability has been improving even as its top line has been facing headwinds.

Bath & Body Works also narrowed its full-year sales outlook to a decline of 4% to 2.5%, compared to the earlier forecast of a 4.5% to 2.5% decline. This narrowing of the guidance range indicates that the company is becoming more confident in its ability to manage its sales decline, potentially due to its ongoing efforts to focus on its core product offerings and improve its digital presence.

Bath & Body Works raised its full-year 2026 EPS outlook to $3.13 to $3.33, up from the prior guidance of $3.00 to $3.25, and lifted adjusted EPS guidance to $2.60 to $2.80, from $2.40 to $2.65. This increase in EPS guidance reflects the company’s confidence in its ability to continue to improve its profitability, even as it handles a challenging retail environment.

The company also expects free cash flow to reach about $650m. This projection demonstrates the company’s confidence in its ability to generate cash from its operations, even as it faces headwinds in its sales growth.

Related: Ulta raises full-year outlook after Q2 sales gain

Direct sales see first increase since 2021

Direct sales in the US and Canada rose 3% to $275m, marking the first increase since 2021. This growth was supported by digital investments made over the past year, including improvements to the company’s website and e-commerce platform, as well as increased marketing efforts to drive online sales. Despite this growth, direct sales still only accounted for 18.2% of the company’s total sales in the quarter, indicating that there is still significant potential for further growth in this channel.

Conversely, store sales in the US and Canada fell 5.4% to $1.13bn. This decline can be attributed to a variety of factors, including increased competition from online retailers, changing consumer behavior, and the ongoing impact of the COVID-19 pandemic on in-store shopping. International and other revenue grew 24.9% to $108m, demonstrating the company’s success in expanding its reach globally and diversifying its revenue streams.

Bath & Body Works CEO Daniel Heaf stated that the quarter came in ahead of the company’s sales and EPS guidance. He noted that the company is seeing “further evidence that elements of the Consumer First Formula are beginning to work.” He pointed to sequential improvement in body care, stronger average unit retail on new product innovation, improved brand discoverability, and continued momentum in marketplace partnerships. These factors suggest that the company’s efforts to focus on its core products and improve its customer experience are beginning to pay off.

The retailer projects sales to decline 5% to 2.5% for the third quarter, with adjusted EPS expected to be $0.07 to $0.12. This guidance indicates that the company is still facing headwinds in its sales growth, but that it remains confident in its ability to continue to improve its profitability and manage through the challenges in the retail market.

While the recent quarter showed a sequential improvement in direct sales and operating metrics, the continued pressure on store-based revenue suggests that the recovery path remains uneven. The company’s decision to narrow its sales decline forecast for the full year implies confidence that the current trends will persist, but the divergence between domestic store performance and international growth highlights the difficulty of stabilizing a broad retail footprint without further aggressive restructuring. The company will need to continue to focus on its digital presence and cost-cutting measures in order to maintain its profitability and handle the ongoing challenges in the retail market.