Bath & Body Works, Inc. (BBWI)

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 second quarter of 2026, total Net Sales were $1,514 million, which decreased $35 million, or 2.3%, compared to the second quarter of 2025. Total North American Net Sales decreased $57 million, primarily due to decrease in transactions and average dollar sales, while International and Other Net Sales increased $22 million. Our second quarter Operating Income was $216 million, which increased $59 million, or 37.0%, compared to the second quarter of 2025, and our Operating Income rate (expressed as a percentage of Net Sales) increased to 14.2% from 10.2%. The Operating Income results were primarily due to the increase in the merchandise margin rate, as a result of approximately $80 million of International Emergency Economic Powers Act (“IEEPA”) tariff refunds, partially offset by the decline in Net Sales.

For additional information related to our second 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. During the second quarter of 2026, we delivered progress across innovation, brand building, digital and expanded distribution including sequential improvement in Body Care, a return to growth in Direct and continued momentum across our marketplace partnerships. While we are still in the early stages of our transformation, these proof points indicate that the Consumer First Formula is gaining traction. We remain focused on disciplined execution and investing in the capabilities necessary to support sustainable, durable growth over the long term.

Outlook

Macroeconomic Factors

The conflict between the U.S. and Iran continues to impact much of the Middle East region, including transportation restrictions, which has resulted 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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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 second quarters of and year-to-date 2026 and 2025 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 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:

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(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.

(b)In the second quarter of 2026, we recognized aggregate pre-tax costs of $9 million ($7 million after tax) and during year-to-date 2026, we recognized aggregate pre-tax costs of $17 million ($13 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 second quarter of 2025, we recognized pre-tax costs of $15 million ($14 million after tax) due to the transition of certain members of the leadership team, primarily related to severance benefits.

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(d)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.

(e)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.

(f)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 second quarters of and year-to-date 2026 and 2025:

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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 activity for year-to-date 2026:

Partner-operated Stores

The following table represents Partner-operated store activity for year-to-date 2026:

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

Results of Operations

Second Quarter of 2026 Compared to the Second Quarter of 2025

Net Sales

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

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

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

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For the second quarter of 2026, total Net Sales were $1,514 million and decreased $35 million, or 2.3%, compared to the second quarter of 2025. Stores Net Sales decreased $65 million, or 5.4%, driven by a decrease in transactions and average dollar sales. Direct Net Sales increased $8 million, or 3.0%, primarily driven by an increase in fulfilled orders, partially offset by average order size and lower shipping and handling revenue. International and Other Net Sales increased $22 million, or 24.9%, compared to the second quarter of 2025 driven by expanded distribution of domestic wholesale, which includes Ulta and Amazon, and increased international product sales.

Gross Profit

For the second quarter of 2026, our Gross Profit was $692 million, which increased $52 million compared to the second quarter of 2025, and our Gross Profit rate (expres

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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:

________________

(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:

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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:

Partner-operated Store Data

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

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(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:

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(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 Gr

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