Business context and reporting period
Bath & Body Works, Inc. is a single-segment global omnichannel retailer focused on personal care and home fragrance. This 10-Q reports the 13 weeks ended May 4, 2024, compared with the 13 weeks ended April 29, 2023. The filing’s period is Q1 2024; this differs from the request metadata label of “2023 Q1.”
Key financial results
Amounts are in millions, except per-share data and percentages.
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Net sales | $1,384 | $1,396 |
| Gross profit / margin | $606 / 43.8% | $596 / 42.7% |
| Operating income / margin | $187 / 13.5% | $181 / 12.9% |
| Net income | $87 | $81 |
| Diluted EPS | $0.38 | $0.35 |
| Operating cash flow | $76 | $44 |
| Capital expenditures | $46 | $93 |
Interest expense was $82 million versus $89 million, and the effective tax rate was 26.8% versus 27.7%. Q1 2023 adjusted net income was $76 million and adjusted diluted EPS was $0.33, excluding a $7 million pretax debt-extinguishment gain ($5 million after tax); Q1 2024 required no adjustment.
Financial position and liquidity
- Cash and cash equivalents were $855 million at May 4, 2024, down $229 million from fiscal year-end and versus $1.046 billion at April 29, 2023.
- Long-term debt was $4.282 billion, down from $4.388 billion at fiscal year-end and $4.781 billion a year earlier. The company repurchased and extinguished $109 million principal amount of notes for $110 million, recording a $1 million pretax loss.
- The $750 million asset-backed revolver had no borrowings; availability was $646 million after $10 million of letters of credit. Management said cash, operating cash flow and borrowing capacity should cover liquidity needs, including capital expenditures, for at least the next 12 months.
- Operating cash flow improved year over year, while investing cash outflow was $46 million and financing cash outflow was $259 million. Financing included debt and share repurchases and $45 million of dividends.
- Shareholders’ deficit was $1.677 billion at quarter-end. The company repurchased 2.171 million shares for $99 million and paid a $0.20-per-share dividend. A further $440 million remained under the January 2024 repurchase authorization.
Material changes and management commentary
- Sales fell 0.9%. U.S. and Canada store sales rose 3.0% to $1.065 billion, while direct sales declined 6.8% to $261 million and international sales fell 29.3% to $58 million.
- Management attributed the international decline primarily to lower wholesale shipments to franchise partners, especially in the Middle East, as partners managed inventories. North American sales benefited by about 200 basis points from the shifted fiscal calendar; lower average dollar sales reflected customers managing spending. More BOPIS orders also shifted sales from direct to stores.
- Gross margin increased 1.1 percentage points, mainly from improved merchandise margin, lower international sales mix and lower transportation costs; promotions and modestly lower average unit retail partly offset those benefits. Operating expenses rose $4 million to $419 million, and their sales ratio increased to 30.3% from 29.7%, reflecting wage, BOPIS and marketing costs, partly offset by cost savings.
- The company targets $250 million of annual cost savings: approximately $150 million was delivered in fiscal 2023, and it expects about $100 million of additional savings in fiscal 2024. Q1 work delivered approximately $40 million in annualized savings.
- Fiscal 2024 outlook calls for merchandise margin rate improvement, supported by modest average unit retail expansion and lower product costs, partly offset by reinvestment in product. Buying and occupancy expenses and general, administrative and store operating expenses are expected to deleverage year over year; the latter reflects marketing investment and wage inflation, partly offset by cost optimization. The filing does not provide a clear full-year sales or earnings forecast.
- Management cited continuing macroeconomic pressure and post-pandemic normalization in candles and sanitizers, expected to moderate through the year. Priorities include core-category growth, new product adjacencies, customer acquisition, loyalty and digital experience, and omnichannel and technology investments. Planned fiscal 2024 capital expenditures are $300–$325 million.
Risks, contingencies and unusual items
- Operations are seasonal, with sales historically highest in the fourth quarter; interim results may not indicate full-year performance. Inventory builds typically increase working-capital needs in summer and fall.
- Contingent lease obligations related to previously disposed businesses, primarily Victoria’s Secret, totaled $258 million, with leases extending through 2037; reserves were not significant. Management did not expect current litigation to materially affect results, financial condition or cash flows. Certain credit-card receipt class-action matters were settled or agreed subject to court approval.
- On May 10, 2024, after quarter-end, the company sold its interest in Easton Gateway and received $23 million in cash. Remaining Easton investments were $121 million as of May 4, 2024.
- Key stated risks include consumer spending and inflation, seasonality, competition, store traffic, product and supply-chain execution, international partners and currency fluctuations, cybersecurity and data privacy, and the ability to service or refinance debt and maintain credit ratings. Disclosure controls were reported effective, with no material change in internal control during the quarter.
Important facts for investors to verify
- Reconcile the request’s “2023 Q1” label with the filing’s Q1 2024 period ended May 4, 2024.
- Track sales trends by channel and region, especially international partner inventory and average dollar sale in North America.
- Assess whether planned margin improvement and the remaining cost savings offset expected expense deleverage and continued marketing and wage investment.
- Monitor cash generation, seasonal inventory funding, debt maturities and repurchases against the company’s capital expenditure and dividend commitments.
- Follow the Easton Gateway sale proceeds and the status of the lease guarantees and credit-card receipt cases.