Bath & Body Works: Early Green Shoots in a Long Turnaround

Q1 sales beat with early product wins, but body care drag and CFO transition keep the story in flux.

BBWI · Earnings Call · 2026-05-27

Turning a Corner, Slowly

Bath & Body Works (BBWI) reported its first quarter of fiscal 2026 on May 27, with net sales of $1.4 billion, down 3.2% year-over-year but slightly ahead of guidance. The company is two quarters into CEO Daniel Heaf's "Consumer First Formula," a multiyear turnaround aimed at reigniting product innovation and brand relevance. While the top line remains pressured, Heaf emphasized that Everyday Luxury and other core franchises are showing early signs of life. “The actions we are taking across product, brand and the marketplace are beginning to generate evidence that the strategy is working.” — Daniel Heaf, Chief Executive Officer · 2026-05-27 But the results are still mixed. Body care—the company's largest category—declined mid-teens, dragged by assortment missteps in everyday luxury and a shift toward accessories in the Disney Princesses 2 collaboration. Management acknowledged the problem quickly and has already restocked top-selling fragrances. “We recognized that very quickly, and we've already taken action.” — Daniel Heaf, Chief Executive Officer · 2026-05-27

The Body Care Conundrum

The body care weakness masks some genuine green shoots. The new moisturizing and revitalizing hand soap launched in the quarter delivered double-digit AUR and SKU productivity gains, and the White Barn Neutrals collection grew ~20% in the quarter. These are exactly the kind of early proof points the market is looking for. As Heaf noted, “the examples that we gave on today's call, particularly moisturizing hand soap and White Barn Neutrals are not meaningful enough yet to show up in our full financials.” — Daniel Heaf, Chief Executive Officer · 2026-05-27 The company is also leveraging Amazon as a new distribution channel, with positive early reads on customer acquisition. “We are bringing in a higher mix of new-to-brand consumers who are skewing younger and more affluent.” — Daniel Heaf, Chief Executive Officer · 2026-05-27 This aligns with the company's goal of expanding reach beyond its owned channels.

Financial Discipline Amid Transition

From a financial standpoint, gross margin declined 270 basis points to 42.7%, pressured by tariffs, inflation, and crude oil. However, adjusted operating income of $151 million (11% of sales) came in slightly ahead of expectations, driven by cost savings from the Fuel for Growth program. Management reaffirmed full-year guidance for net sales down 4.5% to 2.5% and adjusted EPS of $2.40 to $2.65. Notably, the guidance excludes any benefit from tariff refunds, preserving upside if the political situation shifts. The leadership team is also in flux: CFO Eva Boratto is departing, with Tom stepping in as interim. Heaf thanked Boratto and emphasized that the search for a permanent CFO is underway.

Eva's departure doesn't change our confidence in the full year guidance.
Daniel Heaf, Chief Executive Officer · 2026-05-27

Looking at the longer-term trend, revenue has been on a seesaw. After peaking at $3.6 billion in Q3 2021, quarterly revenue has fallen by about half to $1.4 billion. The company is betting that its investment in brand and product will eventually reignite growth, but investors will need patience. Prior calls have echoed the same themes. In March 2026, Heaf talked about a "tenfold increase" in content creator usage, and in May 2025, he said "the best businesses connect product with purpose." “We expect to see a roughly tenfold increase in how we leverage content and how we leverage content creators.” — Daniel Heaf, Chief Executive Officer · 2026-03-04 “I believe that the best businesses connect product with purpose.” — Daniel Heaf, Chief Executive Officer · 2025-05-29 The stock has been range-bound, with a recent 90-day return of +7.5%, but it remains far below its 2015 peak. The turnaround is real but gradual, and the market is waiting for evidence that body care can stabilize before giving the company credit. For now, the early signals—stronger product innovation, early customer response, and disciplined cost management—are encouraging, but the road to consistent growth remains long.