Financial Performance Overview

Bath & Body Works, Inc. (BBWI) reported its financial results for fiscal year 2024, which ended on February 1, 2025. The company’s total net sales decreased by 1.6% to $7.307 billion compared to the prior year. This decline was primarily driven by a 6.8% decrease in direct (e-commerce) sales, which was partially offset by a 0.5% increase in store sales in the U.S. and Canada. International net sales also declined by 11.8% due to lower wholesale shipments to franchise partners.

Despite the lower sales, BBWI’s operating income only decreased by 1% to $1.266 billion, and the operating income rate remained flat at 17.3%. This was due to an increase in the company’s gross profit rate, which was driven by improvements in merchandise margins. However, this was offset by deleverage in general, administrative and store operating expenses, primarily due to higher marketing investments and wage inflation.

On an adjusted basis, which excludes certain one-time items, BBWI’s net income was $729 million, or $3.29 per diluted share, compared to $747 million, or $3.27 per diluted share, in the prior year. The company’s effective tax rate for 2024 was 22.4%, higher than the prior year’s rate of 13.9%, primarily due to the release of a valuation allowance on a deferred tax asset related to the sale of certain investments.

Liquidity and Capital Resources

BBWI maintained a strong liquidity position, with $886 million in net cash provided by operating activities in 2024. The company used this cash flow to fund $226 million in capital expenditures, $522 million in debt repurchases, and $401 million in share repurchases.

As of February 1, 2025, BBWI had $3.884 billion in long-term debt, down from $4.388 billion in the prior year, as the company continued to repurchase and extinguish outstanding senior notes. The company’s debt leverage ratio, defined as adjusted debt (including long-term debt and operating lease liabilities) divided by EBITDAR, improved to 2.5 from 2.8 in the prior year.

BBWI also maintained an asset-backed revolving credit facility (ABL Facility) with $750 million in aggregate commitments and an expiration date in August 2026. As of February 1, 2025, the company had no borrowings outstanding under the ABL Facility and had $542 million in available borrowing capacity.

Strengths and Weaknesses

Strengths:

• Improved merchandise margins and cost optimization efforts helped maintain profitability despite lower sales
• Strong liquidity position and declining debt levels provide financial flexibility
• Continued investment in marketing, product innovation, and customer loyalty program to drive future growth

Weaknesses:

• Declining direct (e-commerce) sales and international sales indicate potential challenges in these areas
• Deleverage in general, administrative and store operating expenses due to higher marketing costs and wage inflation
• Uncertain macroeconomic environment and consumer sentiment may continue to pressure future performance

Outlook and Future Priorities

BBWI believes its strategy and actions position the company for sustainable, profitable growth and long-term shareholder value creation. The company plans to continue investing in innovation across its core categories, supported by compelling marketing and enhanced technology, to accelerate net sales growth. BBWI also intends to maintain a focus on cost optimization and operational efficiency to fund these investments and drive margin expansion.

Key priorities for 2025 include:

• Accelerating top-line growth through product innovation, brand collaborations, and international expansion
• Enhancing operational excellence and efficiency through continued cost optimization efforts
• Strengthening financial positioning and disciplined deployment of capital, including share repurchases and dividends

Overall, BBWI appears to be navigating the current macroeconomic challenges well, leveraging its strong brand, loyal customer base, and financial flexibility to position the company for long-term success. However, the company will need to closely monitor consumer trends and effectively execute its strategic initiatives to drive sustainable growth and profitability in the years ahead.