Bath & Body Works, Inc. BBWI posted second-quarter fiscal 2026 adjusted earnings of 62 cents per share, up 67.6% year over year. The metric beat the Zacks Consensus Estimate of 24 cents per share. Net sales fell 2.3% year over year to $1,514 million but topped the consensus mark of $1,499 million.
About $80 million in tariff refunds boosted results, while the underlying business improved sequentially. Direct sales returned to growth for the first time since 2021, product innovation gained traction and expanded distribution advanced, offering early proof points from the Consumer First Formula. Sales per average selling square foot fell 6.8% to $206. The company also raised its fiscal 2026 outlook. As a result, BBWI shares gained 7.5% yesterday.
Bath & Body Works, Inc. Price, Consensus and EPS Surprise
Bath & Body Works, Inc. price-consensus-eps-surprise-chart | Bath & Body Works, Inc. Quote
BBWI’s Quarterly Performance: Key Metrics & Insights
Net sales for Stores - United States and Canada declined 5.4% year over year to $1.13 billion, which missed the Zacks Consensus Estimate of $1.15 billion. Lower clearance inventory entering the June semiannual sale created about one point of sales pressure across categories, while store traffic remained pressured.
Direct - United States and Canada sales increased 3% to $275 million, which beat the Zacks Consensus Estimate of $258.9 million and was supported by improved digital conversion.
International and Other sales jumped 24.9% to $108 million, topping the consensus estimate of $89.5 million and aided by expanded domestic wholesale distribution and higher international product sales.
Within North America, Body Care declined in the mid-single digits, Home Fragrance fell in the low-single digits and Soaps & Sanitizers were flat. Fruit Fusion and Everyday Luxuries supported sequential improvement in Body Care.
Sneak Peek Into Bath & Body Works’ Margins
Gross profit increased 8.1% year over year to $692 million, while the gross margin expanded 440 basis points to 45.7%. About $80 million of tariff refunds contributed roughly 530 basis points to merchandise margin. Excluding the benefit, gross margin would have been 40.4%, down 90 basis points. Adjusted earnings excluding the refund would have been 31 cents per share, above the high end of management’s prior guidance.
Adjusted selling, general and administrative (SG&A) expenses were flat at $467 million, while the rate increased 60 basis points to 30.8%. Adjusted operating income rose 30.4% to $225 million, with the adjusted operating margin expanding 370 basis points to 14.8%. Mix-adjusted average unit retail was flat.
Bath & Body Works’ Store Update
Bath & Body Works ended the fiscal second quarter with 1,937 company-operated North American stores. During the quarter, it opened 24 stores, primarily off-mall and closed 10, primarily in malls. Company-operated selling square footage reached 5.521 million square feet.
International partners operated 596 locations at quarter-end after opening 17 stores during the period. Amazon net sales more than tripled sequentially from the fiscal first quarter, while the company launched at roughly 600 Ulta Beauty stores. Management completed a merchandising reset across its full store fleet.
BBWI’s Financial Health Snapshot
The company ended the quarter with cash and cash equivalents of $794 million, up from $364 million a year earlier. Inventories declined 9.6% year over year to $883 million, while long-term debt fell to $3.37 billion from $3.89 billion.
Year-to-date operating cash flow increased to $316 million from $145 million. Capital expenditures totaled $98 million in the first half. Bath & Body Works paid $40 million in dividends during the quarter and redeemed $250 million of its 2029 notes on Aug. 19.
BBWI’s Q3 Guidance
For the third quarter of fiscal 2026, Bath & Body Works expects net sales to decline 5-2.5% from $1,594 million in the year-ago quarter. Adjusted earnings are projected at 7-12 cents per share compared with adjusted earnings of 35 cents a year ago. Earnings per share is expected to be in the range of 5 cents to 10 cents compared with 37 cents reported in the year-ago period.
The company expects a gross profit rate of about 40% and the SG&A rate of about 34.8%. Roughly 70% of the approximately $35 million incremental Consumer First Formula investment is planned for the fiscal third quarter, primarily for marketing ahead of the holiday season.
Bath & Body Works Raises FY’26 Outlook
Bath & Body Works narrowed its fiscal 2026 net sales guidance to a decline of 4-2.5% from $7,291 million in fiscal 2025 compared with the prior range of down 4.5-2.5%. Adjusted earnings guidance was raised to $2.60-$2.80 per share from $2.40-$2.65 compared with $3.21 in fiscal 2025. The company has raised its fiscal 2026 earnings per share guidance to $3.13-$3.33 compared with $3.11 in fiscal 2025.
The adjusted gross profit rate is expected to be about 43.3%, while the adjusted SG&A rate is forecasted at roughly 29.6%. Fuel for Growth savings are projected at about $200 million, above the prior $175 million target. Free cash flow is expected at approximately $650 million, up from $600 million, while capital expenditure guidance was reduced to about $240 million from $270 million.
BBWI Stock Past Three-Month Performance
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Shares of this Zacks Rank #3 (Hold) company have lost 7.2% over the past three months compared with the industry’s 5.1% decline.
Eye These Solid Picks in Retail
We have highlighted three better-ranked stocks, namely, Victoria's Secret & Co. VSXY, Kohl’s Corporation KSS and Five Below, Inc. FIVE.
Victoria's Secret is a specialty retailer of women's intimates, sleepwear, apparel, sport and swimwear, and prestige fragrances and body care. It currently sports a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank here.
The Zacks Consensus Estimate for VSXY’s current fiscal-year sales and earnings indicates growth of 9.1% and 56.7%, respectively, from the year-ago reported numbers. The company delivered a trailing four-quarter earnings surprise of 81.9%, on average.
Kohl’s offers moderately priced apparel, footwear and accessories for women, men and children, along with beauty and home products. The company carries a Zacks Rank #2 (Buy) at present.
The Zacks Consensus Estimate for Kohl’s current fiscal-year earnings and sales suggests declines of 14.8% and 0.9%, respectively, from the year-ago actuals. KSS delivered a trailing four-quarter average earnings surprise of 69%.
Five Below is a Pennsylvania-based specialty value retailer offering trend-right merchandise priced mostly at $5 and below, with a select range priced above $5. It carries a Zacks Rank #2 at present.
The Zacks Consensus Estimate for Five Below’s current fiscal-year earnings and sales indicates growth of 36.7% and a decline of 15.1%, respectively, from the year-ago actuals. FIVE delivered a trailing four-quarter average earnings surprise of 70.1%.
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Bath & Body Works, Inc. (BBWI): Free Stock Analysis Report
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This article originally published on Zacks Investment Research (zacks.com).