Bath & Body Works Q2 Earnings Meet Estimates, Gross Margin Rises Y/Y

Bath & Body Works BBWI posted second-quarter fiscal 2025 results, wherein the top line lagged the Zacks Consensus Estimate and the bottom line met the same. Net sales improved and earnings remained flat year over year.

The company benefited from positive store traffic, while digital sales remain an area of focus for improvement. With 39 million active loyalty members and strategic collaborations like Disney Villains, BBWI is enhancing consumer engagement and brand storytelling.

Despite tariff pressures, the gross margin expanded, and management raised the low end of the earnings guidance in fiscal 2025 while increasing share repurchases. The business remains well-positioned to balance near-term challenges with long-term growth opportunities.

BBWI’s Quarterly Performance: Key Metrics & Insights

The company reported adjusted earnings of 37 cents per share in the fiscal second quarter.

Net sales increased 1.5% year over year to $1,549 million and lagged the Zacks consensus estimate of $1,554 million.

Net sales for Stores - U.S. and Canada increased 4.9% year over year to $1.20 billion, which surpassed the Zacks Consensus Estimate of $1.17 billion. Direct - U.S. and Canada net sales tumbled 10.1% to $267 million, missing the consensus estimate of $295.6 million. International operations’ net sales decreased 2.9% to $86 million, surpassing the Zacks Consensus Estimate of $84.8 million.

Sneak Peek Into BBWI’s Margins

The gross profit increased 2.2% year over year to $640 million. Also, the gross margin expanded 30 basis points to 41.3% in the quarter under review despite a $16-million impact of tariffs, representing about a 100-basis-point headwind. The improvement was primarily driven by leverage in buying and occupancy expenses due to the exit of a third-party fulfillment center.

General, administrative and store operating expenses increased 9% year over year to $483 million. As a percentage of net sales, this metric deleveraged 220 basis points year over year to 31.2% in the quarter under review.

Bath & Body Works reported an operating income of $157 million in the fiscal second quarter, down 14.2% from the year-ago quarter. BBWI’s operating margin decreased 190 basis points to 10.1% in the quarter.

Net income was $64 million, down 57.9% from $152 million in the year-ago quarter.

Bath & Body Works’ Store Update

The company ended the quarter with 1,904 stores, wherein it operated 1,791 stores in the United States and 113 in Canada. In the fiscal second quarter, it opened 20 stores, all in off-mall locations and closed 16 stores, primarily mall-based.

Internationally, partners opened 14 stores and closed one, ending the quarter with 537 stores. BBWI reiterated that international expansion plans for fiscal 2025 remain on track, with at least 30 net new store openings planned.

BBWI’s Financial Health Snapshot

Bath & Body Works ended the quarter with cash and cash equivalents of $364 million, long-term debt of $3.89 billion, and long-term operating lease liabilities of $912 million. Total inventory at the end of the fiscal second quarter increased 13.2% from the previous-year period.

In the fiscal second quarter, the company provided $145 million in net cash for operating activities. The company returned $42 million to shareholders through dividends and repurchased 4.1 million shares of common stock for $121 million at an average price of $29.14 per share.

Bath & Body Works’ Q3 Outlook

For the third quarter of 2025, Bath & Body Works expects net sales growth of 1-3% from that reported in the prior year. International performance is projected to remain strong, with system-wide retail sales moving up in the high-single digit and reported net sales up in the mid-single digit. 

The company anticipates a gross margin of 42.2%, which includes approximately $40 million of tariff impact. These tariffs are expected to weigh heavily on the quarter, reducing margins by roughly 240 basis points due to shipments that were subject to the 145% China tariff between April 9 and May 13.

Selling, general and administrative expenses are forecast at 31.5% of net sales, reflecting higher healthcare costs, technology investments and other strategic spending. Based on these factors, Bath & Body Works forecast fiscal third-quarter earnings per share of 37-45 cents, whereas it reported 49 cents in the year-ago period.

BBWI Stock Past 3-Month Performance

BBWI’s FY25 Outlook

For fiscal 2025, Bath & Body Works narrowed its net sales growth outlook to 1.5-2.7% from the prior stated 1-3%. The company expects a gross margin of 44%, while absorbing an estimated $85 million of tariff impact for the year, with $40 million of that falling in the fiscal third quarter.

Adjusted SG&A expenses are projected at 27.7% of sales, reflecting higher healthcare costs, technology spending and strategic investments. Fiscal 2025 earnings per share are expected between $3.28-$3.53, whereas it reported earnings of $3.61 per share in fiscal 2024. The adjusted earnings per share guidance was raised at the low end, with the company expecting $3.35-$3.60, up from the previously mentioned $3.25-$3.60. This compares to adjusted earnings per share of $3.29 reported in fiscal 2024.

Capital expenditure for the year is planned to be $250-$270 million, focused primarily on real estate and technology. The free cash flow is expected to be $750-$850 million, supported by working capital improvements through its “fuel for growth” initiatives.

In terms of shareholder returns, the company has increased its full-year share repurchase plan from $300 million to $400 million, and will continue to pay out dividends. Management reaffirmed its expectation of consistent 1-3% net sales growth for the second half of the year, confident in its ability to mitigate tariff costs over time while maintaining investment in growth and margin expansion.

Shares of this Zacks Rank #3 (Hold) company have gained 4.4% in the past three months as compared with the industry’s growth of 23.2%.

Key Picks

Some better-ranked stocks are Ralph Lauren RL, Hanesbrands Inc. HBI and Revolve Group, Inc. RVLV.

Ralph Lauren, a designer and distributor of premium lifestyle products, including apparel, accessories and footwear, currently has a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here. 

Ralph Lauren has a trailing four-quarter earnings surprise of 8.5%, on average. The Zacks Consensus Estimate for RL’s current sales and earnings indicates growth of 6% and 19.8%, respectively, from the year-ago period’s reported figures.
 
Hanesbrands engages in the design, manufacture, sourcing and sale of apparel essentials. It currently carries a Zacks Rank of 2. HBI has a trailing four-quarter earnings surprise of 56.1%, on average.  
 
The consensus estimate for Hanesbrands’ current financial-year earnings indicates a surge of 65% from the year-ago reported figure.

Revolve Group is an e-commerce fashion company. It markets and sells men's and women's designer apparel, shoes and accessories. Revolve Group has a Zacks Rank of 2 at present. RVLV has a trailing four-quarter earnings surprise of 48.8%, on average.
 
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