Bath & Body Works, the personal-care retailer known for its candles and lotions, gave investors a reason to cheer on Thursday: it raised its full-year profit outlook after a better-than-expected second quarter. But the company also struck a cautious note, saying that foot traffic in its stores and malls is still slipping even as online demand holds up.
The mixed picture highlights the challenge facing CEO Daniel Heaf, who is trying to revive growth at a company that has struggled to win back shoppers in a competitive retail environment. While digital sales and a one-time boost from tariff refunds helped lift results, the persistent decline in physical store visits suggests the retailer's turnaround is far from complete.
What happened in the quarter
Bath & Body Works reported second-quarter sales of $1.51 billion, slightly above what Wall Street analysts had expected. The company also raised its full-year adjusted profit forecast to a range of $2.60 to $2.80 per share, up from its previous guidance.
The earnings beat was driven by two main factors: strong demand through its website and app, and an $80 million refund related to tariffs on imported goods. That refund, which the company received from the U.S. government, provided a direct boost to its bottom line.
However, the retailer said that store and mall traffic continued to fall during the quarter. That is a worrying sign for a company that operates more than 1,800 stores across North America, many of them in shopping malls that have seen declining foot traffic for years.
Why store traffic matters
For a retailer like Bath & Body Works, store traffic is a key indicator of brand health. When fewer people walk through the doors, it often means less impulse buying and lower sales per square foot. It can also signal that the brand is losing relevance with consumers who are increasingly shopping online or at other retailers.
The company has been trying to counteract this trend by refreshing its product lineup, improving its website and app, and expanding into new sales channels. It has partnered with Amazon and beauty chain Ulta Beauty to reach customers who might not visit a Bath & Body Works store. These efforts appear to be helping online sales, but they have not yet reversed the decline in physical store visits.
This is not an unusual situation for legacy retailers. Many companies that grew up in the mall era are now grappling with the shift to e-commerce, and some have managed to adapt by investing heavily in their digital operations and diversifying their sales channels. But the transition is rarely smooth, and store closures or reduced foot traffic can weigh on profitability.
What it means for investors
For everyday investors, the key takeaway is that Bath & Body Works is making progress on some fronts but still faces headwinds. The raised profit outlook is a positive sign, and the company's ability to beat expectations suggests that its turnaround efforts are starting to gain traction.
However, the continued decline in store traffic is a red flag. It means the company is relying more on online sales and partnerships to drive growth, which can be less profitable than in-store sales due to shipping costs and competition. Investors should watch whether the company can maintain its digital momentum and whether it can eventually stabilize foot traffic in its stores.
The $80 million tariff refund is also worth noting. While it provided a nice boost to earnings, it is a one-time event and won't repeat in future quarters. Investors should be careful not to extrapolate this quarter's results too far into the future.
Bath & Body Works' situation is similar to that of other retailers that have benefited from tariff refunds. For example, Kohl's also raised its profit outlook on a tariff refund, though its sales miss weighed on shares. This highlights how such refunds can provide a temporary cushion but don't solve underlying demand issues.
Looking ahead, investors will be watching the holiday season, which is crucial for retailers like Bath & Body Works. The company's ability to attract shoppers during the key gift-giving period will be a major test of whether its new products and digital improvements are resonating with consumers.
In the meantime, the stock's reaction to the earnings report will depend on how investors weigh the positive profit outlook against the weak store traffic. As with any retail stock, the long-term picture will be shaped by the company's ability to adapt to changing shopping habits and maintain its brand appeal.
For those considering an investment, it's important to remember that retail is a tough business, and even well-known brands can struggle. Bath & Body Works has a loyal customer base and a strong product lineup, but it faces intense competition from both online-only players and other specialty retailers. The company's success will hinge on its ability to keep innovating and to find new ways to reach customers, whether they shop in stores or on their phones.
