Bath & Body Works Inc. (BBWI) reported better-than-expected second-quarter 2026 earnings and sales Wednesday as it continued its business transformation. Shares rose after the company delivered a stronger-than-expected quarter and raised its full-year profit outlook.
Adjusted earnings of 62 cents per share comfortably beat the 24-cent consensus estimate. Excluding a one-time tariff refund, adjusted earnings were 31 cents per share. Net sales fell 2.3% year over year to $1.51 billion but topped the $1.50 billion estimate. GAAP earnings rose to 58 cents per share from 30 cents a year earlier.
Tariff Refund Boosts Profit
Operating income increased to $216 million from $157 million. Net income climbed to $118 million from $64 million. Adjusted operating income reached $225 million, representing a margin of 14.8%. Gross margin was 45.7%, helped by about $80 million in tariff refunds. Excluding that benefit, gross margin would have been 40.4%, down 90 basis points from a year earlier.
Direct And International Sales Outperform
U.S. and Canadian store sales fell 5.4% to $1.13 billion. Direct sales rose 3% to $275 million, marking the channel's first net sales growth since 2021. International and Other sales jumped 24.9% to $108 million. Year-to-date operating cash flow totaled $316 million, while capital spending reached $98 million. Bath & Body Works ended the quarter with $794 million in cash and equivalents.
Bath & Body Works Raises Profit Outlook
Bath & Body Works raised its fiscal 2026 GAAP earnings forecast to between $3.13 and $3.33 per share. Its previous outlook called for $3 to $3.25 per share. Analysts expect $2.86 per share. The company also raised its adjusted earnings forecast to between $2.60 and $2.80 per share from between $2.40 and $2.65. Wall Street expects $2.65 per share.
Bath & Body Works narrowed its fiscal 2026 sales forecast to between $7 billion and $7.11 billion. Its previous outlook ranged from $6.96 billion to $7.11 billion. Analysts expect $7.10 billion. The company now expects about $650 million in free cash flow for fiscal 2026.
Bath & Body Works plans to invest an additional $35 million in its Consumer First Formula strategy, primarily through marketing. It expects to spend about 70% of that amount in the third quarter ahead of the holiday season.
Management Remains Cautious On Traffic
Management said during the earnings call that store traffic remains under pressure. The Body Care category also continues to perform below its potential, despite recent improvement. The company does not plan to increase promotions during the second half. Instead, it will focus on product innovation and marketing.
Bath & Body Works said promotions will remain important for generating excitement and delivering value. However, the retailer does not plan to increase promotional activity during the second half. "You can't promote a business back to health," management said, adding that the company will rely more heavily on brand marketing and product innovation to drive growth.
Management described 2027 revenue growth as a "strategic North Star," not formal guidance. It said business improvements are not yet broad or consistent enough. Bath & Body Works is also exiting the Home Care category to focus its resources on core products.
For the third quarter, the company expects net sales to decline between 2.5% and 5%. It forecast adjusted earnings of 7 cents to 12 cents per share.
BBWI Price Action: Bath & Body Works shares rose 6.2% to $18.67 at the time of publication Wednesday.
