Good morning. My name is Melissa, and I will be your conference call operator today. I would like to welcome everyone to the Bath & Body Works Fourth Quarter 2024 Earnings Conference Call. Please be advised that today's conference is being recorded. I will now turn the call over to Luke Long, Vice President of Investor Relations. Luke, you may begin.

Good morning, and welcome to Bath & Body Works fourth quarter and full year fiscal 2024 earnings conference call. Joining me on the call today are Gina Boswell, Chief Executive Officer; and Eva Boratto, Chief Financial Officer. In addition to this call and this morning's press release, we have posted a slide presentation on our website that summarizes the information in these prepared remarks in addition to providing some related facts and figures regarding our operating performance and guidance. As a reminder, some of the comments today may include forward-looking statements related to future events and expectations. For factors that could cause the actual results to differ materially from these forward-looking statements, please refer to this morning's press release, as well as the risk factors in Bath & Body Works' 2023 Form 10-K. Today's call also contains certain non-GAAP financial measures. Please refer to this morning's press release and supplemental materials for important disclosures regarding such measures, including reconciliations to the most comparable GAAP financial measure. Fiscal 2023 was a 53-week year. To provide the best understanding of the business, all category sales results, year-to-date market share data, loyalty metrics, and selling metrics discussed during the call are on a comparable calendar basis, which is the 13 weeks ended February 1st, 2025 versus the 13 weeks ended February 3rd, 2024. All other results discussed are on a reported basis, which is the 13 weeks ended February 1st, 2025 versus the 14 weeks ended February 3rd, 2024. With that, I'll turn the call over to Gina.

Thank you, Luke. And good morning, everyone. We appreciate you joining us. On today's call, I'll start with a high-level review of our key accomplishments in 2024. Then I'll briefly walk through our fourth quarter results, including our growth drivers and the progress we've made against our strategic priorities. I'll also share a brief update on our 2025 expectations before turning it over to Eva to share more about our financial performance and guidance. Bath & Body Works is a global leader in personal care and home fragrance, and we make the world a brighter, happier place through the power of fragrance. This purpose truly comes to life during the holiday season, and I witnessed it firsthand in stores, seeing our customers react to our beautifully curated holiday floor sets. I want to take a moment to thank our teams, especially our store and distribution center associates, for delivering an outstanding customer experience during the critical fourth quarter. This past year can be best summarized as one of building momentum and establishing a strong foundation for long-term growth. We successfully executed a number of key strategic initiatives to support our return to growth. For example, we launched collaborations with big names in pop culture through partnerships with companies like Netflix to better connect with our customers. We successfully rolled out Everyday Luxuries, our prestige-inspired line of fine fragrance mists, and it is resonating with younger customers. We grew our active loyalty membership 6% year-over-year with approximately 80% of sales flowing through the program. We expanded our customer reach by growing category adjacencies, such as men's, hair, lip, and laundry. And we delivered approximately $155 million of incremental cost savings through our Fuel for Growth program, bringing the two-year total to over $300 million, significantly exceeding our initial targets. Turning to our Q4 performance, while we continue to see value-seeking customer behavior and competitive intensity, we closed out the year strong. Net sales in the quarter were $2.8 billion, above the high end of our guidance. Importantly, our net sales improved sequentially in every quarter of 2024 when normalized for calendar shifts, the 53rd week last year, and the shortened holiday calendar. At the same time, we continued our disciplined cost management and drove gross profit margin that exceeded our guidance and an SG&A rate that was in line with our guidance. Earnings per diluted share were $2.09, also beating the high end of our guidance range. So our strategy is working, and we continue to focus on three priority areas. First, accelerating top line growth. We're doing this in our core through what I call our three-legged stool for growth: product innovation; marketing; and technology. And we're also extending our reach through adjacencies and international expansion. Second, we are enhancing operational excellence and efficiency through cost management and a continuous improvement mindset. And third, we are consistently deploying our strong cash flow to invest for growth and return value to shareholders through dividends and share repurchases. Starting with top line growth. We drove positive dual channel traffic and conversion in Q4, with traffic exceeding the third-party benchmarks we track. As a trusted gifting destination, our customers turned to us to celebrate the holiday season and they responded enthusiastically to our seasonal holiday collections. Timeless favorite Holiday Traditions rose to be the number one collection, and our Home for the Holidays collection had the largest growth year-over-year, up double-digits. We launched innovative products in our core categories, body care, home fragrance, and soaps and sanitizers. Importantly, these categories performed in line with the market, each maintaining their category leadership and unit market share in 2024. Body care grew low-single digits versus the prior year, driven by successful seasonal fragrance launches and the strength of Everyday Luxuries. We rolled out Everyday Luxuries to all stores in early fall and customers responded positively to the incredible high-quality fragrance and value it provides. The initiative is attracting a new, younger, and more diverse customer base, and we view it as a platform to drive long-term growth. In 2025, we're expanding the collection with even more captivating fragrances and forms, including body cream and body wash, to create perfect fragrance layering opportunities. Our on-trend single fragrance launches in body care, Platinum in October and Perfect in Pink in November, also performed well. Each offers a unique olfactive appeal and aligns with current fashion trends. Metallic and Pink were both prominent in collections from global fashion houses. Our home fragrance performance in the quarter was down slightly versus the prior year due in part to the timing of our promotional strategies. In the fall, we delivered a successful and intentional new promotional strategy for candles, aimed at bringing customers out early in anticipation of the shorter holiday season. This shifted some demand for candles from Q4 into Q3, as planned, and resulted in a slight decline in the home fragrance category in Q4. Importantly, in the second half of 2024, home fragrance was up slightly from last year, an improvement versus performance in the first half of the year. As the candle category leader, we are focused on sustaining customer interest through innovation and our fragrance expertise, and I'm excited about our product pipeline for 2025. Wallflowers, our fragrance air freshener plug-in performed well in the quarter. Fresh and clean fragrances like our new Clean House Vibes and our established Laundry Days are resonating with customers, especially as their mindset began shifting to spring cleaning in January. Soaps and sanitizers grew mid-single digits in the quarter, driven by our convenient PocketBac forms, moisturizing sanitizers, and new one-ounce sprays. In Q4, the quad-demic fueled demand for these products and our agile supply chain, coupled with strong execution, enabled us to meet that demand efficiently. I want to spend a moment on collaborations, which is a key element of our product and marketing strategy across our core business. Collaborations allow us to deliver highly differentiated storytelling that generates top-of-mind brand awareness with existing and new customers. They drive traffic and they enhance our cultural relevancy. We launched two collaborations in the fourth quarter that both performed well. First, our cross-category Emily in Paris collaboration, which created buzz during the holidays; and second, our Sweethearts collaboration, which launched in January, in time for Valentine's Day. And of course, we are all thrilled about the highly anticipated Disney Princess collaboration, which launched this month. Customers are just as excited as we are about this. Our Disney TikTok post garnered over 1 million organic views on the first day. I'm excited about our product pipeline and the newness we will bring to customers in 2025. Next, customer experience. An important part of our growth strategy is to improve the in-store and online customer experience through investments in marketing, loyalty, and technology. We have successfully transitioned to a predominantly off-mall retailer. Today, 57% of our North American stores are in off-mall locations, and we plan to continue increasing our off-mall portfolio now with a target mix of 75% off-mall over time, given continued consumer preference. Our marketing and technology efforts, the second and third legs of our stool together contributed to record-high customer retention rates and an improvement in attracting new-to-brand customers. As we enter year three of the loyalty program, members continue to significantly outperform non-loyalty customers, leading to increased spend, trips, cross-channel purchases, and higher customer retention. In Q4, we had approximately 39 million active loyalty members, up 6% compared to the prior year. Additionally, our reward redemption rate is increasing, which is driving flywheel behavior and deepening brand connectivity, reflecting the strength and appeal of the loyalty program. And we have planned enhancements to the program in 2025, which we expect will excite customers and drive further improvements to redemption. Our technology roadmap remains on track as we enhance our systems and put in place foundational tools to enable more personalization and seamless customer engagement to drive long-term growth. Finally, we made progress extending our reach this quarter through growth in our adjacent categories and international expansion. We believe adjacencies are an opportunity to expand and diversify our product portfolio, applying our fragrance expertise and leadership to large addressable markets. Our adjacent categories of men's, hair, lip, and laundry continue to materially outperform the shop. For the year, they represented approximately 10% of our business, with potential to become a larger percentage of our mix in 2025 and beyond. Momentum in the men's business, which is included in body care, remained strong this quarter as we launched our first men's Purchase With Purchase set for the holiday season, which sold out in four days. In 2025, we plan to launch more core fragrances in men's. And we recently extended our successful Everyday Luxuries platform to men's. Lip, which is also included in our body care business, delivers an immersive experience through our in-store fixture, drawing in younger customers. Lip was up approximately 50% year-over-year in the fourth quarter, and we expect to launch exciting new Lip products quarterly in 2025. Laundry, which is included in home fragrance, is an exciting platform that we believe is positioned for long-term growth, capitalizing on our differentiated fragrance expertise and elevated packaging. We are pleased with the early performance that followed the full rollout of laundry in Q3, and we expect to introduce new laundry forms beyond detergent and boosters in the future to fuel the platform's growth. International expansion remains an important pillar of our long-term strategy. International represents approximately 5% of our net sales, and there is significant long-term opportunity as we enter new markets and expand in existing markets. System-wide retail sales were up nearly 10% in the quarter on a calendar adjusted basis, driven by 20% growth in the areas not affected by the war in the Middle East, while the regions affected by the war declined 4%. This is a significant improvement versus prior quarters, as we have lapped the start of the war. And as we enter 2025, we expect the international business will once again become a positive contributor to top line growth. Taken together, our focus on our growth drivers, including our three-legged stool of product innovation, marketing, and technology, and extending our reach through adjacencies and international expansion drove our return to growth in 2024, and we are eager to continue the momentum in 2025. Turning now to margins. We are enhancing operational excellence and efficiency by continuing to focus on cost discipline. Our Fuel for Growth program delivered approximately $155 million of incremental cost savings in 2024, bringing the two-year total to over $300 million, significantly exceeding our initial targets. Importantly, we're taking a continuous improvement mindset to manage cost and enhance operational efficiencies. This allows us to invest in the business while maintaining our margins. Finally, we generated significant operating cash flow in 2024, nearly $900 million, and we remain disciplined in how we deploy that cash. We are reinvesting in the business and returning capital to shareholders through dividends and share repurchases. To summarize, I am pleased with our performance and the momentum we're building. As we enter 2025, we expect to drive growth through our product innovation, marketing, and technology. These plans are multi-year opportunities, and we are in the early innings. We expect to build on the innovation platforms we launched in 2024, including Everyday Luxuries and collaborations, and we expect to extend our reach through adjacencies and international expansion. Turning to our 2025 outlook, we expect 2025 net sales to be up 1% to 3% on a year-over-year basis, and we expect diluted earnings per share of $3.25 to $3.60. I'm confident that our strategy and focused execution will position the company to achieve sustainable profitable growth and to drive long-term shareholder value. Before I turn the call over to Eva, I want to express a heartfelt thank you to our customers who share our passion for fragrance. With that, I'll turn it over to Eva.

Thank you, Gina. And good morning, everyone. In the fourth quarter, we reported earnings per diluted share of $2.09, exceeding our guidance of $1.94 to $2.07. This outperformance was driven by net sales exceeding our expectations, our ongoing cost discipline, and a lower-than-expected tax rate. We delivered net sales of $2.8 billion, which decreased 4% to the prior year and exceeded our guidance. The fourth quarter was impacted by the calendar shifts, the 53rd week last year, and the five fewer shopping days between Thanksgiving and Christmas this year. Our net sales growth accelerated from the third quarter to the fourth quarter when normalized for these factors. In US and Canadian stores, net sales totaled $2.1 billion. This was a decrease of 2% versus the prior year. Direct net sales were $595 million, a decrease of 9% compared to last year. However, when adjusting for Buy Online, Pickup In Store, or BOPIS, direct sales outperformed stores. BOPIS demand increased by 45% in the quarter versus last year and represents approximately 25% of total digital demand. International net sales were $84 million, down 10% from the prior year. Adjusted for the extra week, net sales were down mid-single digits and in line with our expectations. Our fourth quarter gross profit rate of 46.7% exceeded expectations and expanded 80 basis points compared to the prior year. Gross profit versus prior year benefited from continued cost savings, distribution productivity, and timing of certain costs. We are pleased to have delivered both gross margin and net sales above guidance. I would note that our fourth quarter net sales performance was volume-led, with AURs down mid-single digits. Mix-adjusted AURs were down low-single digits, driven by the shorter holiday season, which resulted in fewer high AUR shopping days and strategically planned promotional days. SG&A as a percentage of net sales was 22.3%, in line with our expectations. Our Fuel for Growth cost optimization plan delivered benefits of approximately $40 million in the quarter and approximately $155 million for the full year. I am pleased with our team's outstanding work on this initiative. Fourth quarter operating income of $678 million was 24.3% of net sales. With respect to inventory, we ended the fourth quarter with total inventory up 3% to last year, in line with our expectations. Our inventory levels are clean, heading into the spring. Turning to real estate, our portfolio remains healthy with 57% of our fleet in off-mall locations. For the full year, we opened 106 new North American stores, nearly all in off-mall locations, and permanently closed 61 stores, predominantly in malls. We expanded square footage 3% in the year. Internationally, our partners opened 44 net new stores during the year and we ended the year with 529 stores. Turning now to our 2025 financial guidance. As Gina said previously, we will continue to focus on three key areas. First, accelerating top line growth in our core through product innovation, marketing, and technology. We'll also continue extending our reach through adjacencies and international expansion. Second, enhancing operational excellence and efficiency through cost management. And finally, disciplined deployment of our strong cash flow. Our priorities are to invest for growth and return value to shareholders through dividends and share repurchases. For the full year, we expect net sales results to range between 1% and 3% growth versus prior year. The midpoint of our guidance assumes growth consistent with the fourth quarter when adjusting for calendar impacts. We expect North American square footage growth of 2% to 3%, roughly in line with 2024. We expect international net sales to return to growth. We expect full year gross profit rate to be approximately 44%, supported by cost discipline, offset by product innovation and investment in real estate. We expect full year SG&A to be approximately 27%. We are continuing marketing investments of approximately 3.5% of sales. We continue to invest in technology, with spending up modestly versus 2024, largely in the back half of the year. We expect a modest wrap-around benefit from our 2024 cost savings initiative. Our continuous improvement mindset will help drive efficiencies to offset investments in technology and wage inflation. We expect full year net non-operating expense of approximately $255 million, reflecting lower interest expense given our debt paydown throughout 2024. We expect an effective tax rate of approximately 26% and weighted average diluted shares outstanding of approximately $213 million. We have assumed $300 million of share repurchases throughout the year. Considering these inputs, we are forecasting full year earnings per diluted share to be between $3.25 and $3.60. Turning now to the first quarter, our Q1 net sales outlook also reflects growth of 1% to 3% versus prior year. We expect Q1 system-wide retail international sales to be up high single-digits with reported net sales growth of double-digits due to shipment timing in Q1 this year. We expect first quarter gross profit rate to be approximately 43.3%, a 50 basis points deleverage when compared to the prior year, driven primarily by a higher mix into international net sales. Recall, in Q1 2024, margins benefited from the lower international mix. We expect our first quarter SG&A rate to be approximately 30.2%, comparable to Q1 '24. Our first quarter outlook includes net non-operating expense of approximately $65 million, a tax rate of approximately 29%, and weighted average diluted shares outstanding of approximately $217 million. Considering all of these inputs, we are forecasting first quarter earnings per diluted share of $0.36 to $0.43. A few additional points on our guidance. As it relates to tariffs, we have included the impact of China in our guidance. We have not included other potential tariff impacts in our guidance due to the current uncertainty. We will continue to monitor the situation closely and proactively pursue strategies to mitigate these impacts. Our 2025 net sales growth is expected to be generally consistent across the quarters. And finally, we are planning for inventory to be up mid-single digits in the first half of 2025, as we are accelerating certain holiday-related inventory builds to support our growth goals while optimizing our supply chain capacity. Now for a quick update on capital allocation. We are a strong cash flow generating business and our top priorities remain driving sustainable long-term profitable growth through strategic investments in the business. For the full year 2024, we invested approximately $245 million into capital projects. The vast majority of these capital investments are reported as capital expenditures in our cash flow statement. We generated $725 million in adjusted free cash flow in fiscal 2024, allowing us to deliver on our priorities of returning cash to shareholders and deleveraging our balance sheet. We repurchased $514 million principal amount of senior notes in 2024 and have now achieved our goal of 2.5 times gross adjusted debt-to-EBITDAR. We paid out $177 million in dividends and repurchased 10.4 million shares of common stock for $400 million in 2024. In total, we returned approximately $577 million to investors in 2024 through dividends and share repurchases. In 2025, we expect to invest between $250 million and $270 million in capital expenditures with a continued focus on real estate and technology. The increase in spend versus 2024 largely reflects some 2024 supply chain projects that moved into 2025. We expect to generate free cash flow of $750 million to $850 million in 2025, which includes working capital improvements from our Fuel for Growth initiatives. We expect to continue our annual dividend of $0.80 per share. As I previously said, our outlook includes the expectation to repurchase approximately $300 million of shares. In summary, I'm proud of our team's hard work and focused execution in 2024, which enabled us to finish the year strong and build momentum entering 2025. With that, I'll turn the call back to Gina for some closing remarks.

Thank you, Eva. As we close out our 2024 financial year, I'm pleased with the progress we're making and I'm excited about the momentum we're carrying into 2025. Our strategy is working and we're beginning to see results. We are laser-focused on achieving sustainable long-term profitable growth and creating value for our customers and shareholders. As we look to the year ahead, we have a lot to be excited about. I will now turn the call over to the operator for questions.

Thank you. We will now begin the question-and-answer session. Our first question comes from Ike Boruchow with Wells Fargo. Please go ahead with your question.

Hi, good morning, everyone. Gina, I guess I wanted to ask, so building on the improvements exiting last year, it sounds like you're excited about a lot. I mean, what are you most excited about as you look to 2025? And then maybe just regarding the Q1 trend, there's been a lot of buzz around Disney. Can you give us any color on the Disney collaboration? Any KPIs you could share would be great. Thank you.

Thank you, and good morning, Ike. It's great to hear from you. You're absolutely right. Looking at our Q4 performance, we're pleased, especially considering the calendar shifts that have improved sequentially each quarter of 2024. This speaks to the exciting momentum we have. It's wonderful to end the year strong while exceeding sales and earnings expectations. I'm even more enthusiastic about our innovation pipeline, which is rooted in our fragrance leadership and authority. This applies not only to our core products but also to the expanded offerings. I'm excited about the innovations surrounding both the core and adjacent categories we've mentioned. I'm also happy with how we've kicked off Q1. Regarding the Disney collaboration, I encourage everyone to visit the stores because they will see the customer excitement generated by our exceptional products and compelling storytelling. Bath & Body Works excels at this, and if we maintain our focus on product quality, customer experience, and effective marketing, I'm confident our portfolio is set for growth in 2025. Thank you. Next question, please?

Thank you. Our next question comes from the line of Matthew Boss with J.P. Morgan. Please proceed with your question.

Great. Thanks, and congrats on a nice quarter.

Thank you. So, Gina, maybe could you speak to drivers of the underlying revenue growth and, in particular, the traffic acceleration that you've seen in the last two quarters? And just confidence maybe on the sustainability of this revenue inflection, if you could elaborate on first quarter performance, maybe what you've seen so far and just tie in a bit on the product pipeline for 2025? And then, Eva, just I guess, maybe high level, what level of revenue growth is required to drive operating margin expansion from high-teens today?

Sure, sure. So in terms of driving leverage, Matt, I would say, there hasn't really been a change in our algorithm. It requires on the B&O line about 2% to 3% of sales growth, and on the SG&A line, 2.5% to 3.5% of sales growth.

In terms of traffic acceleration, we have several strategies to drive traffic. We've mentioned powerful collaborations, particularly with strong brands like Disney. We've also seen success with partnerships like Emily in Paris and previously Stranger Things, marking this as our fifth major collaboration. The key to sustainability lies in what we refer to as the three-legged stool. Products need to be compelling and on-trend, and I was pleased with our performance during the holiday season in that regard. Marketing plays a crucial role as well; for example, Disney serves as a great case study. When we achieve virality and generate organic views on TikTok, it signals that we're effectively reaching all customer segments, encouraging them to visit our stores or shop online. Additionally, we're advancing our loyalty program in its third year, enhancing personalization and utilizing various strategies to engage customers and drive traffic. Early access initiatives also contribute to traffic acceleration. I believe these approaches are sustainable, which gives me confidence in our growth potential for 2025.

Yes. And I'll come back, Matt, to your first quarter question and how the quarter started. Listen, we're pleased with how the quarter started. You heard Gina talk about Disney. And we have two months ahead of us, but we're pleased with how it started and we know our customers respond to innovation and we're super excited about what we have to offer as we progress throughout the year.

Thank you. Our next question comes from the line of Lorraine Hutchinson with Bank of America. Please proceed with your question.

Thank you. Good morning. I wanted to gain a better understanding of your full year sales guidance. There's a lot happening. Candles are less of a pressure, adjacencies and collaborations are working, international is returning to growth. I guess, I was just curious why you based your guidance on prior trends. Are there offsets we're not thinking about, or is this a bar that you hope to beat?

Yes, good morning, Lorraine. It's Eva. Overall, we strive to meet or exceed our expectations and we are very focused on that. As you consider the assumptions behind our outlook, at the midpoint, it reflects consistent trends with what we achieved in Q4, which has shown acceleration. We are assuming that there will be no significant changes to our promotional levels and we have not factored in any improvements in the macro environment or consumer sentiment, as there is quite a bit of uncertainty around that. At the high end, sales trends would accelerate, driven by the new innovations we are introducing and possibly some macroeconomic tailwinds or an uplift in consumer sentiment. We are excited about our upcoming product launches, including the Disney collaboration that Gina mentioned, as well as a candle restage. There's a lot happening, and we aim to deliver or surpass these expectations.

And I'll add, that we always have an agile model. So if we start to really catch the momentum further, we have an ability with our supply chain to meet that momentum. Thank you. Next question?

Thank you. Our next question comes from the line of Kate McShane with Goldman Sachs. Please proceed with your question.

Hi, good morning. Thanks for taking our question. We wondered if you could talk to any more detail around the winter semi-annual sale and how it trended versus the summer semi-annual sale and last year? And just how you think collaborations will play a role in maybe reducing some emphasis on the semi-annual sale in the quarters that you run it?

Great. Thank you. Nice to hear from you, Kate. I would say, on the semi-annual sale, it's generally semi-annual sale was generally in line with our expectations. We did have strength during the holidays. And so, our inventory levels, particularly those that were online, were lean heading into the semi-annual sale. So, that affected sales. But we ended the year in a clean inventory position, which is, of course, an important metric of the semi-annual sale as well. And so, we were pleased to deliver Q4 sales above the high end of our guidance. Summer semi-annual sale, we always look at the learnings and hindsight, and we'll be building that in, as we talked about in our last quarter, into 2025. As it relates to the collaborations, collaborations are, as I said in my prepared remarks, a really important and distinguishing differentiated storytelling opportunity that we have, and they drive traffic and excitement as well. So I think that without speaking about collaborations that we're expecting in the future, they're contemplated in our guidance. We'll have more to talk about it. But when you have that level of traffic going in and sort of a bit of scarcity, if I may add, there's some level of scarcity, too. That is a great approach to really pulsing, not just with promotions and clearance and things like that with the semi-annual sale, but collaborations actually serve to drive traffic conversion and an overall brand heat that we like. Thank you. Next question, please?

Thank you. Our next question comes from the line of Alex Straton with Morgan Stanley. Please proceed with your question.

Thanks a lot for taking the questions. Congrats on a nice quarter. Just two from me. Maybe one for Gina. You highlighted younger customer acquisition a lot today. Do you have any sense of the average age of the current customer? How that's evolved over time? Any goals from a target perspective? And then for Eva. What does 2025 sales guidance assume as it relates to volume or units compared to AUR? Thanks a lot.

Thank you, Alex. It's great to hear from you. I'll start by discussing the younger customer segment. When you're in 40% of households, the average age of the current customer might not be as significant, but we definitely view younger customers as both a recent success and a continuing opportunity. I’d like to break it down into three areas: their perception of the brand, how we connect with them, and the products we offer. Firstly, regarding brand perception, we monitor our brand attributes quarterly, and it's encouraging to see that Bath & Body Works is increasingly being recognized as a more youthful brand. Younger customers are becoming more aware of their experiences and are more likely to return, partly due to the rising perception of our high-quality products. Talking about products, categories like Everyday Luxuries and lip items are particularly appealing. In terms of outreach, we're connecting with them on platforms they use, such as social media and TikTok, primarily through influencers and by increasing our cultural relevance, which resonates with the younger demographic. Our strategic messaging and trending collaborations have also been effective. Finally, our product reformulations over the past couple of years are crucial, not just for the younger customer but they certainly appreciate those changes. Overall, we are capitalizing on this opportunity, and I've been seeing more young customers visiting our stores, which is very rewarding. Now, I'll hand it over to Eva for the second question.

Yes. Alex, on your question about how to think about volume versus price, as I said, our promotional activities, we're not assuming a step-up in promotional activities. So I would think about our guidance being volume led, and we'll continue, as we always do, to be agile and adjust where the customer mindset is to maximize both top line, as well as margins that we can drive. Thank you. Next question, please?

Thank you. Our next question comes from the line of Mark Altschwager with Baird. Please proceed with your question.

Good morning. Thank you for taking my question. I wanted to drill down on international for a moment. You're expecting that to return to growth this year. I was hoping you could give a bit more color on what you expect the shape of the year to look like. And then you flagged international as a headwind to gross margin in the first quarter. Is that the case for the full year? I know there's two different revenue streams there with the wholesale sell-in, as well as the royalty. So, not sure if Q1 is a good indicator there. Thank you.

Yes, thank you for the question, Mark. To start with the full year, we anticipate system-wide retail sales will continue to grow through market expansion as well as in our existing markets. On a net reported sales basis, I expect full year growth to have a minimal impact on margin, returning to growth in the mid-single digit range. The first quarter will have a significant effect on both the top line and margin, as we foresee double-digit growth due to timing of shipments and the step-down from last year. Therefore, there is more variability in the first quarter that is influencing the margin profile.

Thank you. Next question, please?

Thank you. Our next question comes from the line of Paul Lejuez with Citi. Please proceed with your question.

Hey, thanks, guys. If we go back to your tariff comments, can you just remind us what your large countries are in terms of exposure? I know you built in China, but you've said nothing else at this point due to the uncertainty. So, just where is your exposure by country? And then separate, curious what you assume for the adjacent categories growth this year. You were 10% when you add them all up this year. Where do you think that number goes for 2025?

Yes, good morning. I'll address the tariff question first. Currently, about 10% of our supply comes from China, and this has been factored into our outlook. In addition, Canada and Mexico together account for approximately 7%, split relatively evenly. We are actively monitoring the market conditions, especially in Canada, considering our operations and production there. We are preparing to adjust to the market landscape and are implementing strategies to mitigate any potential future impacts.

In relation to adjacencies, overall growth exceeded shop performance, which aligns with our results from the first half of the year. This is encouraging. We're assessing performance not only based on category growth but also on the additional value they provide and the new customer reach. We anticipate that adjacencies will represent a larger portion of our mix in 2025 and beyond. I find the potential in adjacencies promising, especially men's products, which is the largest category we're discussing. Other areas like lip, laundry, and hair also present significant market opportunities. I would like to see men's products transition from adjacencies to core offerings, and that is our goal. The trend is positive, and it's reflected in our guidance as well. Thank you. What's the next question?

Thank you. Our next question comes from the line of Krisztina Katai with Deutsche Bank. Please proceed with your question.

Hi, good morning, and thanks for taking the question. Just wanted to touch on your level of newness that you have talked about. Obviously, an exciting pipeline that you have planned for us. So, can you sort of contextualize the level of product newness you have planned in 2025? You obviously talked about Everyday Luxuries expanding. I think I heard body creams and washes. You obviously also have a much bigger start to collaborations in the year with the Disney launch. You also talked about a candle restage later. So, how does the overall level of newness or just the product staging changes compared to what we saw in 2023? Thank you.

Thank you for the question. In 2023, newness is critical to the industry, especially for Bath & Body Works. We remain as focused on newness as we have been in recent years. As you mentioned, we are developing various platforms from which new products can continually emerge. The concept of Everyday Luxuries allows us to leverage our unique expertise in taking a single fragrance and expanding it across all related products. This is a significant strength for us. Collaborations also help bring these ideas to life across different categories, including our plans for additional lip products each quarter. In terms of comparison, we are enhancing our offerings, paying close attention to quality, and ensuring they align with trends that appeal to our diverse customer base. While our existing customers are familiar with many of these offerings, we are also targeting new customers across various age groups. We are excited about what we have planned for 2025. Thank you. Next question, please?

Thank you. Our next question comes from the line of Dana Telsey with Telsey Advisory Group. Please proceed with your question.

Hi, good morning, everyone. As you think about the buildup of the loyalty program, I think it grew 6%. How are you thinking about that for 2025 and beyond? And the new customers you're capturing, any differentiation in their demographic profile? And then, Eva, on cost savings, how do you see the opportunities for cost savings going forward? And is there any particular categories to be focused on? Thank you.

Thanks, Dana. It's great to hear from you. Regarding our loyalty program, we are pleased with the 6% year-over-year enrollment increase. It's exciting to see that as our active member count grows, we are attracting higher quality loyalty members. This includes increased spending, more trips, and cross-channel purchases, which are all significant drivers for us, along with higher customer retention. We have many enhancements planned for the loyalty program that should excite both existing and new customers. We've noticed an improvement in trends for new customers, as well as existing ones. Throughout 2024, it was encouraging to see that the Fragrance Fashionista segment, which has twice the lifetime value of other customers, has been growing each quarter. We believe we're making progress in improving experiences for both existing and new customers, which is due to our loyalty program, effective marketing, excellent products, and great in-store experiences. I will now hand it over to Eva to address your question about cost savings.

Sure. Thanks for the question, Dana. Good morning. Overall, we're extremely pleased with what we've delivered over the past two years, $300 million of incremental savings between 2023 and 2024. And we see this now as embedded in our DNA and how we're managing the overall P&L. We'll continue to mine for opportunities, right? We have value engineering programs with our product going on. Constantly how we work eliminating the non-value piece while we won't affect our things that will affect our top line, our experience in the stores, right? We want to maintain that great customer experience that we have. So we'll continue to look for efficiencies and we'll have more to come.

Thank you. Next question, please?

Thank you. Our next question comes from the line of Olivia Tong with Raymond James. Please proceed with your question.

Good morning. First, regarding the short term, the midpoint of your Q1 guidance indicates that Q1 growth is likely to be similar to Q4, making adjustments for timing. We’ve heard several companies mention challenges in January due to weather and other external factors. Did you experience similar issues, and if so, what is driving the recovery that offsets the tough January for the rest of the quarter? Now, concerning margins for fiscal 2025, you mentioned aiming for stable margins, but there are several variables to consider before reaching that point. Can you elaborate on those variations and the impact of tariffs included in your outlook? Thank you.

Thank you for that. Let me begin with your question about Q1 in January. We did experience a strong performance in Q4 during November and December, particularly over the holiday season, as we previously mentioned. January was somewhat softer, but we remained aligned with external market trends. Our success comes from our new products and innovations. I want to reiterate how pleased we are with the quarter's start. We have an important two months ahead as we prepare for Mother's Day and Easter, and we will continue to focus on execution to meet the guidance we shared today. Regarding gross margins for the year, we are benefitting from the completion of our cost reduction initiatives from last year. I anticipate that B&O will remain largely stable from a leverage standpoint. The impact from tariffs is minimal, as we've accounted for China only, and we're facing some pressure on merchandise margins due to our product mix and the introduction of new items. As we have mentioned, these new products typically launch at lower margins, but as we scale, those margins improve. Overall, we are optimistic about the outlook we've presented.

Thank you. Next question, please?

Thank you. Our next question comes from the line of Jay Sole with UBS. Please proceed with your question.

Hi, this is Natalie Koltermann on for Jay. Thanks so much for taking our question. I wanted to ask about freight. With the recent moves lowering ocean freight rates, do you expect freight to be a tailwind to margins this year? And what type of impact do you have incorporated in the guide? Thank you.

Thank you for the question. I would say that ocean and freight have not had a significant impact on us. A major contributor to our overall savings over the past two years has been in the transportation and moving areas. However, regarding ocean and freight, I wouldn't consider it to be significant. Thank you. Next question, please?

Thank you. Our next question comes from the line of Korinne Wolfmeyer with Piper Sandler. Please proceed with your question.

Good morning. Thanks for taking the question. I'd like to dive a little bit deeper into the SG&A guidance for the year. It looks like it's roughly going to be about flat as a percent of sales. Can you give us any context on where we could see some more leverage and what could drive some more leverage over the course of the year where there might be some upside? And then how to think about the cadence of that spend over the course of the year? Thank you.

Yes, thank you for the question. Generally, to achieve leverage on SG&A, you would anticipate a top line sales growth of 2.5% to 3.5%. Regarding our SG&A outlook, we have increased our technology investments for 2025 compared to 2024, with a focus on the latter half of the year as we continue our multi-year modernization tech initiative. Next question, please? Thank you.

Thank you. Our next question comes from the line of Ashley Helgans with Jefferies. Please proceed with your question.

Hey, thanks for taking our question. Curious if you could talk a little bit more about the underlying expectations for the fragrance industry as we're just starting to hear from some other companies that the category is normalizing a bit? Thanks.

Thank you for the question. As a leader in the fragrance industry, we tend to look back at previous trends and have observed a positive atmosphere. While I can't comment on other companies, we see that some of our customers continue to find fragrances transportive. This connection is linked to our neural pathways, and from an industry standpoint, there are many favorable aspects across various channels. We occupy a unique position between mass and prestige markets, allowing us to cater to a diverse customer base that desires fragrance. Regarding our collaboration with Disney, it offers consumers a way to incorporate a bit of Disney into their lives through fragrance. Overall, I believe the industry is an excellent place to be right now, and we are pleased with our portfolio. Thank you for the question. Next, please?

Thank you. Our final question comes from the line of Marni Shapiro with The Retail Tracker. Please proceed with your question.

Thank you for taking my question. I have two quick ones. First, can you provide some details about Scent-Scription? Have people enrolled in it? What does it look like, and what are your expectations for its future? I'm assuming the 25% discount can be easily recouped since those customers won’t participate in promotions like buy three, get three. It seems like it would be simpler to model for you. My second question is a straightforward one: which Disney Princess is currently the best seller?

Let's see if we can share that while you may not receive the best, you might get our favorites. The Scent-Scription is designed to truly address the replenishable nature of our fragrances. Currently, it is small but growing, and I don't have the exact percentage it could reach over time. You are right about the 25%, as it is very convenient for customers to receive this. There is a level of stickiness associated with it. We previously had a version of Scent-Scription that we renamed, and we broadened the assortment, which included Wallflowers. The idea was that some customers might forget to replace the Wallflower bulb when it's running dry. Now, we have expanded the assortment to include more replenishable items like laundry products. We are pleased with the growth we see, but it is still early days for Scent-Scription. As for which princess is selling the best, it is also early to tell since we are only 10 days in. I can share that in my local store, Tiana was extremely popular last night. I hope you enjoy one of the six. Thank you for your question. I believe that was our last.

All right. That concludes our Q&A. We want to thank you for joining today's call. A replay will be available for 90 days on our website. Thank you for your interest in Bath & Body Works.

This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.