$BBWI earnings report

Bath & Body Works reported second-quarter net sales of $1,514 million, down 2.3% from $1,549 million. The sales mix showed a clear divide: Stores - U.S. and Canada declined 5.4% to $1,131 million, while Direct - U.S. and Canada rose 3.0% to $275 million and International and Other increased 24.9% to $108 million. Management identified this as the first direct net sales growth since 2021 and attributed it to digital-experience investments, while also citing stronger Body Care trends, new-product AUR, brand discoverability and marketplace partnerships.

Profitability improved despite lower sales. Gross profit was $692 million versus $640 million, GAAP operating income was $216 million versus $157 million, and GAAP diluted EPS was $0.58 versus $0.30. Adjusted operating income reached $225 million and adjusted EPS was $0.62, compared with $172 million and $0.37, respectively, in the prior-year quarter. The principal qualifier is that reported and adjusted results included approximately $80 million of tariff refunds. Management stated that adjusted EPS excluding that refund benefit would have been $0.31. The quarter also included $9 million of pre-tax transformation costs.

Year-to-date sales were $2,892 million, down 2.7% from $2,974 million. Year-to-date GAAP operating income increased to $447 million from $367 million, but adjusted operating income was $376 million versus $382 million because the 2026 period included an $88 million pre-tax interchange-fee settlement gain, transformation costs, debt-extinguishment loss, gain on a non-core asset and a tax benefit from resolution of certain tax matters. Year-to-date operating cash flow was $316 million versus $145 million, while capital expenditures were $(98) million versus $(93) million. Cash was $794 million and long-term debt was $3,366 million at August 1, 2026.

Capital allocation emphasized debt reduction and dividends rather than repurchases. The company made $(289) million of year-to-date payments for long-term debt, paid $(80) million in dividends and made no share repurchases, versus $(254) million of repurchases in the prior-year period. Management also stated that no share repurchases are assumed in the outlook. The company expects $890 million of full-year operating cash flow, $(240) million of capital expenditures and $650 million of free cash flow.

The outlook retains a declining sales framework. Full-year 2026 sales are expected to decline between 4% to 2.5%, while third-quarter sales are forecast to decline between 5% to 2.5%. The company raised full-year GAAP EPS guidance to $3.13 to $3.33 and set adjusted EPS guidance at $2.60 to $2.80, with forecast reconciliation items including interchange-fee settlements, transformation activities, debt-extinguishment losses, a non-core-asset gain and the tax benefit. Third-quarter adjusted EPS is expected at $0.07 to $0.12, below adjusted EPS of $0.35 in the third quarter of 2025. The key operating question is whether Direct growth and the cited product, digital and marketplace initiatives can offset continued pressure in the core U.S. and Canada store business.