Bath & Body's Q2 2026 Earnings Call: Contradictions Emerge in Digital Strategy, Pricing, Tariff Management, and Growth Outlook

The above is the analysis of the conflicting points in this earnings call

Date of Call: August 28, 2025

Financials Results

• Revenue: $1.5B, up 1.5% YOY
• EPS: $0.37 adjusted EPS, at the high end of guidance
• Gross Margin: 41.3%, up 30 bps YOY; included ~100 bps tariff headwind

Guidance:

• FY25 net sales growth expected at 1.5%–2.7% (narrowed from 1%–3%).
• FY25 adjusted EPS outlook raised to $3.35–$3.60 (low end raised).
• FY25 gross margin ~44%; SG&A rate ~27.7%.
• FY25 tariffs to reduce gross profit by ~$85M; company expects to absorb at current levels.
• FY25 share repurchases increased to $400M.
• Q3 net sales up 1%–3%; EPS $0.37–$0.45.
• Q3 gross margin ~42.2% incl. ~$40M tariff hit; SG&A ~31.5%; tax ~25%; interest & other ~$65M; diluted shares ~206M.
• Q3 international system-wide retail +HSD; reported net sales +MSD.

Business Commentary:

* Revenue and Earnings Performance: - Bath & Body Works reported net sales of $1.5 billion for Q2 2025, up 1.5% compared to the previous year, with adjusted earnings per diluted share of $0.37, meeting the high end of their guidance range. - The growth was driven by a strong semiannual sale event and positive dual-channel traffic, with international net sales accounting for $86 million, despite a 3% decline due to shipment timing.

• Digital Platform Enhancements:
• The company plans to elevate its digital platform, focusing on improvements starting in September, with enhancements including better product imagery, copy, and storytelling.

• The aim is to drive stronger online sales and increase brand equity, addressing the current underperformance of the digital channel compared to the strong in-store experience.

• Tariff Impact and Mitigation Efforts:

• Bath & Body Works expects tariffs to negatively impact gross profit by approximately $85 million for fiscal 2025, with $40 million of that impact in Q3.

• The company is working to mitigate these costs through strategic sourcing, operational efficiencies, and other targeted initiatives, focusing on supply chain optimization and strategic pricing assumptions.

• Wholesale Expansion and Distribution Strategy:

• The company launched its products in college bookstores, reaching 7 million young consumers, as part of its strategy to expand beyond its traditional store channels.
• This move aims to introduce new consumers to the Bath & Body Works brand and drive demand by being in the path of the consumer, recognizing the changing shopping behaviors and the need to meet consumers where they engage.

Sentiment Analysis:

• “Net sales up 1.5% and adjusted EPS of $0.37, both at the high end.” “Raising the low end of our full year adjusted EPS guidance.” “Adjusted operating income was $172M, down 6% to last year.” “Q3 gross profit rate ~42.2% including approximately $40M of tariff impact.” “We’re not satisfied with our digital business.”

Q&A:

• Question from Matthew Robert Boss (JPMorgan): How do opportunities today compare to when you started, and what do traffic/August trends imply for the Q3 1%–3% sales outlook?
  Response: Management remains confident in Q3’s 1%–3% outlook, supported by positive traffic and near-term launches (Disney Villains, fall, a single-fragrance drop).

• Question from Lorraine Hutchinson (BofA Securities): What marketing changes are you making to shift away from promotions, and how do tariffs affect Q3 vs. Q4?
  Response: Storytelling and digital assets are being elevated; tariffs pressure Q3 margins by ~240 bps vs. ~100 bps in Q4 due to timing/mix.

• Question from Katherine Read Delahunt (Morgan Stanley): Can BBW return to mid- to high-single-digit growth and what are the key building blocks (core vs. new channels)?
  Response: Yes—growth will be driven by rapid digital upgrades and selective new distribution (e.g., college bookstores) to acquire new customers.

• Question from Alexandra Ann Straton (Morgan Stanley): Do you still target ~20% EBIT margin over time, and how do you get there?
  Response: They’ll prioritize growth investments without diluting margins and remain aligned with prior margin ambitions.

• Question from Emily Ghosh (Goldman Sachs): What drove SG&A deleverage and should we expect similar pressure in 2H?
  Response: Deleverage came from store growth/training, higher health care, tech, and strategic investments; similar pressures are embedded in 2H guidance.

• Question from Irwin Bernard Boruchow (Wells Fargo): What are the near- and medium-term digital fixes and timing for inflection?
  Response: New app in September and mobile web relaunch in October with continuous upgrades; improvements should begin immediately and build over time.

• Question from Kelly Crago (Citi): Why is the ~$85M tariff impact so high vs. sourcing mix, and how did AUR trend?
  Response: Impact aligns with sourcing and included Canada’s 25% retaliatory tariffs (through Sept 1); mix-adjusted AUR rose low single digits with less promotion.

• Question from Mark R. Altschwager (Baird): What’s the campus wholesale contribution and how do SG&A trends reconcile with margin goals?
  Response: Campus contribution is in guidance; SG&A pressure from health care/tech/investments will be offset by B&O leverage and ongoing cost savings.

• Question from Jungwon Kim (TD Cowen): How did body care perform and what’s the plan for the Disney partnership cadence?
  Response: Body care declined low single digits; a multiyear Disney partnership (e.g., Villains global launch) will be a repeatable growth lever.

• Question from Olivia Tong (Raymond James): How do you view price/promo in 2H, and what are tariff mitigation levers?
  Response: Mitigation includes supply chain shifts, targeted assortment, and strategic pricing with reduced reliance on promotions to elevate value.