Bath & Body Works reported lower fiscal second-quarter 2026 sales but substantially higher earnings, with approximately $80 million of tariff refunds providing a major boost to reported and adjusted profitability.
Net sales declined 2.3% year-over-year to $1.514 billion from $1.549 billion in the prior-year quarter.
Despite the sales decline, operating income increased sharply to $216 million from $157 million.
Net income rose to $118 million from $64 million, while diluted earnings per share increased to $0.58 from $0.30.
Adjusted results showed a similar improvement.
Adjusted operating income reached $225 million, while adjusted net income increased to $125 million.
Adjusted diluted EPS rose to $0.62 from $0.37 in the prior-year period.
However, the approximately $80 million of tariff refunds received during the quarter had a substantial impact on those results.
Bath & Body Works said adjusted EPS would have been approximately $0.31 without the tariff-refund benefit.
That means roughly half of the company’s reported $0.62 of adjusted quarterly EPS came from the refunds rather than the underlying operating business.
The distinction is important when evaluating the magnitude of the year-over-year earnings improvement.
Adjusted EPS increased approximately 68% from $0.37 to $0.62 on a reported basis.
Excluding the tariff benefit, however, adjusted EPS of approximately $0.31 would have been below the prior-year level.
The tariff refunds therefore more than offset ongoing pressure from softer sales and other operating headwinds.
Still, the quarter contained several encouraging indicators within the underlying business.
One of the most important was Bath & Body Works’ direct channel, which recorded its first net sales growth since 2021.
The return to growth in digital and direct sales is notable because the channel faced several years of pressure after the exceptional e-commerce demand earlier in the decade.
Renewed direct-channel growth could provide Bath & Body Works with another avenue for improving sales as the company works to stabilize its broader business.
Digital channels can also provide opportunities for more personalized marketing, loyalty engagement and targeted promotions based on customer purchasing behavior.
Management also highlighted sequential improvement within Body Care.
Body Care is an important category for Bath & Body Works and includes products such as lotions, body washes, fragrances and related personal care items.
Improved performance in the category could help support broader sales stabilization if momentum continues through the remainder of the year.
The company also pointed to stronger average unit retail on new product innovation.
Higher average unit retail can offset weaker unit volumes by increasing revenue per item sold.
Product innovation is particularly important for Bath & Body Works because the business relies on frequent launches, seasonal assortments, fragrances and limited-time products to generate customer visits and repeat purchases.
Successful new products can also reduce the company’s reliance on promotional discounting.
Maintaining pricing power while introducing products customers are willing to purchase at higher price points could support future margin improvement.
Marketplace partnerships represented another area of continued momentum.
Expanding through third-party marketplaces can help Bath & Body Works reach customers beyond its traditional store and direct channels.
These partnerships can provide incremental distribution without requiring the company to build additional physical stores.
They may also help introduce the brand to consumers who primarily shop through large digital platforms rather than directly through individual retailers.
Overall second-quarter performance still shows Bath & Body Works remains in a transitional period.
Sales were still down 2.3%, meaning improvements in specific channels and categories have not yet translated into consolidated top-line growth.
Management expects that pressure to continue in the near term.
Third-quarter sales are projected to decline between 2.5% and 5%.
At the midpoint, that outlook implies a decline of approximately 3.75%.
The third-quarter guidance suggests that management does not expect an immediate return to overall revenue growth even after the encouraging trends seen in direct sales and Body Care.
Bath & Body Works is therefore focused on improving business quality while working through continued sales pressure.
That includes increasing productivity, developing new products, broadening distribution and managing expenses.
The tariff refunds provided considerable financial flexibility during the second quarter, but underlying operating improvements will become more important once those benefits are no longer present.
The approximately $80 million refund also helps explain the unusually large increase in operating and net income despite lower revenue.
Operating income increased approximately 38% to $216 million even though sales declined.
Net income increased approximately 84% to $118 million.
Those increases would have been considerably less dramatic without the tariff benefit.
Adjusted operating income of $225 million provides another indication of the quarter’s profitability, but the refund remains embedded in that result.
For that reason, management’s disclosure that adjusted EPS would have been approximately $0.31 excluding the refunds provides an important benchmark for evaluating underlying performance.
Bath & Body Works nevertheless became more optimistic about its full-year earnings outlook following the quarter.
The company raised fiscal 2026 GAAP EPS guidance to a range of $3.13 to $3.33.
At the midpoint, that implies approximately $3.23 per share.
Adjusted EPS is now expected between $2.60 and $2.80.
The midpoint of the adjusted range is approximately $2.70.
The company also narrowed its full-year sales outlook.
Bath & Body Works now expects sales to decline approximately 2.5% to 4%.
While the guidance still calls for contraction, the narrower range provides greater visibility into management’s expectations for the remainder of the fiscal year.
The company is also forecasting approximately $650 million of free cash flow.
Strong free cash generation can provide Bath & Body Works with flexibility to invest in stores, digital capabilities, product development, and marketing while also supporting shareholder returns and other capital-allocation priorities.
The free cash flow outlook matters because the company continues investing in initiatives intended to improve long-term performance even as near-term revenue remains under pressure.
Bath & Body Works operates a large specialty retail network supported by a significant digital business.
That combination gives the company multiple avenues through which to reach customers, but it also requires management to continuously balance store productivity, promotional activity, digital investments and inventory.
The first direct-channel sales growth since 2021 suggests the company’s efforts in that area may be gaining traction.
If digital growth continues while store performance stabilizes, the company could eventually return to broader consolidated growth.
Improvements in Body Care provide another potential catalyst.
Strong new product launches can drive traffic across stores and digital channels while giving existing customers reasons to return.
Bath & Body Works has historically relied on fragrance innovation and seasonal merchandise to generate repeat engagement.
Management’s comments about higher average unit retail on new innovations suggest customers are responding favorably to at least some recent launches.
That could help support margins if the company can sell more merchandise at higher effective prices without relying as heavily on discounts.
Marketplace partnerships can further broaden that growth strategy by putting Bath & Body Works products in front of customers who may not regularly visit the company’s own channels.
Together, these initiatives are intended to improve customer acquisition while increasing the productivity of the existing brand.
The challenge will be translating those positive indicators into sustained consolidated sales growth.
The third-quarter outlook suggests that process will take additional time.
A projected sales decline of 2.5% to 5% means the company still expects meaningful pressure during the near term.
As a result, investors will likely focus on whether direct-channel growth continues, Body Care maintains its sequential improvement and new products generate stronger full-price demand.
The company’s cost structure will also remain important.
With revenue declining, maintaining profitability without temporary refund benefits will require disciplined expense management and stronger merchandise economics.
The second-quarter adjusted EPS figure excluding tariff refunds demonstrates why that matters.
Reported adjusted EPS was $0.62, but approximately $0.31 of that amount came from the refund benefit.
That means Bath & Body Works’ underlying adjusted earnings were substantially weaker than the headline result suggests.
At the same time, the company is entering the remainder of fiscal 2026 with a higher full-year earnings forecast.
That reflects the immediate benefit of the refunds as well as management’s expectations for the broader business.
Overall, Bath & Body Works’ fiscal second quarter presented a mixed but improving picture.
Net sales declined 2.3% to $1.514 billion, yet GAAP operating income increased to $216 million and net income rose to $118 million.
Adjusted EPS increased to $0.62, although approximately half of that amount was attributable to tariff refunds.
Beneath those unusual financial benefits, the quarter showed several encouraging operating trends.
Direct sales grew for the first time since 2021, Body Care improved sequentially, new products achieved higher average unit retail and marketplace partnerships continued gaining momentum.
Those developments provide potential building blocks for a broader recovery even though management expects sales to remain under pressure in the third quarter.
With full-year GAAP EPS now projected at $3.13 to $3.33, adjusted EPS expected at $2.60 to $2.80 and free cash flow forecast at approximately $650 million, Bath & Body Works enters the second half with a stronger earnings outlook while continuing to work toward stabilizing its underlying sales trajectory.
KEY QUOTE:
“This quarter marks the first direct net sales growth since 2021.”
Daniel Heaf, Chief Executive Officer of Bath & Body Works
