Bath & Body Works(BBWI) - 2026 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION Presents the company's unaudited consolidated financial statements and management's analysis for interim periods Item 1. Financial Statements This section presents the unaudited consolidated financial statements of Bath & Body Works, Inc. for the second quarter and year-to-date periods of 2025 and 2024, including statements of income, comprehensive income, balance sheets, statements of total equity (deficit), and cash flows, along with detailed notes explaining accounting policies and specific financial items Consolidated Statements of Income (Unaudited) Details the company's revenues, expenses, and net income for interim periods | Metric | Q2 2025 (millions) | Q2 2024 (millions) | YTD 2025 (millions) | YTD 2024 (millions) | | :--------------------------------- | :----------------- | :----------------- | :------------------ | :------------------ | | Net Sales | $1,549 | $1,526 | $2,974 | $2,910 | | Costs of Goods Sold, Buying and Occupancy | $(909) | $(900) | $(1,687) | $(1,677) | | Gross Profit | $640 | $626 | $1,287 | $1,233 | | General, Administrative and Store Operating Expenses | $(483) | $(443) | $(920) | $(863) | | Operating Income | $157 | $183 | $367 | $370 | | Interest Expense | $(68) | $(77) | $(139) | $(159) | | Other Income, Net | $6 | $47 | $13 | $61 | | Income Before Income Taxes | $95 | $153 | $241 | $272 | | Provision for Income Taxes | $(31) | $(1) | $(72) | $(33) | | Net Income | $64 | $152 | $169 | $239 | | Net Income per Basic Share | $0.31 | $0.68 | $0.80 | $1.07 | | Net Income per Diluted Share | $0.30 | $0.68 | $0.79 | $1.06 | Consolidated Statements of Comprehensive Income (Unaudited) Reports net income and other comprehensive income, reflecting total changes in equity from non-owner sources | Metric | Q2 2025 (millions) | Q2 2024 (millions) | YTD 2025 (millions) | YTD 2024 (millions) | | :------------------------------------ | :----------------- | :----------------- | :------------------ | :------------------ | | Net Income | $64 | $152 | $169 | $239 | | Other Comprehensive Income (Loss), Net of Tax: | | | | | | Foreign Currency Translation | — | $(1) | $6 | $(3) | | Unrealized Gain (Loss) on Cash Flow Hedges | — | $1 | $(3) | $2 | | Reclassification of Cash Flow Hedges to Earnings | — | — | $(1) | — | | Total Other Comprehensive Income (Loss), Net of Tax | — | — | $2 | $(1) | | Total Comprehensive Income | $64 | $152 | $171 | $238 | Consolidated Balance Sheets Provides a snapshot of the company's assets, liabilities, and equity at specific points | Asset/Liability/Equity | August 2, 2025 (millions) | February 1, 2025 (millions) | August 3, 2024 (millions) | | :--------------------------------- | :------------------------ | :-------------------------- | :------------------------ | | ASSETS | | | | | Cash and Cash Equivalents | $364 | $674 | $514 | | Accounts Receivable, Net | $131 | $205 | $146 | | Inventories | $977 | $734 | $863 | | Easton Assets Held for Sale | $81 | $96 | — | | Other Current Assets | $153 | $114 | $143 | | Total Current Assets | $1,706 | $1,823 | $1,666 | | Property and Equipment, Net | $1,124 | $1,127 | $1,166 | | Operating Lease Assets | $984 | $949 | $1,043 | | Goodwill | $628 | $628 | $628 | | Trade Name | $165 | $165 | $165 | | Deferred Income Taxes | $133 | $130 | $143 | | Other Assets | $74 | $50 | $137 | | Total Assets | $4,814 | $4,872 | $4,948 | | LIABILITIES AND EQUITY (DEFICIT) | | | | | Accounts Payable | $567 | $338 | $411 | | Accrued Expenses and Other | $541 | $584 | $526 | | Current Debt | — | — | $313 | | Current Operating Lease Liabilities | $194 | $192 | $186 | | Income Taxes | $1 | $117 | $61 | | Total Current Liabilities | $1,303 | $1,231 | $1,497 | | Deferred Income Taxes | $23 | $24 | $45 | | Long-term Debt | $3,888 | $3,884 | $3,881 | | Long-term Operating Lease Liabilities | $912 | $883 | $984 | | Other Long-term Liabilities | $235 | $233 | $259 | | Total Shareholders' Equity (Deficit) | $(1,548) | $(1,385) | $(1,719) | | Noncontrolling Interest | $1 | $2 | $1 | | Total Equity (Deficit) | $(1,547) | $(1,383) | $(1,718) | | Total Liabilities and Equity (Deficit) | $4,814 | $4,872 | $4,948 | Consolidated Statements of Total Equity (Deficit) (Unaudited) Outlines changes in shareholders' equity, including net income, dividends, and share repurchases - Total Equity (Deficit) decreased from $(1,383) million as of February 1, 2025, to $(1,547) million as of August 2, 2025, primarily due to share repurchases ($256 million year-to-date 2025) and cash dividends ($85 million year-to-date 2025), partially offset by net income ($169 million year-to-date 2025)[21][22] Consolidated Statements of Cash Flows (Unaudited) Summarizes cash inflows and outflows from operating, investing, and financing activities | Cash Flow Activity | YTD 2025 (millions) | YTD 2024 (millions) | | :------------------------------------ | :------------------ | :------------------ | | Net Income | $169 | $239 | | Depreciation of Long-lived Assets | $128 | $142 | | Share-based Compensation Expense | $18 | $22 | | Gain on Sales of Easton Investments | — | $(39) | | Deferred Income Taxes | $(1) | $(102) | | Accounts Receivable | $75 | $78 | | Inventories | $(241) | $(154) | | Accounts Payable, Accrued Expenses and Other | $157 | $(67) | | Income Taxes Payable | $(139) | $(79) | | Other Assets and Liabilities | $(21) | $(10) | | Net Cash Provided by Operating Activities | $145 | $30 | | Capital Expenditures | $(93) | $(101) | | Proceeds from Sales of Easton Investments | — | $50 | | Other Investing Activities | $(2) | $11 | | Net Cash Used for Investing Activities | $(95) | $(40) | | Payments for Long-term Debt | — | $(202) | | Repurchases of Common Stock | $(254) | $(248) | | Dividends Paid | $(85) | $(90) | | Tax Payments Related to Share-based Awards | $(8) | $(15) | | Other Financing Activities | $(15) | $(5) | | Net Cash Used for Financing Activities | $(362) | $(560) | | Effects of Exchange Rate Changes on Cash and Cash Equivalents | $2 | — | | Net Decrease in Cash and Cash Equivalents | $(310) | $(570) | | Cash and Cash Equivalents, Beginning of Year | $674 | $1,084 | | Cash and Cash Equivalents, End of Period | $364 | $514 | Notes to Consolidated Financial Statements (Unaudited) Provides detailed explanations of accounting policies, significant transactions, and financial items - Description of Business and Basis of Presentation (Note 1): - The Company is a global omnichannel retailer of personal care and home fragrance products, with seasonal operations peaking in Q4[28] - Foreign currency forward contracts are used as cash flow hedges to mitigate Canadian dollar exchange rate risk[33] - Easton assets held for sale were $81 million as of August 2, 2025, a decrease from $96 million as of February 1, 2025, with a $17 million reclassification to long-term Other Assets[35][36] - In Q2 2024, the Company sold Easton equity interests for $50 million, recognizing a $39 million pre-tax gain[39][40][41] - Revenue Recognition (Note 2): - Accounts receivable from revenue-generating activities totaled $75 million as of August 2, 2025[45] - Deferred revenue, primarily from gift cards and loyalty points, was $172 million as of August 2, 2025, with $87 million recognized year-to-date 2025 from beginning-of-year balances[46] - Net Sales Disaggregation (Note 2): | Channel | Q2 2025 (millions) | Q2 2024 (millions) | YTD 2025 (millions) | YTD 2024 (millions) | | :------------------------ | :----------------- | :----------------- | :------------------ | :------------------ | | Stores - U.S. and Canada | $1,196 | $1,140 | $2,307 | $2,205 | | Direct - U.S. and Canada | $267 | $297 | $517 | $558 | | International | $86 | $89 | $150 | $147 | | Total Net Sales | $1,549 | $1,526 | $2,974 | $2,910 | - Net Income Per Share and Shareholders' Equity (Deficit) (Note 3): - Weighted-average diluted shares were 211 million for Q2 2025 (vs 223 million Q2 2024) and 213 million for YTD 2025 (vs 225 million YTD 2024)[51] - The Company repurchased 8.468 million shares for $256 million year-to-date 2025 under the January 2025 Program, with $262 million remaining authority[53][54] - Cash dividends of $0.20 per share were paid in Q1 and Q2 2025, totaling $85 million year-to-date[55][56] - Inventories (Note 4): - Total inventories increased to $977 million as of August 2, 2025, from $734 million as of February 1, 2025, and $863 million as of August 3, 2024[57] - Long-lived Assets (Note 5): - Property and Equipment, Net was $1,124 million as of August 2, 2025[58] - Depreciation expense was $64 million for Q2 2025 (vs $71 million Q2 2024) and $128 million for YTD 2025 (vs $142 million YTD 2024)[58] - Income Taxes (Note 6): - Effective tax rate for Q2 2025 was 32.3% (vs 0.9% Q2 2024) and for YTD 2025 was 29.9% (vs 12.1% YTD 2024)[60] - The higher 2025 rates were due to leadership transition costs and accrued interest expense related to unrecognized tax benefits[61] - The lower 2024 rates were due to the release of a valuation allowance from Easton investment sales[61] - Long-term Debt and Borrowing Facility (Note 7): - Total Long-term Debt, net of current portion, was $3,888 million as of August 2, 2025[65] - The Company did not repurchase any senior notes in Q2 or YTD 2025[66] - In Q2 and YTD 2024, $91 million and $200 million principal amounts of senior notes were repurchased, respectively[67] - The ABL Facility was amended in May 2025, extending its expiration to May 2030 and removing an interest rate credit spread adjustment[70] - Availability under the ABL Facility was $674 million as of August 2, 2025[72] - Fair Value Measurements (Note 8): - The estimated fair value of total outstanding debt was $3,992 million as of August 2, 2025, compared to a principal value of $3,916 million[76] - Commitments and Contingencies (Note 9): - Contingent obligations related to lease payments from the Victoria's Secret & Co. spin-off were $224 million as of August 2, 2025[79] - Segment Reporting (Note 10): - The Company operates as a single segment, managed at the consolidated level, with Adjusted Operating Income as the key profitability measure for the CODM[81] Report of Independent Registered Public Accounting Firm Presents the auditor's review opinion on the interim consolidated financial statements - Ernst & Young LLP reviewed the interim consolidated financial statements for the periods ended August 2, 2025, and August 3, 2024, and found no material modifications needed for conformity with U.S. GAAP[87][88][89] - They also confirmed the fair statement of the February 1, 2025 consolidated balance sheet in relation to the previously audited annual financial statements[90] Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 Cautions investors about forward-looking statements and potential material differences in actual results - The statement cautions that forward-looking statements in the report involve risks and uncertainties, and actual results may differ materially[92] - It disclaims any obligation to publicly update or revise these statements[93] - The company also advises monitoring its investor relations website, press releases, SEC filings, public conference calls, webcasts, and social media channels for material financial and operational information[94] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations for the second quarter and year-to-date periods of 2025 compared to 2024, including an executive overview, outlook, detailed analysis of revenues, expenses, and liquidity, and discussions of accounting policies and market risks Executive Overview Provides a high-level summary of the company's financial performance and key operational highlights - Q2 2025 Net Sales increased by $23 million (1.5%) to $1,549 million, driven by North American sales[96] - Q2 2025 Operating Income decreased by $26 million (13.9%) to $157 million, with the operating income rate declining to 10.2% from 12.0%, primarily due to higher General, Administrative and Store Operating Expenses, including leadership transition costs[96] Outlook Discusses the company's expectations for future performance, strategic priorities, and market conditions - The company anticipates continued cautious and value-seeking consumer behavior[97] - Strategic focus areas include elevating the owned digital platform, amplifying efficacy messaging with modernized packaging, and exploring new distribution channels to reach younger consumers and drive brand discovery[98] - The company believes its vertically integrated, predominantly U.S.-based supply chain positions it well to manage current tariffs and mitigate future costs through strategic sourcing and operational efficiencies[98] Adjusted Financial Information Reconciles non-GAAP financial measures to GAAP counterparts, explaining adjustments - The company uses non-GAAP adjusted financial measures (Operating Income, Net Income, Net Income Per Diluted Share) to exclude items like leadership transition costs and gains/tax benefits from Easton investment sales, believing these are not indicative of core operations and provide better comparability[99][100] | Metric | Q2 2025 (millions) | Q2 2024 (millions) | YTD 2025 (millions) | YTD 2024 (millions) | | :------------------------------------------ | :----------------- | :----------------- | :------------------ | :------------------ | | Reported Operating Income | $157 | $183 | $367 | $370 | | Leadership Transition Costs (a) | $15 | — | $15 | — | | Adjusted Operating Income | $172 | $183 | $382 | $370 | | Reported Net Income | $64 | $152 | $169 | $239 | | Leadership Transition Costs (a) | $15 | — | $15 | — | | Gain on Sales of Easton Investments (b) | — | $(39) | — | $(39) | | Tax Effect of Adjustments | $(1) | $14 | $(1) | $14 | | Tax Benefit from Valuation Allowance Release (c) | — | $(44) | — | $(44) | | Adjusted Net Income | $78 | $83 | $183 | $170 | | Reported Net Income Per Diluted Share | $0.30 | $0.68 | $0.79 | $1.06 | | Leadership Transition Costs (a) | $0.07 | — | $0.07 | — | | Gain on Sales of Easton Investments (b) | — | $(0.18) | — | $(0.18) | | Tax Effect of Adjustments | $(0.01) | $0.06 | $(0.01) | $0.06 | | Tax Benefit from Valuation Allowance Release (c) | — | $(0.20) | — | $(0.19) | | Adjusted Net Income Per Diluted Share | $0.37 | $0.37 | $0.86 | $0.76 | Company-operated Stores Presents operational metrics and store count changes for company-managed retail locations | Metric | Q2 2025 | Q2 2024 | % Change Q2 | YTD 2025 | YTD 2024 | % Change YTD | | :-------------------------------- | :-------- | :-------- | :------------ | :--------- | :--------- | :----------- | | Sales per Average Selling Square Foot ($) | $220 | $216 | 2% | $427 | $420 | 2% | | Sales per Average Store (thousands) | $627 | $613 | 2% | $1,216 | $1,188 | 2% | | Average Store Size (selling square feet) | 2,844 | 2,833 | —% | | | | | Total Selling Square Feet (thousands) | 5,094 | 4,989 | 2% | | | | - For year-to-date 2025, the company opened 33 U.S. stores and closed 24, resulting in a net increase of 9 U.S. stores, bringing the total to 1,791[105] - Canadian stores remained at 113[105] Partner-operated Stores Details changes in international stores operated by franchise and license partners - For year-to-date 2025, international partner-operated stores increased by 7 (25 opened, 18 closed), totaling 501[106] - International - Travel Retail stores increased by 1 (3 opened, 2 closed), totaling 36[106] Results of Operations - Second Quarter 2025 Compared to the Second Quarter of 2024 Analyzes financial performance and key drivers for Q2 2025 compared to Q2 2024 | Metric | Q2 2025 (millions) | Q2 2024 (millions) | % Change | | :------------------------------------------ | :----------------- | :----------------- | :--------- | | Net Sales | $1,549 | $1,526 | 1.5% | | Stores - U.S. and Canada Net Sales | $1,196 | $1,140 | 4.9% | | Direct - U.S. and Canada Net Sales | $267 | $297 | (10.1%) | | International Net Sales | $86 | $89 | (2.9%) | | Gross Profit | $640 | $626 | 2.2% | | Gross Profit Rate | 41.3% | 41.0% | 0.3 ppt | | General, Administrative and Store Operating Expenses | $483 | $443 | 9.0% | | General, Administrative and Store Operating Expense Rate | 31.1% | 29.1% | 2.0 ppt | | Interest Expense | $68 | $77 | (11.7%) | | Other Income, Net | $6 | $47 | (87.2%) | | Effective Tax Rate | 32.3% | 0.9% | 31.4 ppt | - Stores Net Sales increased due to higher transactions (BOPIS orders) and new store growth, and increased average dollar sales[109] - Direct Net Sales decreased due to fewer fulfilled orders, as customers shifted to BOPIS[111] - Gross Profit rate increased due to leverage on Occupancy Expenses from exiting a third-party fulfillment center, with merchandise margin rate remaining flat due to strategic pricing and cost management offsetting tariffs[112][113] - General, Administrative and Store Operating Expenses increased primarily due to $15 million in leadership transition costs, higher payroll-related costs (wages, new stores), and increased healthcare costs[114] - Other Income, Net decreased significantly due to the absence of the $39 million pre-tax gain from Easton investment sales in Q2 2024 and lower interest income[115] - The effective tax rate increased substantially due to leadership transition costs in 2025 and the release of a valuation allowance on a deferred tax asset from Easton investment sales in 2024[116] Results of Operations - Year-to-Date 2025 Compared to Year-to-Date 2024 Analyzes financial performance and key drivers for YTD 2025 compared to YTD 2024 | Metric | YTD 2025 (millions) | YTD 2024 (millions) | % Change | | :------------------------------------------ | :------------------ | :------------------ | :--------- | | Operating Income | $367 | $370 | (0.8%) | | Operating Income Rate | 12.3% | 12.7% | (0.4 ppt) | | Net Sales | $2,974 | $2,910 | 2.2% | | Stores - U.S. and Canada Net Sales | $2,307 | $2,205 | 4.6% | | Direct - U.S. and Canada Net Sales | $517 | $558 | (7.4%) | | International Net Sales | $150 | $147 | 2.3% | | Gross Profit | $1,287 | $1,233 | 4.4% | | Gross Profit Rate | 43.3% | 42.4% | 0.9 ppt | | General, Administrative and Store Operating Expenses | $920 | $863 | 6.6% | | General, Administrative and Store Operating Expense Rate | 30.9% | 29.6% | 1.3 ppt | | Interest Expense | $139 | $159 | (12.6%) | | Other Income, Net | $13 | $61 | (78.7%) | | Effective Tax Rate | 29.9% | 12.1% | 17.8 ppt | - Operating Income decreased slightly year-over-year, with the rate declining due to increased operating expenses[117] - Stores Net Sales increased due to higher transactions (BOPIS orders) and new store growth, and increased average dollar sales[120] - Direct Net Sales decreased due to fewer fulfilled orders, as customers shifted to BOPIS[121] - Gross Profit rate improved due to merchandise margin rate improvement (strategic pricing, cost management offsetting tariffs) and leverage on Occupancy Expenses from exiting a third-party fulfillment center[122][123] - General, Administrative and Store Operating Expenses increased due to higher payroll-related costs (wages, new stores), $15 million in leadership transition costs, increased healthcare costs, and incremental marketing investments[124] - Other Income, Net decreased significantly due to the absence of the $39 million pre-tax gain from Easton investment sales in 2024 and lower interest income[127] - The effective tax rate increased substantially due to accrued interest expense related to unrecognized tax benefits and leadership transition costs in 2025, and the release of a valuation allowance from Easton investment sales in 2024[128][129] Financial Condition Assesses the company's overall financial health, including assets, liabilities, and equity Liquidity and Capital Resources Discusses the company's ability to meet financial obligations and fund operations - The company is committed to maintaining adequate liquidity, primarily supported by cash generated from operating activities and borrowing capacity under its ABL Facility[130] - Cash needs peak during summer and fall for inventory build-up[130] - Foreign subsidiaries held $123 million in cash and cash equivalents as of August 2, 2025[132] - Management believes current cash, operating cash flows, and ABL facility capacity are sufficient for liquidity needs for at least the next twelve months[132] Cash Flows Provides a detailed analysis of cash generated and used across operating, investing, and financing activities | Cash Flow Activity | YTD 2025 (millions) | YTD 2024 (millions) | | :------------------------------------ | :------------------ | :------------------ | | Net Cash Provided by Operating Activities | $145 | $30 | | Net Cash Used for Investing Activities | $(95) | $(40) | | Net Cash Used for Financing Activities | $(362) | $(560) | | Net Decrease in Cash and Cash Equivalents | $(310) | $(570) | | Cash and Cash Equivalents, End of Period | $364 | $514 | - Operating cash flow significantly increased to $145 million in YTD 2025 from $30 million in YTD 2024, driven by working capital improvements (Accounts Payable, Accrued Expenses and Other) despite higher inventories[134][135] - Investing activities used $95 million in YTD 2025, primarily for capital expenditures ($60 million for new/remodel stores, $20 million for technology projects)[136][137] - This compares to $40 million used in YTD 2024, which included $50 million from Easton investment sales[138] - Financing activities used $362 million in YTD 2025, mainly for $254 million in share repurchases and $85 million in dividends[139] - This is lower than $560 million used in YTD 2024, which included $202 million for debt repurchases[140] - Planned capital expenditures for 2025 are $250 million to $270 million, focusing on real estate and technology[140] Common Stock and Debt Repurchases Details the company's activities related to buying back its stock and debt instruments - The Board determines repurchase authorizations based on profit, cash flow, capital requirements, liquidity, and borrowing arrangements[141] | Repurchase Program | Amount Authorized (millions) | Shares Repurchased YTD 2025 (thousands) | Shares Repurchased YTD 2024 (thousands) | Amount Repurchased YTD 2025 (millions) | Amount Repurchased YTD 2024 (millions) | Average Stock Price YTD 2025 ($) | Average Stock Price YTD 2024 ($) | | :----------------- | :--------------------------- | :-------------------------------------- | :-------------------------------------- | :------------------------------------- | :------------------------------------- | :--------------------------- | :--------------------------- | | February 2022 | $1,500 | NA | 842 | NA | $39 | NA | $46.08 | | January 2024 | $500 | 460 | 4,921 | $17 | $210 | $37.67 | $42.72 | | January 2025 | $500 | 8,008 | NA | $239 | NA | $29.78 | NA | | Total | | 8,468 | 5,763 | $256 | $249 | | | - The January 2024 Program was cancelled on February 27, 2025, with $121 million remaining authorization[144] - The January 2025 Program had $262 million of remaining authority as of August 2, 2025[144] - Shares repurchased are retired and cancelled[148] - No senior notes were repurchased in Q2 or YTD 2025[149] - In Q2 and YTD 2024, $91 million and $200 million principal amounts of senior notes were repurchased, respectively, resulting in pre-tax losses[149] Dividend Policy and Procedures Outlines the company's approach to distributing earnings to shareholders via dividends - The Board determines future dividends based on profit, cash flow, capital requirements, liquidity, and borrowing arrangements[145] | Period | Ordinary Dividends (per share) | Total Paid (millions) | | :------------- | :----------------------------- | :-------------------- | | 2025 | | | | First Quarter | $0.20 | $43 | | Second Quarter | $0.20 | $42 | | Total | $0.40 | $85 | | 2024 | | | | First Quarter | $0.20 | $45 | | Second Quarter | $0.20 | $45 | | Total | $0.40 | $90 | - A third quarter 2025 ordinary dividend of $0.20 per share was declared in August 2025, payable on September 5, 2025[145] Long-term Debt and Borrowing Facility Describes the company's long-term debt obligations and available credit facilities | Debt Type | August 2, 2025 (millions) | February 1, 2025 (millions) | August 3, 2024 (millions) | | :------------------------------------------ | :------------------------ | :-------------------------- | :------------------------ | | Senior Debt with Subsidiary Guarantee | | | | | $500 million, 9.375% Fixed Interest Rate Notes due July 2025 ("2025 Notes") | — | — | $313 | | $284 million, 6.694% Fixed Interest Rate Notes due January 2027 ("2027 Notes") | $278 | $277 | $275 | | $444 million, 5.250% Fixed Interest Rate Notes due February 2028 ("2028 Notes") | $443 | $443 | $443 | | $482 million, 7.500% Fixed Interest Rate Notes due June 2029 ("2029 Notes") | $477 | $476 | $475 | | $844 million, 6.625% Fixed Interest Rate Notes due October 2030 ("2030 Notes") | $839 | $838 | $838 | | $802 million, 6.875% Fixed Interest Rate Notes due November 2035 ("2035 Notes") | $797 | $796 | $796 | | $575 million, 6.750% Fixed Interest Rate Notes due July 2036 ("2036 Notes") | $571 | $571 | $571 | | Total Senior Debt with Subsidiary Guarantee | $3,405 | $3,401 | $3,711 | | Senior Debt | | | | | $284 million, 6.950% Fixed Interest Rate Debentures due March 2033 ("2033 Notes") | $283 | $283 | $283 | | $201 million, 7.600% Fixed Interest Rate Notes due July 2037 ("2037 Notes") | $200 | $200 | $200 | | Total Senior Debt | $483 | $483 | $483 | | Total Debt | $3,888 | $3,884 | $4,194 | | Current Debt | — | — | $(313) | | Total Long-term Debt, Net of Current Portion | $3,888 | $3,884 | $3,881 | - Cash paid for interest was $143 million YTD 2025, down from $152 million YTD 2024[147] - The ABL Facility was amended in May 2025, extending its expiration to May 2030 and removing an interest rate credit spread adjustment[152] - As of August 2, 2025, the borrowing base was $683 million, with no outstanding borrowings and $674 million availability after $9 million in outstanding letters of credit[153][154] - The ABL Facility requires a fixed charge coverage ratio of not less than 1.00 to 1.00 under certain conditions, which the company was not required to maintain as of August 2, 2025[156] Credit Ratings Presents the company's creditworthiness assessments from major rating agencies | Rating Agency | Corporate | Senior Unsecured Debt with Subsidiary Guarantee | Senior Unsecured Debt | Outlook | | :------------ | :-------- | :---------------------------------------------- | :-------------------- | :-------- | | Moody's | Ba2 | Ba2 | B1 | Stable | | S&P | BB+ | BB+ | BB | Stable | Guarantor Summarized Financial Information Provides condensed financial data for subsidiaries guaranteeing the company's debt - Certain wholly-owned subsidiaries guarantee the company's senior unsecured notes (2027, 2028, 2029, 2030, 2035, 2036 Notes)[158] - These guarantees are full and unconditional, joint and several, and limited by fraudulent conveyance provisions[159][160] | Metric | August 2, 2025 (millions) | February 1, 2025 (millions) | | :-------------------- | :------------------------ | :-------------------------- | | Current Assets | $2,031 | $2,075 | | Noncurrent Assets | $2,441 | $2,411 | | Current Liabilities | $2,527 | $2,394 | | Noncurrent Liabilities | $4,941 | $4,898 | | Metric (YTD 2025) | Amount (millions) | | :------------------------ | :---------------- | | Net Sales | $2,821 | | Gross Profit | $1,200 | | Operating Income | $338 | | Income Before Income Taxes | $210 | | Net Income | $145 | Contingent Liabilities and Contractual Obligations Identifies potential future financial obligations and commitments - Remaining contingent obligations related to lease payments from the Victoria's Secret & Co. spin-off were $224 million as of August 2, 2025, expiring through 2037[166] - No material changes to contractual obligations since February 1, 2025, though merchandise inventory-related purchase obligations fluctuate seasonally[167] Recently Issued Accounting Pronouncements Discusses new accounting standards and their potential impact on financial reporting - ASU 2023-09 (Improvements to Income Tax Disclosures), effective for fiscal years beginning after December 15, 2024, requires enhanced income tax disclosures[168] - The company is evaluating its impact[168] - ASU 2024-03 (Disaggregation of Income Statement Expenses), effective for annual reporting of fiscal years beginning after December 15, 2026, requires disaggregated expense information[169] - The company is evaluating its impact[169] Critical Accounting Policies and Estimates Highlights accounting policies requiring significant management judgment and estimation - Management's critical accounting policies and estimates, including those for inventories, long-lived store assets, claims, income taxes, and revenue recognition, remain unchanged from the 2024 Annual Report on Form 10-K[170][171] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the company's exposure to market risks, primarily foreign currency exchange rates and interest rates, and the strategies employed to manage these risks, including the use of derivative financial instruments Market Risk Overview Introduces market risks the company faces and its general approach to managing them - The company's market risk stems from potential losses in fair value, earnings, or cash flows due to changes in foreign currency exchange rates or interest rates[172] - Derivative financial instruments, such as foreign currency forward contracts and interest rate swaps, are used to manage these exposures, not for trading[172] Foreign Exchange Rate Risk Explains the company's exposure to currency fluctuations and its hedging strategies - The company is exposed to foreign exchange rate risk on Canadian dollar-denominated earnings, as merchandise sold in Canada is sourced in U.S. dollars[173] - Foreign currency forward contracts are used to mitigate this, but may not offset all short-term impacts[174] - Royalties from international partners, though denominated in U.S. dollars, are calculated based on local currency sales, also exposing them to exchange rate fluctuations[174] Interest Rate Risk Describes the company's sensitivity to changes in interest rates on investments and debt - The investment portfolio, primarily short-term, high-quality interest-bearing instruments (U.S. government obligations, money market funds, commercial paper, bank deposits), is managed to preserve principal and maintain liquidity, minimizing material risk from interest rate changes[175] - All outstanding long-term debt as of August 2, 2025, has fixed interest rates, limiting exposure to interest rate changes to the fair value of debt[176] Concentration of Credit Risk Addresses potential credit losses from financial instruments and business partners - The company manages credit risk by monitoring the credit standing of financial institutions for cash, cash equivalents, and derivative contracts, and limiting exposure to any single entity[177] - It also reviews the credit standing of franchise, license, and wholesale partners[177] Fair Value Measurements Provides information on the valuation of financial instruments at fair value | Debt Valuation | August 2, 2025 (millions) | February 1, 2025 (millions) | August 3, 2024 (millions) | | :---------------------- | :------------------------ | :-------------------------- | :------------------------ | | Principal Value | $3,916 | $3,916 | $4,230 | | Fair Value, Estimated | $3,992 | $3,986 | $4,241 | - The carrying values of Accounts Receivable, Accounts Payable, and Accrued Expenses approximate their fair values due to their short maturities[179] Item 4. Controls and Procedures This section reports on the effectiveness of the company's disclosure controls and procedures and any changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures Assesses the effectiveness of controls ensuring timely and accurate public disclosures - As of August 2, 2025, management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective in ensuring timely and accurate reporting of required information[180] Changes in Internal Control Over Financial Reporting Reports on any modifications to internal controls over financial reporting - There were no changes in internal control over financial reporting during the second quarter of 2025 that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[181] PART II—OTHER INFORMATION Contains additional information not covered in financial statements, including legal matters and exhibits Item 1. Legal Proceedings This section addresses the company's involvement in various lawsuits and claims arising in the ordinary course of business - The company is a defendant in various lawsuits, including commercial, tort, intellectual property, tax, employment, and class action claims[184] - Management believes that the ultimate liability from these proceedings is not likely to have a material adverse effect on the company's results of operations, financial condition, or cash flows[184] Item 1A. Risk Factors This section refers to the comprehensive discussion of risk factors affecting the business and financial results - The risk factors affecting the company's business and financial results are discussed in Item 1A. Risk Factors in the 2024 Annual Report on Form 10-K, and these factors could cause actual results to differ materially from forward-looking statements[185] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the repurchases of common stock during the second quarter of 2025 | Fiscal Period | Total Number of Shares Purchased (thousands) | Average Price Paid per Share ($) | Total Number of Shares Purchased as Part of Publicly Announced Programs (thousands) | Maximum Number of Shares (or Approximate Dollar Value) that May Yet be Purchased Under the Programs (millions) | | :------------ | :------------------------------------------- | :--------------------------- | :-------------------------------------------------------------------------------- | :------------------------------------------------------------------------------------------------- | | May 2025 | 608 | $29.32 | 517 | 367,301 | | June 2025 | 2,258 | $27.76 | 2,252 | 304,798 | | July 2025 | 1,382 | $31.50 | 1,373 | 261,510 | | Total | 4,248 | | 4,142 | | - The total shares repurchased include those from publicly announced programs and shares related to tax payments upon vesting of associate awards and stock option exercise[186] Item 3. Defaults Upon Senior Securities Confirms the absence of any defaults on the company's senior debt obligations - Not applicable[188] Item 4. Mine Safety Disclosures Confirms the absence of mine safety disclosures, as not applicable to operations - Not applicable[189] Item 5. Other Information Provides miscellaneous disclosures, including details on insider trading arrangements - None of the company's directors or executive officers adopted or terminated a "Rule 10b5-1 trading arrangement" or a "non-Rule 10b5-1 trading arrangement" during the second quarter of 2025[190] Item 6. Exhibits Lists all supplementary documents and agreements filed with the report - The report includes various exhibits such as a Letter Agreement with Eva Boratto, a letter regarding unaudited interim financial information, a list of guarantor subsidiaries, Section 302 and 906 Certifications, and XBRL-related documents[192] Signature Authenticates the filing with the signature of the principal financial and accounting officer - The report was signed by Eva C. Boratto, Chief Financial Officer, on August 28, 2025, who is also the principal financial and accounting officer[195]