Bath & Body Works’ Earnings Call: 2026 Growth Outlook and Strategic Timelines Don’t Match

Date of Call: Mar 4, 2026

Financials Results

• Revenue: $2.7B, down 2.3% YOY in Q4; $7.3B flat YOY for FY25
• EPS: $2.05 adjusted diluted EPS in Q4, down 2% YOY; $3.21 adjusted EPS for FY25, down 2% YOY
• Gross Margin: 45.7% adjusted gross profit rate in Q4, down 100 bps YOY
• Operating Margin: 22.5% adjusted operating margin in Q4

Guidance:

• FY26 net sales expected to be down 4.5% to down 2.5%.
• FY26 adjusted EPS forecast of $2.40-$2.65.
• Q1 FY26 net sales expected to be down 6% to down 4%.
• Q1 FY26 adjusted EPS forecast of $0.24-$0.30.
• International net sales expected up mid-to-high single digits in FY26.
• Fuel for Growth targets $250M cost savings over two years, with $175M in FY26.

Business Commentary:

Financial Performance and Outlook:

• Bath & Body Works reported net sales of $2.7 billion for the fourth quarter, down 2.3% year-over-year, but better than the anticipated high single-digit decline.
• The company expects net sales for 2026 to be down 4.5% to 2.5%, reflecting a macro environment similar to 2025 with continued value-oriented consumer behavior.

Product Innovation and Consumer Engagement:

• Sales of the new moisturizing hand soap were strong, with productivity double that of the product it replaced, indicating successful early innovation.
• The company plans to ramp up product innovation in the back half of 2026, focusing on body care, home fragrance, and soaps and sanitizers to drive growth.

Brand and Marketing Strategy:

• Bath & Body Works is shifting its marketing strategy to include a significant increase in content creators, aiming for a roughly 10x increase to enhance brand visibility on social media.
• This move is part of a broader effort to modernize the brand's presence and appeal to new consumers, particularly in the 25-30-year-old demographic.

Marketplace and Distribution Expansion:

• The launch on Amazon is expected to contribute to a roughly half-point of growth in 2026, with the company planning to expand its distribution further in strategic ways.
• This expansion is part of an effort to meet consumers wherever they choose to shop, enhancing discovery and brand reach.

Cost Management and Efficiency:

• The company's Fuel for Growth program targets $250 million in cost savings over two years, with approximately $175 million expected in 2026 to fund strategic investments.
• The cost savings are aimed at streamlining decisions, shortening cycle times, and driving productivity to support long-term growth.

Sentiment Analysis:

Overall Tone: Positive

• Management stated 'fourth quarter performance was better than we had anticipated' and highlighted 'green shoots' like the successful moisturizing hand soap launch. They expressed confidence in the 'Consumer First Formula' and stated they are 'moving with pace' to return the company to growth, with Eva Boratto noting 'We are confident in our strategy and our ability to establish Bath & Body Works as a premier global brand.'

Q&A:

• Question from Lorraine Hutchinson (Bank of America): How are you approaching the competitive landscape and do you think you’re positioned to compete effectively?
  Response: The Consumer First Formula addresses gaps with bold product innovation, a refreshed brand, and expanded distribution. They will increase content creator usage roughly tenfold and leverage scale, supply chain, and value as competitive advantages.

• Question from Lorraine Hutchinson (Bank of America): Can you talk about the puts and takes around your gross margin forecast for the year?
  Response: Gross margin outlook assumes ~130 bps pressure from product investments and tariffs (roughly flat to earnings YOY), with Q1 facing an outsized impact. Fuel for Growth provides savings, with about half flowing to gross margin.

• Question from Ike Boruchow (Wells Fargo): Could you help us understand the 1Q revenue guide relative to trends exiting Q4?
  Response: Core business has been trending down ~3% excluding promotional benefits; Q1 faces challenging YOY comparisons as last year's Q1 was the strongest. Promotional intensity is assumed flat to 2025.

• Question from Ike Boruchow (Wells Fargo): How did the follow-up Princess launch perform and how does it relate to the Q1 guide?
  Response: The Disney Princess 2.0 launch is resonating and in line with expectations, with Q1 to date tracking in line with internal assumptions despite some top-line movement.

• Question from Matthew Boss (JPMorgan): What signposts should we look for to know the Consumer First Formula is working?
  Response: Key signs include accelerated new-to-brand customer growth, stronger pricing power and sell-through on innovation, improved hero category performance, and expanded reach from new distribution channels like Amazon.

• Question from Matthew Boss (JPMorgan): How best to think about the cadence of top-line initiatives to reverse the underlying -3% run rate?
  Response: Expect sequential improvement through the year as the Consumer First Formula ramps, with a holistic transformation building through 2026 and accelerating into 2027, not relying on promotions.

• Question from Simeon Siegel (Guggenheim Partners): Is there any way to quantify the initial reads from Amazon and thoughts on wholesale partnerships?
  Response: Amazon is early but extends reach and enhances brand presentation; it's a wholesale model not realizing full-year sales. The strategy is to meet consumers where they are and will have a meaningful financial impact in the year.

• Question from Simeon Siegel (Guggenheim Partners): What are the leverage points now for occupancy and SG&A?
  Response: No changes to leverage points: B&O at 2%-3% sales growth and SG&A at 2.5%-3.5% sales growth.

• Question from Kate McShane (Goldman Sachs): What specific initiatives center around luxury and pricing power?
  Response: Initiatives focus on translating consumer insights into innovative product, emphasizing luxury scents with benefits at accessible price points, not repositioning as prestige, but leveraging the brand's unique value proposition.

• Question from Kate McShane (Goldman Sachs): Is there any risk to the international outlook given current circumstances in the Middle East?
  Response: International represented ~5% of total net sales in Q4, with the Middle East at ~40% of that portfolio, but it's diversified. It's too early to comment on current dynamics; they will monitor and pivot as needed.

• Question from Jonna Kim (TD Cowen): How is retention strategy different for collaborations and Amazon, and how do you think the core offering mix will evolve?
  Response: Collaborations are becoming more strategic, used to drive energy into priority franchises and seasonal collections. Amazon is focused on acquiring new and lapsed consumers; retention remains strong via the rewards program. The core offering aims to take share in growing markets by meeting consumer demand.

• Question from Mark Altschwager (Baird): Do you view low teens EBIT margin as a durable base and what's your philosophy on driving faster top line vs. margin expansion?
  Response: Investing for growth is necessary; the business leverages nicely as growth returns. Margin expansion beyond 2026 will be addressed later as the Fuel for Growth strategy executes.

• Question from Mark Altschwager (Baird): With pausing buybacks and redeeming debt, would you resume opportunistic repurchases in 2026?
  Response: Priorities remain investing in the business, returning cash to shareholders, and maintaining a strong balance sheet. They will maintain flexibility to return cash after funding Consumer First Formula priorities, committed to 2.5x growth leverage.

• Question from Alexia Quadrani (Jefferies): How are you thinking about price taking with newness and consumer response to benefit-led claims?
  Response: Strategy is to improve AUR on innovative products and regain pricing power by not relying on deep discounts. Benefit-led claims and ingredient transparency are being rolled out with good early consumer feedback, critical for attracting new, younger consumers.

• Question from Christina Kattai (Deutsche Bank): With emphasis on attracting new younger consumers and increased content creators, what are expectations for new customer acquisition and social media engagement?
  Response: Expect a trend break in new consumer levels, targeting the 25-30-year-old female demographic. Key metric is the number of influencer posts to drive brand visibility and engagement on social media.

Contradiction Point 1

Outlook on 2026 Revenue Growth

Contradiction on whether the company expects to grow in 2026.

What did Matthew Boss discuss during JPMorgan's earnings call? - Matthew Boss (JPMorgan)

2026Q4: The company does not expect to grow in 2026 but anticipates sequential improvement. - Daniel Heaf(CEO)

How - Irwin Boruchow (Wells Fargo Securities, LLC)

2026Q3: For 2026, growth is not expected for the full year. - Daniel Heaf(CEO)

Contradiction Point 2

Timeline for Strategic Impact and Stabilization

Contradiction on when the new strategy's benefits will materialize.

Matthew Boss (JPMorgan) - Matthew Boss (JPMorgan)

2026Q4: The strategy is designed to build through the year, with significant impact expected in the back half from new product innovation, refreshed brand, and elevated marketplace execution. - Daniel Heaf(CEO)

How are the top-line initiatives phased throughout the year, and when do you expect to reverse the -3% run rate? - Matthew Boss (JPMorgan Chase & Co)

2026Q3: Stabilization is expected to progress through 2026, with more initiatives maturing in H2. - Daniel Heaf(CEO)

Contradiction Point 3

Expectations for Amazon/Wholesale Partnerships

Contradiction on the financial impact and timeline for Amazon launch.

What are your key financial results and strategic priorities for the quarter? - Simeon Siegel (Guggenheim Partners)

2026Q4: The company expects Amazon to make a meaningful financial impact in the year. - Daniel Heaf(CEO)

How do initial reads from Amazon and other wholesale partnerships impact the full-year guidance, and does the strategy aim to drive customers to wholesale or meet them where they are? - Olivia Tong Cheang (Raymond James & Associates)

2026Q3: Amazon launch will be 'slow to go fast' — starting small, optimizing product pages, building ratings/reviews. - Daniel Heaf(CEO)

Contradiction Point 4

Strategic Focus on Core Categories vs. Ancillary/Exited Categories

Contradiction on the company's stance regarding exited categories (men's grooming, hair).

Kate McShane (Goldman Sachs) - Kate McShane (Goldman Sachs)

2026Q4: The focus is on bringing luxury scents with real benefits at accessible price points... The goal is to regain pricing power by offering innovative products wrapped in new brand energy. - Daniel Heaf(CEO) [Implies focus on core, profitable categories]

What specific initiatives are focused on luxury and pricing power? - Mark Altschwager (Robert W. Baird & Co.)

2026Q3: The company is exiting underperforming categories (e.g., men's grooming, hair) to reduce complexity and optimize the portfolio. - Eva Boratto(CFO)

Contradiction Point 5

Growth Outlook and Strategic Execution

Contradiction on near-term growth expectations and the maturity of strategic initiatives.

Matthew Boss (JPMorgan) - Matthew Boss (JPMorgan)

2026Q4: The company does not expect to grow in 2026 but anticipates sequential improvement as the Consumer First Formula ramps. - Daniel Heaf(CEO)

What is the expected timeline for reversing the underlying -3% run rate considering the cadence of top-line initiatives throughout the year? - Katherine Delahunt (Morgan Stanley) & Alexandra Straton (Morgan Stanley)

2026Q2: Confirmed the goal is to return to mid-single-digit to high single-digit growth and gain market share. - Daniel Heaf(CEO)