Bath & Body Works(BBWI) - 2023 Q1 - Quarterly Report

PART I—FINANCIAL INFORMATION Item 1. Financial Statements Presents unaudited consolidated financial statements for Q1 2022 and 2021, including income, balance sheets, equity, cash flows, and detailed notes Consolidated Statements of Income Details the company's income performance, showing a decline in net sales and operating income for Q1 2022 compared to Q1 2021 | Metric | First Quarter 2022 ($ millions) | First Quarter 2021 ($ millions) | | :--------------------------------------| :------------------------------ | :------------------------------ | | Net Sales | 1,450 | 1,470 | | Gross Profit | 669 | 742 | | Operating Income | 280 | 337 | | Net Income from Continuing Operations | 155 | 91 | | Income from Discontinued Operations | — | 186 | | Net Income | 155 | 277 | | Net Income per Basic Share (Continuing) | 0.65 | 0.32 | | Net Income per Diluted Share (Continuing)| 0.64 | 0.32 | - Net Sales decreased by $20 million (1%) from $1,470 million in Q1 2021 to $1,450 million in Q1 2022[9] - Operating Income decreased by $57 million (17%) from $337 million in Q1 2021 to $280 million in Q1 2022[9] Consolidated Statements of Comprehensive Income Presents the total comprehensive income, including net income and other comprehensive income components for Q1 2022 and Q1 2021 | Metric | First Quarter 2022 ($ millions) | First Quarter 2021 ($ millions) | | :----------------------------- | :------------------------------ | :------------------------------ | | Net Income | 155 | 277 | | Total Other Comprehensive Income | — | 3 | | Total Comprehensive Income | 155 | 280 | Consolidated Balance Sheets Outlines the company's financial position, detailing assets, liabilities, and equity as of April 30, 2022, and prior periods | Metric | April 30, 2022 ($ millions) | January 29, 2022 ($ millions) | May 1, 2021 ($ millions) | | :-------------------------------------- | :-------------------------- | :---------------------------- | :----------------------- | | Cash and Cash Equivalents | 651 | 1,979 | 2,475 | | Inventories | 820 | 709 | 636 | | Total Current Assets | 1,752 | 3,009 | 4,612 | | Total Assets | 4,860 | 6,026 | 10,546 | | Total Current Liabilities | 1,240 | 1,290 | 2,680 | | Long-term Debt | 4,856 | 4,854 | 5,344 | | Total Shareholders' Equity (Deficit) | (2,659) | (1,518) | (534) | | Total Liabilities and Equity (Deficit) | 4,860 | 6,026 | 10,546 | - Cash and Cash Equivalents decreased significantly from $1,979 million on January 29, 2022, to $651 million on April 30, 2022[14] - Inventories increased from $709 million on January 29, 2022, to $820 million on April 30, 2022[14] - Total Shareholders' Equity (Deficit) worsened from $(1,518) million on January 29, 2022, to $(2,659) million on April 30, 2022[15] Consolidated Statements of Total Equity (Deficit) Details changes in total equity, including net income, dividends, and share repurchases, for the period ending April 30, 2022 | Metric | Balance, January 29, 2022 ($ millions) | Net Income ($ millions) | Cash Dividends ($ millions) | Repurchases of Common Stock ($ millions) | Accelerated Share Repurchase Program ($ millions) | Treasury Share Retirement ($ millions) | Share-based Compensation and Other ($ millions) | Balance, April 30, 2022 ($ millions) | | :-------------------------------------- | :------------------------------------- | :---------------------- | :-------------------------- | :--------------------------------------- | :------------------------------------------------ | :------------------------------------- | :---------------------------------------------- | :----------------------------------- | | Common Stock Par Value | 134 | — | — | — | — | (9) | 1 | 126 | | Paid-In Capital | 893 | — | — | — | (200) | (61) | (14) | 618 | | Retained Earnings (Accumulated Deficit) | (1,803) | 155 | (48) | — | — | (965) | — | (2,661) | | Treasury Stock, at Average Cost | (822) | — | — | (235) | (800) | 1,035 | — | (822) | | Total Equity (Deficit) | (1,517) | 155 | (48) | (235) | (1,000) | — | (13) | (2,658) | - Total Equity (Deficit) decreased from $(1,517) million on January 29, 2022, to $(2,658) million on April 30, 2022, primarily due to accelerated share repurchases and treasury share retirement[18] Consolidated Statements of Cash Flows Presents cash flows from operating, investing, and financing activities for Q1 2022 and Q1 2021, highlighting key changes | Activity | First Quarter 2022 ($ millions) | First Quarter 2021 ($ millions) | | :---------------------------------------- | :------------------------------ | :------------------------------ | | Net Cash Provided by Operating Activities | 66 | 249 | | Net Cash Used for Investing Activities | (88) | (56) | | Net Cash Used for Financing Activities | (1,306) | (1,291) | | Net Decrease in Cash and Cash Equivalents | (1,328) | (1,096) | | Cash and Cash Equivalents, End of Period | 651 | 2,837 | - Net cash provided by operating activities decreased significantly from $249 million in Q1 2021 to $66 million in Q1 2022[21] - Net cash used for financing activities remained high, at $(1,306) million in Q1 2022, primarily due to share repurchases[21] Notes to Consolidated Financial Statements (Unaudited) 1. Description of Business and Basis of Presentation Describes the company's business, the Victoria's Secret spin-off, and ongoing monitoring of the COVID-19 pandemic impacts - Bath & Body Works, Inc. is a specialty retailer of home fragrance, body care, and soaps/sanitizer products, operating under Bath & Body Works, White Barn, and other brands in the U.S. and Canada, with international operations primarily through franchise, license, and wholesale partners[25] - On August 2, 2021, the company completed the tax-free spin-off of its Victoria's Secret business, with operating results reported as discontinued operations[25] - The company continues to monitor the COVID-19 pandemic, which has caused channel and product category shifts, and acknowledges potential future impacts on operations and financial performance[26] 2. Discontinued Operations Details the spin-off of the Victoria's Secret business, its financial impact, and ongoing transition service agreements - The Victoria's Secret business was spun off on August 2, 2021, becoming an independent publicly traded company (VSCO), with Bath & Body Works retaining no ownership interest[37][39] - The Separation resulted in a $175 million net reduction to Retained Earnings (Accumulated Deficit) for Bath & Body Works, primarily due to asset/liability transfers, net of $976 million cash received from Victoria's Secret & Co[39] - Transition Services Agreements are in place, with Bath & Body Works recognizing $19 million in consideration and $20 million in costs for services provided/received in Q1 2022[39] | Metric | First Quarter 2021 ($ millions) | | :-------------------------------------- | :------------------------------ | | Net Sales | 1,554 | | Income from Discontinued Operations, Net of Tax | 186 | 3. Revenue Recognition Explains revenue recognition policies and provides a breakdown of net sales by channel and geographic region | Channel | First Quarter 2022 ($ millions) | First Quarter 2021 ($ millions) | | :----------------------- | :------------------------------ | :------------------------------ | | Stores - U.S. and Canada | 1,059 | 1,051 | | Direct - U.S. and Canada | 318 | 349 | | International | 73 | 70 | | Total Net Sales | 1,450 | 1,470 | - Deferred revenue, primarily from gift cards, loyalty points, and direct channel shipments, was $133 million as of April 30, 2022, and $56 million was recognized as revenue in Q1 2022 from amounts deferred at the beginning of the year[47] - Net sales outside the U.S. increased from $117 million in Q1 2021 to $137 million in Q1 2022[48] 4. Earnings Per Share and Shareholders' Equity (Deficit) Discusses earnings per share, share repurchase programs, share retirement, and dividend policy for the period | Metric | First Quarter 2022 (millions) | First Quarter 2021 (millions) | | :-------------------------------------- | :---------------------------- | :---------------------------- | | Common Shares | 255 | 288 | | Basic Shares | 240 | 279 | | Diluted Shares | 243 | 284 | - In February 2022, the Board authorized a new $1.5 billion share repurchase program, including a $1 billion Accelerated Share Repurchase (ASR) program, which resulted in the repurchase of 13.6 million shares initially[51] - The company retired 18 million shares repurchased under the February 2022 Program in Q1 2022, leading to reductions in Common Stock par value, Paid-in Capital, and Retained Earnings[53] - The annual dividend was increased to $0.80 per share in February 2022, with a quarterly dividend of $0.20 per share paid in March 2022[54] 5. Inventories Provides a breakdown of inventory types and highlights the increase in total inventories during Q1 2022 | Inventory Type | April 30, 2022 ($ millions) | January 29, 2022 ($ millions) | May 1, 2021 ($ millions) | | :--------------------------------- | :-------------------------- | :---------------------------- | :----------------------- | | Finished Goods Merchandise | 627 | 521 | 503 | | Raw Materials and Merchandise Components | 193 | 188 | 133 | | Total Inventories | 820 | 709 | 636 | - Total Inventories increased by $111 million from January 29, 2022, to April 30, 2022, driven by increases in both finished goods and raw materials[58] 6. Long-Lived Assets Details property and equipment, net of accumulated depreciation, and reports depreciation expense for continuing operations | Metric | April 30, 2022 ($ millions) | January 29, 2022 ($ millions) | May 1, 2021 ($ millions) | | :-------------------------------------- | :-------------------------- | :---------------------------- | :----------------------- | | Property and Equipment, at Cost | 2,669 | 2,583 | 2,415 | | Accumulated Depreciation and Amortization | (1,610) | (1,574) | (1,421) | | Property and Equipment, Net | 1,059 | 1,009 | 994 | - Depreciation expense from continuing operations increased from $49 million in Q1 2021 to $53 million in Q1 2022[60] 7. Equity Investments Describes the company's equity investments, primarily land and other assets in Easton, Ohio, accounted for by the equity method - The company holds land and other investments in Easton, Ohio, totaling $126 million as of April 30, 2022, accounted for using the equity method[61] 8. Income Taxes Reports the effective tax rate for Q1 2022 and Q1 2021, noting the impact of share-based award tax benefits - The effective tax rate for Q1 2022 was 19.4%, down from 23.7% in Q1 2021, primarily due to excess tax benefits from share-based awards[62] 9. Long-term Debt and Borrowing Facilities Details the company's long-term debt structure and significant debt redemption activities, including associated losses | Debt Type | April 30, 2022 ($ millions) | January 29, 2022 ($ millions) | May 1, 2021 ($ millions) | | :-------------------------------------- | :-------------------------- | :---------------------------- | :----------------------- | | Total Senior Debt with Subsidiary Guarantee | 4,261 | 4,259 | 4,750 | | Total Senior Debt | 595 | 595 | 594 | | Total Long-term Debt | 4,856 | 4,854 | 5,344 | - In April 2021, the company redeemed $285 million of 5.625% senior notes due February 2022 and $750 million of 6.875% senior secured notes due July 2025, resulting in a pre-tax loss of $105 million[65] 10. Fair Value Measurements Provides fair value measurements for financial instruments, particularly publicly traded debt, and notes changes over time | Metric | April 30, 2022 ($ millions) | January 29, 2022 ($ millions) | May 1, 2021 ($ millions) | | :---------------------- | :-------------------------- | :---------------------------- | :----------------------- | | Principal Value | 4,915 | 4,915 | 5,414 | | Fair Value, Estimated | 4,866 | 5,493 | 6,389 | - The estimated fair value of publicly traded debt decreased from $5,493 million on January 29, 2022, to $4,866 million on April 30, 2022[68] - The carrying values of accounts receivable, accounts payable, and accrued expenses approximate fair value due to their short maturity[139] 11. Accumulated Other Comprehensive Income Presents the components of accumulated other comprehensive income, including foreign currency translation and cash flow hedges | Component | Balance as of January 29, 2022 ($ millions) | Balance as of April 30, 2022 ($ millions) | | :----------------------- | :---------------------------------------- | :---------------------------------------- | | Foreign Currency Translation | 79 | 79 | | Cash Flow Hedges | 1 | 1 | | Total | 80 | 80 | 12. Commitments and Contingencies Outlines various legal claims, the global settlement for derivative lawsuits, and contingent lease obligations - The company is subject to various claims and contingencies, including commercial, tort, intellectual property, and class action lawsuits, but management believes the ultimate liability will not materially adversely affect financial results[71] - A global settlement was reached in July 2021 for derivative lawsuits, requiring the company and Victoria's Secret & Co. to each invest $45 million over at least five years in management and governance measures, including a Diversity, Equity, and Inclusion Council[71] - Contingent obligations related to lease payments from the Victoria's Secret & Co. spin-off and La Senza sale totaled $277 million as of April 30, 2022[71] 13. Subsequent Events Reports key events occurring after the reporting period, including CEO transition and the final settlement of the ASR program - Andrew M. Meslow stepped down as CEO on May 12, 2022, and Sarah E. Nash was appointed Interim CEO[72] - The Accelerated Share Repurchase (ASR) program's final settlement occurred in May 2022, with the company receiving an additional 6.7 million shares of common stock, which were retired upon receipt[72] Report of Independent Registered Public Accounting Firm States that Ernst & Young LLP reviewed the interim financial statements, finding no material modifications needed for GAAP conformity - Ernst & Young LLP reviewed the consolidated interim financial statements and found no material modifications needed for conformity with U.S. GAAP[75] SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION ACT OF 1995 Provides a cautionary statement on forward-looking statements, detailing risks like economic conditions, COVID-19, seasonality, and supply chain issues - Forward-looking statements are subject to risks and uncertainties, including general economic conditions, inflation, consumer confidence, and market disruptions[78] - Specific risks include the ongoing impact of the COVID-19 pandemic, seasonality of business, potential unrealized benefits from the Victoria's Secret spin-off, and difficulties related to supply chain, labor costs, and international operations[78] - The company is not obligated to publicly update or revise any forward-looking statements[80] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's analysis of Q1 2022 financial condition and operations, covering sales, income, inflation, supply chain, store data, liquidity, and debt Executive Overview Summarizes Q1 2022 performance, noting decreases in net sales and operating income, and the impact of inflationary costs - Net sales decreased by $20 million (1%) to $1.450 billion in Q1 2022, with store sales increasing 1% and direct channel sales decreasing 9%[83] - Operating income decreased by $57 million (17%) to $280 million, with the operating income rate falling to 19.3% from 22.9%, primarily due to approximately $50 million in increased inflationary costs[83] - Q1 2021 net sales benefited from approximately $50 million in government stimulus payments, which did not reoccur in Q1 2022[83] Global Supply Chain and Inflationary Impacts Discusses expected full-year inflation impacts and strategies to mitigate costs, including pricing and inventory management - The company expects full-year inflation impact to range between $225 million and $250 million, with approximately $70 million pressure in Q2 2022, an increase from the initial estimate of $150-$175 million for 2022[85] - Strategies include strategically raising prices and carefully managing promotional activity to maximize margin dollars, while proactively pulling forward inventory purchases to mitigate supply chain disruptions[85] Information Technology and Chief Executive Officer Transition Costs Details accelerated IT system separation and anticipated costs associated with the Chief Executive Officer transition - The company is accelerating the separation of its technology system environments, expecting predominant completion in 2023, to build additional technology capabilities for long-term growth[86] - Additional costs are expected for the CEO transition, including severance and retention for key talent, which will negatively impact general, administrative, and store operating expenses in 2022[86] COVID-19 Outlines ongoing efforts to maintain safe operations and monitor the pandemic's potential future impacts on the business - The company continues to prioritize a safe store environment and operations for distribution/fulfillment centers, while monitoring the pandemic's effects and potential future closures or operating restrictions[87] Adjusted Financial Information from Continuing Operations Presents adjusted financial metrics for continuing operations, excluding the impact of debt extinguishment losses | Metric | First Quarter 2022 ($ millions) | First Quarter 2021 ($ millions) | | :-------------------------------------- | :------------------------------ | :------------------------------ | | Reported Net Income from Continuing Operations | 155 | 91 | | Loss on Extinguishment of Debt (pre-tax) | — | 105 | | Tax Benefit of Special Item | — | (25) | | Adjusted Net Income from Continuing Operations | 155 | 170 | | Reported Earnings per Diluted Share (Continuing) | 0.64 | 0.32 | | Loss on Extinguishment of Debt (per share) | — | 0.28 | | Adjusted Earnings per Diluted Share (Continuing) | 0.64 | 0.60 | - Adjusted Net Income from Continuing Operations for Q1 2021 was $170 million, excluding a $105 million pre-tax loss from debt extinguishment[89][90] Company-Operated Store Data Provides key operational metrics for company-operated stores, including sales performance, store size, and store count changes | Metric | First Quarter 2022 | First Quarter 2021 | % Change | | :-------------------------------------- | :----------------- | :----------------- | :------- | | Sales per Average Selling Square Foot | $222 | $229 | (3 %) | | Sales per Average Store (in thousands) | $605 | $610 | (1 %) | | Average Store Size (selling square feet)| 2,725 | 2,672 | 2 % | | Total Selling Square Feet (in thousands)| 4,510 | 4,406 | 2 % | | Region | Stores January 29, 2022 | Opened | Closed | Stores April 30, 2022 | | :------------ | :---------------------- | :----- | :----- | :-------------------- | | United States | 1,651 | 12 | (8) | 1,655 | | Canada | 104 | — | — | 104 | | Total | 1,755 | 12 | (8) | 1,759 | Partner-Operated Store Data Presents data on partner-operated international stores, including new openings and total store count as of April 30, 2022 | Region | Opened | Closed | Stores April 30, 2022 | | :-------------------------- | :----- | :----- | :-------------------- | | International | 18 | — | 335 | | International - Travel Retail | — | — | 21 | | Total International | 18 | — | 356 | Results of Operations Analyzes key financial results, including net sales, gross profit, operating expenses, interest expense, and effective tax rate | Metric | First Quarter 2022 ($ millions) | First Quarter 2021 ($ millions) | % Change | | :-------------------------------------- | :------------------------------ | :------------------------------ | :------- | | Net Sales | 1,450 | 1,470 | (1 %) | | Gross Profit | 669 | 742 | (9.8 %) | | Gross Profit Rate | 46.1% | 50.5% | (4.4 ppts)| | General, Administrative and Store Operating Expenses | 389 | 405 | (4.0 %) | | General, Administrative and Store Operating Expenses Rate | 26.8% | 27.5% | (0.7 ppts)| | Interest Expense | 89 | 114 | (21.9 %) | | Other Income (Loss) | 1 | (104) | N/A | | Effective Tax Rate | 19.4% | 23.7% | (4.3 ppts)| - Gross profit decreased by $73 million, and the gross profit rate declined by 4.4 percentage points to 46.1%, primarily due to $50 million in increased inflationary costs and higher promotional activity[103] - Interest expense decreased by $25 million to $89 million due to lower average daily borrowings and a lower average borrowing rate[107] FINANCIAL CONDITION Liquidity and Capital Resources Discusses the company's primary sources of liquidity and capital, affirming sufficiency for foreseeable requirements - Cash generated from operating activities is the primary resource for current operations, growth, seasonal funding, and capital expenditures, with sales historically higher in Q4 due to seasonality[110] - The company believes its available short-term and long-term capital resources are sufficient to fund foreseeable requirements[110] Working Capital and Capitalization Details working capital, long-term debt, shareholders' equity, and total capitalization, noting significant changes | Metric | April 30, 2022 ($ millions) | January 29, 2022 ($ millions) | May 1, 2021 ($ millions) | | :-------------------------------------- | :-------------------------- | :---------------------------- | :----------------------- | | Working Capital, Net of Discontinued Operations | 512 | 1,719 | 1,979 | | Long-term Debt | 4,856 | 4,854 | 5,344 | | Shareholders' Equity (Deficit) | (2,659) | (1,518) | (534) | | Total Capitalization | 2,197 | 3,336 | 4,810 | | Amounts Available Under the ABL Facility | 604 | 479 | — | - Working Capital, net of discontinued operations, significantly decreased from $1,719 million on January 29, 2022, to $512 million on April 30, 2022[111] Cash Flows Summarizes the company's cash flow activities, including operating, investing, and financing, for Q1 2022 and Q1 2021 | Activity | First Quarter 2022 ($ millions) | First Quarter 2021 ($ millions) | | :---------------------------------------- | :------------------------------ | :------------------------------ | | Cash and Cash Equivalents, Beginning of Period | 1,979 | 3,933 | | Net Cash Provided by Operating Activities | 66 | 249 | | Net Cash Used for Investing Activities | (88) | (56) | | Net Cash Used for Financing Activities | (1,306) | (1,291) | | Net Decrease in Cash and Cash Equivalents | (1,328) | (1,096) | | Cash and Cash Equivalents, End of Period | 651 | 2,837 | Operating Activities Analyzes net cash provided by operating activities, noting a decrease due to working capital changes and inventory purchases - Net cash provided by operating activities was $66 million in Q1 2022, down from $249 million in Q1 2021, influenced by seasonal working capital changes and proactive inventory purchases[114] Investing Activities Details net cash used for investing activities, primarily capital expenditures for stores, fulfillment centers, and IT projects - Net cash used for investing activities was $88 million in Q1 2022, primarily for capital expenditures including $37 million for new non-mall stores/remodels, $27 million for a new direct channel fulfillment center, and $12 million for IT projects[115] - Estimated full-year 2022 capital expenditures are approximately $400 million, including 150 real estate projects and investments in IT separation and the new fulfillment center[115] Financing Activities Explains net cash used for financing activities, primarily driven by significant share repurchases and dividend payments - Net cash used for financing activities was $1.306 billion in Q1 2022, mainly due to $1.227 billion in share repurchases (including a $1 billion ASR payment) and $48 million in dividend payments[116] Common Stock Share Repurchases Details the new $1.5 billion share repurchase program, including the ASR, and remaining authorization as of April 30, 2022 - In February 2022, the Board authorized a new $1.5 billion share repurchase program, including a $1 billion Accelerated Share Repurchase (ASR) program[120] - As of April 30, 2022, $265 million of the February 2022 Program's authority remained[121] - Subsequent to April 30, 2022, an additional 1.3 million shares were repurchased for $62 million under the February 2022 Program[121] Common Stock Retirement Reports the retirement of 18 million shares in Q1 2022, detailing the resulting reductions in equity accounts - 18 million shares repurchased under the February 2022 Program were retired in Q1 2022, resulting in reductions of $9 million in Common Stock par value, $61 million in Paid-in Capital, and $965 million in Retained Earnings (Accumulated Deficit)[122] Dividend Policy and Procedures Outlines the increased annual dividend policy and the declaration of the second-quarter 2022 ordinary dividend - The Board increased the annual dividend to $0.80 per share in February 2022, with a quarterly dividend of $0.20 per share paid in March 2022[122] - A second-quarter 2022 ordinary dividend of $0.20 per share was declared in May 2022, payable on June 17, 2022[123] Long-term Debt and Borrowing Facilities Details the company's long-term debt structure and recent debt extinguishment activities, including associated losses | Debt Type | April 30, 2022 ($ millions) | January 29, 2022 ($ millions) | May 1, 2021 ($ millions) | | :-------------------------------------- | :-------------------------- | :---------------------------- | :----------------------- | | Total Senior Debt with Subsidiary Guarantee | 4,261 | 4,259 | 4,750 | | Total Senior Debt | 595 | 595 | 594 | | Total Long-term Debt | 4,856 | 4,854 | 5,344 | - In September and October 2021, the company completed tender offers and redemptions for $270 million of 2023 Notes and $180 million of 2025 Notes, and the remaining $50 million of 2023 Notes, resulting in an $89 million pre-tax loss on debt extinguishment[126] Asset-backed Revolving Credit Facility Describes the $750 million ABL Facility, its borrowing base, and available capacity as of April 30, 2022 - The ABL Facility has aggregate commitments of $750 million, expiring in August 2026, and supports borrowings and letters of credit in U.S. or Canadian dollars[128] - As of April 30, 2022, the borrowing base was $620 million, with no outstanding borrowings and $16 million in outstanding letters of credit, leaving $604 million in availability[128] Credit Ratings Presents the company's credit ratings from Moody's and S&P for corporate, senior unsecured, and subsidiary guaranteed debt | Rating Agency | Corporate | Senior Unsecured Debt with Subsidiary Guarantee | Senior Unsecured Debt | Outlook | | :------------ | :-------- | :-------------------------------------------- | :-------------------- | :------- | | Moody's | Ba2 | Ba2 | B1 | Positive | | S&P | BB | BB | B+ | Positive | Guarantor Summarized Financial Information Provides summarized financial information for guarantor subsidiaries, including assets, liabilities, and income statement metrics - Certain wholly-owned subsidiaries guarantee the company's Notes, which are senior unsecured obligations of the Parent Company[130] | Metric | April 30, 2022 ($ millions) | January 29, 2022 ($ millions) | | :-------------------------------------- | :-------------------------- | :---------------------------- | | Current Assets | 2,115 | 3,365 | | Noncurrent Assets | 2,492 | 2,481 | | Current Liabilities | 2,884 | 2,956 | | Noncurrent Liabilities | 6,151 | 6,155 | | Metric | 2022 ($ millions) | | :------------------------- | :---------------- | | Net Sales | 1,399 | | Gross Profit | 621 | | Operating Income | 256 | | Income Before Income Taxes | 166 | | Net Income | 134 | Contingent Liabilities and Contractual Obligations Outlines contingent lease obligations from spin-offs and sales, noting no material changes in contractual obligations - Remaining contingent obligations related to lease payments from the Victoria's Secret & Co. spin-off and La Senza business sale totaled $277 million as of April 30, 2022, expiring through 2037[133] - No material changes in contractual obligations since January 29, 2022, with fluctuations expected due to the seasonal nature of merchandise inventory purchase obligations[133] RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS States that no recently issued accounting pronouncements had or are expected to have a material impact on financial statements - No new accounting standards adopted in Q1 2022 had a material impact, and none expected to have a material impact in future periods as of June 2, 2022[133] CRITICAL ACCOUNTING POLICIES AND ESTIMATES Discusses critical accounting policies and estimates, confirming no material changes since the 2021 Annual Report on Form 10-K - Management evaluates accounting policies, estimates, and judgments related to inventories, long-lived store assets, claims, income taxes, and revenue recognition, with no material changes since the 2021 Annual Report on Form 10-K[135] Item 3. Quantitative and Qualitative Disclosures About Market Risk Discusses market risks from foreign currency and interest rates, managed through derivatives, and details fair value measurements and credit risk Market Risk Identifies market risks from foreign currency and interest rate changes, managed using derivative financial instruments - The company's financial instruments are exposed to market risk from changes in foreign currency exchange rates and interest rates, managed through derivative financial instruments like foreign currency forward contracts and interest rate swaps[136] Foreign Exchange Rate Risk Explains foreign exchange rate risk on Canadian dollar earnings and international royalties, mitigated by forward contracts - Canadian dollar denominated earnings are subject to exchange rate risk as merchandise is sourced through U.S. dollar transactions, mitigated by foreign currency forward contracts[137] - Royalties from international partners, though denominated in U.S. dollars, are calculated based on local currency sales, exposing them to foreign currency fluctuations[137] Interest Rate Risk Describes interest rate risk management for the investment portfolio and fixed-rate long-term debt, with potential swap use - The investment portfolio, primarily U.S. government obligations and AAA-rated money market funds, is managed for principal preservation, liquidity, and interest income maximization, with minimal risk to principal from interest rate changes due to short-term nature and quality[138] - All long-term debt as of April 30, 2022, has fixed interest rates, and the company may use interest rate swap arrangements to adjust exposure[138] Fair Value of Financial Instruments Provides fair value measurements for financial instruments, including publicly traded debt, and notes short-term carrying values | Metric | April 30, 2022 ($ millions) | January 29, 2022 ($ millions) | May 1, 2021 ($ millions) | | :---------------------- | :-------------------------- | :---------------------------- | :----------------------- | | Principal Value | 4,915 | 4,915 | 5,414 | | Fair Value, Estimated | 4,866 | 5,493 | 6,389 | - The estimated fair value of publicly traded debt decreased from $5,493 million on January 29, 2022, to $4,866 million on April 30, 2022[140] - The carrying values of accounts receivable, accounts payable, and accrued expenses approximate fair value due to their short maturity[139] Concentration of Credit Risk Describes how the company manages credit risk by monitoring financial institutions and reviewing partner credit standing - The company manages credit risk by monitoring financial institutions for cash, cash equivalents, and derivative contracts, and periodically reviewing the credit standing of franchise, license, and wholesale partners[141] Item 4. Controls and Procedures Confirms effective disclosure controls and procedures as of April 30, 2022, with no material changes in internal control over financial reporting - The company's disclosure controls and procedures were evaluated and deemed effective as of April 30, 2022, ensuring timely and accurate reporting[142] - No material changes in internal control over financial reporting occurred during the first quarter of 2022[142] PART II—OTHER INFORMATION Item 1. Legal Proceedings Details legal proceedings, including derivative lawsuits, and a global settlement requiring investments in management and governance measures - The company is a defendant in various lawsuits, but management believes current legal proceedings are not expected to have a material adverse effect on financial position or results[144] - A global settlement was reached in July 2021 for derivative lawsuits, with final approval in May 2022, requiring the company and Victoria's Secret & Co. to each invest $45 million over at least five years in management and governance measures, including a Diversity, Equity, and Inclusion Council[144] Item 1A. Risk Factors Refers to the 2021 Annual Report on Form 10-K for comprehensive risk factors, noting potential material differences in actual results - Readers are directed to the 2021 Annual Report on Form 10-K for a comprehensive discussion of risk factors affecting the business and financial results[145] - Existing and new risk factors could cause actual results to differ materially from forward-looking statements[145] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Summarizes common stock repurchases in Q1 2022, including shares bought under public programs and for tax payments on share-based awards | Period | Total Number of Shares Purchased (in thousands) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Programs (in thousands) | Amount Yet to be Purchased Under the Programs (d) ($ thousands) | | :------------ | :-------------------------------------------- | :--------------------------- | :----------------------------------------------------------------------------------- | :-------------------------------------------------------------- | | February 2022 | 13,642 | $58.72 | 13,624 | 700,000 | | March 2022 | 3,747 | $49.31 | 3,255 | 539,456 | | April 2022 | 1,475 | $50.91 | 1,466 | 464,837 | | Total | 18,864 | | 18,345 | | - Total shares repurchased in Q1 2022 were 18.864 million, with 18.345 million under publicly announced programs[147] - As of April 30, 2022, $464.837 million remained authorized for repurchase under existing programs[147] Item 3. Defaults Upon Senior Securities Indicates 'Not applicable,' confirming no defaults upon senior securities during the reporting period - This item is not applicable, indicating no defaults upon senior securities[148] Item 4. Mine Safety Disclosures Indicates 'Not applicable,' confirming no mine safety disclosures are required for the company - This item is not applicable, indicating no mine safety disclosures[150] Item 5. Other Information States 'None,' indicating no other required disclosures not covered elsewhere in the report - No other information is reported under this item[150] Item 6. Exhibits Lists all exhibits filed with the Form 10-Q, including master confirmations, award agreements, certifications, and XBRL documents - Exhibits include Master Confirmation with JPMorgan Chase Bank, Stock Option and Performance Incentive Plan Restricted Share Unit Award Agreement, List of Guarantor Subsidiaries, and Section 302 and 906 Certifications[149] - XBRL Instance Document and Taxonomy Extension Schema, Calculation, Definition, Label, and Presentation Linkbase Documents are also included[149] SIGNATURE Contains the signature of Wendy C. Arlin, EVP and CFO, certifying the report on behalf of Bath & Body Works, Inc. on June 2, 2022 - The report is signed by Wendy C. Arlin, Executive Vice President and Chief Financial Officer, on June 2, 2022[152]