Bath & Body Works Inc. reported adjusted diluted earnings per share of $0.62 for the second quarter of 2026, exceeding analyst expectations of $0.24 and rising 67.6% from $0.37 a year earlier. The beat was primarily driven by approximately $80 million in tariff refunds, which contributed around 530 basis points to the gross profit margin. Excluding the refunds, adjusted EPS would have been $0.31, still ahead of the company’s guidance range of $0.20 to $0.25.
Net sales totaled $1.5 billion, in line with forecasts but down 2.3% year-over-year. The decline reflected a 5.4% drop in store-channel revenue to $1.1 billion, which accounted for 75% of total sales. Direct-channel revenue rose 3.0% to $275 million, representing 18% of net sales, with buy-online-pickup-in-store transactions contributing roughly 25% of direct demand. The international and other segment surged 24.9% to $108 million, or 7% of net sales.
Gross profit margin expanded 440 basis points to 45.7%, with the tariff refunds alone adding 530 basis points. Adjusted operating income increased 30.4% to $225 million. Inventory levels improved, declining 10% year-over-year.
The company’s cost-saving initiative, "Fuel for Growth," is on track to exceed its 2026 target of $175 million by about $25 million, reaching roughly $200 million. Capital allocation in the first half of 2026 included $98 million in capital expenditures, $80 million in dividend payments at $0.40 per share, and $284 million in debt repayment, primarily from the redemption of January 2027 notes in the first quarter.
Management raised full-year fiscal 2026 guidance, narrowing the net sales decline to 4% to 2.5% from a prior range of down 5% to 2.5%. Adjusted EPS guidance was increased to $2.60 to $2.80, up from the prior range of $2.10 to $2.35. Free cash flow is projected at approximately $650 million, while capital expenditures are expected to total about $240 million. The adjusted operating margin for the full year is forecast at roughly 14%.
For the third quarter, Bath & Body Works expects net sales to decline 5% to 2.5%, with adjusted EPS between $0.07 and $0.12. The gross profit rate is projected at approximately 40%, while the SG&A rate is expected to reach 34.8%.
CEO Daniel Heaf highlighted the recent Fruit Fusion product launch as a key initiative, describing it as "really the Consumer First Formula in action" and part of a repeatable playbook for product, marketing and distribution. He noted that while the underlying business remains under pressure, the company’s performance aligns with expectations and its "North Star is growth in 2027."
