Personal care and home fragrance retailer Bath & Body Works (NYSE: BBWI) met Wall Street’s revenue expectations in Q2 CY2025, with sales up 1.5% year on year to $1.55 billion. The company expects next quarter’s revenue to be around $1.64 billion, close to analysts’ estimates. Its GAAP profit of $0.30 per share was 19.3% below analysts’ consensus estimates.

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StockStory’s Take

Bath & Body Works’ Q2 results were met with a significant negative market reaction, reflecting concern over margin compression and earnings shortfall despite revenue meeting Wall Street expectations. Management cited more value-driven, cautious consumer behavior as a key theme, noting that shoppers prioritized affordability and well-being, contributing to selective purchasing patterns. CEO Daniel Heaf described the company as well positioned but acknowledged that new customer growth and engagement with younger consumers fell short of aspirations. As Heaf stated, “We have not achieved the new customer growth we aspire to, and we are not connecting deeply enough with the younger consumers who are driving growth in our industry.”

Looking ahead, Bath & Body Works’ guidance is shaped by ongoing investments in digital transformation, marketing strategy, and supply chain resilience. Management expects tariff-related headwinds to persist, particularly impacting gross profit in the third quarter, but believes mitigation efforts and strategic sourcing will help absorb these costs over time. CFO Eva Boratto noted, “We are confident in our ability to further mitigate these costs over time through strategic sourcing, operational efficiencies and other targeted initiatives.” The company’s focus remains on driving top-line growth through new distribution channels, innovation in core categories, and strengthening brand storytelling, especially as it seeks to connect with younger consumers and expand its reach internationally.

Key Insights from Management’s Remarks

Management attributed the quarter’s performance to disciplined execution in promotions, product innovation, and early progress on new distribution initiatives, while acknowledging continuing challenges with margins and digital channel engagement.

• Semiannual Sale Execution: The company’s semiannual sale benefited from revised timing and targeted inventory, drawing deal-seeking shoppers and generating strong in-store and online engagement. Management credited improved event planning and enhanced social media efforts for heightened consumer response, with the relaunched mascot driving over 260 million impressions.

• Digital Channel Underperformance: Despite the importance of digital, management acknowledged their e-commerce experience lagged expectations. CEO Daniel Heaf highlighted immediate efforts to upgrade the digital platform, promising a new app launch in September and mobile web relaunch in October, with the goal of delivering a more frictionless and engaging shopping experience.

• Product and Packaging Innovation: The company is modernizing packaging and communications to better articulate product efficacy and benefits, targeting ingredient-conscious and younger consumers. Notably, aromatherapy lines will focus on stress relief, while body lotions and creams will showcase hydration claims and dermatologist testing.

• Alternative Distribution Channels: Bath & Body Works entered over 600 college bookstores, targeting 7 million students in a bid to engage younger consumers and drive brand discovery outside traditional channels. Management described this as a foundational step in long-term alternative distribution strategy.

• Margin and Cost Pressures: Operating margin faced headwinds from higher health care costs, SG&A investments, and tariffs, particularly on goods imported from China, Canada, and Mexico. Management is pursuing supply chain optimization, assortment changes, and selective pricing adjustments to partially offset these external pressures.

Drivers of Future Performance

Management expects future performance to hinge on digital improvements, supply chain resilience amid tariffs, and expanding reach through both product innovation and new sales channels.

• Digital Platform Revamp: Management believes that rapid upgrades to its digital and mobile platforms will drive increased engagement and conversion, both online and in stores. The rollout of a new app and enhanced web experience is expected to help capture new customers, particularly younger shoppers, and support cross-channel sales growth.

• Tariff and Margin Management: Persistent tariff pressures, especially U.S. import duties from China and Canada, are expected to impact gross profit, with the heaviest effect in the third quarter. However, management is confident that supply chain adjustments, targeted assortment changes, and strategic pricing will help mitigate these impacts over time.

• Expanding Distribution and Collaborations: The company’s entry into college bookstores and its multi-year partnership with Disney are intended to diversify distribution and enhance product appeal. Management anticipates these initiatives will drive both new customer acquisition and repeat purchases, providing incremental revenue streams and supporting long-term growth.

Catalysts in Upcoming Quarters

Looking forward, our team will focus on (1) the pace and effectiveness of digital platform enhancements, (2) evidence of new customer acquisition—especially among younger demographics—through alternative channels like college bookstores and collaborations, and (3) management’s progress in mitigating tariff-related margin pressures. The trajectory of core product innovation and the impact of these initiatives on same-store sales trends will also be closely monitored.

Bath and Body Works currently trades at $29.30, down from $31.52 just before the earnings. Is the company at an inflection point that warrants a buy or sell? The answer lies in our full research report (it’s free).

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