Bath & Body Works, Inc 10-Q for FY2024 Q3
Bath & Body Works, Inc. (BBWI)
10-Q
2023-12-01
For: 2023-10-28
View Original
Added on
April 04, 2026
About this 10-Q
Bath & Body Works, Inc filed this 10-Q on December 1, 2023, covering the quarter ended October 28, 2023 (FY2024 Q3).
Headline figures
Quarter ended October 28, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.56B
- down 2.6% from $1.6B a year earlier
- Net income
- $119M
- up 30.8% from net income of $91M a year earlier
- Diluted EPS
- $0.52
- up 30.0% from $0.40 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________
FORM 10-Q
_________________________________
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended October 28, 2023
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission file number 1-8344
_________________________________
(Exact name of registrant as specified in its charter)
_______________________________
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |||||||
| (Address of principal executive offices) | (Zip Code) | |||||||
| (Registrant’s Telephone Number, Including Area Code) | ||||||||
| (Former name, former address and former fiscal year, if changed since last report) | ||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | Smaller reporting company | Non-accelerated filer | ☐ | Emerging growth company | |||||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
As of November 24, 2023, the number of outstanding shares of the Registrant’s common stock was 225,940,592 shares.
BATH & BODY WORKS, INC.
TABLE OF CONTENTS
| Page No. | |||||
Item 1. Financial Statements * | |||||
Item 4. Controls and Procedures | |||||
Item 1. Legal Proceedings | |||||
Item 1A. Risk Factors | |||||
Item 3. Defaults Upon Senior Securities | |||||
Item 4. Mine Safety Disclosures | |||||
Item 5. Other Information | |||||
Item 6. Exhibits | |||||
| * | The Company’s fiscal year ends on the Saturday nearest to January 31. As used herein, “third quarter of 2023” and “third quarter of 2022” refer to the thirteen-week periods ended October 28, 2023 and October 29, 2022, respectively. “Year-to-date 2023” and “year-to-date 2022” refer to the thirty-nine-week periods ended October 28, 2023 and October 29, 2022, respectively. | ||||
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PART I—FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
BATH & BODY WORKS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share amounts)
(Unaudited)
| Third Quarter | Year-to-Date | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Net Sales | $ | $ | $ | $ | |||||||||||||||||||
| Costs of Goods Sold, Buying and Occupancy | ( | ( | ( | ( | |||||||||||||||||||
| Gross Profit | |||||||||||||||||||||||
| General, Administrative and Store Operating Expenses | ( | ( | ( | ( | |||||||||||||||||||
| Operating Income | |||||||||||||||||||||||
| Interest Expense | ( | ( | ( | ( | |||||||||||||||||||
| Other Income | |||||||||||||||||||||||
| Income Before Income Taxes | |||||||||||||||||||||||
| Provision for Income Taxes | |||||||||||||||||||||||
| Net Income | $ | $ | $ | $ | |||||||||||||||||||
| Net Income per Basic Share | $ | $ | $ | $ | |||||||||||||||||||
| Net Income per Diluted Share | $ | $ | $ | $ | |||||||||||||||||||
BATH & BODY WORKS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
(Unaudited)
| Third Quarter | Year-to-Date | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Net Income | $ | $ | $ | $ | |||||||||||||||||||
| Other Comprehensive Income (Loss), Net of Tax: | |||||||||||||||||||||||
| Foreign Currency Translation | ( | ( | ( | ( | |||||||||||||||||||
| Unrealized Gain on Cash Flow Hedges | |||||||||||||||||||||||
| Reclassification of Cash Flow Hedges to Earnings | ( | ( | |||||||||||||||||||||
| Total Other Comprehensive Loss, Net of Tax | ( | ( | ( | ( | |||||||||||||||||||
| Total Comprehensive Income | $ | $ | $ | $ | |||||||||||||||||||
The accompanying Notes are an integral part of these Consolidated Financial Statements.
3
BATH & BODY WORKS, INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except par value amounts)
| October 28, 2023 | January 28, 2023 | October 29, 2022 | |||||||||||||||
| (Unaudited) | (Unaudited) | ||||||||||||||||
| ASSETS | |||||||||||||||||
| Current Assets: | |||||||||||||||||
| Cash and Cash Equivalents | $ | $ | $ | ||||||||||||||
| Accounts Receivable, Net | |||||||||||||||||
| Inventories | |||||||||||||||||
| Other | |||||||||||||||||
| Total Current Assets | |||||||||||||||||
| Property and Equipment, Net | |||||||||||||||||
| Operating Lease Assets | |||||||||||||||||
| Goodwill | |||||||||||||||||
| Trade Name | |||||||||||||||||
| Deferred Income Taxes | |||||||||||||||||
| Other Assets | |||||||||||||||||
| Total Assets | $ | $ | $ | ||||||||||||||
| LIABILITIES AND EQUITY (DEFICIT) | |||||||||||||||||
| Current Liabilities: | |||||||||||||||||
| Accounts Payable | $ | $ | $ | ||||||||||||||
| Accrued Expenses and Other | |||||||||||||||||
| Current Operating Lease Liabilities | |||||||||||||||||
| Income Taxes | |||||||||||||||||
| Total Current Liabilities | |||||||||||||||||
| Deferred Income Taxes | |||||||||||||||||
| Long-term Debt | |||||||||||||||||
| Long-term Operating Lease Liabilities | |||||||||||||||||
| Other Long-term Liabilities | |||||||||||||||||
| Shareholders’ Equity (Deficit): | |||||||||||||||||
Preferred Stock - $ | |||||||||||||||||
Common Stock - $ | |||||||||||||||||
| Paid-in Capital | |||||||||||||||||
| Accumulated Other Comprehensive Income | |||||||||||||||||
| Retained Earnings (Accumulated Deficit) | ( | ( | ( | ||||||||||||||
Less: Treasury Stock, at Average Cost; | ( | ( | ( | ||||||||||||||
| Total Shareholders’ Equity (Deficit) | ( | ( | ( | ||||||||||||||
| Noncontrolling Interest | |||||||||||||||||
| Total Equity (Deficit) | ( | ( | ( | ||||||||||||||
| Total Liabilities and Equity (Deficit) | $ | $ | $ | ||||||||||||||
The accompanying Notes are an integral part of these Consolidated Financial Statements.
4
BATH & BODY WORKS, INC.
CONSOLIDATED STATEMENTS OF TOTAL EQUITY (DEFICIT)
(in millions, except per share amounts)
(Unaudited)
Third Quarter 2023
| Common Stock | Paid-In Capital | Accumulated Other Comprehensive Income | Retained Earnings (Accumulated Deficit) | Treasury Stock, at Average Cost | Noncontrolling Interest | Total Equity (Deficit) | |||||||||||||||||||||||||||||||||||||||||
| Shares Outstanding | Par Value | ||||||||||||||||||||||||||||||||||||||||||||||
Balance, July 29, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||||
| Net Income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Other Comprehensive Loss | — | — | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Total Comprehensive Income | — | — | — | ( | — | — | |||||||||||||||||||||||||||||||||||||||||
Cash Dividends ($ | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Repurchases of Common Stock | ( | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Treasury Share Retirement | — | ( | ( | ( | — | ||||||||||||||||||||||||||||||||||||||||||
| Share-based Compensation and Other | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
Balance, October 28, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||||
Third Quarter 2022
| Common Stock | Paid-In Capital | Accumulated Other Comprehensive Income | Retained Earnings (Accumulated Deficit) | Treasury Stock, at Average Cost | Noncontrolling Interest | Total Equity (Deficit) | |||||||||||||||||||||||||||||||||||||||||
| Shares Outstanding | Par Value | ||||||||||||||||||||||||||||||||||||||||||||||
Balance, July 30, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||||
| Net Income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Other Comprehensive Loss | — | — | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Total Comprehensive Income | — | — | — | ( | — | — | |||||||||||||||||||||||||||||||||||||||||
Cash Dividends ($ | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Share-based Compensation and Other | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
Balance, October 29, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||||
The accompanying Notes are an integral part of these Consolidated Financial Statements.
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BATH & BODY WORKS, INC.
CONSOLIDATED STATEMENTS OF TOTAL EQUITY (DEFICIT)
(in millions, except per share amounts)
(Unaudited)
Year-to-Date 2023
| Common Stock | Paid-In Capital | Accumulated Other Comprehensive Income | Retained Earnings (Accumulated Deficit) | Treasury Stock, at Average Cost | Noncontrolling Interest | Total Equity (Deficit) | |||||||||||||||||||||||||||||||||||||||||
| Shares Outstanding | Par Value | ||||||||||||||||||||||||||||||||||||||||||||||
Balance, January 28, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||||
| Net Income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Other Comprehensive Loss | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||
| Total Comprehensive Income | — | — | — | ( | — | — | |||||||||||||||||||||||||||||||||||||||||
Cash Dividends ($ | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Repurchases of Common Stock | ( | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Treasury Share Retirement | — | ( | ( | — | ( | — | |||||||||||||||||||||||||||||||||||||||||
| Share-based Compensation and Other | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
Balance, October 28, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||||
Year-to-Date 2022
| Common Stock | Paid-In Capital | Accumulated Other Comprehensive Income | Retained Earnings (Accumulated Deficit) | Treasury Stock, at Average Cost | Noncontrolling Interest | Total Equity (Deficit) | |||||||||||||||||||||||||||||||||||||||||
| Shares Outstanding | Par Value | ||||||||||||||||||||||||||||||||||||||||||||||
Balance, January 29, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||||
| Net Income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Other Comprehensive Loss | — | — | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Total Comprehensive Income | — | — | — | ( | — | — | |||||||||||||||||||||||||||||||||||||||||
Cash Dividends ($ | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Repurchases of Common Stock | ( | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Accelerated Share Repurchase Program | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||
| Treasury Share Retirement | — | ( | ( | — | ( | — | |||||||||||||||||||||||||||||||||||||||||
| Share-based Compensation and Other | ( | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||
Balance, October 29, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||||
The accompanying Notes are an integral part of these Consolidated Financial Statements.
6
BATH & BODY WORKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)
| Year-to-Date | |||||||||||
| 2023 | 2022 | ||||||||||
| Operating Activities: | |||||||||||
| Net Income | $ | $ | |||||||||
| Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: | |||||||||||
| Depreciation of Long-lived Assets | |||||||||||
| Share-based Compensation Expense | |||||||||||
| Gain on Extinguishment of Debt | ( | ||||||||||
| Changes in Assets and Liabilities: | |||||||||||
| Accounts Receivable | ( | ||||||||||
| Inventories | ( | ( | |||||||||
| Accounts Payable, Accrued Expenses and Other | |||||||||||
| Income Taxes Payable | ( | ( | |||||||||
| Other Assets and Liabilities | ( | ( | |||||||||
| Net Cash Provided by Operating Activities | |||||||||||
| Investing Activities: | |||||||||||
| Capital Expenditures | ( | ( | |||||||||
| Other Investing Activities | |||||||||||
| Net Cash Used for Investing Activities | ( | ( | |||||||||
| Financing Activities: | |||||||||||
| Payments of Long-term Debt | ( | ||||||||||
| Repurchases of Common Stock | ( | ( | |||||||||
| Dividends Paid | ( | ( | |||||||||
| Tax Payments Related to Share-based Awards | ( | ( | |||||||||
| Other Financing Activities | ( | ( | |||||||||
| Net Cash Used for Financing Activities | ( | ( | |||||||||
| Effects of Exchange Rate Changes on Cash and Cash Equivalents | |||||||||||
| Net Decrease in Cash and Cash Equivalents | ( | ( | |||||||||
| Cash and Cash Equivalents, Beginning of Year | |||||||||||
| Cash and Cash Equivalents, End of Period | $ | $ | |||||||||
The accompanying Notes are an integral part of these Consolidated Financial Statements.
7
BATH & BODY WORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Description of Business and Basis of Presentation
Description of Business
Bath & Body Works, Inc. (the “Company”) is a global omnichannel retailer focused on personal care and home fragrance. The Company sells merchandise through its retail stores in the United States of America (“U.S.”) and Canada, and through its websites and other channels, under the Bath & Body Works, White Barn and other brand names. The Company’s international business is conducted through franchise, license and wholesale partners. The Company operates as and reports a single segment.
Fiscal Year
The Company’s fiscal year ends on the Saturday nearest to January 31. As used herein, “third quarter of 2023” and “third quarter of 2022” refer to the thirteen-week periods ended October 28, 2023 and October 29, 2022, respectively. “Year-to-date 2023” and “year-to-date 2022” refer to the thirty-nine-week periods ended October 28, 2023 and October 29, 2022, respectively.
The Company utilizes the retail calendar for reporting. As a result, the Company’s fiscal 2023 will include 53 weeks, with the fourth quarter representing the 14-week period ending February 3, 2024.
Basis of Consolidation
The Consolidated Financial Statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The Company accounts for investments in unconsolidated entities where it exercises significant influence, but does not have control, using the equity method.
Interim Financial Statements
The Consolidated Financial Statements as of and for the periods ended October 28, 2023 and October 29, 2022 are unaudited and are presented pursuant to the rules and regulations of the Securities and Exchange Commission. These Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto contained in the Company’s 2022 Annual Report on Form 10-K.
In the opinion of management, the accompanying Consolidated Financial Statements reflect all adjustments that are of a normal recurring nature and necessary for a fair presentation of the results for the interim periods.
Seasonality of Business
The Company’s operations are seasonal in nature and consist of two principal selling seasons: Spring (the first and second quarters) and Fall (the third and fourth quarters). Historically, the Company's sales are higher during the fourth quarter of the fiscal year due to seasonal and holiday-related sales patterns. Due to the seasonal variations in the retail industry, the results of operations for the interim periods are not necessarily indicative of the results expected for the full fiscal year.
Derivative Financial Instruments
The Company’s Canadian dollar denominated earnings are subject to exchange rate risk as substantially all the Company’s merchandise sold in Canada is sourced through U.S. dollar transactions. The Company uses foreign currency forward contracts designated as cash flow hedges to mitigate this foreign currency exposure. Amounts are reclassified from Accumulated Other Comprehensive Income upon sale of the hedged merchandise to the customer. These gains and losses are recognized in Costs of Goods Sold, Buying and Occupancy in the Consolidated Statements of Income. All designated cash flow hedges are recorded on the Consolidated Balance Sheets at fair value. The fair value of designated cash flow hedges is not significant for any period presented. The Company does not use derivative financial instruments for trading purposes.
Concentration of Credit Risk
The Company maintains cash and cash equivalents and derivative contracts with various major financial institutions. The Company monitors the relative credit standing of financial institutions with whom the Company transacts and limits the amount of credit exposure with any one entity. The Company’s investment portfolio is primarily composed of U.S. government obligations, U.S. Treasury and AAA-rated money market funds, commercial paper and bank deposits.
The Company also periodically reviews the relative credit standing of franchise, license and wholesale partners and other entities to which the Company grants credit terms in the normal course of business. The Company determines the required
8
allowance for expected credit losses using information such as customer credit history and financial condition. Amounts are recorded to the allowance when it is determined that expected credit losses may occur.
Easton Investments
The Company has land and other investments in Easton, a planned community in Columbus, Ohio, that integrates office, hotel, retail, residential and recreational space. These investments, totaling $127 million as of October 28, 2023, $124 million as of January 28, 2023 and $125 million as of October 29, 2022, are recorded in Other Assets on the Consolidated Balance Sheets.
Included in the Company’s Easton investments are equity interests in Easton Town Center, LLC (“ETC”) and Easton Gateway, LLC (“EG”), entities that own and develop commercial entertainment and shopping centers. The Company’s investments in ETC and EG are accounted for using the equity method of accounting. The Company has majority financial interests in ETC and EG, but another unaffiliated member manages them, and certain significant decisions regarding ETC and EG require the consent of unaffiliated members in addition to the Company.
Under the equity method of accounting, the Company recognizes its share of the investee’s net income or loss. Losses are only recognized to the extent the Company has positive carrying value related to the investee. Carrying values are only reduced below zero if the Company has an obligation to provide funding to the investee. The Company’s share of net income or loss of all unconsolidated entities is included in Other Income in the Consolidated Statements of Income. The Company’s equity method investments are required to be reviewed for impairment when it is determined there may be an other-than-temporary loss in value.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period, as well as the related disclosure of contingent assets and liabilities at the date of the financial statements. Actual results may differ from those estimates, and the Company revises its estimates and assumptions as new information becomes available.
Recently Issued Accounting Pronouncements
The Company did not adopt any new accounting standards year-to-date 2023 that had a material impact on its consolidated results of operations, financial position or cash flows. In addition, as of December 1, 2023, there were no new accounting standards that the Company has not yet adopted that are expected to have a material impact on its consolidated results of operations, financial position or cash flows.
2. Revenue Recognition
Accounts receivable, net from revenue-generating activities were $84 million as of October 28, 2023, $79 million as of January 28, 2023 and $103 million as of October 29, 2022. These accounts receivable primarily relate to amounts due from the Company’s franchise, license and wholesale partners. Under these arrangements, payment terms are typically 45 to 75 days.
The Company records deferred revenue when cash payments are received in advance of transfer of control of goods or services. Deferred revenue primarily relates to gift cards, loyalty points and rewards and direct channel shipments, which are all impacted by seasonal and holiday-related sales patterns. Deferred revenue, which is recorded within Accrued Expenses and Other on the Consolidated Balance Sheets, was $163 million as of October 28, 2023, $195 million as of January 28, 2023 and $147 million as of October 29, 2022. The Company recognized $123 million as revenue year-to-date 2023 from amounts recorded as deferred revenue at the beginning of the Company’s fiscal year.
The following table provides a disaggregation of Net Sales for the third quarters of and year-to-date 2023 and 2022:
| Third Quarter | Year-to-Date | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Stores - U.S. and Canada | $ | $ | $ | $ | |||||||||||||||||||
| Direct - U.S. and Canada | |||||||||||||||||||||||
| International (a) | |||||||||||||||||||||||
| Total Net Sales | $ | $ | $ | $ | |||||||||||||||||||
_______________
(a)Results include royalties associated with franchised stores and wholesale sales.
The Company’s net sales outside of the U.S. include sales from Company-operated stores and its e-commerce site in Canada, royalties associated with franchised stores and wholesale sales. Certain of these sales are subject to the impact of fluctuations in
9
foreign currency. The Company’s net sales outside of the U.S. totaled $161 million and $160 million for the third quarters of 2023 and 2022, respectively, and $468 million and $462 million for year-to-date 2023 and 2022, respectively.
3. Net Income Per Share and Shareholders’ Equity (Deficit)
Net Income Per Share
Net Income per Basic Share is computed based on the weighted-average number of common shares outstanding. Net Income per Diluted Share includes the weighted-average effect of dilutive restricted share units, performance share units and stock options (collectively, “Dilutive Awards”) on the weighted-average common shares outstanding.
The following table provides the weighted-average shares utilized for the calculation of Net Income per Basic and Diluted Share for the third quarters of and year-to-date 2023 and 2022:
| Third Quarter | Year-to-Date | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Common Shares | |||||||||||||||||||||||
| Treasury Shares | ( | ( | ( | ( | |||||||||||||||||||
| Basic Shares | |||||||||||||||||||||||
| Effect of Dilutive Awards | |||||||||||||||||||||||
| Diluted Shares | |||||||||||||||||||||||
| Anti-dilutive Awards (a) | |||||||||||||||||||||||
(a)These awards were excluded from the calculation of Net Income per Diluted Share because their inclusion would have been anti-dilutive.
Common Stock Repurchases
2022 Share Repurchase Program
In February 2022, the Company’s Board of Directors authorized a $1.5 billion share repurchase program (the “February 2022 Program”). Under the February 2022 Program, the Company repurchased the following shares of its common stock during year-to-date 2023:
| Repurchase Program | Amount Authorized | Shares Repurchased | Amount Repurchased | Average Stock Price | |||||||||||||||||||||||||||||||
| (in millions) | (in thousands) | (in millions) | |||||||||||||||||||||||||||||||||
| February 2022 | $ | $ | $ | ||||||||||||||||||||||||||||||||
The February 2022 Program had $88 million of remaining authority as of October 28, 2023. There were share repurchases of $1 million reflected in Accounts Payable on the October 28, 2023 Consolidated Balance Sheet. Subsequent to October 28, 2023 through December 1, 2023, the Company repurchased an additional 569 thousand shares of its common stock for $17 million under the February 2022 Program.
Common Stock Retirement
Shares of common stock repurchased under the February 2022 Program are retired and cancelled upon repurchase. As a result, the Company retired the 2,765 thousand shares repurchased under the February 2022 Program during year-to-date 2023, which resulted in reductions of $2 million in the par value of Common Stock, $8 million in Paid-in Capital and $90 million in Retained Earnings (Accumulated Deficit).
10
Dividends
The Company paid the following dividends during year-to-date 2023 and 2022:
| Ordinary Dividends | Total Paid | ||||||||||
| (per share) | (in millions) | ||||||||||
| 2023 | |||||||||||
| First Quarter | $ | $ | |||||||||
| Second Quarter | |||||||||||
| Third Quarter | |||||||||||
| Total | $ | $ | |||||||||
| 2022 | |||||||||||
| First Quarter | $ | $ | |||||||||
| Second Quarter | |||||||||||
| Third Quarter | |||||||||||
| Total | $ | $ | |||||||||
In November 2023, the Company declared the fourth quarter 2023 ordinary dividend of $0.20 per share payable on December 1, 2023 to stockholders of record at the close of business on November 17, 2023.
4. Inventories
The following table provides details of Inventories as of October 28, 2023, January 28, 2023 and October 29, 2022:
| October 28, 2023 | January 28, 2023 | October 29, 2022 | |||||||||||||||
| (in millions) | |||||||||||||||||
| Finished Goods Merchandise | $ | $ | $ | ||||||||||||||
| Raw Materials and Merchandise Components | |||||||||||||||||
| Total Inventories | $ | $ | $ | ||||||||||||||
Inventories are principally valued at the lower of cost or net realizable value, on an average cost basis.
5. Long-Lived Assets
The following table provides details of Property and Equipment, Net as of October 28, 2023, January 28, 2023 and October 29, 2022:
| October 28, 2023 | January 28, 2023 | October 29, 2022 | |||||||||||||||
| (in millions) | |||||||||||||||||
| Property and Equipment, at Cost | $ | $ | $ | ||||||||||||||
| Accumulated Depreciation and Amortization | ( | ( | ( | ||||||||||||||
| Property and Equipment, Net | $ | $ | $ | ||||||||||||||
Depreciation expense was $70 million and $56 million for the third quarters of 2023 and 2022, respectively. Depreciation expense was $199 million and $162 million for year-to-date 2023 and 2022, respectively.
6. Income Taxes
The provision for income taxes is based on the current estimate of the annual effective tax rate and is adjusted as necessary for quarterly events.
For the third quarter of 2023, the Company’s effective tax rate was 25.3 % compared to 23.3 % in the third quarter of 2022. The 2023 third quarter rate was consistent with the Company’s combined estimated federal and state statutory rates. The 2022 third quarter rate was lower than the Company’s combined estimated federal and state statutory rates primarily due to the resolution of certain tax matters during the quarter.
For year-to-date 2023, the Company’s effective tax rate was 24.9 % compared to 21.9 % for year-to-date 2022. The 2023 year-to-date rate was consistent with the Company’s combined estimated federal and state statutory rates. The 2022 year-to-date rate was lower than the Company’s combined estimated federal and state statutory rates primarily due to the resolution of certain tax matters during the period.
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Income taxes paid were $45 million and $18 million for the third quarters of 2023 and 2022, respectively. Income taxes paid were $213 million and $170 million for year-to-date 2023 and 2022, respectively.
7. Long-term Debt and Borrowing Facility
The following table provides the Company’s outstanding Long-term Debt balance, net of unamortized debt issuance costs and discounts, as of October 28, 2023, January 28, 2023 and October 29, 2022:
| October 28, 2023 | January 28, 2023 | October 29, 2022 | |||||||||||||||
| (in millions) | |||||||||||||||||
| Senior Debt with Subsidiary Guarantee | |||||||||||||||||
$ | $ | $ | $ | ||||||||||||||
$ | |||||||||||||||||
$ | |||||||||||||||||
$ | |||||||||||||||||
$ | |||||||||||||||||
$ | |||||||||||||||||
$ | |||||||||||||||||
| Total Senior Debt with Subsidiary Guarantee | $ | $ | $ | ||||||||||||||
| Senior Debt | |||||||||||||||||
$ | $ | $ | $ | ||||||||||||||
$ | |||||||||||||||||
| Total Senior Debt | |||||||||||||||||
| Total Long-term Debt | $ | $ | $ | ||||||||||||||
Repurchases of Notes
During the third quarter of and year-to-date 2023, the Company repurchased in the open market and extinguished $174 million and $373 million principal amounts of its outstanding senior notes, respectively. The aggregate repurchase prices for these notes were $161 million and $343 million for the third quarter of and year-to-date 2023, respectively, resulting in pre-tax gains of $12 million and $28 million, net of the write-off of unamortized issuance costs, during the third quarter of and year-to-date 2023, respectively. These gains are included in Other Income in the 2023 Consolidated Statements of Income.
The following table provides details of the outstanding principal amount of senior notes repurchased and extinguished during the third quarter of and year-to-date 2023:
| Third Quarter | Year-to-Date | ||||||||||
| (in millions) | |||||||||||
| 2025 Notes | $ | $ | |||||||||
| 2028 Notes | |||||||||||
| 2030 Notes | |||||||||||
| 2033 Notes | |||||||||||
| 2035 Notes | |||||||||||
| 2036 Notes | |||||||||||
| 2037 Notes | |||||||||||
| Total | $ | $ | |||||||||
Subsequent to October 28, 2023 through December 1, 2023, the Company repurchased in the open market and extinguished $93 million principal amount of its outstanding senior notes for an aggregate repurchase price of $86 million.
Asset-backed Revolving Credit Facility
The Company and certain of the Company’s 100% owned subsidiaries guarantee and pledge collateral to secure an asset-backed revolving credit facility (“ABL Facility”). The ABL Facility, which allows borrowings and letters of credit in U.S. dollars or Canadian dollars, has aggregate commitments of $750 million and an expiration date in August 2026.
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In the second quarter of 2023, the Company amended its ABL Facility to replace the London Interbank Offer Rate (“LIBOR”) based rate with a Secured Overnight Financing Rate (“SOFR”) based rate as the interest rate benchmark on U.S. dollar borrowings. This amendment made no other material changes to the terms of the ABL Facility.
Availability under the ABL Facility is the lesser of (i) the borrowing base, determined primarily based on the Company’s eligible U.S. and Canadian credit card receivables, accounts receivable, inventory and eligible real property, or (ii) the aggregate commitment. If at any time the outstanding amount under the ABL Facility exceeds the lesser of (i) the borrowing base and (ii) the aggregate commitment, the Company is required to repay the outstanding amounts under the ABL Facility to the extent of such excess. As of October 28, 2023, the Company’s borrowing base was $1.169 billion, and it had no borrowings outstanding under the ABL Facility.
The ABL Facility supports the Company’s letter of credit program. The Company had $10 million of outstanding letters of credit as of October 28, 2023 that reduced its availability under the ABL Facility. As of October 28, 2023, the Company’s availability under the ABL Facility was $740 million.
As of October 28, 2023, the ABL Facility fees related to committed and unutilized amounts were 0.30 % per annum, and the fees related to outstanding letters of credit were 1.25 % per annum. In addition, the interest rate on outstanding U.S. dollar borrowings was the Term SOFR plus 1.25 % and a credit spread adjustment of 0.10 % per annum. The interest rate on outstanding Canadian dollar-denominated borrowings was the Canadian Dollar Offered Rate plus 1.25 % per annum.
The ABL Facility requires the Company to maintain a fixed charge coverage ratio of not less than 1.00 to 1.00 during an event of default or any period commencing on any day when specified excess availability is less than the greater of (i) $70 million or (ii) 10 % of the maximum borrowing amount. As of October 28, 2023, the Company was not required to maintain this ratio.
8. Fair Value Measurements
Cash and Cash Equivalents include cash on hand, deposits with financial institutions and highly liquid investments with original maturities of less than 90 days. The Company’s Cash and Cash Equivalents are considered Level 1 fair value measurements as they are valued using unadjusted quoted prices in active markets for identical assets.
The following table provides a summary of the principal value and estimated fair value of the Company’s outstanding Long-term Debt as of October 28, 2023, January 28, 2023 and October 29, 2022:
| October 28, 2023 | January 28, 2023 | October 29, 2022 | |||||||||||||||
| (in millions) | |||||||||||||||||
| Principal Value | $ | $ | $ | ||||||||||||||
| Fair Value, Estimated (a) | |||||||||||||||||
_______________
(a)The estimated fair value of the Company’s Long-term Debt is based on reported transaction prices, which are considered Level 2 inputs in accordance with Accounting Standards Codification 820, Fair Value Measurement. The estimates presented are not necessarily indicative of the amounts that the Company could realize in a current market exchange.
Management believes that the carrying values of the Company’s Accounts Receivable, Accounts Payable and Accrued Expenses approximate their fair values because of their short maturities.
9. Commitments and Contingencies
The Company is subject to various claims and contingencies related to lawsuits, taxes, insurance, regulatory and other matters arising in the ordinary course of business. Actions filed against the Company may from time to time include commercial, tort, intellectual property, tax, customer, employment, wage and hour, data privacy, securities, anti-corruption and other claims, including purported class action lawsuits. Management believes that the ultimate liability arising from such claims and contingencies, if any, is not likely to have a material adverse effect on the Company’s results of operations, financial condition or cash flows.
Lease Guarantees
In connection with the spin-off of Victoria’s Secret & Co. and the disposal of a certain other business, the Company had remaining contingent obligations of $267 million as of October 28, 2023 related to lease payments under the current terms of noncancelable leases, primarily related to office space, expiring at various dates through 2037. These obligations include minimum rent and additional payments covering taxes, common area costs and certain other expenses and relate to leases that commenced prior to the disposition of these businesses. The Company’s reserves related to these obligations were not significant for any period presented.
13
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Bath & Body Works, Inc.
Results of Review of Interim Financial Statements
We have reviewed the accompanying consolidated balance sheets of Bath & Body Works, Inc. (the Company) as of October 28, 2023 and October 29, 2022, the related consolidated statements of income, comprehensive income, and total equity (deficit) for the thirteen and thirty-nine week periods ended October 28, 2023 and October 29, 2022, the consolidated statements of cash flows for the thirty-nine week periods ended October 28, 2023 and October 29, 2022, and the related notes (collectively referred to as the “consolidated interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial statements for them to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of January 28, 2023, and the related consolidated statements of income, comprehensive income, total equity (deficit), and cash flows for the year then ended, and the related notes (not presented herein); and in our report dated March 17, 2023, we expressed an unqualified audit opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of January 28, 2023, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
These financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
/s/ Ernst & Young LLP
Grandview Heights, Ohio
December 1, 2023
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SAFE HARBOR STATEMENT UNDER THE PRIVATE
SECURITIES LITIGATION ACT OF 1995
We caution that any forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) contained in this report or made by our Company or our management involve risks and uncertainties and are subject to change based on various factors, many of which are beyond our control. Accordingly, our future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. Words such as “estimate,” “project,” “plan,” “believe,” “expect,” “anticipate,” “intend,” “planned,” “potential,” “target,” “goal” and any similar expressions may identify forward-looking statements. Risks associated with the following factors, among others, in some cases have affected and in the future could affect our financial performance and actual results and could cause actual results to differ materially from those expressed or implied in any forward-looking statements included in this report or otherwise made by our Company or our management:
•general economic conditions, inflation and deflation, consumer confidence, consumer spending patterns and market disruptions including pandemics or significant health hazards, severe weather conditions, natural disasters, terrorist activities, financial crises, political crises or other major events, or the prospect of these events;
•the seasonality of our business;
•the anticipated benefits from the Victoria’s Secret & Co. (“Victoria’s Secret”) spin-off may not be realized;
•the spin-off of Victoria’s Secret may not be tax-free for U.S. federal income tax purposes;
•our dependence on Victoria’s Secret for information technology services and the transition of such services to our own information technology systems or to those of third-party technology service providers;
•our ability to attract, develop and retain qualified associates and manage labor-related costs;
•difficulties arising from turnover in Company leadership or other key positions;
•the dependence on store traffic and the availability of suitable store locations on appropriate terms;
•our continued growth in part through new store openings and existing store remodels and expansions;
•our ability to successfully operate and expand internationally and related risks;
•our independent franchise, license and wholesale partners;
•our direct channel business;
•our ability to protect our reputation and our brand image;
•our ability to successfully complete environmental, social and governance initiatives, and associated costs thereof;
•our ability to successfully achieve expected annual cost savings in connection with our profit optimization efforts to reduce expenses and improve operating efficiency in the business;
•our ability to attract customers with marketing, advertising and promotional programs;
•our ability to maintain, enforce and protect our trade names, trademarks and patents;
•the highly competitive nature of the retail industry and the segments in which we operate;
•consumer acceptance of our products and our ability to manage the life cycle of our brand, develop new merchandise and launch new product lines successfully;
•our ability to source, distribute and sell goods and materials on a global basis, including risks related to:
•political instability, wars and other armed conflicts, environmental hazards or natural disasters;
•significant health hazards or pandemics, such as the COVID-19 pandemic, which could result in closed factories and/or stores, reduced workforces, scarcity of raw materials, and scrutiny or embargoing of goods produced in impacted areas;
•duties, taxes and other charges;
•legal and regulatory matters;
•volatility in currency exchange rates;
•local business practices and political issues;
•delays or disruptions in shipping and transportation and related pricing impacts;
•disruption due to labor disputes; and
•changing expectations regarding product safety due to new legislation;
•our geographic concentration of vendor and distribution facilities in central Ohio;
•our reliance on a limited number of suppliers to support a substantial portion of our inventory purchasing needs;
•the ability of our vendors to deliver products in a timely manner, meet quality standards and comply with applicable laws and regulations;
•fluctuations in foreign currency exchange rates;
•fluctuations in product input costs;
•fluctuations in energy costs;
•our ability to adequately protect our assets from loss and theft;
•increases in the costs of mailing, paper, printing or other order fulfillment logistics;
•claims arising from our self-insurance;
15
•our and our third-party service providers’, including Victoria’s Secret during the term of the Transition Services Agreement between us and Victoria’s Secret, ability to implement and maintain information technology systems and to protect associated data;
•our ability to maintain the security of customer, associate, third-party and Company information;
•stock price volatility;
•our ability to pay dividends and make share repurchases under share repurchase authorizations;
•shareholder activism matters;
•our ability to maintain our credit ratings;
•our ability to service, repurchase or refinance our debt and maintain compliance with our restrictive covenants;
•our ability to comply with laws, regulations and technology platform rules or other obligations related to data privacy and security;
•our ability to comply with regulatory requirements;
•legal and compliance matters; and
•tax, trade and other regulatory matters.
We are not under any obligation and do not intend to make publicly available any update or other revisions to any of the forward-looking statements contained in this report to reflect circumstances existing after the date of this report or to reflect the occurrence of future events even if experience or future events make it clear that any expected results expressed or implied by those forward-looking statements will not be realized. Additional information regarding these and other factors can be found in Item 1A. Risk Factors in our 2022 Annual Report on Form 10-K.
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) as codified in the Accounting Standards Codification. The following information should be read in conjunction with our financial statements and the related notes included in Part I, Item 1. Financial Statements in this Quarterly Report on Form 10-Q.
Executive Overview
In the third quarter of 2023, Net Sales decreased $42 million, or 3%, to $1.562 billion compared to the third quarter of 2022, primarily due to a decrease in both average dollar sale and total transactions. In our stores and direct channels, Net Sales decreased 1% to $1.168 billion, and 8% to $317 million, respectively. In our international business, Net Sales decreased 5% to $77 million.
In the third quarter of 2023, Operating Income increased $19 million, or 9%, to $221 million, from $202 million in the third quarter of 2022, and the Operating Income rate (expressed as a percentage of Net Sales) increased to 14.1% from 12.6%. These increases were primarily due to a 200-basis point increase in our merchandise margin rate, driven by approximately $40 million of deflation in our cost structure, lower product costs and reduced transportation costs, and General, Administrative and Store Operating Expense and rate (expressed as a percentage of Net Sales) improvement resulting from our cost optimization work (discussed below).
For additional information related to our third quarter 2023 financial performance, see “Results of Operations.”
Cost Optimization
We are enhancing our operations and efficiency by targeting an aggregate of $200 million of planned annual cost savings across both Gross Profit and General, Administrative and Store Operating Expenses. Our cost optimization work delivered benefits of approximately $45 million in the third quarter of 2023, and we expect to deliver approximately $50 million of cost savings in the fourth quarter of 2023 and $150 million of total cost savings in fiscal 2023. We expect to realize the remaining benefits in fiscal 2024.
Outlook
We anticipate continued macroeconomic uncertainty, soft customer spending and category normalization following the COVID-19 pandemic in our candles and sanitizers categories to pressure Net Sales in the fourth quarter of 2023 and potentially continuing into fiscal 2024. We expect our merchandise margin rate to improve in the fourth quarter of 2023 compared to the fourth quarter of 2022, driven by anticipated deflation in our cost structure and expected reductions in expenses resulting from our cost optimization work, partially offset by our continued investment in product formulation and packaging upgrades. General, Administrative and Store Operating Expenses are expected to deleverage in the fourth quarter of 2023 compared to the fourth quarter of 2022, as we expect higher marketing spend and technology investments. We are investing in a brand campaign and personalized marketing to activate new programs to drive customer awareness, acquisition and retention. Following the information technology (“IT”) separation from Victoria’s Secret that we substantially completed in the second quarter of 2023,
16
we expect technology investments to remain elevated to drive future growth. We anticipate continued cost deflation and the benefits of our cost optimization work to support our operating income rate in fiscal 2024.
Adjusted Financial Information
In addition to our results provided in accordance with GAAP above and throughout this Quarterly Report on Form 10-Q, provided below are non-GAAP measurements which present Net Income and Net Income Per Diluted Share for the third quarter of and year-to-date 2023 on an adjusted basis, to remove certain special items recorded in 2023. We believe that these special items are not indicative of our operations due to their size and nature. We did not make any adjustments to our results in the third quarter of or year-to-date 2022. We use adjusted financial information as key performance measures for the purpose of evaluating performance internally. These non-GAAP measurements are not intended to replace the presentation of our financial results in accordance with GAAP. Instead, we believe that the presentation of adjusted financial information provides additional information to investors to facilitate the comparison of past and present operations. Further, our definitions of adjusted financial information may differ from similarly titled measures used by other companies.
The table below reconciles the third quarter of and year-to-date 2023 GAAP financial measures to the non-GAAP financial measures:
| (in millions, except per share amounts) | Third Quarter | Year-to-Date | |||||||||
| Reconciliation of Reported Net Income to Adjusted Net Income | |||||||||||
| Reported Net Income | $ | 119 | $ | 299 | |||||||
| Gain on Extinguishment of Debt (a) | (12) | (28) | |||||||||
| Tax Effect of Gain on Extinguishment of Debt (a) | 3 | 7 | |||||||||
| Adjusted Net Income | $ | 110 | $ | 278 | |||||||
| Reconciliation of Reported Net Income Per Diluted Share to Adjusted Net Income Per Diluted Share | |||||||||||
| Reported Net Income Per Diluted Share | $ | 0.52 | $ | 1.31 | |||||||
| Gain on Extinguishment of Debt (a) | (0.05) | (0.12) | |||||||||
| Tax Effect of Gain on Extinguishment of Debt (a) | 0.01 | 0.03 | |||||||||
| Adjusted Net Income Per Diluted Share | $ | 0.48 | $ | 1.21 | |||||||
(a)In the third quarter of and year-to-date 2023, we recognized pre-tax gains of $12 million (after-tax gain of $9 million) and $28 million (after-tax gain of $21 million), respectively, related to the repurchase and extinguishment of outstanding notes. For additional information, see Note 7, “Long-term Debt and Borrowing Facility” included in Part I, Item 1. Financial Statements.
Company-Operated Store Data
The following table compares Company-operated U.S. store data for the third quarters of and year-to-date 2023 and 2022:
| Third Quarter | Year-to-Date | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | % Change | 2023 | 2022 | % Change | ||||||||||||||||||||||||||||||
| Sales per Average Selling Square Foot (a) | $ | 226 | $ | 240 | (6 | %) | $ | 656 | $ | 701 | (6 | %) | |||||||||||||||||||||||
| Sales per Average Store (in thousands) (a) | $ | 634 | $ | 660 | (4 | %) | $ | 1,837 | $ | 1,920 | (4 | %) | |||||||||||||||||||||||
| Average Store Size (selling square feet) | 2,817 | 2,764 | 2 | % | |||||||||||||||||||||||||||||||
| Total Selling Square Feet (in thousands) | 4,879 | 4,646 | 5 | % | |||||||||||||||||||||||||||||||
(a)Sales per average selling square foot and sales per average store, which are indicators of store productivity, are calculated based on store sales for the period divided by the average, including the beginning and end of period, of total selling square footage and store count, respectively.
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The following table represents Company-operated store data for year-to-date 2023:
| Stores | Stores | ||||||||||||||||||||||
| January 28, 2023 | Opened | Closed | October 28, 2023 | ||||||||||||||||||||
| United States | 1,693 | 70 | (31) | 1,732 | |||||||||||||||||||
| Canada | 109 | 2 | — | 111 | |||||||||||||||||||
| Total | 1,802 | 72 | (31) | 1,843 | |||||||||||||||||||
Partner-Operated Store Data
The following table represents partner-operated store data for year-to-date 2023:
| Stores | Stores | ||||||||||||||||||||||
| January 28, 2023 | Opened | Closed | October 28, 2023 | ||||||||||||||||||||
| International | 401 | 39 | (10) | 430 | |||||||||||||||||||
| International - Travel Retail | 26 | 2 | — | 28 | |||||||||||||||||||
| Total International | 427 | 41 | (10) | 458 | |||||||||||||||||||
Results of Operations
Third Quarter of 2023 Compared to Third Quarter of 2022
Net Sales
The following table provides Net Sales for the third quarter of 2023 in comparison to the third quarter of 2022:
| 2023 | 2022 | % Change | |||||||||||||||
| (in millions) | |||||||||||||||||
| Stores - U.S. and Canada | $ | 1,168 | $ | 1,178 | (1 | %) | |||||||||||
| Direct - U.S. and Canada | 317 | 345 | (8 | %) | |||||||||||||
| International (a) | 77 | 81 | (5 | %) | |||||||||||||
| Total Net Sales | $ | 1,562 | $ | 1,604 | (3 | %) | |||||||||||
_______________
(a)Results include royalties associated with franchised stores and wholesale sales.
The following table provides a reconciliation of Net Sales for the third quarter of 2023 to the third quarter of 2022:
| (in millions) | |||||
2022 Net Sales | $ | 1,604 | |||
| Comparable Store Sales | (68) | ||||
| Sales Associated with New, Closed and Non-comparable Remodeled Stores, Net | 59 | ||||
| Direct Channels | (28) | ||||
International Wholesale, Royalty and Other | (4) | ||||
| Foreign Currency Translation | (1) | ||||
2023 Net Sales | $ | 1,562 | |||
For the third quarter of 2023, Net Sales decreased $42 million, to $1.562 billion, compared to the third quarter of 2022. Net Sales decreased in the stores channel by $10 million, or 1%, due to a decline in average dollar sale, partially offset by Net Sales from new store growth. Direct Net Sales decreased $28 million, or 8%, due to a decline in orders, which was partially due to our customers continuing to select our buy online-pick up in store (“BOPIS”) option (which is recognized as store Net Sales) as we completed our rollout of BOPIS capabilities to our U.S. stores in the first quarter of 2023. International Net Sales decreased $4 million, or 5%, due to lower orders and shipments, partially offset by new stores opened by our partners.
In terms of category performance, Net Sales in candles and sanitizers both declined compared to the third quarter of 2022 driven by category normalization following the COVID-19 pandemic. Both soaps and wallflowers increased compared to the third quarter of 2022. Body care was approximately flat compared to the third quarter of 2022, as growth in our men’s business and fine fragrance mist was offset by declines in wellness and travel.
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Gross Profit
For the third quarter of 2023, our Gross Profit increased $4 million to $682 million, and our Gross Profit rate (expressed as a percentage of Net Sales) increased to 43.6% from 42.2%. Gross Profit increased due to a 200-basis point increase in our merchandise margin rate driven by approximately $40 million of deflation in our cost structure, lower product costs and reduced transportation costs, partially offset by our continued investment in product formulations and packaging innovation. The improvement in merchandise margin was partially offset by increased Buying and Occupancy Expense primarily due to new store growth.
The Gross Profit rate increase was driven by the increase in the merchandise margin rate due to the factors discussed above, partially offset by the Buying and Occupancy Expense deleverage due to lower Net Sales and increased occupancy expenses.
General, Administrative and Store Operating Expenses
The following table provides detail for our General, Administrative and Store Operating Expenses for the third quarter of 2023 compared to the third quarter of 2022:
| 2023 | 2022 | Change | |||||||||||||||||||||||||||||||||
| (in millions) | % of Net Sales | (in millions) | % of Net Sales | (in millions) | % of Net Sales | ||||||||||||||||||||||||||||||
| Selling Expenses | $ | 283 | 18.1 | % | $ | 300 | 18.7 | % | $ | (17) | (0.6 | %) | |||||||||||||||||||||||
| Home Office and Marketing Expenses | 178 | 11.4 | % | 176 | 11.0 | % | 2 | 0.4 | % | ||||||||||||||||||||||||||
| Total | $ | 461 | 29.5 | % | $ | 476 | 29.7 | % | $ | (15) | (0.2 | %) | |||||||||||||||||||||||
For the third quarter of 2023, our General, Administrative and Store Operating Expenses decreased $15 million to $461 million, and the rate (expressed as a percentage of Net Sales) decreased to 29.5% from 29.7%. Our Selling Expenses decreased primarily due to our cost optimization work related to efficiency in store labor and selling productivity, reduced expense as we optimized our call center and the decline in Net Sales. Our Home Office Expenses increased primarily due to higher technology expense, principally related to IT separation costs as well as strategic investments to drive future growth, partially offset by severance and related charges of approximately $6 million recognized in the third quarter of 2022.
The General, Administrative and Store Operating Expense rate decreased primarily due to the benefits of our cost optimization work related to Selling Expenses, partially offset by our investments in technology as well as deleverage on lower Net Sales.
Other Income and Expenses
Interest Expense
The following table provides the average daily borrowings and average borrowing rates for the third quarters of 2023 and 2022:
| 2023 | 2022 | ||||||||||
| Average daily borrowings (in millions) | $ | 4,658 | $ | 4,915 | |||||||
| Average borrowing rate | 7.4 | % | 7.1 | % | |||||||
For the third quarter of 2023, our Interest Expense was $84 million, compared to $86 million in the third quarter of 2022. Our lower average daily borrowings, which were driven by the repurchase and early extinguishment of outstanding notes, were partially offset by a higher average borrowing rate.
Other Income
For the third quarter of 2023, our Other Income was $22 million, primarily due to pre-tax gains of $12 million associated with the repurchase and early extinguishments of outstanding notes and interest income on cash balances.
Provision for Income Taxes
For the third quarter of 2023, our effective tax rate was 25.3% compared to 23.3% in the third quarter of 2022. The 2023 third quarter rate was consistent with our combined estimated federal and state statutory rates. The 2022 third quarter rate was lower than our combined estimated federal and state statutory rates primarily due to the resolution of certain tax matters during the quarter.
Results of Operations
Year-to-Date 2023 Compared to Year-to-Date 2022
For year-to-date 2023, Operating Income decreased $135 million to $589 million, from $724 million year-to-date 2022, and the Operating Income rate (expressed as a percentage of Net Sales) decreased to 13.0% from 15.5%. The drivers of the year-to-date Operating Income results are discussed in the following sections.
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Net Sales
The following table provides Net Sales for year-to-date 2023 in comparison to year-to-date 2022:
| 2023 | 2022 | % Change | |||||||||||||||
| (in millions) | |||||||||||||||||
| Stores - U.S. and Canada | $ | 3,345 | $ | 3,398 | (2 | %) | |||||||||||
| Direct - U.S. and Canada | 926 | 1,030 | (10 | %) | |||||||||||||
| International (a) | 246 | 244 | 1 | % | |||||||||||||
| Total Net Sales | $ | 4,517 | $ | 4,672 | (3 | %) | |||||||||||
_______________
(a)Results include royalties associated with franchised stores and wholesale sales.
The following table provides a reconciliation of Net Sales for year-to-date 2023 to year-to-date 2022:
| (in millions) | |||||
| 2022 Net Sales | $ | 4,672 | |||
| Comparable Store Sales | (188) | ||||
| Sales Associated with New, Closed and Non-comparable Remodeled Stores, Net | 143 | ||||
| Direct Channels | (104) | ||||
International Wholesale, Royalty and Other | 2 | ||||
| Foreign Currency Translation | (8) | ||||
| 2023 Net Sales | $ | 4,517 | |||
For year-to-date 2023, Net Sales decreased $155 million, to $4.517 billion, compared to year-to-date 2022. Net Sales decreased in the stores channel by $53 million, or 2%, due to a decline in average dollar sale, partially offset by Net Sales from new store growth. Direct Net Sales decreased $104 million, or 10%, due to a decline in orders, which was partially due to our customers continuing to select our BOPIS option (which is recognized as store Net Sales) as we completed our rollout of BOPIS capabilities to our U.S. stores in the first quarter of 2023. International Net Sales increased by $2 million, or 1%, primarily due to new stores opened by our partners.
In terms of category performance, Net Sales in candles, sanitizers and soaps declined compared to year-to-date 2022 driven by category normalization following the COVID-19 pandemic. Though total body care Net Sales decreased slightly compared to year-to-date 2022, Net Sales in our men’s business increased during the period.
Gross Profit
For year-to-date 2023, our Gross Profit decreased $107 million to $1.899 billion, and our Gross Profit rate (expressed as a percentage of Net Sales) decreased to 42.0% from 42.9%. Gross Profit decreased due to the decline in Net Sales and an increase in occupancy expenses primarily associated with store growth. These decreases were partially offset by an increase in our merchandise margin rate driven by deflation in our cost structure, lower product costs, reduced transportation costs and slightly increased average unit retails, partially offset by our continued investment in product formulations and packaging innovation.
The Gross Profit rate decline was driven by increased occupancy expenses and Buying and Occupancy Expense deleverage due to lower Net Sales, partially offset by the increase in the merchandise margin rate due to the factors discussed above.
General, Administrative and Store Operating Expenses
The following table provides detail for our General, Administrative and Store Operating Expenses for year-to-date 2023 compared to year-to-date 2022:
| 2023 | 2022 | Change | |||||||||||||||||||||||||||||||||
| (in millions) | % of Net Sales | (in millions) | % of Net Sales | (in millions) | % of Net Sales | ||||||||||||||||||||||||||||||
| Selling Expenses | $ | 779 | 17.2 | % | $ | 814 | 17.4 | % | $ | (35) | (0.2 | %) | |||||||||||||||||||||||
| Home Office and Marketing Expenses | 531 | 11.8 | % | 468 | 10.0 | % | 63 | 1.8 | % | ||||||||||||||||||||||||||
| Total | $ | 1,310 | 29.0 | % | $ | 1,282 | 27.4 | % | $ | 28 | 1.6 | % | |||||||||||||||||||||||
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For year-to-date 2023, our General, Administrative and Store Operating Expenses increased $28 million to $1.310 billion, and the rate (expressed as a percentage of Net Sales) increased to 29.0% from 27.4%. Our Home Office Expenses increased primarily due to higher technology expense, principally related to IT separation costs as well as strategic investments to drive future growth, and other corporate expenses. Our Selling Expenses decreased primarily due to our cost optimization work related to efficiency in store labor and selling productivity, reduced expense as we optimized our call center and the decline in Net Sales.
The General, Administrative and Store Operating Expense rate increased primarily due to our investments in technology as well as deleverage on lower Net Sales, partially offset by the benefits of our cost optimization work related to Selling Expenses.
Other Income and Expenses
Interest Expense
The following table provides the average daily borrowings and average borrowing rates for year-to-date 2023 and 2022:
| 2023 | 2022 | ||||||||||
| Average daily borrowings (in millions) | $ | 4,774 | $ | 4,915 | |||||||
| Average borrowing rate | 7.3 | % | 7.1 | % | |||||||
For year-to-date 2023, our Interest Expense was $259 million, compared to $262 million for year-to-date 2022. Our lower average daily borrowings, which were driven by the repurchase and early extinguishment of outstanding notes, were partially offset by a higher average borrowing rate.
Other Income
For year-to-date 2023, our Other Income was $68 million, primarily due to interest income on cash balances and pre-tax gains of $28 million associated with the repurchase and early extinguishments of outstanding notes.
Provision for Income Taxes
For year-to-date 2023, our effective tax rate was 24.9% compared to 21.9% for year-to-date 2022. The 2023 year-to-date rate was consistent with our combined estimated federal and state statutory rates. The 2022 year-to-date rate was lower than our combined estimated federal and state statutory rates primarily due to the resolution of certain tax matters during the period.
FINANCIAL CONDITION
Liquidity and Capital Resources
Liquidity, or access to cash, is an important factor in determining our financial stability. We are committed to maintaining adequate liquidity. Cash generated from our operating activities provides the primary resources to support current operations, growth initiatives, seasonal funding requirements, future common stock and debt repurchases, and capital expenditures. Our cash provided from operations is impacted by our net income and working capital changes. Our net income is impacted by, among other things, sales volume, seasonal sales patterns, success of new product introductions and product expansions, profit margins, income taxes and inflationary pressures. Historically, our sales are higher during the fourth quarter of the fiscal year due to seasonal and holiday-related sales patterns. Generally, our need for working capital peaks during the summer and fall months as inventory builds in anticipation of the holiday period. Our cash and cash equivalents held by foreign subsidiaries were $79 million as of October 28, 2023.
During year-to-date 2023, we repurchased and extinguished $373 million principal amount of our outstanding senior notes for an aggregate price of $343 million. Additionally, we also repurchased 2,765 thousand shares of our common stock for $100 million. We may, from time to time, repurchase, or otherwise retire, additional debt or shares of our common stock, as applicable.
We believe that our current cash position, our cash flow generated from operations and our borrowing capacity under our asset-backed revolving credit facility (“ABL Facility”) will be sufficient to meet our liquidity needs, including capital expenditure requirements, for at least the next twelve months.
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Working Capital and Capitalization
The following table provides a summary of our working capital position and capitalization as of October 28, 2023, January 28, 2023 and October 29, 2022:
_______________
| October 28, 2023 | January 28, 2023 | October 29, 2022 | |||||||||||||||
| (in millions) | |||||||||||||||||
| Net Cash Provided by Operating Activities (a) | $ | 28 | $ | 1,144 | $ | 67 | |||||||||||
| Capital Expenditures (a) | 250 | 328 | 252 | ||||||||||||||
| Working Capital | 550 | 887 | 496 | ||||||||||||||
| Capitalization: | |||||||||||||||||
| Long-term Debt | 4,497 | 4,862 | 4,860 | ||||||||||||||
| Shareholders’ Equity (Deficit) | (2,125) | (2,206) | (2,609) | ||||||||||||||
| Total Capitalization | $ | 2,372 | $ | 2,656 | $ | 2,251 | |||||||||||
| Amounts Available Under the ABL Facility (b) | $ | 740 | $ | 509 | $ | 734 | |||||||||||
(a)The January 28, 2023 amounts represent a fifty-two-week period, and the October 28, 2023 and October 29, 2022 amounts represent thirty-nine-week periods.
(b)As of both October 28, 2023 and October 29, 2022, our borrowing base exceeded the aggregate commitments. Our borrowing base was $525 million as of January 28, 2023. We had outstanding letters of credit, which reduce our availability under the ABL Facility, of $10 million as of October 28, 2023, and $16 million as of both January 28, 2023 and October 29, 2022.
Cash Flows
The following table provides a summary of our cash flow activity during year-to-date 2023 and 2022:
| 2023 | 2022 | ||||||||||
| (in millions) | |||||||||||
| Cash and Cash Equivalents, Beginning of Year | $ | 1,232 | $ | 1,979 | |||||||
| Net Cash Flows Provided by Operating Activities | 28 | 67 | |||||||||
| Net Cash Flows Used for Investing Activities | (239) | (252) | |||||||||
| Net Cash Flows Used for Financing Activities | (609) | (1,499) | |||||||||
| Effects of Exchange Rate Changes on Cash and Cash Equivalents | — | — | |||||||||
| Net Decrease in Cash and Cash Equivalents | (820) | (1,684) | |||||||||
| Cash and Cash Equivalents, End of Period | $ | 412 | $ | 295 | |||||||
Operating Activities
Net cash provided by operating activities for year-to-date 2023 was $28 million, including net income of $299 million. Net income included depreciation of $199 million, share-based compensation expense of $29 million and pre-tax gains on extinguishment of debt of $28 million. Other changes in assets and liabilities represent items that had a current period cash flow impact, such as changes in working capital. The most significant items in working capital were the seasonal changes in Inventories (and related increases in Accounts Payable), as we build our inventory levels in anticipation of the holiday season, which generates a substantial portion of our operating cash flow for the year, and Income Taxes Payable due to seasonal tax payments.
Net cash provided by operating activities for year-to-date 2022 was $67 million, including net income of $366 million. Net income included depreciation of $162 million and share-based compensation expense of $26 million. Other changes in assets and liabilities represent items that had a current period cash flow impact, such as changes in working capital. The most significant items in working capital were the seasonal changes in Inventories (and related increases in Accounts Payable), as we build our inventory levels in anticipation of the holiday season, which generates a substantial portion of our operating cash flow for the year, and Income Taxes Payable due to seasonal tax payments.
Investing Activities
Net cash used for investing activities for year-to-date 2023 was $239 million, primarily related to capital expenditures. The capital expenditures included approximately $125 million related to new, off-mall stores and remodels of existing stores, approximately $75 million for various IT projects primarily supporting the separation of our IT systems from Victoria’s Secret and approximately $35 million related to distribution and logistics capabilities.
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Net cash used for investing activities for year-to-date 2022 was $252 million related to capital expenditures. The capital expenditures included approximately $130 million related to new, off-mall stores and remodels of existing stores. The remaining capital expenditures were primarily related to our new Company-operated direct channel fulfillment center and IT projects.
We continue to plan for approximately $300 million to $350 million of capital expenditures in 2023, focused on investments to support long-term growth. We are prioritizing investments in select remodels to the White Barn store design and new off-mall store openings. We are also investing in our technology, distribution and logistics capabilities to better serve our customers.
Financing Activities
Net cash used for financing activities for year-to-date 2023 was $609 million, primarily consisting of $343 million for open market debt repurchases, dividend payments of $0.60 per share, or $137 million, $99 million for share repurchases and $10 million of tax payments related to share-based awards.
Net cash used for financing activities for year-to-date 2022 was $1.499 billion consisting of $1.312 billion in payments for share repurchases, including the payment of $1 billion related to our accelerated share repurchase program, dividend payments of $0.60 per share, or $140 million, and $32 million of tax payments related to share-based awards.
Common Stock and Debt Repurchases
Our Board of Directors (our “Board”) will determine share and debt repurchase authorizations, giving consideration to our levels of profit and cash flow, capital requirements, current and forecasted liquidity, the restrictions placed upon us by our borrowing arrangements as well as financial and other conditions existing at the time. We use cash flow generated from operating and financing activities to fund our share and debt repurchase programs. The timing and amount of any repurchases will be made at our discretion, taking into account a number of factors, including market conditions.
Common Stock Repurchases
2022 Share Repurchase Program
In February 2022, our Board authorized a $1.5 billion share repurchase program (the “February 2022 Program”). Under the February 2022 Program, we repurchased the following shares of our common stock during year-to-date 2023:
| Repurchase Program | Amount Authorized | Shares Repurchased | Amount Repurchased | Average Stock Price | |||||||||||||||||||||||||||||||
| (in millions) | (in thousands) | (in millions) | |||||||||||||||||||||||||||||||||
| February 2022 | $ | 1,500 | 2,765 | $ | 100 | $ | 36.16 | ||||||||||||||||||||||||||||
The February 2022 Program had $88 million of remaining authority as of October 28, 2023. There were share repurchases of $1 million reflected in Accounts Payable on the October 28, 2023 Consolidated Balance Sheet. Subsequent to October 28, 2023 through December 1, 2023, we repurchased an additional 569 thousand shares of our common stock for $17 million under the February 2022 Program.
Dividend Policy and Procedures
Our Board will determine future dividends after giving consideration to our levels of profit and cash flow, capital requirements, current and forecasted liquidity, the restrictions placed upon us by our borrowing arrangements as well as financial and other conditions existing at the time. We use cash flow generated from operating and financing activities to fund our dividends.
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We paid the following dividends during year-to-date 2023 and 2022:
| Ordinary Dividends | Total Paid | ||||||||||
| (per share) | (in millions) | ||||||||||
| 2023 | |||||||||||
| First Quarter | $ | 0.20 | $ | 46 | |||||||
| Second Quarter | 0.20 | 46 | |||||||||
| Third Quarter | 0.20 | 45 | |||||||||
| Total | $ | 0.60 | $ | 137 | |||||||
| 2022 | |||||||||||
| First Quarter | $ | 0.20 | $ | 48 | |||||||
| Second Quarter | 0.20 | 46 | |||||||||
| Third Quarter | 0.20 | 46 | |||||||||
| Total | $ | 0.60 | $ | 140 | |||||||
In November 2023, we declared our fourth quarter 2023 ordinary dividend of $0.20 per share payable on December 1, 2023 to stockholders of record at the close of business on November 17, 2023.
Long-term Debt and Borrowing Facility
The following table provides our outstanding Long-term Debt balance, net of unamortized debt issuance costs and discounts, as of October 28, 2023, January 28, 2023 and October 29, 2022:
| October 28, 2023 | January 28, 2023 | October 29, 2022 | |||||||||||||||
| (in millions) | |||||||||||||||||
| Senior Debt with Subsidiary Guarantee | |||||||||||||||||
$314 million, 9.375% Fixed Interest Rate Notes due July 2025 (“2025 Notes”) | $ | 312 | $ | 317 | $ | 317 | |||||||||||
$297 million, 6.694% Fixed Interest Rate Notes due January 2027 (“2027 Notes”) | 286 | 283 | 283 | ||||||||||||||
$486 million, 5.250% Fixed Interest Rate Notes due February 2028 (“2028 Notes”) | 483 | 498 | 497 | ||||||||||||||
$500 million, 7.500% Fixed Interest Rate Notes due June 2029 (“2029 Notes”) | 492 | 491 | 490 | ||||||||||||||
$958 million, 6.625% Fixed Interest Rate Notes due October 2030 (“2030 Notes”) | 950 | 991 | 991 | ||||||||||||||
$861 million, 6.875% Fixed Interest Rate Notes due November 2035 (“2035 Notes”) | 855 | 993 | 993 | ||||||||||||||
$614 million, 6.750% Fixed Interest Rate Notes due July 2036 (“2036 Notes”) | 609 | 694 | 694 | ||||||||||||||
| Total Senior Debt with Subsidiary Guarantee | $ | 3,987 | $ | 4,267 | $ | 4,265 | |||||||||||
| Senior Debt | |||||||||||||||||
$311 million, 6.950% Fixed Interest Rate Debentures due March 2033 (“2033 Notes”) | $ | 310 | $ | 349 | $ | 349 | |||||||||||
$201 million, 7.600% Fixed Interest Rate Notes due July 2037 (“2037 Notes”) | 200 | 246 | 246 | ||||||||||||||
| Total Senior Debt | 510 | 595 | 595 | ||||||||||||||
| Total Long-term Debt | $ | 4,497 | $ | 4,862 | $ | 4,860 | |||||||||||
Repurchases of Notes
During the third quarter of and year-to-date 2023, we repurchased in the open market and extinguished $174 million and $373 million principal amounts of our outstanding senior notes, respectively. The aggregate repurchase prices for these notes were $161 million and $343 million for the third quarter of and year-to-date 2023, respectively, resulting in pre-tax gains of $12 million and $28 million, net of the write-off of unamortized issuance costs, during the third quarter of and year-to-date 2023, respectively. These gains are included in Other Income in the 2023 Consolidated Statements of Income.
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The following table provides details of the outstanding principal amount of senior notes repurchased and extinguished during the third quarter of and year-to-date 2023:
| Third Quarter | Year-to-Date | ||||||||||
| (in millions) | |||||||||||
| 2025 Notes | $ | — | $ | 6 | |||||||
| 2028 Notes | 14 | 14 | |||||||||
| 2030 Notes | 35 | 42 | |||||||||
| 2033 Notes | 31 | 39 | |||||||||
| 2035 Notes | 78 | 139 | |||||||||
| 2036 Notes | 3 | 86 | |||||||||
| 2037 Notes | 13 | 47 | |||||||||
| Total | $ | 174 | $ | 373 | |||||||
Subsequent to October 28, 2023 through December 1, 2023, we repurchased in the open market and extinguished $93 million principal amount of our outstanding senior notes for an aggregate repurchase price of $86 million.
Asset-backed Revolving Credit Facility
We and certain of our 100% owned subsidiaries guarantee and pledge collateral to secure our ABL Facility. The ABL Facility, which allows borrowings and letters of credit in U.S. dollars or Canadian dollars, has aggregate commitments of $750 million and an expiration date in August 2026.
In the second quarter of 2023, we amended our ABL Facility to replace the LIBOR-based rate with a SOFR-based rate as the interest rate benchmark on U.S. dollar borrowings. This amendment made no other material changes to the terms of the ABL Facility.
Availability under the ABL Facility is the lesser of (i) the borrowing base, determined primarily based on our eligible U.S. and Canadian credit card receivables, accounts receivable, inventory and eligible real property, or (ii) the aggregate commitment. If at any time the outstanding amount under the ABL Facility exceeds the lesser of (i) the borrowing base and (ii) the aggregate commitment, we are required to repay the outstanding amounts under the ABL Facility to the extent of such excess. As of October 28, 2023, our borrowing base was $1.169 billion, and we had no borrowings outstanding under the ABL Facility.
The ABL Facility supports our letter of credit program. We had $10 million of outstanding letters of credit as of October 28, 2023 that reduced our availability under the ABL Facility. As of October 28, 2023, our availability under the ABL Facility was $740 million.
As of October 28, 2023, the ABL Facility fees related to committed and unutilized amounts were 0.30% per annum, and the fees related to outstanding letters of credit were 1.25% per annum. In addition, the interest rate on outstanding U.S. dollar borrowings was the Term SOFR plus 1.25% and a credit spread adjustment of 0.10% per annum. The interest rate on outstanding Canadian dollar-denominated borrowings was the Canadian Dollar Offered Rate plus 1.25% per annum.
The ABL Facility requires us to maintain a fixed charge coverage ratio of not less than 1.00 to 1.00 during an event of default or any period commencing on any day when specified excess availability is less than the greater of (i) $70 million or (ii) 10% of the maximum borrowing amount. As of October 28, 2023, we were not required to maintain this ratio.
Credit Ratings
The following table provides our credit ratings as of October 28, 2023:
| Moody’s | S&P | ||||||||||
| Corporate | Ba2 | BB | |||||||||
| Senior Unsecured Debt with Subsidiary Guarantee | Ba2 | BB | |||||||||
| Senior Unsecured Debt | B1 | B+ | |||||||||
| Outlook | Stable | Stable | |||||||||
Guarantor Summarized Financial Information
Certain of our subsidiaries, which are listed on Exhibit 22 to this Quarterly Report on Form 10-Q, have guaranteed our obligations under the 2025 Notes, 2027 Notes, 2028 Notes, 2029 Notes, 2030 Notes, 2035 Notes and 2036 Notes (collectively, the “Notes”).
The Notes have been issued by Bath & Body Works, Inc. (the “Parent Company”). The Notes are its senior unsecured obligations and rank equally in right of payment with all of our existing and future senior unsecured obligations, are senior to
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any of our future subordinated indebtedness, are effectively subordinated to all of our existing and future indebtedness that is secured by a lien and are structurally subordinated to all existing and future obligations of each of our subsidiaries that do not guarantee the Notes.
The Notes are fully and unconditionally guaranteed on a joint and several basis by certain of our wholly-owned subsidiaries, including certain subsidiaries that also guarantee our obligations under our ABL Facility (such guarantees, the “Guarantees”; and, such guaranteeing subsidiaries, the “Subsidiary Guarantors”). The Guarantees of the Subsidiary Guarantors are subject to release in limited circumstances only upon the occurrence of certain customary conditions. Each Guarantee is limited, by its terms, to an amount not to exceed the maximum amount that can be guaranteed by the applicable Subsidiary Guarantor subject to avoidance under applicable fraudulent conveyance provisions of U.S. and non-U.S. law.
The following tables set forth summarized financial information for the Parent Company and the Subsidiary Guarantors on a combined basis after elimination of (i) intercompany transactions and balances among the Parent Company and the Subsidiary Guarantors and (ii) investments in and equity in the earnings of non-Guarantor subsidiaries.
| SUMMARIZED BALANCE SHEETS | October 28, 2023 | January 28, 2023 | |||||||||
| (in millions) | |||||||||||
| ASSETS | |||||||||||
| Current Assets (a) | $ | 2,347 | $ | 2,642 | |||||||
| Noncurrent Assets (b) | 2,597 | 2,561 | |||||||||
| LIABILITIES | |||||||||||
| Current Liabilities (c) | $ | 3,000 | $ | 3,084 | |||||||
| Noncurrent Liabilities | 5,814 | 6,143 | |||||||||
_______________
(a)Includes amounts due from non-Guarantor subsidiaries of $596 million and $589 million as of October 28, 2023 and January 28, 2023, respectively.
(b)Includes amounts due from non-Guarantor subsidiaries of $40 million as of January 28, 2023.
(c)Includes amounts due to non-Guarantor subsidiaries of $1.860 billion and $1.987 billion as of October 28, 2023 and January 28, 2023, respectively.
YEAR-TO-DATE 2023 SUMMARIZED STATEMENT OF INCOME | (in millions) | ||||||||||
| Net Sales (a) | $ | 4,436 | |||||||||
| Gross Profit | 1,761 | ||||||||||
| Operating Income | 527 | ||||||||||
| Income Before Income Taxes | 323 | ||||||||||
| Net Income (b) | 235 | ||||||||||
_______________
(a)Includes net sales of $248 million to non-Guarantor subsidiaries.
(b)Includes a net loss of $14 million related to transactions with non-Guarantor subsidiaries.
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Contingent Liabilities and Contractual Obligations
Lease Guarantees
In connection with the spin-off of Victoria’s Secret and the disposal of a certain other business, we had remaining contingent obligations of $267 million as of October 28, 2023 related to lease payments under the current terms of noncancelable leases, primarily related to office space, expiring at various dates through 2037. These obligations include minimum rent and additional payments covering taxes, common area costs and certain other expenses and relate to leases that commenced prior to the disposition of these businesses. Our reserves related to these obligations were not significant for any period presented.
Contractual Obligations
Our contractual obligations primarily consist of long-term debt and the related interest payments, operating leases, purchase orders for merchandise inventory and other long-term obligations. These contractual obligations impact our short-term and long-term liquidity and capital resource needs. Other than the repurchase of $373 million principal amount of our outstanding senior notes through year-to-date 2023, there have been no material changes in our contractual obligations subsequent to January 28, 2023, as discussed in “Contingent Liabilities and Contractual Obligations” in our 2022 Annual Report on Form 10-K. Certain of our contractual obligations may fluctuate during the normal course of business (primarily changes in our merchandise inventory-related purchase obligations which fluctuate throughout the year as a result of the seasonal nature of our business).
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
We did not adopt any new accounting standards year-to-date 2023 that had a material impact on our consolidated results of operations, financial position or cash flows. In addition, as of December 1, 2023, there were no new accounting standards that we have not yet adopted that are expected to have a material impact on our consolidated results of operations, financial position or cash flows.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with GAAP requires management to adopt accounting policies related to estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period, as well as the related disclosure of contingent assets and liabilities at the date of the financial statements. On an ongoing basis, management evaluates its accounting policies, estimates and judgments, including those related to inventories, valuation of long-lived store assets, claims and contingencies, income taxes and revenue recognition, including revenue associated with our loyalty program. Management bases our estimates and judgments on historical experience and various other factors that we believe are reasonable under the circumstances. Actual results may differ from these estimates.
There have been no material changes to the critical accounting policies and estimates disclosed in our 2022 Annual Report on Form 10-K.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
The market risk inherent in our financial instruments represents the potential loss in fair value, earnings or cash flows arising from adverse changes in foreign currency exchange rates or interest rates. We may use derivative financial instruments like foreign currency forward contracts, cross-currency swaps and interest rate swap arrangements to manage exposure to market risks. We do not use derivative financial instruments for trading purposes.
Foreign Exchange Rate Risk
Our Canadian dollar denominated earnings are subject to exchange rate risk as substantially all our merchandise sold in Canada is sourced through U.S. dollar transactions. Although we utilize foreign currency forward contracts to partially offset risks associated with our operations in Canada, these measures may not succeed in offsetting all the short-term impact of foreign currency rate movements and generally may not be effective in offsetting the long-term impact of sustained shifts in foreign currency rates.
Further, although our royalty arrangements with our international partners are denominated in U.S. dollars, the royalties we receive in U.S. dollars are calculated based on sales in the local currency. As a result, our royalties in these arrangements are exposed to foreign currency exchange rate fluctuations.
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Interest Rate Risk
Our investment portfolio primarily consists of interest-bearing instruments that are classified as cash and cash equivalents based on their original maturities. Our investment portfolio is maintained in accordance with our investment policy, which specifies permitted types of investments, specifies credit quality standards and maturity profiles and limits credit exposure to any single issuer. The primary objective of our investment activities is the preservation of principal, the maintenance of liquidity and the maximization of interest income while minimizing risk. Our investment portfolio is primarily composed of U.S. government obligations, U.S. Treasury and AAA-rated money market funds, commercial paper and bank deposits. Given the short-term nature and quality of investments in our portfolio, we do not believe there is any material risk to principal associated with increases or decreases in interest rates.
All of our Long-term Debt as of October 28, 2023 has fixed interest rates. We will from time to time adjust our exposure to interest rate risk by entering into interest rate swap arrangements. Our exposure to interest rate changes is limited to the fair value of the debt issued, which would not have a material impact on our earnings or cash flows.
Fair Value of Financial Instruments
The following table provides a summary of the principal value and estimated fair value of our outstanding Long-term Debt as of October 28, 2023, January 28, 2023 and October 29, 2022:
_______________
| October 28, 2023 | January 28, 2023 | October 29, 2022 | |||||||||||||||
| (in millions) | |||||||||||||||||
| Principal Value | $ | 4,542 | $ | 4,915 | $ | 4,915 | |||||||||||
| Fair Value, Estimated (a) | 4,122 | 4,707 | 4,367 | ||||||||||||||
(a) The estimated fair values are based on reported transaction prices and are not necessarily indicative of the amounts that we could realize in a current market exchange.
As of October 28, 2023, we believe that the carrying values of our Accounts Receivable, Accounts Payable and Accrued Expenses approximate their fair values because of their short maturities.
Concentration of Credit Risk
We maintain cash and cash equivalents and derivative contracts with various major financial institutions. We monitor the relative credit standing of financial institutions with whom we transact and limit the amount of credit exposure with any one entity. Our investment portfolio is primarily composed of U.S. government obligations, U.S. Treasury and AAA-rated money market funds, commercial paper and bank deposits. We also periodically review the relative credit standing of franchise, license and wholesale partners and other entities to which we grant credit terms in the normal course of business.
Item 4. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures. As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective and designed to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission (“SEC”) rules and forms, and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting that occurred in the third quarter of 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
We are a defendant in a variety of lawsuits arising in the ordinary course of business. Actions filed against our Company from time to time may include commercial, tort, intellectual property, tax, customer, employment, wage and hour, data privacy, securities, anti-corruption and other claims, including purported class action lawsuits. Although it is not possible to predict with certainty the eventual outcome of any litigation, in the opinion of management, our current legal proceedings are not expected to have a material adverse effect on our results of operations, financial condition or cash flows.
Fair and Accurate Credit Transactions Act Cases
We were named as a defendant in three putative class actions: Smidga, et al. v. Bath & Body Works, LLC in the Allegheny County, Pennsylvania Court of Common Pleas; Dahlin v. Bath & Body Works, LLC in the Santa Barbara County, California Superior Court; and Blanco v. Bath & Body Works, LLC in the Cook County, Illinois Circuit Court. The complaints each allege that we violated the Fair and Accurate Credit Transactions Act by printing more than the last five digits of credit or debit card numbers on customers’ receipts and, among other things, seek statutory damages, attorneys’ fees and costs. We have reached an agreement in principle with the plaintiffs in the Smidga and Dahlin cases that will resolve those matters, which is subject to court approval. The Blanco case was sent to individual arbitration by court order, and we have reached an agreement in principle with the plaintiff that will resolve the Blanco arbitration and lawsuit. The resolutions of these claims are not expected to have a material adverse effect on our results of operations, financial condition or cash flows.
Item 1A. RISK FACTORS
The risk factors that affect our business and financial results are discussed in Item 1A. Risk Factors in our 2022 Annual Report on Form 10-K. We wish to caution the reader that the risk factors discussed in Item 1A. Risk Factors in our 2022 Annual Report on Form 10-K and those described elsewhere in this report or other SEC filings could cause actual results to differ materially from those stated in any forward-looking statements.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table provides the repurchases of our common stock during the third quarter of 2023:
| Fiscal Period | Total Number of Shares Purchased (a) | Average Price Paid per Share (b) | Total Number of Shares Purchased as Part of Publicly Announced Programs (c) | Maximum Number of Shares (or Approximate Dollar Value) that May Yet be Purchased Under the Programs (c) | |||||||||||||||||||
| (in thousands) | (in thousands) | ||||||||||||||||||||||
| August 2023 | 414 | $ | 36.66 | 407 | $ | 122,956 | |||||||||||||||||
| September 2023 | 678 | 35.74 | 661 | 99,288 | |||||||||||||||||||
| October 2023 | 385 | 30.99 | 371 | 87,787 | |||||||||||||||||||
| Total | 1,477 | 1,439 | |||||||||||||||||||||
(a)The total number of shares repurchased includes shares repurchased as part of publicly announced programs, with the remainder relating to shares in connection with tax payments due upon vesting of associate restricted share and performance share unit awards and the use of our stock to pay the exercise price on associate stock options.
(b)The average price paid per share includes any broker commissions.
(c)For additional share repurchase program information, see Note 3, “Net Income Per Share and Shareholders’ Equity (Deficit)” included in Part I, Item 1. Financial Statements.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
Item 5. OTHER INFORMATION
Securities Trading Plans of Directors and Executive Officers
None of our directors or executive officers adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement” (as such terms are defined in Item 408(c) of Regulation S-K) during the third quarter of 2023.
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Item 6. EXHIBITS
| Exhibits | ||||||||
| 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||||
| 101.DEF | Inline XBRL Taxonomy Definition Linkbase Document | |||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||||||
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) | |||||||
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BATH & BODY WORKS, INC. | ||||||||
| (Registrant) | ||||||||
| By: | /s/ EVA C. BORATTO | |||||||
| Eva C. Boratto Chief Financial Officer * | ||||||||
Date: December 1, 2023
* Ms. Boratto is the principal financial officer and the principal accounting officer and has been duly authorized to sign on behalf of the Registrant.
31
Exhibit 15
December 1, 2023
To the Shareholders and Board of Directors of Bath & Body Works, Inc.
We are aware of the incorporation by reference in the following Registration Statements of Bath & Body Works, Inc.:
(1)Registration Statement (Form S-3 ASR No. 333-263720) of Bath & Body Works, Inc.,
(2)Registration Statement (Form S-8 No. 333-265379) pertaining to the Bath & Body Works, Inc. Associate Stock Purchase Plan,
(3)Registration Statement (Form S-8 No. 333-262626) pertaining to the Bath & Body Works, Inc. 401(k) Savings and Retirement Plan,
(4)Registration Statement (Form S-8 No. 333-251226) pertaining to the L Brands, Inc. 2020 Stock Option and Performance Incentive Plan,
(5)Registration Statement (Form S-8 No. 333-206787) pertaining to the L Brands, Inc. 2015 Stock Option and Performance Incentive Plan, and
(6)Registration Statement (Form S-8 No. 333-176588) pertaining to the Limited Brands, Inc. 2011 Stock Option and Performance Plan;
of our report dated December 1, 2023 relating to the unaudited consolidated interim financial statements of Bath & Body Works, Inc. that are included in its Form 10-Q for the quarter ended October 28, 2023.
/s/ Ernst & Young LLP
Grandview Heights, Ohio
Exhibit 22
List of Guarantor Subsidiaries
The 2025 Notes, 2027 Notes, 2028 Notes, 2029 Notes, 2030 Notes, 2035 Notes and 2036 Notes are jointly and severally guaranteed on a full and unconditional basis by Bath & Body Works, Inc. (incorporated in Delaware) and the following 100% owned subsidiaries of Bath & Body Works, Inc. as of October 28, 2023:
| Entity | Jurisdiction of Incorporation or Organization | ||||
| Bath & Body Works, LLC | Delaware | ||||
| Bath & Body Works Brand Management, Inc. | Delaware | ||||
| Bath & Body Works Direct, Inc. | Delaware | ||||
| beautyAvenues, LLC | Delaware | ||||
| Beauty Specialty Holding, LLC | Delaware | ||||
| L Brands Service Company, LLC | Delaware | ||||
Exhibit 31.1
Section 302 Certification
I, Gina R. Boswell, certify that:
1. I have reviewed this report on Form 10-Q of Bath & Body Works, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| /s/ GINA R. BOSWELL | |||||
Gina R. Boswell | |||||
| Chief Executive Officer | |||||
Date: December 1, 2023
Exhibit 31.2
Section 302 Certification
I, Eva C. Boratto, certify that:
1. I have reviewed this report on Form 10-Q of Bath & Body Works, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| /s/ EVA C. BORATTO | |||||
| Eva C. Boratto | |||||
| Chief Financial Officer | |||||
Date: December 1, 2023
Exhibit 32
Section 906 Certification
Gina R. Boswell, the Chief Executive Officer, and Eva C. Boratto, the Chief Financial Officer, of Bath & Body Works, Inc. (the “Company”), each certifies that, to the best of our knowledge:
(i)the Quarterly Report of the Company on Form 10-Q dated December 1, 2023 for the period ending October 28, 2023 (the “Form 10-Q”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(ii)the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ GINA R. BOSWELL | |||||
| Gina R. Boswell | |||||
| Chief Executive Officer | |||||
| /s/ EVA C. BORATTO | |||||
| Eva C. Boratto | |||||
| Chief Financial Officer | |||||
Date: December 1, 2023