PresentationKatherine DelahuntMorgan Stanley, Research Division Okay. Good morning, everyone. We can get this started. So for those of you who don't know me, I'm Katy Delahunt, an associate on Alex Straton, Softline Retail and Brands team here at Morgan Stanley. And thank you all for joining us to kick off the second day of Morgan Stanley's Global Consumer and Retail Conference. So I'm really pleased to welcome Bath & Body Works. And here on the stage with us, they're the leader in home fragrance, body car ...

Financial Data and Key Metrics Changes - In Q3, the company reported net sales of $1.6 billion, a decrease of 1% compared to the prior year, and adjusted earnings per diluted share of 35 cents, both below expectations [21][22] - The gross profit rate was 41.3%, down 220 basis points year-over-year, primarily due to a 260 basis point decrease in merchandise margin impacted by tariffs [23] - Operating income for Q3 was $161 million, down 26% from the previous year [24] - For Q4, the company expects sales to decline by high single digits and a gross profit rate of approximately 44.5% [25][26] - Full-year net sales guidance has been lowered from a growth of 1.5%-2.7% to a decline of low single digits, with adjusted earnings per diluted share guidance reduced from $3.35-$3.60 to at least $2.87 [27] Business Line Data and Key Metrics Changes - All core categories experienced low single-digit declines in Q3, indicating a need for focused investment in these areas [22] - U.S. and Canadian store net sales were flat at $1.2 billion, while direct net sales decreased by 7% to $299 million [22] - International net sales increased by 6% to $73 million, with system-wide retail sales growing by 16% [23] Market Data and Key Metrics Changes - Consumer sentiment is negatively impacting purchase intent, with recent data showing a decline in consumer confidence due to job loss concerns and affordability issues [25] - The competitive retail marketplace is highly challenging, with customers waiting for deeper discounts before making purchases [25] Company Strategy and Development Direction - The company is focusing on a consumer-first strategy with four pillars: creating innovative products, reigniting the brand, winning in the marketplace, and operating with speed and efficiency [20][10] - Plans include reducing SKU complexity, exiting non-core categories, and investing in core product categories to attract new consumers [12][68] - The company aims to launch on Amazon in early 2026 to reach new consumers and enhance brand visibility [15][16] Management's Comments on Operating Environment and Future Outlook - Management acknowledges that the current consumer environment is challenging and that the brand is not fulfilling its potential [5][34] - The company is committed to making necessary changes to return to growth, with a focus on long-term sustainable growth [18][51] - Management expects that the initiatives will take time to impact financial performance, with more visible results anticipated in the second half of 2026 [38][47] Other Important Information - The company plans to deliver $250 million in cost savings over the next two years, with over half identified for 2026 [17] - Capital expenditures for the year are projected at approximately $240 million, down from previous guidance [27] - Free cash flow expectation for the full year is approximately $650 million, reflecting current performance trends [28] Q&A Session Summary Question: What changed between when the CEO first joined and current expectations? - The CEO noted that the brand is not fulfilling its potential and that the focus on adjacencies has resulted in underinvestment in core categories [34][35] Question: What are the key KPIs for the new strategy? - The CEO highlighted total active consumers and growth in core categories as key metrics, along with improvements in digital traffic and dwell time [45][46] Question: How will the company balance investments and margins in 2026? - The CEO indicated that 2026 will focus on investing behind the brand while also unlocking $250 million in savings to fund these investments [51] Question: What is the plan for the Amazon partnership? - The CEO explained that the initial product assortment will include evergreen products, with plans to expand thoughtfully over time [62] Question: How will the company exit non-go-forward categories? - The CEO stated that SKU rationalization will begin in Q1 2026, focusing on consumer feedback to simplify the product offering [80][81]