Bath & Body Works, Inc. (BBWI)

CIK: 0000701985. SIC: 5990 Retail-Retail Stores, NEC. Latest 10-K as of: 2026-03-12.

SIC breadcrumb: Retail Trade > Miscellaneous Retail > SIC 5990 Retail-Retail Stores, NEC

SEC company page: https://www.sec.gov/edgar/browse/?CIK=701985. Latest filing source: 0000701985-26-000008.

Selected Fundamentals

Financials

Annual standardized facts from SEC companyfacts as of latest extracted filing date 2026-03-12. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0000701985.json. Derived margins are computed from the extracted annual SEC facts.

Flow metrics use full-year FY periods from 10-K/10-K/A filings; balance-sheet metrics use FY-end instants. Missing metrics are omitted rather than fabricated.

Financial Charts

Quarterly

Quarterly standardized facts from SEC companyfacts as of latest extracted filing date 2026-05-27. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0000701985.json.

Flow metrics use discrete quarter-length periods from 10-Q/10-Q/A filings. Q4 revenue and net income are derived only when annual FY and nine-month YTD facts exist for the same fiscal year; derived Q4 values are labeled. EPS Q4 is not derived.

Quarterly Charts

Macro Cross-References

• CPIAUCSL - Consumer Price Index for All Urban Consumers: All Items in U.S. City Average
• UNRATE - Unemployment Rate
• FEDFUNDS - Federal Funds Effective Rate
• CES0500000003 - Average Hourly Earnings of All Employees, Total Private
• DFEDTARU - Federal Funds Target Range - Upper Limit
• DFEDTARL - Federal Funds Target Range - Lower Limit
• DGS3MO - Market Yield on U.S. Treasury Securities at 3-Month Constant Maturity
• DGS2 - Market Yield on U.S. Treasury Securities at 2-Year Constant Maturity
• DGS10 - Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity
• DGS30 - Market Yield on U.S. Treasury Securities at 30-Year Constant Maturity
• T10Y2Y - 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity
• CPILFESL - Consumer Price Index for All Urban Consumers: All Items Less Food and Energy
• CPIUFDSL - Consumer Price Index for All Urban Consumers: Food
• CPIENGSL - Consumer Price Index for All Urban Consumers: Energy
• CUSR0000SAH1 - Consumer Price Index for All Urban Consumers: Shelter
• PCEPI - Personal Consumption Expenditures: Chain-type Price Index
• PCEPILFE - Personal Consumption Expenditures Excluding Food and Energy: Chain-type Price Index
• PPIACO - Producer Price Index by Commodity: All Commodities
• T10YIE - 10-Year Breakeven Inflation Rate
• U6RATE - Total Unemployed, Plus All Marginally Attached Workers Plus Total Employed Part Time for Economic Reasons
• PAYEMS - All Employees, Total Nonfarm
• CIVPART - Labor Force Participation Rate
• EMRATIO - Employment-Population Ratio
• UNEMPLOY - Unemployed
• CE16OV - Employment Level
• ICSA - Initial Claims
• JTSJOL - Job Openings: Total Nonfarm
• JTSQUR - Quits: Total Nonfarm
• GDPC1 - Real Gross Domestic Product
• A191RL1Q225SBEA - Real Gross Domestic Product: Percent Change from Preceding Period
• INDPRO - Industrial Production: Total Index
• TCU - Capacity Utilization: Total Index
• HOUST - New Privately-Owned Housing Units Started: Total Units
• PERMIT - New Privately-Owned Housing Units Authorized in Permit-Issuing Places: Total Units
• RSAFS - Advance Retail Sales: Retail Trade
• PCE - Personal Consumption Expenditures
• DSPIC96 - Real Disposable Personal Income
• PSAVERT - Personal Saving Rate
• M2SL - M2
• BOPGSTB - U.S. International Trade in Goods and Services: Balance
• MSPUS - Median Sales Price of Houses Sold for the United States
• HSN1F - New One Family Houses Sold: United States
• RHORUSQ156N - Homeownership Rate in the United States
• TTLCONS - Total Construction Spending: Total Construction in the United States
• RRVRUSQ156N - Rental Vacancy Rate in the United States
• TOTALSL - Total Consumer Credit Owned and Securitized
• REVOLSL - Revolving Consumer Credit Owned and Securitized
• DRCCLACBS - Delinquency Rate on Credit Card Loans, All Commercial Banks
• GDP - Gross Domestic Product
• GPDI - Gross Private Domestic Investment
• GCE - Government Consumption Expenditures and Gross Investment
• PCEC - Personal Consumption Expenditures
• NETEXP - Net Exports of Goods and Services
• GFDEBTN - Federal Debt: Total Public Debt
• GFDEGDQ188S - Federal Debt: Total Public Debt as Percent of Gross Domestic Product
• FYFSD - Federal Surplus or Deficit
• FGRECPT - Federal Government Current Receipts
• FGEXPND - Federal Government: Current Expenditures
• MANEMP - All Employees, Manufacturing
• USCONS - All Employees, Construction
• USTRADE - All Employees, Retail Trade
• USFIRE - All Employees, Financial Activities
• USGOVT - All Employees, Government
• AWHAETP - Average Weekly Hours of All Employees, Total Private
• DGORDER - Manufacturers' New Orders: Durable Goods
• NEWORDER - Manufacturers' New Orders: Nondefense Capital Goods Excluding Aircraft
• BUSINV - Total Business Inventories
• EXPGS - Exports of Goods and Services
• IMPGS - Imports of Goods and Services
• IR - Import Price Index (End Use): All Commodities
• PPIFIS - Producer Price Index by Commodity: Final Demand

Latest quarter (10-Q)

Latest 10-Q source: 0000701985-26-000014.

Extracted between Part I Item 2 and the next Item 3/4 or Part II heading after HTML sanitization. Confidence: high. Filing date: 2026-05-27. Report date: 2026-05-02.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of financial condition and results of operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) as codified in the Accounting Standards Codification. The following information should be read in conjunction with our financial statements and the related notes included in Part I, Item 1. Financial Statements in this Quarterly Report on Form 10-Q.

Executive Overview

In the first quarter of 2026, total Net Sales were $1,378 million, which decreased $46 million, or 3.2%, compared to the first quarter of 2025. Total North American Net Sales decreased $52 million, primarily due to decrease in transactions, partially offset by an increase in average dollar sales, and International and Other Net Sales increased $6 million. Our first quarter Operating Income was $231 million, which increased $22 million, or 10.4%, compared to the first quarter of 2025, and our Operating Income rate (expressed as a percentage of Net Sales) increased to 16.8% from 14.7%. The Operating Income results were primarily due to lower General, Administrative and Store Operating Expenses as a result of an $88 million pre-tax gain related to settlements of payment card interchange fee litigation, partially offset by declines in both Net Sales and the Gross Profit rate.

For additional information related to our first quarter 2026 financial performance, see “Results of Operations.”

Consumer First Formula

In 2025, we launched the Consumer First Formula, our multi-year, comprehensive transformation plan to revitalize Bath & Body Works across brand, product and marketplace. The Consumer First Formula invests behind our largest revenue driving opportunities to try to attract new, younger consumers to the brand, which we expect will help us unlock our next era of sustainable growth. Early consumer response is consistent with our roadmap, and we expect the impact to build through the year and become more visible to consumers and in our financials as we move throughout the remainder of 2026 and into 2027.

Outlook

Macroeconomic Factors

During the first quarter, the conflict between U.S. and Iran escalated and expanded to include much of the Middle East region. This has led to transportation restrictions in the region, resulting in volatility in global energy markets, commodities pricing, transportation costs and foreign currency exchange rates. These recent events have increased global economic uncertainty and may affect consumer demand in certain markets and contribute to higher global inflation and input costs.

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IEEPA Tariff Refunds

In February 2026, the U.S. Supreme Court issued a decision invalidating tariffs imposed under the International Emergency Economic Powers Act (“IEEPA”). In March 2026, the U.S. Court of International Trade ordered U.S. Customs and Border Protection (“CBP”) to liquidate all non-final entries without regard to IEEPA duties. Additionally, in April 2026, CBP launched Phase 1 of the new Consolidated Administration and Processing of Entries tool in the Automated Commercial Environment portal, creating a process for submitting IEEPA refund claims.

As of May 2, 2026, we had not recognized the effect of any potential refunds as the timing and amount of any potential refunds for previously collected tariffs was uncertain and may be subject to further legal and regulatory developments.

Adjusted Financial Information

In addition to our results provided in accordance with GAAP above and throughout this Quarterly Report on Form 10-Q, provided below are non-GAAP measures that present Operating Income, Net Income and Net Income per Diluted Share for the first quarter of 2026 on an adjusted basis, which removes certain items. We believe that these items are not indicative of our operations due to their size and nature. We did not make any adjustments to our reported results in the first quarter of 2025.

We use adjusted financial information as key performance measures for the purpose of evaluating performance internally. These non-GAAP measures are not intended to replace the presentation of our financial results in accordance with GAAP. Instead, we believe that the presentation of adjusted financial information provides additional information to investors to facilitate the comparison of past and present operations. Further, our definitions of adjusted financial information may differ from similarly titled measures used by other companies. The table below reconciles our GAAP financial measures to our non-GAAP financial measures:

(in millions, except per share amounts)

First Quarter

2026

2025

Reconciliation of Reported Operating Income to Adjusted Operating Income

Reported Operating Income

$

231 

$

209 

Interchange Fee Settlements (a)

(88)

— 

Business Transformation Activities (b)

8 

— 

Adjusted Operating Income

$

151 

$

209 

Reconciliation of Reported Net Income to Adjusted Net Income

Reported Net Income

$

183 

$

105 

Interchange Fee Settlements (a)

(88)

— 

Business Transformation Activities (b)

8 

— 

Loss on Extinguishment of Debt (c)

8 

— 

Gain on Sale of Non-core Asset (d)

(3)

— 

Tax Effect of Adjustments

19 

— 

Tax Benefit from Resolution of Certain Tax matters (e)

(62)

— 

Adjusted Net Income

$

65 

$

105 

Reconciliation of Reported Net Income per Diluted Share to Adjusted Net Income per Diluted Share

Reported Net Income per Diluted Share

$

0.90 

$

0.49 

Interchange Fee Settlements (a)

(0.43)

— 

Business Transformation Activities (b)

0.04 

— 

Loss on Extinguishment of Debt (c)

0.04 

— 

Gain on Sale of Non-core Asset (d)

(0.02)

— 

Tax Effect of Adjustments

0.09 

— 

Tax Benefit from Resolution of Certain Tax matters (e)

(0.31)

— 

Adjusted Net Income per Diluted Share

$

0.32 

$

0.49 

 ________________

(a)In the first quarter of 2026, we recognized an $88 million pre-tax gain ($66 million after tax) as a reduction to General, Administrative and Store Operating Expenses, related to cash proceeds received, net of legal fees, for favorable settlements of payment card interchange fee litigation.

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(b)In the first quarter of 2026, we recognized aggregate pre-tax costs of $8 million ($6 million after tax), primarily included in General, Administrative and Store Operating Expenses, resulting from business transformation activities in connection with the Consumer First Formula.

(c)In the first quarter of 2026, we recognized an $8 million pre-tax loss ($6 million after tax) in Other Income, Net, related to the repurchase and early extinguishment of outstanding debt. For additional information, see Note 7, “Long-term Debt and Borrowing Facility” included in Part 1, Item 1. Financial Statements.

(d)In the first quarter of 2026, we recognized a $3 million pre-tax gain ($3 million after tax) in Other Income, Net, related to the sale of a non-core asset.

(e)In the first quarter of 2026, we recognized a $62 million tax benefit associated with the resolution of certain tax matters. For additional information, see Note 6, “Income Taxes” included in Part 1, Item 1. Financial Statements.

Company-operated Stores

The following table compares Company-operated store data for the first quarters of 2026 and 2025:

First Quarter

2026

2025

% Change

Sales per Average Selling Square Foot (a)

$

194 

$

206 

(5.8

%)

Sales per Average Store (in thousands) (a)

$

552 

$

585 

(5.7

%)

Average Store Size (selling square feet)

2,852 

2,847 

0.2

%

Total Selling Square Feet (in thousands)

5,484 

5,409 

1.4

%

 ________________

(a)Sales per average selling square foot and sales per average store, which are indicators of store productivity, are calculated based on store sales for the period divided by the average, including the beginning and end of period, of total selling square footage and store count, respectively.

The following table represents Company-operated store activity for the first quarter of 2026:

Stores

Stores

January 31, 2026

Opened

Closed

May 2, 2026

United States

1,814 

13 

(17)

1,810 

Canada

113 

— 

— 

113 

Total

1,927 

13 

(17)

1,923 

Partner-operated Stores

The following table represents Partner-operated store activity for the first quarter of 2026:

Stores

Stores

January 31, 2026

Opened

Closed

May 2, 2026

International

536 

8 

(2)

542 

International - Travel Retail

37 

— 

— 

37 

Total International (a)

573 

8 

(2)

579 

________________

(a)Includes store locations only and does not include kiosks, shop-in-shops, gondola or beauty counter locations.

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Results of Operations

First Quarter of 2026 Compared to the First Quarter of 2025

Net Sales

The following table provides Net Sales for the first quarter of 2026 in comparison to the first quarter of 2025:

2026

2025

% Change

(in millions)

Stores - U.S. and Canada (a)

$

1,062 

$

1,110 

(4.3

%)

Direct - U.S. and Canada

246 

250 

(1.5

%)

International and Other (b)

70 

64 

9.0

%

Total Net Sales

$

1,378 

$

1,424 

(3.2

%)

 _______________

(a)Results include fulfilled buy online pick up in store orders.

(b)Results include royalties associated with franchised stores, as well as international and domestic wholesale sales.

For the first quarter of 2026, total Net Sales were $1,378 million and decreased $46 million, or 3.2%, compared to the first quarter of 2025. Stores Net Sales decreased $48 million, or 4.3%, driven by a decrease in transactions partially offset by an increase in average dollar sales. Direct Net Sales decreased $4 million, or 1.5%, primarily driven by lower shipping and handling revenue partially offset by an increase in orders and average order size. International and Other Net Sales increased $6 million, or 9.0%, compared to the first quarter of 2025.

Gross Profit

For the first quarter of 2026, our Gross Profit was $587 million, which decreased $59 million compared to the first quarter of 2025, and our Gross Profit rate (expressed as a percentage of Net Sales) was 42.6%, which decreased from 45.4% in the first quarter of 2025. Gross Profit dollars decreased due to a decline in the merchandise margin rate, primarily driven by tariffs, inflation and crude oil impacts as well as category mix, and the decline in Net Sales.

The Gross Profit rate decreased primarily due to the lower merchandise margin rate and Buying and Occupancy Expenses deleverage on lower Net Sales.

General, Administrative and Store Operating Expenses

The following table provides detail for our General, Administrative and Store Operating Expenses for the first quarter of 2026 compared to the first quarter of 2025:

2026

2025

Change

(in millions)

% of Net Sales

(in millions)

% of Net Sales

(in millions)

% of Net Sales

Selling Expenses

$

168 

12.2

%

$

256 

18.0

%

$

(88)

(5.7

%)

Marketing Expenses

53 

3.9

%

49 

3.5

%

4 

0.4

%

General and Administrative Expenses

135 

9.8

%

132 

9.3

%

3 

0.5

%

Total

$

356 

25.9

%

$

437 

30.7

%

$

(81)

(4.8

%)

For the first quarter of 2026, our total General, Administrative and Store Operating Expenses were $356 million, which decreased $81 million compared to the first quarter of 2025, and the rate (expressed as a percentage of Net Sales) was 25.9%, which decreased from 30.7% in the first quarter of 2025. Our General, Administrative and Store Operating Expenses and rate both decreased primarily driven by an $88 million pre-tax gain, recorded as a reduction to Selling Expenses, related to cash proceeds received, net of legal fees, for favorable settlements of payment card interchange fee litigation. The first quarter of 2026 rate also reflects deleverage due to the Net Sales decline.

Other In

[Excerpt truncated for page length; source filing is linked above.]

Latest 10-K MD&A

Extracted between Item 7 and the next Item 7A/8 heading after HTML sanitization. Confidence: high. Filing date: 2026-03-12. Report date: 2026-01-31.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis of financial condition and results of operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) as codified in the Accounting Standards Codification (“ASC”). The following information should be read in conjunction with our financial statements and the related notes included in Item 8. Financial Statements and Supplementary Data.

Our operating results are generally impacted by economic changes and, therefore, we monitor the retail environment using, among other things, certain key industry performance indicators including competitor performance and traffic data. These indicators can provide insight into consumer spending patterns and shopping behavior in the current retail environment and assist us in assessing our performance as well as the potential impact of industry trends on our future operating results. Additionally, we evaluate a number of key performance indicators including net sales, gross profit, operating income and other performance metrics, such as sales per average selling square foot and sales per average store, in assessing our performance.

A discussion regarding our financial condition and results of operations for 2025 compared to 2024 is presented below. A discussion regarding our financial condition and results of operations for 2024 compared to 2023 can be found under Item 7. of our Annual Report on Form 10-K for the year ended February 1, 2025, filed with the SEC on March 14, 2025.

Executive Overview

Our 2025 performance did not meet our expectations. While we believe macroeconomic pressures impacted consumer sentiment throughout the year, we also underperformed in our sector. Accordingly, we took actions to help return the Company to sustainable growth. During the second quarter, we welcomed our new Chief Executive Officer, Daniel Heaf, to the business and, in the third quarter, launched the Consumer First Formula, our multi-year, comprehensive transformation plan to revitalize Bath & Body Works across brand, product and marketplace. The Consumer First Formula invests behind our four largest revenue driving opportunities to try to attract new, younger consumers to the brand, which we expect will help us unlock our next era of sustainable growth:

•Creating Disruptive and Innovative Products: We intend to reestablish best in class product leadership in our hero categories.

•Reigniting the Brand: We expect to invest in marketing to build a brand with cultural currency, showing up in culture through creators, in store visuals and bigger storytelling, creating meaningful emotional connections with consumers.

•Winning in the Marketplace: We plan to expand access and ease of discovery through an enhanced digital experience, third party channels and refreshed in-store merchandising to acquire new and lapsed consumers.

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•Operating with Speed and Efficiency: We are working to transform Bath & Body Works to be a faster and more efficient organization by empowering teams, working with focus and agility to prioritize what customers care about most. We have plans to deliver $250 million in cost savings over the next two years, with $175 million expected in fiscal 2026. We expect that these savings will be used to invest in revenue-generating initiatives across product and brand.

Fiscal 2025 Overview

For 2025, total Net Sales were $7,291 million, which decreased $16 million, or 0.2%, compared to 2024. Total North American Net Sales decreased $31 million compared to 2024, due to a decline in transactions mostly offset by increased order size, and International Net Sales increased $15 million. For 2025, Operating Income was $1,126 million, which decreased $140 million, or 11%, compared to 2024, and our Operating Income rate (expressed as a percentage of Net Sales) decreased to 15.4% from 17.3%. The Operating Income results were impacted by an increase in General, Administrative and Store Operating Expenses and a decline in our Gross Profit rate.

For additional information related to our 2025 financial performance, see “Results of Operations – 2025 Compared to 2024.”

Fiscal 2026 Outlook

We expect 2026 to be a year of disciplined investment behind the Consumer First Formula, balancing rigorous cost control with targeted reinvestment intended to position the business for sustainable long-term growth. We are confident in our strategy and our ability to reposition the Company as a premier, global brand. While we anticipate a macroeconomic environment similar to 2025, with continued value-oriented consumer behavior, we are focused on translating our strategy into action as we realign the business to evolving consumer expectations.

Adjusted Financial Information

In addition to our results provided in accordance with GAAP above and throughout this Annual Report on Form 10-K, provided below are non-GAAP measures that present Operating Income, Net Income and Net Income per Diluted Share in 2025 and 2024 on an adjusted basis, which removes certain items. We believe that these items are not indicative of our ongoing operations due to their size and nature. We use adjusted financial information as key performance measures for the purpose of evaluating performance internally. These non-GAAP measures are not intended to replace the presentation of our financial results in accordance with GAAP. Instead, we believe that the presentation of adjusted financial information provides additional information to investors to facilitate the comparison of past and present operations. Further, our definitions of adjusted financial information may differ from similarly titled measures used by other companies.

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The table below reconciles our GAAP financial measures to our non-GAAP financial measures:

(in millions, except per share amounts)

2025

2024

Reconciliation of Reported Operating Income to Adjusted Operating Income

Reported Operating Income

$

1,126 

$

1,266 

Business Transformation Activities (a)

15 

— 

Leadership Transition Costs (b)

15 

— 

Adjusted Operating Income

$

1,156 

$

1,266 

Reconciliation of Reported Net Income to Adjusted Net Income

Reported Net Income

$

649 

$

798 

Business Transformation Activities (a)

15 

— 

Leadership Transition Costs (b)

15 

— 

Gain on Sale of Non-core Asset (c)

(8)

— 

Gain on Sales of Easton Investments (d)

— 

(39)

Tax Effect of Adjustments

(2)

14 

Tax Benefit from Valuation Allowance Release (e)

— 

(44)

Adjusted Net Income

$

669 

$

729 

Reconciliation of Reported Net Income per Diluted Share to Adjusted Net Income per Diluted Share

Reported Net Income Per Diluted Share

$

3.11 

$

3.61 

Business Transformation Activities (a)

0.07 

— 

Leadership Transition Costs (b)

0.07 

— 

Gain on Sale of Non-core Asset (c)

(0.04)

— 

Gain on Sales of Easton Investments (d)

— 

(0.18)

Tax Effect of Adjustments

(0.01)

0.06 

Tax Benefit from Valuation Allowance Release (e)

— 

(0.20)

Adjusted Net Income Per Diluted Share

$

3.21 

$

3.29 

 ________________

(a)In 2025, we recognized aggregate pre-tax costs of $15 million (after-tax costs of $12 million), primarily included in General, Administrative and Store Operating Expenses, resulting from business transformation activities in connection with the Consumer First Formula. These costs are primarily related to severance benefits.

(b)In 2025, we recognized aggregate pre-tax costs of $15 million (after-tax costs of $14 million), included in General, Administrative and Store Operating Expenses, due to the transition of certain members of the leadership team, primarily related to severance benefits.

(c)In 2025, we recognized a pre-tax gain of $8 million (after-tax gain of $6 million), included in Other Income, Net, related to the sale of a non-core asset.

(d)In 2024, we sold our investments in Easton Town Center and Easton Gateway, resulting in an aggregate pre-tax gain of $39 million (after-tax gain of $25 million), included in Other Income, Net. For additional information, see Note 1 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.

(e)In 2024, we recognized a $44 million tax benefit related to the release of a valuation allowance on a deferred tax asset.

Company-operated Store Data

The following table compares Company-operated store data for 2025 and 2024:

2025

2024

% Change

Sales per Average Selling Square Foot (a)

$

1,026 

$

1,042 

(2

%)

Sales per Average Store (in thousands) (a)

$

2,921 

$

2,955 

(1

%)

Average Store Size (selling square feet)

2,851 

2,845 

—

%

Total Selling Square Feet (in thousands)

5,493 

5,391 

2

%

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 ________________

(a)Sales per average selling square foot and sales per average store, which are indicators of store productivity, are calculated based on store sales for the period divided by the average, including the beginning and end of period, of total selling square footage and store count, respectively.

The following table represents Company-operated store data for 2025:

Stores

Stores

February 1, 2025

Opened

Closed

January 31, 2026

United States

1,782 

94 

(62)

1,814 

Canada

113 

— 

— 

113 

Total

1,895 

94 

(62)

1,927 

Partner-operated Store Data

The following table represents partner-operated store data for 2025:

Stores

Stores

February 1, 2025

Opened

Closed

January 31, 2026

International

494 

70 

(28)

536 

International - Travel Retail

35 

4 

(2)

37 

Total International (a)

529 

74 

(30)

573 

________________

(a)Includes store locations only and does not include kiosks, shop-in-shops, gondola or beauty counter locations.

Results of Operations—2025 Compared to 2024

Net Sales

The following table provides Net Sales for 2025 in comparison to 2024:

2025

2024

% Change

(in millions)

Stores - U.S. and Canada (a)

$

5,582 

$

5,534 

0.9

%

Direct - U.S. and Canada

1,395 

1,474 

(5.4

%)

International (b)

314 

299 

4.9

%

Total Net Sales

$

7,291 

$

7,307 

(0.2

%)

_______________

(a)Results include fulfilled buy online, pickup in store (“BOPIS”) orders.

(b)Results include royalties associated with franchised stores and wholesale sales.

Total Net Sales were $7,291 million and decreased $16 million, or 0.2%, compared to 2024. Direct Net Sales decreased $79 million, or 5.4%, due to a decline in fulfilled orders, which was primarily due to our customers continuing to select our BOPIS option (which is recognized as store Net Sales), partially offset by an increased average order size. Stores Net Sales increased $48 million, or 0.9%, primarily driven by an increase in transactions due to higher BOPIS fulfilled orders and new store growth. International Net Sales increased $15 million, or 4.9%, compared to 2024.

Gross Profit

Our Gross Profit was $3,189 million, which decreased $45 million compared to 2024, and our Gross Profit rate (expressed as a percentage of Net Sales) was 43.7%, which decreased from 44.3% in 2024. Gross Profit dollars decreased due to the decline in the merchandise margin rate, primarily driven by tariffs, partially offset by lower Buying and Occupancy Expenses, which benefited from exiting a third-party fulfillment center in the first quarter of 2025.

The Gross Profit rate decreased due to the lower merchandise margin rate, primarily driven by tariffs, partially offset by the decline in Buying and Occupancy Expenses.

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General, Administrative and Store Operating Expenses

The following table provides details for our General, Administrative and Store Operating Expenses for 2025 compared to 2024:

2025

2024

Change

(in millions)

% of Net Sales

(in millions)

% of Net Sales

(in millions)

% of Net Sales

Selling Expenses

$

1,238 

17.0

%

$

1,191 

16.3

%

$

47 

0.7

%

Marketing Expenses

255 

3.5

%

242 

3.3

%

13 

0.2

%

General and Administrative Expenses

570 

7.8

%

535 

7.3

%

35 

0.5

%

Total

$

2,063 

28.3

%

$

1,968 

26.9

%

$

95 

1.4

%

Our total General, Administrative and Store Operating Expenses were $2,063 million, which increased $95 million compared to 2024, and the rate (expressed as a percentage of Net Sales) was 28.3%, which increased from 26.9% in 2024. Selling Expenses increased primarily due to higher payroll related costs, mainly driven by investments in wages and new stores, and higher healthcare costs. General and Administrative Expenses increased primarily due to $15 million of costs related to the transition of certain members of the leadership team and $14 million of business transformation activities.

The General, Administrative and Store Operating Expense rate increased primarily due to higher healthcare costs, leadership transition costs, business transformation activities and the increase in payroll related costs, as well as incremental investments in marketing.

Other Income and Expenses

Interest Expense

The following table provides the average daily borrowings and average borrowing rates for 2025 and 2024:

2025

2024

Average daily borrowings (in millions)

$

3,916 

$

4,273 

Average borrowing rate

7.1

%

7.3

%

Our Interest Expense was $276 million, which decreased $36 million compared to 2024. The decrease was due to lower average daily borrowings and borrowing rate, which were driven by the early extinguishment of outstanding notes in 2024.

Other Income, Net

Our Other Income, Net was $32 million compared to $74 million for 2024. Included in 2025 is an $8 million pre-tax gain on the sale of a non-core asset. Included in 2024 is an aggregate $39 million pre-tax gain on sales of certain Easton investments and the recognition of a $10 million pre-tax loss on extinguishment of outstanding notes. The remaining decrease is primarily due to lower interest income on invested cash in 2025.

Provision for Income Taxes

Our effective tax rate was 26.4% compared to 22.4% in 2024. The 2025 rate was higher than our combined estimated federal and state statutory rate primarily due to accrued interest expense related to unrecognized tax benefits. The 2024 rate was lower than our combined estimated federal and state statutory rate primarily due to the sales of Easton investments, which resulted in the release of a valuation allowance on a deferred tax asset.

FINANCIAL CONDITION

A discussion regarding our financial condition for 2024 compared to 2023 can be found under Item 7. of our Annual Report on Form 10-K for the year ended February 1, 2025, filed with the SEC on March 14, 2025.

Liquidity and Capital Resources

Liquidity, or access to cash, is an important factor in determining our financial stability. We are committed to maintaining adequate liquidity. Cash generated from our operating activities provides the primary resources to support current operations, growth initiatives, seasonal funding requirements, future common stock and debt repurchases, and capital expenditures. Our cash provided from operations is impacted by our net income and working capital changes. Our net income is impacted by, among other things, sales volume, seasonal sales patterns, success of new product introductions and product and market expansions, profit margins, income taxes and inflationary pressures. Our sales are typically highest during the fourth quarter of the fiscal year due to seasonal and holiday-related sales patterns. Generally, our need for working capital peaks during the summer and fall months as inventory builds in anticipation of the holiday period. Our cash and cash equivalents held by foreign subsidiaries were $210 million as of January 31, 2026.

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During 2025, we did not repurchase any of our outstanding senior notes. However, subsequent to January 31, 2026, we issued a notice of redemption for any and all outstanding of our 6.694% Senior Notes due January 2027. We expect the aggregate redemption price to be approximately $289 million, to be paid in the first quarter of fiscal 2026.

We repurchased 15.1 million shares of our common stock for $400 million. We may, from time to time, repurchase, or otherwise retire, additional debt or shares of our common stock, as applicable.

We believe that our current cash position, our cash flows generated from operations and our borrowing capacity under our ABL Facility will be sufficient to meet our liquidity needs, including capital expenditure requirements, for at least the next twelve months.

Debt Leverage Ratio

Our debt leverage ratio is defined as adjusted debt, which includes our short-term and long-term debt as well as total operating lease liabilities, divided by earnings before interest, taxes, depreciation, amortization and rent (“EBITDAR”). EBITDAR is calculated as Total Company Adjusted Operating Income, or Operating Income in periods where there are no adjustments, which excludes interest and taxes, before depreciation, amortization and lease costs. Our debt leverage ratio is a non-GAAP financial measure which we believe is useful to analyze our capital structure. Our debt leverage ratio calculation may not be comparable to similarly-titled measures reported by other companies. Our debt leverage ratio should be evaluated in addition to, and not considered a substitute for, other GAAP financial measures.

The following table provides our debt leverage ratio as of, and for the years ended, January 31, 2026 and February 1, 2025:

January 31,

2026

February 1,

2025

(dollars in millions)

Total Debt

$

3,892 

$

3,884 

Total Operating Lease Liabilities

1,062 

1,075 

Adjusted Debt

$

4,954 

$

4,959 

Adjusted Operating Income

$

1,156 

$

1,266 

Depreciation and Amortization

254 

282 

Total Lease Costs

437 

418 

EBITDAR

$

1,847 

$

1,966 

Debt Leverage Ratio

2.7

2.5

Free Cash Flow

Our free cash flow is defined as net cash provided by operating activities less capital expenditures. Free cash flow is a non-GAAP financial measure which we believe is useful to analyze our ability to generate cash. Our free cash flow calculation may not be comparable to similarly-titled measures reported by other companies. Our free cash flow calculation should be evaluated in addition to, and not considered a substitute for, other GAAP financial measures.

The following table provides our free cash flows for 2025 and 2024:

2025

2024

(in millions)

Net Cash Provided by Operating Activities (a)

$

1,102 

$

886 

Capital Expenditures

(237)

(226)

Free Cash Flow

$

865 

$

660 

________________

(a)Fiscal 2024 includes tax payments of $65 million related to the sales of our investments in Easton Town Center and Easton Gateway.

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Cash Flows

The following table provides a summary of our Consolidated Statements of Cash Flows for 2025 and 2024:

2025

2024

(in millions)

Cash and Cash Equivalents, Beginning of Year

$

674 

$

1,084 

Net Cash Flows Provided by Operating Activities

1,102 

886 

Net Cash Flows Used for Investing Activities

(227)

(162)

Net Cash Flows Used for Financing Activities

(599)

(1,132)

Effects of Exchange Rate Changes on Cash and Cash Equivalents

3 

(2)

Net Increase (Decrease) in Cash and Cash Equivalents

279 

(410)

Cash and Cash Equivalents, End of Year

$

953 

$

674 

Operating Activities

Net cash provided by operating activities in 2025 was $1,102 million, including net income of $649 million. Net income included depreciation of $254 million, deferred income tax expense of $63 million and share-based compensation expense of $31 million. Other changes in assets and liabilities represent items that had a current period cash flow impact, such as changes in working capital. The most significant items in working capital were the cash flow benefit in Accounts Payable, Accrued Expenses and Other of $111 million due to our efforts to improve working capital and the $57 million cash flow detriment associated with Income Taxes Payable.

Net cash provided by operating activities in 2024 was $866 million, including net income of $798 million. Net income included depreciation of $282 million, a deferred income tax benefit of $112 million, share-based compensation expense of $40 million and an aggregate pre-tax gain on sales of certain Easton investments of $39 million. Other changes in assets and liabilities represent items that had a current period cash flow impact, such as changes in working capital. The most significant items in working capital were the $50 million decrease associated with Accounts Payable, Accrued Expenses and Other, the $26 million decrease associated with Inventory and the $23 million decrease associated with Income Taxes Payable.

Investing Activities

Net cash used for investing activities in 2025 was $227 million, primarily related to capital expenditures of $237 million, partially offset by aggregate cash proceeds of $9 million related to the sale of a Non-core asset. The capital expenditures included approximately $140 million related to new off-mall stores and remodels of existing stores, approximately $45 million for various IT projects, primarily to support the growth and profitability of our business, and approximately $25 million related to distribution and logistics capabilities.

Net cash used for investing activities in 2024 was $162 million, primarily related to capital expenditures of $226 million, partially offset by aggregate cash proceeds, net of fees, of $40 million related to the sales of certain Easton investments. The capital expenditures included approximately $140 million related to new off-mall stores and remodels of existing stores, approximately $45 million for various IT projects, primarily to support the growth and profitability of our business, and approximately $25 million related to distribution and logistics capabilities.

In 2026, we expect to invest approximately $270 million in capital expenditures, focused on high return real estate, Consumer First Formula investments, largely related to product assortment, and logistics and fulfillment upgrades.

Financing Activities

Net cash used for financing activities in 2025 was $599 million, primarily consisting of $401 million for share repurchases, dividend payments of $0.80 per share, or $167 million and payments on finance leases of $14 million.

Net cash used for financing activities in 2024 was $1,132 million, primarily consisting of $522 million for debt repurchases, $401 million for share repurchases, dividend payments of $0.80 per share, or $177 million, $17 million for payments on finance leases and tax payments of $16 million related to share-based awards.

Common Stock and Debt Repurchases

Our Board will determine share and debt repurchase authorizations, giving consideration to our levels of profit and cash flow, capital requirements, current and forecasted liquidity, the restrictions placed upon us by our borrowing arrangements as well as financial and other conditions existing at the time. We use cash flow generated from operating and financing activities to fund our share and debt repurchase programs. The timing and amount of any repurchases will be made at our discretion, taking into account a number of factors, including market conditions.

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Common Stock Repurchases

Under the authority of our Board, we repurchased shares of our common stock under the following repurchase programs during 2025 and 2024:

Repurchase

Program

Amount

Authorized

Shares

Repurchased

Amount

Repurchased

Average Stock Price

2025

2024

2025

2024

2025

2024

(in millions)

(in thousands)

(in millions)

February 2022

$

1,500 

NA

842 

NA

$

39 

NA

$

46.08 

January 2024

500 

460 

9,583 

$

17 

361 

$

37.67 

37.70 

January 2025

500 

14,612 

NA

383 

NA

26.19

NA

Total

15,072 

10,425 

$

400 

$

400 

There were share repurchases of $1 million reflected in Accounts Payable on the Consolidated Balance Sheet as of February 1, 2025. On February 27, 2025, we cancelled the remaining $121 million authorization available under the January 2024 Program and began repurchasing shares under the January 2025 Program.

The January 2025 Program had $117 million and $500 million of remaining authority as of January 31, 2026 and February 1, 2025, respectively. There were no share repurchases reflected in Accounts Payable on the Consolidated Balance Sheet as of January 31, 2026.

Dividend Policy and Procedures

Our Board will determine future dividends after giving consideration to our levels of profit and cash flow, capital requirements, current and forecasted liquidity, the restrictions placed upon us by our borrowing arrangements as well as financial and other conditions existing at the time. We use cash flow generated from operating and financing activities to fund our dividends.

We paid the following dividends during 2025 and 2024:

Ordinary Dividends

Total Paid

(per share)

(in millions)

2025

First Quarter

$

0.20 

$

43 

Second Quarter

0.20 

42 

Third Quarter

0.20 

41 

Fourth Quarter

0.20 

41 

2025 Total

$

0.80 

$

167 

2024

First Quarter

$

0.20 

$

45 

Second Quarter

0.20 

45 

Third Quarter

0.20 

44 

Fourth Quarter

0.20 

43 

2024 Total

$

0.80 

$

177 

On March 6, 2026, we paid our first quarter 2026 ordinary dividend of $0.20 per share to stockholders of record at the close of business on February 20, 2026.

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Long-term Debt and Borrowing Facility

The following table provides our outstanding debt balances, net of unamortized debt issuance costs and discounts, as of January 31, 2026 and February 1, 2025:

January 31,

2026

February 1,

2025

(in millions)

Senior Debt with Subsidiary Guarantee

$284 million, 6.694% Fixed Interest Rate Notes due January 2027 (“2027 Notes”)

$

280 

$

277 

$444 million, 5.250% Fixed Interest Rate Notes due February 2028 (“2028 Notes”)

444 

443 

$482 million, 7.500% Fixed Interest Rate Notes due June 2029 (“2029 Notes”)

477 

476 

$844 million, 6.625% Fixed Interest Rate Notes due October 2030 (“2030 Notes”)

839 

838 

$802 million, 6.875% Fixed Interest Rate Notes due November 2035 (“2035 Notes”)

797 

796 

$575 million, 6.750% Fixed Interest Rate Notes due July 2036 (“2036 Notes”)

571 

571 

Total Senior Debt with Subsidiary Guarantee

3,408 

3,401 

Senior Debt

$284 million, 6.950% Fixed Interest Rate Debentures due March 2033 (“2033 Notes”)

284 

283 

$201 million, 7.600% Fixed Interest Rate Notes due July 2037 (“2037 Notes”)

200 

200 

Total Senior Debt

484 

483 

Total Debt

3,892 

3,884 

Current Debt

(280)

— 

Total Long-term Debt, Net of Current Portion

$

3,612 

$

3,884 

Repurchases of Notes

The losses and gains on the extinguishment of debt, which include the write-offs of unamortized issuance costs and discounts, are included in Other Income, Net in the Consolidated Statements of Income. There were no repurchases of outstanding senior notes in 2025.

Subsequent to January 31, 2026, we issued a notice of redemption for any and all outstanding of our 6.694% Senior Notes due January 2027. We expect the aggregate redemption price to be approximately $289 million, and to recognize a pre-tax loss of approximately $9 million in the first quarter of fiscal 2026 as a result of this redemption.

2024 Repurchases

During 2024, we repurchased in the open market and extinguished $200 million principal amount of our outstanding senior notes. The aggregate repurchase price for these notes was $202 million, resulting in an aggregate pre-tax loss of $3 million, including the write-off of unamortized issuance costs and discounts.

During 2024, we also completed a make-whole call to repurchase the remaining $314 million principal amount of our outstanding 2025 Notes. The repurchase price for these notes was $320 million, resulting in a pre-tax loss of $7 million, including the write-off of unamortized issuance costs and discounts.

The following table provides details of the outstanding principal amounts of senior notes repurchased and extinguished during 2024:

2024

(in millions)

2025 Notes

$

314 

2027 Notes

14 

2028 Notes

17 

2029 Notes

17 

2030 Notes

94 

2033 Notes

10 

2035 Notes

10 

2036 Notes

38 

Total

$

514 

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Asset-backed Revolving Credit Facility

We and certain of our 100% owned subsidiaries guarantee and pledge collateral to secure our ABL Facility. The ABL Facility, which allows borrowings and letters of credit in U.S. and Canadian dollars, has aggregate commitments of $750 million.

In May 2025, we entered into an amendment and restatement (“Amendment”) of the ABL Facility. The Amendment removed the interest rate credit spread adjustment of 0.10%, extended the expiration date from August 2026 to May 2030 and included certain other technical amendments.

Availability under the ABL Facility is the lesser of (i) the borrowing base, determined primarily based on our eligible U.S. and Canadian credit card receivables, accounts receivable, inventory and eligible real property, or (ii) the aggregate commitment. If at any time the outstanding amount under the ABL Facility exceeds the lesser of (i) the borrowing base and (ii) the aggregate commitment, we are required to repay the outstanding amounts under the ABL Facility to the extent of such excess. As of January 31, 2026, our borrowing base was $482 million and we had no borrowings outstanding under the ABL Facility.

The ABL Facility supports our letter of credit program. We had $9 million of outstanding letters of credit as of January 31, 2026 that reduced our availability under the ABL Facility. As of January 31, 2026, our availability under the ABL Facility was $473 million.

As of January 31, 2026, the ABL Facility fees related to committed and unutilized amounts were 0.30% per annum, and the fees related to outstanding letters of credit were 1.25% per annum. In addition, the interest rate on outstanding U.S. dollar borrowings was the Term Secured Overnight Financing Rate plus 1.25% per annum. The interest rate on outstanding Canadian dollar-denominated borrowings was the Canadian Overnight Repo Rate Average plus 1.25% per annum.

The ABL Facility requires us to maintain a fixed charge coverage ratio of not less than 1.00 to 1.00 during an event of default or any period commencing on any day when specified excess availability is less than the greater of (i) $70 million or (ii) 10% of the maximum borrowing amount. As of January 31, 2026, we were not required to maintain this ratio.

Credit Ratings

The following table provides our credit ratings as of January 31, 2026: 

Moody’s

S&P

Corporate

Ba2

BB+

Senior Unsecured Debt with Subsidiary Guarantee

Ba2

BB+

Senior Unsecured Debt

B1

BB-

Outlook

Stable

Stable

Guarantor Summarized Financial Information

Certain of our subsidiaries, which are listed on Exhibit 22 to this Annual Report on Form 10-K, have guaranteed our obligations under the 2027 Notes, 2028 Notes, 2029 Notes, 2030 Notes, 2035 Notes and 2036 Notes (collectively, the “Notes”).

The Notes have been issued by Bath & Body Works, Inc. (the “Parent Company”). The Notes are its senior unsecured obligations and rank equally in right of payment with all of our existing and future senior unsecured obligations, are senior to any of our future subordinated indebtedness, are effectively subordinated to all of our existing and future indebtedness that is secured by a lien and are structurally subordinated to all existing and future obligations of each of our subsidiaries that do not guarantee the Notes.

The Notes are fully and unconditionally guaranteed on a joint and several basis by certain of our wholly-owned subsidiaries, including certain subsidiaries that also guarantee our obligations under our ABL Facility (such guarantees, the “Guarantees”; and, such guaranteeing subsidiaries, the “Subsidiary Guarantors”). The Guarantees of the Subsidiary Guarantors are subject to release in limited circumstances only upon the occurrence of certain customary conditions. Each Guarantee is limited, by its terms, to an amount not to exceed the maximum amount that can be guaranteed by the applicable Subsidiary Guarantor subject to avoidance under applicable fraudulent conveyance provisions of U.S. and non-U.S. law.

The following tables set forth summarized financial information for the Parent Company and the Subsidiary Guarantors on a combined basis after elimination of (i) intercompany transactions and balances among the Parent Company and the Subsidiary Guarantors and (ii) investments in and equity in the earnings of non-Guarantor subsidiaries.

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JANUARY 31, 2026 SUMMARIZED BALANCE SHEET

(in millions)

ASSETS

Current Assets (a)

$

2,249 

Noncurrent Assets

2,403 

LIABILITIES

Current Liabilities (b)

$

2,793 

Noncurrent Liabilities

4,626 

 _______________

(a)Includes amounts due from non-Guarantor subsidiaries of $596 million as of January 31, 2026.

(b)Includes amounts due to non-Guarantor subsidiaries of $1,501 million as of January 31, 2026.

2025 SUMMARIZED STATEMENT OF INCOME

(in millions)

Net Sales (a)

$

6,911 

Gross Profit

2,969 

Operating Income

1,040 

Income Before Income Taxes

761 

Net Income (b)

583 

 _______________

(a)Includes Net Sales of $181 million to non-Guarantor subsidiaries.

(b)Includes a Net Loss of $23 million related to transactions with non-Guarantor subsidiaries.

Contingent Liabilities and Contractual Obligations

The following table provides our contractual obligations, aggregated by type, including the maturity profile as of January 31, 2026:

Payments Due by Period

Total

Less

Than 1

Year

1-3

Years

4-5

Years

More

Than 5

Years

Other

(in millions)

Outstanding Debt (a)

$

5,681 

$

547 

$

921 

$

1,714 

$

2,499 

$

— 

Future Lease Obligations (b)

1,386 

278 

458 

305 

345 

— 

Purchase Obligations (c)

650 

518 

101 

30 

1 

— 

Other Liabilities (d)

159 

127 

— 

— 

— 

32 

Total

$

7,876 

$

1,470 

$

1,480 

$

2,049 

$

2,845 

$

32 

________________

(a)Outstanding Debt obligations relate to our principal and interest payments for outstanding notes and debentures. Interest payments have been estimated based on the coupon rate for fixed rate obligations for the contractual term of the obligation. Interest obligations exclude amounts which have been accrued through January 31, 2026. For additional information, see Note 10 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.

(b)Future lease obligations primarily represent minimum payments due under operating lease agreements. For additional information, see Note 6 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.

(c)Purchase obligations primarily include purchase orders for merchandise inventory and other agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transactions.

(d)Other liabilities include future estimated payments associated with unrecognized tax benefits. The “Less Than 1 Year” category includes $127 million of these tax items because it is reasonably possible that the amounts could change in

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the next 12 months due to audit settlements or resolution of uncertainties. The remaining portion, totaling $32 million, is included in the “Other” category as it is not reasonably possible that the amounts could change in the next 12 months.

Lease Guarantees

In connection with the spin-off of Victoria’s Secret & Co., we had remaining contingent obligations of $215 million as of January 31, 2026 related to lease payments under the current terms of noncancelable leases, primarily related to office space, expiring at various dates through 2037. These obligations include minimum rent and additional payments covering taxes, common area costs and certain other expenses and relate to leases that commenced prior to the spin-off. Our reserves related to these obligations were not significant for any period presented.

Recently Issued Accounting Pronouncements

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Improvements to Income Tax Disclosures, which requires enhanced income tax disclosures, primarily related to standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. This standard is effective for fiscal years beginning after December 15, 2024, with early adoption permitted, and may be applied either prospectively or retrospectively. We adopted this standard prospectively in the fourth quarter of 2025. See Note 9 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data for the required disclosures.

In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses, which requires disclosures of disaggregated information about certain prescribed expense categories within relevant income statement expense captions. This standard is effective for annual reporting of fiscal years beginning after December 15, 2026, and for interim periods in the following year, with early adoption permitted. This standard should be applied prospectively, with retrospective application permitted. We are currently evaluating the impact of adopting this standard on our disclosures.

In September 2025, the FASB issued ASU 2025-06, Targeted Improvements to the Accounting for Internal-Use Software, which is intended to modernize the accounting for software costs by removing project stages from capitalization criteria and further clarifies the threshold entities apply to begin capitalizing costs. This standard is effective for annual reporting of fiscal years beginning after December 15, 2027, and for interim periods within those fiscal years, with early adoption permitted. This standard can be applied prospectively, retrospectively or through a modified transition approach. We are currently evaluating the impacts of adopting this standard.

Critical Accounting Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to adopt accounting policies related to estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period, as well as the related disclosure of contingent assets and liabilities at the date of the financial statements. On an ongoing basis, management evaluates its accounting policies, estimates and judgments, including those related to inventories, valuation of long-lived store assets, claims and contingencies, income taxes and revenue recognition. Management bases our estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. Management has discussed the development and selection of our critical accounting policies and estimates with the Audit Committee of our Board and believes the following assumptions and estimates are most significant to reporting our results of operations and financial position.

Inventories

Inventories are principally valued at the lower of cost or net realizable value, on an average cost basis.

We record valuation adjustments to our inventories if the cost of inventory on hand exceeds the amount we expect to realize from the ultimate sale or disposal of the inventory. These estimates are based on management’s judgment regarding future demand and market conditions and analysis of historical experience. If actual demand or market conditions are different than those projected by management, future period merchandise margin rates may be unfavorably or favorably affected by adjustments to these estimates.

We also record inventory loss adjustments for estimated physical inventory losses that have occurred since the date of the last physical inventory. These estimates are based on management’s analysis of historical results and current operating trends.

Management believes that the assumptions used in these estimates are reasonable and appropriate. A 10% increase or decrease in the inventory valuation adjustment would have impacted Net Income by approximately $2 million for 2025. A 10% increase or decrease in the estimated physical inventory loss adjustment would have impacted Net Income by approximately $2 million for 2025.

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Valuation of Long-lived Store Assets

Long-lived store assets, which include leasehold improvements, store-related assets and operating lease assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Store assets are grouped at the lowest level for which they are largely independent of other assets or asset groups. If the estimated undiscounted future cash flows related to the asset group are less than the carrying value, we recognize a loss equal to the difference between the carrying value and the estimated fair value, determined by the estimated discounted future cash flows of the asset group. For operating lease assets, we determine the fair value of the assets by comparing the contractual rent payments to estimated market rental rates. An individual asset within an asset group is not impaired below its estimated fair value. The fair value of long-lived store assets is determined using Level 3 inputs within the fair value hierarchy.

When a decision has been made to dispose of property and equipment prior to the end of the previously estimated useful life, depreciation estimates are revised to reflect the use of the asset over the shortened estimated useful life.

Claims and Contingencies

We are subject to various claims and contingencies related to lawsuits, taxes, insurance, regulatory and other matters arising out of the normal course of business. Our determination of the treatment of claims and contingencies in the Consolidated Financial Statements is based on management’s view of the expected outcome of the applicable claim or contingency. We consult with legal counsel on matters related to litigation and seek input from both internal and external experts with respect to matters in the ordinary course of business. We accrue a liability if the likelihood of an adverse outcome is probable and the amount is reasonably estimable. If the likelihood of an adverse outcome is only reasonably possible (as opposed to probable) or if an estimate is not reasonably determinable, disclosure of a material claim or contingency is disclosed in the Notes to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.

Income Taxes

We account for income taxes under the asset and liability method. Under this method, taxes currently payable or refundable are accrued, and deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets are also recognized for realizable operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted income tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in income tax rates is recognized in our Consolidated Statements of Income in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets if it is more likely than not that such assets will not be realized.

Significant judgment is required in determining the provision for income taxes and related accruals, deferred tax assets and liabilities. In determining our provision for income taxes, we consider permanent differences between book and tax income and statutory income tax rates. Our effective income tax rate is affected by items including changes in tax law, the tax jurisdiction of the Company’s operations and the level of earnings.

A number of countries have enacted legislation to implement the Organization for Economic Cooperation and Development’s 15% global minimum tax regime (Pillar Two) with effect from January 1, 2024. We continue to evaluate the impacts of proposed and enacted legislation for the jurisdictions in which we operate.

We follow the authoritative guidance included in ASC 740, Income Taxes, which contains a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement.  We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and for which actual outcomes may differ from forecasted outcomes. Our policy is to include interest and penalties related to uncertain tax positions in income tax expense.

Our income tax returns, like those of most companies, are periodically audited by domestic and foreign tax authorities. These audits include questions regarding our tax filing positions, including the timing and amount of deductions and the allocation of income among various tax jurisdictions. At any one time, multiple tax years are subject to audit by the various tax authorities. A number of years may elapse before a particular matter for which we have established an accrual is audited and fully resolved or clarified. We adjust our tax contingencies accrual and income tax provision in the period in which matters are effectively settled with tax authorities at amounts different from our established accrual, when the statute of limitations expires for the relevant taxing authority to examine the tax position or when more information becomes available.

Revenue Recognition

We recognize revenue based on the amount we expect to receive when control of the goods or services is transferred to our customer. We recognize sales upon customer receipt of merchandise, which for direct channel revenues reflects an estimate of

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shipments that have not yet been received by the customer based on shipping terms and historical delivery times. Our shipping and handling revenues are included in Net Sales with the related costs included in Costs of Goods Sold, Buying and Occupancy in the Consolidated Statements of Income. We also provide a reserve for projected merchandise returns based on historical experience. Net Sales exclude sales and other similar taxes collected from customers.

We offer a loyalty program that allows customers to earn points based on purchasing activity. As customers accumulate points and reach point thresholds, points are converted to rewards that may be used to purchase merchandise in stores or online. Points expire if a loyalty account is inactive for a certain period of time, while rewards expire if unused after approximately three months. We allocate revenue to points earned on qualifying purchases and defer recognition of revenue until the rewards are redeemed. The amount of revenue deferred is based on the relative stand-alone selling price method, which includes an estimate for points and rewards not expected to be redeemed based on historical experience.

We sell gift cards with no expiration dates to customers. We do not charge administrative fees on unused gift cards. We recognize revenue from gift cards when they are redeemed by the customer. In addition, we recognize revenue on unredeemed gift cards when the likelihood of the gift cards being redeemed is remote and there is no legal obligation to remit the unredeemed gift cards to relevant jurisdictions (gift card breakage). Gift card breakage revenue is recognized in proportion to, and over the same period as, actual gift card redemptions. We determine the gift card breakage rate based on historical redemption patterns. Gift card breakage revenue is included in Net Sales in the Consolidated Statements of Income.

We also recognize revenues associated with franchise, license, wholesale and sourcing arrangements. Revenue recognized under franchise and license arrangements generally consists of royalties earned and recognized upon sale of merchandise by franchise and license partners to retail customers. Revenue is generally recognized under wholesale and sourcing arrangements at the time the title passes to the partner.