Bath & Body Works: Early Green Shoots, Tariff-Fueled Beat, and a Pivot Away from Home Care

Q2 2026 results beat on tariff refunds; digital returns to growth; Fruit Fusion and Amazon signal Consumer First Formula traction; exiting laundry and kitchen.

BBWI · Earnings Call · 2026-08-26

Beat Driven by Tariff Refunds

Bath & Body Works delivered a second quarter that beat expectations, but the composition of the beat matters. Net sales declined 2.3% to $1.5 billion, ahead of the guided range of down 5% to down 3%, while adjusted EPS of $0.62 came in far above the $0.20–$0.25 guide. However, nearly half of that beat—approximately $0.31—came from an $80 million tariff refund received during the quarter. As Interim CFO Tom Javitch noted, “We did receive approximately $80 million in Q2, which is the substantial majority of what was outstanding.” — Tom Javitch, Interim Chief Financial Officer · 2026-08-26 Excluding that benefit, EPS would have been $0.31, still ahead of the high end by $0.06, but the magnitude of the surprise is clearly tariff-driven.

Fruit Fusion is really the Consumer First Formula in action. It demonstrates a repeatable go-to-market playbook that we're going to use time and time again as we go through the back half. It starts with product. We did what we said we were going to do in November. We took trend-right fragrances and real skin care benefits, and we gave more value to the consumer.
Daniel Heaf, Chief Executive Officer · 2026-08-26

The company is using part of that windfall to fund incremental marketing investment—about $35 million—with roughly 70% of it pointed at Q3 ahead of the holiday season. This is a deliberate choice to reinvest in the long-term transformation rather than bank the near-term profit.

Consumer First Formula: Early Proof Points

The more interesting narrative is the progress on the strategic transformation. CEO Daniel Heaf highlighted several demand creation initiatives that are beginning to show measurable results. Digital returned to growth for the first time in years, with direct net sales up 3% year over year, helped by the free-ship threshold and better conversion. Heaf said, “The second quarter provided evidence the Consumer First Formula is beginning to work...” — Daniel Heaf, Chief Executive Officer · 2026-08-26 This is a clear step up from the prior quarter's language, when he said “Q1 was absolutely consistent with where we expected to be at this stage of our transformation.” — Daniel Heaf, Chief Executive Officer · 2026-05-27 Now he is claiming tangible proof points. The standout was the launch of Fruit Fusion, a new body care franchise that exceeded sales expectations and sold out several forms. It was supported by a first-of-its-kind celebrity partnership with Hilary Duff and a creator-led campaign that generated 615 million impressions. Heaf called it a repeatable playbook, and the company is already adding new fragrances in September. Expanded distribution is also gaining momentum. Amazon net sales more than tripled sequentially, and the company is now one of the largest candle brands on the platform. The channel is attracting younger, more affluent new-to-brand customers with higher AURs. Expanded distribution is a core pillar of the strategy, and the early results support that thesis.

Strategic Focus: Exiting Home Care and Scaling Distribution

Management announced a decisive move to exit the Home Care category, which includes laundry and kitchen products—representing less than 1% of annual sales but creating disproportionate complexity. This is a clear example of the "fewer, bigger" focus Heaf has emphasized. The company is also testing new store experiences and plans to roll out improvements across the fleet. The revenue trajectory remains challenged. Total revenue is down 49% from its 2021 peak, and the guide for Q3 implies another year-over-year decline. However, management is narrowing full-year net sales guidance to down 4% to down 2.5%, and raising EPS to $2.60–$2.80. They see 2027 as the year of return to growth, but remain cautious. Heaf’s comment, “You can't promote a business back to health,” — Daniel Heaf, Chief Executive Officer · 2026-08-26 underscores the strategy: they are relying on product, brand, and distribution, not promotional intensity, to drive recovery. Prior calls had noted the competitive pressure, with Heaf saying “Without a doubt, the landscape we are operating in is increasingly competitive.” — Daniel Heaf, Chief Executive Officer · 2026-03-04 This quarter, the tone has shifted to one of cautious optimism, with evidence that the investments are starting to pay off. The stock has risen 5.4% over the past 90 days, though it remains 19.6% below its late-June peak. The market is giving credit for the beat and the strategic clarity, but the real test will be whether the Company can sustain the digital growth and expand distribution without cannibalizing its own channels. With the tariff refunds providing a temporary cushion, the company is investing for the long term. The exit from Home Care and focus on hero categories is a sign that management is serious about reshaping the portfolio for durable growth.