Earnings Call Transcript - BBWI Q1 2022

Operator, Operator

Good morning. My name is Madison, and I will be your conference operator today. I would like to welcome everyone to the Bath & Body Works First Quarter 2022 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to turn the call over to Ms. Wendy Arlin, Chief Financial Officer at Bath & Body Works. Wendy, you may begin.

Wendy Arlin, CFO

Thank you. Good morning, and welcome to Bath & Body Works First Quarter Earnings Conference Call for the period ended April 30, 2022. As a matter of formality, I need to remind you that any forward-looking statements we may make today are subject to our safe harbor statements found in our SEC filings and in our press releases. Joining me on the call today are Executive Chair of the Board and Interim CEO, Sarah Nash; and Brand President, Julie Rosen. All results we discuss on the call today are adjusted results and exclude the significant items as described in our press release. All results we discuss today represent the continuing operations of the Bath & Body Works business as the spun off Victoria's Secret business has been classified as discontinued operations. I'll now turn the call over to Sarah.

Sarah Nash, Interim CEO

Thanks, Wendy, and thank you, everyone, for joining the call today. I am delighted to be here speaking with all of you and serving as the company's interim CEO. Bath & Body Works is an incredible company with a customer-first focus, along with strong product innovation and development capabilities that include a mostly North American and highly agile supply chain. Our business is very strong. Our execution is excellent, and our strategy of delivering affordable luxuries to our customers is more relevant than ever. We have built on the past two years of extraordinary growth with strong momentum as we entered fiscal 2022. We are pleased to have delivered better-than-expected sales and earnings results in the quarter. Looking ahead in 2022, we are continuing to plan prudently and use our agility to chase winners. We are accelerating investments in the business to drive our long-term growth, while at the same time, our team continues to successfully navigate the inflationary environment. Long term, we continue to see exceptional opportunities to capitalize on Bath & Body Works existing strength and extend the brand's global potential. Since taking on the role of Executive Chair and earlier this month stepping into the interim CEO role, I have been spending time gaining even deeper knowledge of our team and our capabilities. This is a strong organization, and one that operates with tremendous speed making us nimble and allowing us to deliver products relevant for our customers. We look forward to speaking with you today about initiatives we have underway or are accelerating, all designed to ensure we continue to advance our customer-centric culture, increase our data analytics across the business and with our 60 million customers and leverage our store and digital capabilities to transform Bath & Body Works to be a true omnichannel business. Our opportunities are great and we aim to capitalize on them. Our vertically integrated approximately 85% North America-based supply chain has been a key differentiator for us. It has enabled Bath & Body Works to successfully navigate a dynamic environment and present full and abundant product assortments to our customers with speed and agility. It gives us the flexibility to chase into the upside as well as manage any downside. And you'll hear from Julie Rosen, our Brand President, about an example of a successful change to the upside with our Butterfly launch from the first quarter. On a broader level, our ability to leverage our relationships with the world's preeminent fragrance houses, our manufacturing partners, and our raw material suppliers, along with our world-class logistics, enables us to achieve best-in-class innovation and manufacturing. This allows us to deliver to our customers what they want, fashion, trends, and newness in fragrance, forms, and packaging that bring them delight at an accessible price. We remain highly focused on innovation, and our product pipeline is full. We have an ability to develop and launch products within 12 to 14 months, which is also best-in-class for an innovator in the scented personal care sector. With our pipeline, we are launching new fragrances and products every four to six weeks, and expect to maintain this pace going forward. Importantly, we are also focused on new business opportunities and the acceleration of new product lines for personal care and home, leveraging our stores and digital presence to test and launch these new lines. In addition to hair and face, men's is a big priority. This business delivered close to $400 million in net sales in 2021, and we expect it can more than double its size over time. We continue to lead the market in many of our categories with multiple number one product forms. The beauty, personal care, and home fragrance markets continue to be strong and growing. Our growth strategies will continue to leverage and expand on our fragrance-first leadership. We also plan to explore expansion into other related categories as well as dive deeper into looking into new geographic markets. In short, and as I said at the start, Bath & Body Works has exceptional opportunities to leverage our existing strength and extend the brand's global potential. Before I turn the call over to Wendy and Julie to speak about our first quarter performance, I'd also like to take this opportunity to touch briefly on our approach to environmental, social, and governance matters, all of which are also core to the company and how we operate. We have always been deeply committed to delivering high-quality products. The company has had a long-standing commitment not to test on animals, and this continues. In addition, we have always included ingredients that are important to our customers, building on that strong foundation. We are now reformulating several products to exclude ingredients such as parabens, sulfates, and dyes. This will be an ongoing focus for us, and customers will see more and more mention of these changes on product labels and in our marketing as we continue to evolve. We completed a restage in aromatherapy at the end of February with new packaging and formulation made without parabens, sulfates, and artificial dyes without compromising our fragrance authority. The packaging is now made with better-for-the-earth or recycled materials. We have also begun the process of reformulating fragrant body care. Select fragrances and forms launched with new formulation in the first quarter, and we will continue to expand in the second quarter. By the end of 2022, we expect 35% of our assortment to be reformulated in this effort. Beyond the products themselves, we are also continuing to migrate to recycled packaging for soaps, sanitizers, body care, and aromatherapy with a target to expand to 45% of our assortment by year-end. As we migrate to recycled packaging, our bottles will be made with 50% better-for-earth materials with the goal to eventually get to 100%. We will also continue to focus on diversity and inclusion. Our DE&I efforts are broad and start at the top. Earlier this year, the Board of Directors amended the charter of the Nominating and Governance Committee to include a commitment to have at least 50% of the Board be diverse and to provide that the initial pool of candidates for any Board vacancy will consist of at least one woman and one person of color. With the recent appointment of two new Board members, four of our directors are women. Four of our directors are people of color, and one of our directors is a member of the LGBTQIA+ community. We're applying the same commitment and actions to our hiring throughout the organization, and we are making sure that associates, particularly our diverse associates feel welcome, heard and invested in. We now have eight inclusion resource groups that cultivate an inclusive environment, provide professional development, shape the culture of our company, and actively encourage community volunteerism. I want to thank our associates who worked so hard to create the best possible experience for our customers. I have been consistently impressed by the terrific talent we have within the company. We have a fantastic balance of long-tenured associates as well as new associates that bring fresh perspective to the business. It is thanks to our dedicated and committed team that, following the last two years of extraordinary growth, the company started the year continuing our momentum and achieving better-than-expected sales and earnings results. Wendy?

Wendy Arlin, CFO

Thank you, Sarah. I will be providing financial highlights, but I encourage you to review our slides, posted remarks, and press release, which each contain additional details. We exceeded our sales and earnings guidance for the first quarter, as Sarah noted. In the quarter, we increased net sales by 2%, excluding the estimated first quarter 2021 sales benefit of $50 million related to government stimulus payments. The company's net sales in the first quarter of '22 is on top of 53% net sales growth between fiscal 2019 and fiscal 2021. We are confident in our ability to maintain and grow sales and our customer file over time. In the United States and Canadian stores, first quarter sales were $1.059 billion, an increase of 1% compared to last year. First quarter direct net sales were $317.5 million, a decrease of 9% compared to last year. The decline is partially due to last year's strong results, as well as our customers utilizing our convenient, omni-focused option of buy online, pick up in stores. We ended the first quarter with FOCUS availability in over 700 stores. We plan to fully roll out BOPIS availability during the course of the year with the goal to be in approximately 75% of our store fleet by fall. We are excited about the role of BOPIS as it drives customer engagement and traffic to our stores. Our international business, which is a key opportunity for us, continues to drive strong growth for our business. Looking ahead, in 2022, we are accelerating investments in capabilities in the business to support long-term growth. There are also macro factors such as inflation that will impact our results. These investments and macro pressures, which we outlined in detail in our commentary released yesterday, could cause this year to vary from our 3- to 5-year growth algorithm. However, we remain committed to that algorithm, including targeted sales growth and profitability. We, like many other companies, are continuing to experience increased costs in raw materials, transportation, and wage rates. We are forecasting incremental pressure versus our initial estimate, and we now estimate that our full year inflation impact could range between $225 million and $250 million or about $75 million higher than our initial estimate. Our speed and agility enables us to manage pricing and promotional activity to maximize margin dollars. We continue to invest in the customer experience and have been piloting our customer loyalty program. Based on encouraging results, we have decided to accelerate the rollout of the program to August. Our loyalty members have higher spend and retention rates than our average customer. Thus, we expect that the loyalty program will drive sales and customer retention, deepening our relationships with our customers over the long term. Equally as important, we believe that over time, our loyalty program will further increase data-driven analytics and marketing, which will support personalized communications and offers. As we discussed last quarter, we are also investing to establish separate IT capabilities for the Bath & Body Works business. We recently decided to accelerate this work, hiring Accenture to assist us, and we now expect that the separation component of the project to predominantly be completed by next year. Completing separation on this accelerated basis will, in turn, enable us to more quickly build additional technology capabilities to support long-term growth. We are excited to work with Accenture to not only complete our IT separation but also to truly transform into a data-driven organization, which will allow us to further strengthen our customer connection and capture new market opportunities. For the second quarter of 2022, we expect sales to be up in the low single-digit range compared to the prior year, consistent with our first quarter trend, excluding the stimulus benefit from last year. We are forecasting second quarter earnings from continuing operations to be between $0.60 and $0.65 per share compared to $0.77 last year. For the full year, we are forecasting sales to be up low single digits compared to 2021. We are also forecasting full year earnings per share to be between $3.80 and $4.15 compared to the $4.51 in the prior year. The company is committed to managing and forecasting the business prudently. Thank you. And now I will turn the call over to Julie.

Julie Rosen, Brand President

Thank you, Wendy. I'd like to touch on a few merchandising highlights. First, our single fragrance launch in the quarter, Butterfly, was a huge success. Highly inspired by the women in our lives, we wanted to celebrate International Women's Day, Women's History Month, and Mother's Day. This fragrance was created for women by a woman. Master perfumer, Honorine Blanc, is a highly regarded female in fragrance. As with any new fragrance product, launches are customer tested for initial smelling and wear. We leveraged the results and the customer feedback to make the final fragrance decisions and are constantly listening to customers and applying feedback to our existing strategies for upcoming product launches. For Butterfly, we worked across our fragrance teams, concept and design, marketing, and customer insights to promote and build demand through impactful marketing, social pushes, and in-store and online preview. Meeting our customers' multiple mindsets each season and putting them at the center of everything that we do is what sets us apart. We not only test fragrance with customers, but we also test the packaging with both customers and associates. For Butterfly, we launched this early in a small group of stores, which, along with our agile supply chain, allowed us to read feedback, react, and reorder as soon as the products hit all stores. I'd also like to note again that our new product launch timeline of 12 to 14 months is best-in-class in the industry, and Butterfly is an excellent example of our capabilities. It was our largest spring season cross-category launch across Body & Home. Butterfly was the number one fragrance for the company in April, and it was also the number one fragrance in all forms during the week of launch. I'd also like to highlight the repackaging of our most beloved fragrance, Japanese Cherry Blossom, in the first quarter. Japanese Cherry Blossom was recognized in March by Women's Wear Daily as one of the top fragrances of all time, which is a huge honor. Japanese Cherry Blossom was launched in 2006, and this was the fifth time we updated the packaging to make it more modern and aesthetically pleasing. Current customers look forward to buying their favorite fragrances in updated packaging, and the new modern design entices new customers to buy as well. This has been a winning strategy for us as Japanese Cherry Blossom continues to be a top 10 fragrance for us. Additionally, as we discussed last quarter, we've established a separate and dedicated team focused on innovating into new categories and businesses, and we are pleased with the team's continued progress. As part of their efforts, we continue to explore and test new and next product ideas. We plan to test a new personal care line, including hair care, in the back half of this year, which Sarah mentioned. We have additional tests planned both in home and body for 2023. We're very excited to launch, test, and learn on these growth opportunities, and our omnichannel model positions us well to do this. Finally, I want to touch on the reformulations that Sarah mentioned earlier. We have been diligently working on taking parabens, sulfates, and dyes out of our formulas, and expect to be 35% complete by the end of the year. We're focusing on the forms that go directly on your body first. In closing, we continue to focus on maximizing our performance by leveraging the strength of our brands, maintaining close connections to our customers, and delivering compelling products and experiences at a great value. Wendy?

Wendy Arlin, CFO

Thanks, Julie. That concludes our prepared comments. At this time, we'd be happy to take any questions you might have. We plan on going to about 9:45 this morning. In the interest of time and consideration to others, please limit yourself to one question. Madison, I'll turn it over to you.

Operator, Operator

Our first question comes from Ike Boruchow from Wells Fargo.

Ike Boruchow, Analyst

Wendy, just two quick ones for you on the expense line. On the tech spend, so $25 million higher that you're pulling forward, $100 million total. What is the tech spend that you guys have? Just remind us what's laid out for next year to kind of complete that transition? And then on the other side of the cost, the CEO transition costs and retention, I think that is around $50 million, if I'm doing the math right. Can you just explain what exactly those dollars are basically being allocated to so we know what the rationale is behind that $50 million?

Wendy Arlin, CFO

Sure. Thanks, Ike. So on the technology spend, as you mentioned, we are pulling forward about $25 million into this year as we accelerate the work to get separated and move on to transformation. So what I would say is that $25 million acceleration will really benefit 2024 as we go forward since we're pulling it out and making that project go faster. I would anticipate technology spend will normalize in the out years as a percentage of sales as we go into 2023 and 2024. In terms of the spend on transition or leadership and retention items, I would tell you, it breaks down. The biggest piece of it is retention that we're investing in our associates to ensure that we've got a solid team as we go forth through 2022 and 2023. The rest also relates to other items, including share-based compensation, search fees, etc. We'll take the next question.

Ike Boruchow, Analyst

I wanted to follow up on the technology spending for next year. Will it be $100 million again, or is it going to be less than that? I'm trying to determine if there will be a net benefit on the cost side from net spending next year.

Wendy Arlin, CFO

We think tech spend next year will be roughly flat to what it is this year.

Operator, Operator

Our next question comes from Kimberly Greenberger from Morgan Stanley.

Alexandra Straton, Analyst

Great. This is Alex Straton on for Kimberly Greenberger. I just wanted to dig a little bit into where you guys are strategically raising prices across the assortment and the thought process on how you guys assess if it makes sense, as well as kind of how you guys are thinking about promotional activity being down this quarter and then how it will evolve through the rest of the year?

Wendy Arlin, CFO

Sure. I think, Alex, I'll take the question, and then I'll turn it over to Julie for some color or commentary. So in terms of pricing, pricing is something that we are continuously testing in this business. One of the advantages of our business is that we have a very robust testing program, a very consistent testing agenda. Every weekend, we're out in our stores, testing different pricing. What that enables us to do is see how our customers respond to certain pricing offers. Our pricing really is a component of two things. We have ticket and then we also have our sharp price points or multiple deals that we're running on any given day. So we use that testing to look at both factors and at the end of the day, give our customers offers that they respond to, but also maximize our margin dollars at the same time. As we look forward to Q2 and our promotional approach, we are seeing the customer respond favorably right now to very sharp price points. We have incorporated that into our second quarter guidance. We've got average unit retail planned down slightly year-over-year in the second quarter, and we're really doing that to resonate with our consumer who is feeling a little pressure right now. Julie, anything else you want to add?

Julie Rosen, Brand President

Yes. I mean I agree with Wendy. We are constantly testing and reading and reacting to those tests. I think that any time we invest in products, we're always looking at pricing. So as we're reformulating our formulas to be better for you, we will be taking those forms up $1 as they enter into our store. I think a great example is Wallflowers. Wallflowers had a really great quarter. They continue to have great momentum. We launched our new scent control heaters, which have high, medium, and low settings, and they performed well above expectations. Our customers have been asking for this feature, and we've really been working hard on delivering those in stores. I think what this shows, this product is a great example of how our customers understand the price-value equation of our products and spending $12.50 for the scent control heater didn't deter them at all from buying it. Our decorative heaters, which are also at times higher-priced heaters, continue to perform well. As long as we have the right price-value equation, our customers are very smart, and they go along with us.

Operator, Operator

Our next question comes from Lorraine Hutchinson from Bank of America.

Lorraine Maikis, Analyst

You mentioned in the prepared comments that you've committed to the profitability algorithm. Can you talk about what are the best opportunities to get back to that low to mid-20s EBIT margin goal?

Wendy Arlin, CFO

Sure. Our profitability algorithm targets an EBIT percentage in the low to mid-20s. There are several key factors that can help us achieve the higher end of that range. First, we plan to continue growing sales, which should provide leverage in our business over time. According to our sales growth algorithm, we expect to see growth in all areas of our business. This includes our store channel through both organic comp growth and expanding our square footage. We also anticipate future growth in our direct channel and are excited about opportunities in the international market. All these channels align with our EBIT percent target, meaning they will not negatively impact our overall profitability. Additionally, as Julie mentioned, we will consistently evaluate our pricing strategies. We've found that customers are willing to accept higher prices when we deliver quality, and we will continue to experiment with pricing to find the right levels and aim to increase them over time. These are some of the main strategies we have to sustain our long-term profitability growth.

Operator, Operator

Our next question comes from Stephanie Wissink from Jefferies.

Grace Marie Menk, Analyst

This is Grace Menk on for Stephanie. I'm wondering if you could highlight how you're using inventory levels to manage risk and opportunity in the business.

Wendy Arlin, CFO

Great. As we said in our prepared remarks, at the end of Q2, our forecasted inventory levels are higher than they would normally be in any given second quarter. That was a strategically planned, thoughtful decision. The biggest reason behind that is we wanted to pull some production into the second quarter to ensure that we mitigated any risk of disruption and also to make sure that by having some of our core production pull forward, our supply chain will have more agility going into the holiday period for us to read, react, and chase into winners. By making that planned decision, we've freed up flexibility and agility for the holiday period. So when we see what the customer wants, we can chase into it and develop or pursue more winners. So that was our strategy behind our inventory.

Julie Rosen, Brand President

Yes. And just to add to that, Wendy, this read and react strategy is a competitive advantage for us. It's something we can do that nobody else really can do. So we were able, in this last quarter, to read and react and order about 10% of our total production on this 4- to 6-week chase timeline. We will continue to use this strategy throughout the end of the year. This ensures that we are in the product that the customer loves the most. We're really going after the winners. For example, Butterfly, as Sarah and I both talked about, was a great example of delivering early, reacting, and getting back into many units across all categories. Another area that we had great success with was our tropical collection. It really hit on the mindset that was top-of-mind for our customer in March, and we had an outlier fragrance, Pink Pineapple Sunrise, that was a runaway hit. We immediately reacted and got into that. We are very adept at being flexible and fluid and getting in and out of what is and isn't working, and that's a winning formula for us.

Operator, Operator

Our next question comes from Simeon Siegel from BMO Capital Markets.

Simeon Siegel, Analyst

Wendy, if I'm not misreading it, and I might be, it looks like inventory dollars may have come in lower than guidance, but the units were in line. So I'm just wondering, is that a mix component or did inflation actually come in better than expected this quarter? For context, any way to think about the 350 basis points inflationary impact broken down into raw material costs versus higher transportation? And then maybe the same question going forward – just how you're thinking about for the rest of the year, I mean raw materials versus supply chain pressure and transportation.

Wendy Arlin, CFO

I think I got all that, Simeon, but you're probably going to have to repeat some of it. So in terms of inventory, there wasn't any major call-out. Most of it was just components coming in a little bit more favorable than what we expected because some of that is in transit. At the end of the day, it was just a little bit better than forecast. There are no major call-outs on the variants to our initial call out on Q1 inventory. In terms of inflation and transportation, we did mention that we are continuing to see pressure in inflation. We quantified approximately $75 million of incremental cost. As we look at the overall $250 million of inflation, about just under half of it is from raw materials. We continue to see pressure on all of our raw material inputs. About 40% of that is transportation, so we are seeing incremental pressure there as well. A lot of the increment in the first quarter is due to higher fuel and the impact that that's having on our transportation charges. The balance of that $250 million, after raw materials and transportation, includes wage rates in our fulfillment centers and our distribution centers. Simeon, did that cover your question?

Simeon Siegel, Analyst

Perfect. Yes.

Operator, Operator

Our next question comes from Jonna Kim from Cowen.

Jungwon Kim, Analyst

Just curious if you can elaborate a little bit on the color of the consumer. I know you said they're reacting to sharp price points, but have you seen any sort of pullback in the units they're purchasing? And also internationally, you're seeing some growth there. But are there any regions that are notable in terms of any shift in demand?

Wendy Arlin, CFO

Okay. First, we're going to go to Sarah, and then Julie can add on. Sarah?

Sarah Nash, Interim CEO

We make a daily use product in the affordable luxury category. Our customer comes to us because she loves our newness. She loves the fun and exciting experience she gets in the store. As I said earlier, the health of our customers is very strong. We have held on to our 60 million customers that we have grown to over the last 2 years. Our retention rates are strong at over 60%, and our retention rates for loyal customers in the loyalty program are north of 80%. That is just in the trial program. We are definitely delivering through our test, read and reactability, which are most impressive. We bring our customer in at a much lower price point and they fill up their basket with other items. We haven't seen a strong or large decrease in basket sizes at all - just a slight variance. Our customers are across the income bracket. We like to say we are a merit store for daily use affordable luxury. All of that is supported by our ability to have a supply chain that can read and react in 3 to 4 weeks. Our products are primarily made in Columbus, with 85% made in North America. This means that we can be quick and responsive to customer preferences. We have successfully pursued millions of units in a highly successful launch of Butterfly across 25 categories. Our customers are loyal - she trusts us, and she's coming in repeatedly to see what's new in our stores.

Julie Rosen, Brand President

Yes. So just to give you a little bit of context on unit sales, unit sales were up low single digits. To provide some color, we have seen growth in soaps relative to last year. Our inventory position is much stronger than it was last year, and we believe the business is starting to stabilize as customers return to us for replenishment. We have some great innovations in soaps, and they're responding well to them. For example, we have a beautifully designed bottle for our gel soaps in vibrant colors that customers love to have on their counters. Our counter proud products are attractive to customers. Additionally, we have seen strong acceptance for our foaming core restroom soap. We are seeing unit sales increase across several categories, including Wallflowers.

Operator, Operator

Our next question comes from Matthew Boss from JPMorgan.

Matthew Boss, Analyst

Great. So Wendy, on the margin side, two questions. What is your AUR forecast for the back half of the year relative to the front half and just any drivers supporting it? And then on the expense front, multiyear, is there a base case way to think about SG&A dollar growth relative to revenue growth if we're thinking beyond this year's investment bill?

Wendy Arlin, CFO

Sure. So in AUR, for the full year, we are planning for AURs to be about flat, which would imply a slight increase in the fall season. As you know, that's an area where we're extremely agile. We constantly watch pricing and promotions and what works and what doesn't work. We change our plans frequently. As we go into the fall season, we'll be very agile and flexible, approaching it with that mindset as we enter the important holiday timeframe. For now, we're planning for the full year to be roughly flat. In terms of SG&A growth, our biggest expenses are associated with store selling, which will flex with sales. The easiest way to model our store SG&A is really to look at it as a percentage; as we grow sales, we will seek to leverage that over time.

Operator, Operator

Our next question comes from Janet Kloppenburg from JJK Research Associates.

Janet Kloppenburg, Analyst

Sarah, I was wondering, I heard what you said about freight and raising gas prices. I'm just wondering, as we look into the back half, if you look for the increases to moderate. Is that assumed in your guidance? We're getting different perspectives; some reporting companies are looking for freight to moderate in the back half, while others are saying it might get worse. I would like to understand what's embedded there for guidance. I'd also like to understand where we are in terms of price increases relative to material costs continuing to rise.

Wendy Arlin, CFO

Okay. To clarify, your first question was on freight?

Janet Kloppenburg, Analyst

Yes, on freight and transportation outlook. As we go through the year, do you expect it to continue to be at the level it was in the first quarter, or do you expect it to moderate in the back half?

Wendy Arlin, CFO

Great. So I'll take the first two parts of your question, and then we'll turn it over to Julie on the fragrance market. In terms of freight, we've forecasted freight rates based on what we currently know. As I mentioned, of our roughly $250 million pressure quantified, around 40% is transportation. The increases we're feeling are particularly in surcharges in our parcel network. Our current estimate assumes the existing rates. If they change during the year, those costs will also either rise or fall. In terms of pricing, I'd describe our pricing conversations as a baseball game that never ends. We are not really in a certain inning; it's something we will keep testing and expanding as appropriate. One data point is that if you compare our overall pricing now to pre-pandemic, our average unit retail is approximately 20% higher. This is something we continually evaluate and will remain part of our ongoing agenda.

Julie Rosen, Brand President

Janet, it is nice to hear your voice again. Can you just repeat the question? You sort of went out and I want to ensure I'm answering it correctly.

Janet Kloppenburg, Analyst

I follow a lot of companies in the beauty industry, and the fragrance category had very strong growth during COVID, but has been sustaining that growth here in the post-COVID environment. I'm wondering if you could talk about those trends as they pertain to Bath & Body Works. Do you see an opportunity for growth in fragrance as a percentage of the mix? Also, could you discuss its margin profile compared to the company average?

Julie Rosen, Brand President

Yes. We absolutely are seeing exciting new learnings in olfactive spaces. When we have something like Japanese Cherry Blossom, which we repackaged and has been with us since 2006, it continues to be a top 10 fragrance. The great thing is we can have something like Butterfly, which is a new olfactive for us, that is a fruity floral and is also in the top 10. We're actively testing new scents and the response is promising. We launched a line of gender-neutral fragrances this quarter and saw huge success with them. We are testing fragrances, including a high-end line. We know we need to lean towards certain scents during different times of the year, such as gourmet scents in fall, and we are also opening up to new markets, which is exciting. We are adaptable and our customers are responding positively.

Wendy Arlin, CFO

Thank you, Julie. We are out of time, so this concludes our call this morning. Thank you, everyone, for your continuing interest in Bath & Body Works.

Operator, Operator

That concludes today's conference. Thank you for participating. You may disconnect at this time.