Bath & Body Works Q2 2026: Contradictions Emerge in Marketing Strategy, Tariff Mitigation, and Sales Growth Outlook

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

Date of Call: None provided

Financials Results

• Revenue: $1.50B, up 1.5% YOY; U.S./Canada stores $1.2B (+5% YOY); Direct $267M (-10% YOY; -3% ex-BOPIS); International $86M (-3% YOY) with systemwide retail sales +9%
• EPS: $0.37 per diluted share (adjusted), at the high end of guidance; YOY comparison not disclosed
• Gross Margin: 41.3%, up 30 bps YOY; included ~$16M (~100 bps) tariff headwind

Guidance:

• FY25 net sales growth now 1.5%–2.7% (narrowed from 1%–3%).
• FY25 adjusted EPS guidance raised at the low end to $3.35–$3.60.
• FY25 gross profit rate ~44%; adjusted SG&A rate ~27.7%.
• Tariff headwind to FY25 gross profit ~$85M; ~$40M in Q3.
• Share repurchases increased to $400M (from $300M).
• Q3 net sales growth expected 1%–3%; international systemwide retail sales up high-single digits; reported international sales up mid-single digits.
• Q3 gross profit rate ~42.2% (includes ~$40M tariffs); SG&A rate ~31.5%.
• Q3 EPS expected $0.37–$0.45; interest expense ~$65M; tax ~25%; diluted shares ~206M.

Business Commentary:

* Strong Q2 Performance and Outlook: - Bath and Body Works reported net sales of $1,500,000,000 for Q2, up 1.5% compared to the previous year, and adjusted earnings per diluted share of $0.37 at the high end of their guidance range. - The growth was driven by a successful semiannual sale, strategic execution, and positive consumer response to new product launches.

• Digital Platform Enhancements:
• The company acknowledged that their digital platform is not meeting expected standards and plans to elevate the consumer experience with improvements starting in September.

• These enhancements, including improved product imagery and storytelling, are expected to drive stronger results both online and in stores.

• Tariff Impact and Mitigation Efforts:

• Bath and Body Works expects tariffs to negatively impact gross profit by approximately $85,000,000 for the full year, with $40,000,000 in Q3.

• The company is working to mitigate these costs through strategic sourcing, operational efficiencies, and targeted initiatives over time.

• Expansion into New Distribution Channels:

• Bath and Body Works entered into college bookstores, reaching over 7,000,000 young consumers in 600 campus stores.
• This expansion is a strategic move to attract new consumers and meet them where they are, enhancing brand discovery and engagement.

Sentiment Analysis:

• Management delivered net sales up 1.5% and adjusted EPS at the high end of guidance, raised the low end of full-year EPS outlook, and reiterated confidence in 1%–3% H2 sales growth. They expect gross profit rate ~44% for FY25 despite ~$85M tariff headwinds and increased buybacks to $400M. CEO highlighted multiple growth levers (digital overhaul, efficacy messaging, expanded distribution, Disney partnership) and said margins should not dilute as they invest.

Q&A:

• Question from Matthew Boss (JPMorgan): How do opportunities today compare with your initial view, and what were traffic trends and August performance supporting 1%–3% Q3 sales growth?
  Response: CEO sees even greater growth potential across assortment focus, faster innovation via Beauty Park, and creator-led social; traffic was up with May softer (timing), June strong, July normalized; Q3 outlook supported by Disney Villains, fall assortment, and a late-quarter fragrance launch.

• Question from Lorraine Hutchinson (Bank of America): What marketing changes are you making to shift from promotions to emotional connection, and how big is the Q3 vs. Q4 tariff impact?
  Response: Upgraded digital imagery/copy and bolder in-store storytelling (e.g., Summerween, window takeovers) are resonating; tariffs hit Q3 margins by ~240 bps (~$40M) vs. ~100 bps in Q4 due to the 145% China tariff window and mix.

• Question from Katie Delahunt (Morgan Stanley): Can BBW return to mid-to-high single-digit growth and what are the building blocks (core vs. new initiatives)?
  Response: Yes—drive new customer acquisition via rapid digital upgrades and expanded distribution (e.g., college bookstores), while sharpening core merchandising and storytelling.

• Question from Alex Strain (Morgan Stanley): Do you still see a path to ~20% EBIT margin over time?
  Response: Management will refocus capital on the largest growth drivers and does not expect margin dilution near term while investing behind the strategy.

• Question from Emily Ghosh (Goldman Sachs): Drivers of Q2 SG&A deleverage and expectations for 2H?
  Response: SG&A pressure came from store growth/training, higher healthcare, tech, and strategy investments; similar factors are embedded in the 2H outlook.

• Question from Ike Boruchow (Wells Fargo): Near- and medium-term digital priorities and outlook for e-commerce inflection?
  Response: New app in September, mobile web relaunch in October, and ongoing upgrades to content/UX; focus is omnichannel demand and new customer capture rather than targeting a fixed digital growth rate.

• Question from Kelly (Citi) on behalf of Paul Lejuez: Why is the ~$85M tariff hit so large and what is the AUR trend?
  Response: The ~$85M impact aligns with sourcing, including Canada’s 25% retaliatory tariffs (through Sept 1); mix-adjusted AUR rose low single digits with less promotion.

• Question from Mark Altschwager (Baird): Expected contribution from campus bookstores and broader wholesale timing; reconcile SG&A pressure with margin goals.
  Response: Campus bookstore impact is included in guidance; broader third-party distribution will be pursued thoughtfully; SG&A pressure (healthcare, tech, strategic spend) is being offset by B&O leverage and ongoing cost savings.

• Question from Jonah Kim (TD Cowen): How did fragrance/body perform and what are beauty/Disney plans and cadence?
  Response: Body Care declined low single digits (Mother’s Day lacked enough newness) while men’s and relaunches did well; Disney Villains is a global drop under a new multi-year deal, using learnings to scale recurring collaboration growth.

• Question from Olivia Tong (Raymond James): H2 price/promo approach and tariff mitigation actions?
  Response: Mitigation spans supply chain optimization, targeted assortment shifts, and strategic pricing with reduced promotional reliance—elevating value/AUR while maintaining affordability.

• Question from Sydney (Jefferies) for Ashley Helgans: On- vs. off-mall store productivity and how much comp is typically from newness?
  Response: Both formats have strong economics, with off-mall outperforming; newness is a key traffic driver but not broken out as a percent of comp.

• Question from Dana Telsey (Telsey Advisory Group): Additional third-party distribution opportunities and margin acceleration amid tariffs; changes to Q4 promotional cadence?
  Response: Management will expand distribution to meet consumers where they shop while elevating digital/efficacy to grow without margin dilution; Q4 promo cadence similar to last year, with Q3 margin more tariff-pressured (~230–240 bps) vs. ~100 bps in Q4.