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 due to a 6.8% drop 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% of net sales. This was driven by an improvement in the company’s gross profit rate, which increased to 44.3% from 43.6% in the prior year. The higher gross margin was primarily due to cost savings initiatives, improved distribution productivity, and favorable international sales mix. However, these gains were partially offset by increased marketing expenses and wage inflation, which led to deleverage in general, administrative and store operating expenses.

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 increased to 22.4% from 13.9% in the prior year, 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 pay down its outstanding notes. The company’s debt leverage ratio, defined as adjusted debt (including long-term debt and operating lease liabilities) divided by EBITDAR, improved to 2.5x from 2.8x in the prior year.

BBWI also maintained an undrawn $750 million asset-backed revolving credit facility, with $542 million in available borrowing capacity as of the end of fiscal 2024. The company did not have any outstanding borrowings under this facility.

Strengths and Weaknesses

Key Strengths:

• Improved gross profit margin through cost savings and operational efficiencies
• Strong cash flow generation, allowing for debt reduction and share repurchases
• Healthy liquidity position with an undrawn revolving credit facility
• Continued investment in marketing and customer loyalty programs to drive growth

Key Weaknesses:

• Declining direct (e-commerce) sales, which offset gains in brick-and-mortar stores
• Lower international sales due to challenges in the Middle East market
• Inflationary pressures leading to higher operating expenses and deleverage

Outlook and Future Priorities

Looking ahead to fiscal 2025, BBWI expects to face continued macroeconomic pressures and economic uncertainty. However, the company believes its strategic initiatives, including product innovation, marketing investments, and technology enhancements, will help drive sustainable, profitable growth over the long term.

Specifically, BBWI plans to focus on the following key priorities:

1. Accelerating top-line growth through continued product innovation, brand collaborations, and international expansion.
2. Enhancing operational excellence and efficiency through its ongoing cost optimization program and investments in technology.
3. Strengthening the company’s financial positioning by maintaining disciplined capital allocation, including debt reduction and share repurchases.

BBWI expects to invest between $250 million and $270 million in capital expenditures in 2025, with a focus on real estate and technology initiatives. The company also plans to maintain its quarterly dividend of $0.20 per share.

Overall, BBWI appears to be navigating the current macroeconomic challenges effectively, leveraging its strong brand, operational improvements, and financial discipline to position the company for long-term success.