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What changed in Bath & Body Works, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Bath & Body Works, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+370 added−436 removedSource: 10-K (2024-03-22) vs 10-K (2023-03-17)

Top changes in Bath & Body Works, Inc.'s 2024 10-K

370 paragraphs added · 436 removed · 279 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeOur partner-based, asset-light business model allows us to establish operating standards by owning assortment, pricing architecture, promotions, store designs and real estate approval while our partners make investments and contribute as experts in local real estate, people and practices.
Biggest changeOur international partner-based, asset-light business model allows us to establish operating standards by owning assortment, pricing architecture, promotions, store designs and real estate approval while our partners make investments and contribute as experts in local real estate, people and practices. 3 Table of Contents The following table provides the number of international stores operated by our partners as of February 3, 2024 and January 28, 2023: February 3, 2024 January 28, 2023 International 454 401 International - Travel Retail 31 26 Total 485 427 Additionally, our partners operated 28 international e-commerce sites as of February 3, 2024, compared to 31 as of January 28, 2023.
Our website and information included in or linked to our website are not part of this Annual Report on Form 10-K. Copies of any of the above-referenced documents will also be made available, free of charge, upon written request to: Bath & Body Works, Inc. Investor Relations Department Three Limited Parkway Columbus, Ohio 43230 8 Table of Contents
Our website and information included in or linked to our website are not part of this Annual Report on Form 10-K. Copies of any of the above-referenced documents will also be made available, free of charge, upon written request to: Bath & Body Works, Inc. Investor Relations Department Three Limited Parkway Columbus, Ohio 43230 6 Table of Contents
ITEM 1. BUSINESS. General The company, which was founded in 1963 in Columbus, Ohio, has evolved over time from an apparel-based specialty retailer to a segment leader focused on home fragrance, body care and soaps and sanitizer products operating under the Bath & Body Works, White Barn and other brand names.
ITEM 1. BUSINESS. General The company, which was founded in 1963 in Columbus, Ohio, has evolved over time from an apparel-based specialty retailer to a segment leader focused on home fragrance, body care and soap and sanitizer products operating under the Bath & Body Works, White Barn and other brand names.
Seasonal Business Our operations are seasonal in nature and consist of two principal selling seasons: Spring (the first and second quarters) and Fall (the third and fourth quarters). The fourth quarter, including the holiday season, typically accounts for approximately one-third of our net sales and is our most profitable quarter.
Seasonal Business Our operations are seasonal in nature and consist of two principal selling seasons: Spring (the first and second quarters) and Fall (the third and fourth quarters). The fourth quarter, including the holiday season, typically accounts for approximately 40% of our Net Sales and is our most profitable quarter.
The emphasis on overall Company performance is intended to align the associates’ financial interests with the interests of our stockholders. Commitment to Providing Quality Benefits We offer competitive, performance-based compensation; a company-matched savings and retirement plan; and flexible and affordable health, wellness and lifestyle benefits.
The emphasis on overall Company performance is intended to align the associates’ financial interests with the interests of our stockholders. Commitment to Providing Quality Benefits We offer competitive, performance-based compensation; a company-matched 401(k) retirement plan; and flexible and affordable health, wellness and lifestyle benefits.
Franchise, License and Wholesale Arrangements In addition to our Company-operated stores, our products are sold at partner-operated locations and websites in more than 45 countries through franchise, license and wholesale arrangements.
Franchise, License and Wholesale Arrangements In addition to our Company-operated stores, our products are sold at partner-operated locations and websites in more than 40 countries through franchise, license and wholesale arrangements.
Available Information We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and its rules and regulations. The Exchange Act requires us to file reports, proxy statements and other information with the U.S. Securities and Exchange Commission ("SEC").
Available Information We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and its rules and regulations. The Exchange Act requires us to file reports, proxy statements and other information with the U.S. Securities and Exchange Commission (“SEC”).
In addition, we evaluate fairness of total compensation with reference to both internal and external comparisons. Our compensation programs are designed to link annual changes in compensation to overall Company performance, as well as each individual’s contribution to the results achieved.
In addition, we evaluate fairness of total compensation with reference to both internal and external comparisons. 5 Table of Contents Commitment to Competitive Wages Our compensation programs are designed to link annual changes in compensation to overall Company performance, as well as each individual’s contribution to the results achieved.
By continuing to encourage and support a workplace environment where diversity, equity and inclusion ("DEI") are valued, we believe we can serve our customers better, as well as attract and retain highly talented associates, suppliers and vendors of different backgrounds and experiences.
By continuing to encourage and support a workplace environment where DEI is valued, we believe we can serve our customers better, as well as attract and retain highly talented associates, suppliers and vendors of different backgrounds, abilities and experiences.
Brand image, presentation, marketing, design, price, service, fulfillment, assortment and quality are the principal competitive factors. 5 Table of Contents Other Information For additional information about our business, see "Management’s Discussion and Analysis of Financial Condition and Results of Operations," included under Item 7. of Part II of this Annual Report on Form 10-K.
Brand image, presentation, marketing, design, price, service, fulfillment, assortment and quality are the principal competitive factors. Other Information For additional information about our business, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included under Item 7. of this Annual Report on Form 10-K.
The current macroeconomic environment, including the impacts of continued inflationary cost pressure, requires agility, and we believe we are leveraging the speed that we have in our supply chain, our close partnerships with our suppliers and the capabilities of our sourcing, production and logistics teams to respond quickly.
The current macroeconomic environment requires agility, and we believe we are leveraging the speed that we have in our supply chain, our close partnerships with our suppliers and the capabilities of our sourcing, production and logistics teams to respond quickly.
We believe Beauty Park and our predominantly domestic, vertically integrated supply chain enable us to successfully navigate a dynamic environment and present full and abundant product assortments on time to our customers with speed and agility. Information Systems Our management information systems consist of a full range of retail, financial and merchandising systems.
We believe that our predominantly domestic, vertically integrated supply chain enables us to successfully navigate a dynamic environment and present full and abundant product assortments on time to our customers with speed and agility. Information Systems Our information systems consist of a full range of retail, financial and merchandising applications.
We are continuing our off-mall expansion to limit our exposure to vulnerable mall locations. As a result of our strong brand and established retail presence, we have been able to lease high-traffic locations in most retail centers in which we operate. We proactively manage our stores and adjust our investment levels based on individual store and fleet performance.
As a result of our strong brand and established retail presence, we have been able to lease high-traffic locations in most retail centers in which we operate. We proactively manage our stores and adjust our investment levels based on individual store and fleet performance.
Our supplier base includes long-standing vendor relationships, and the majority of our products are produced at Beauty Park, a business park that includes several key vendors within close proximity to our Columbus, Ohio distribution centers. These strategic vendor relationships provide deep capabilities across our product categories.
Our supplier base includes long-standing vendor relationships, and the majority of our products are produced at Beauty Park, a business park that includes several key vendors within close proximity to our Columbus, Ohio distribution and fulfillment centers.
We strive to make the world a brighter, happier place through the power of fragrance. We care about our customers and believe in giving them a reason to celebrate with fragrance every day. We remain committed to improving our communities and fostering a diverse, equitable and inclusive culture that is focused on delivering exceptional fragrances and experiences.
We care about our customers and believe in giving them a reason to celebrate with fragrance every day. We remain committed to improving our communities and fostering a diverse, equitable and inclusive culture that is focused on delivering exceptional fragrances and experiences.
Approximately two-thirds of our stores were in the White Barn store design as of January 28, 2023, and we expect to prioritize the remaining higher performing core stores for conversion to the White Barn store design in viable locations over the next five years.
More than two-thirds of our stores were in the White Barn store design as of February 3, 2024, and we expect to prioritize the remaining higher performing core stores for conversion to the White Barn store design in viable locations over the next five years.
In addition, in the fall of 2022, we completed construction of our first Company-operated direct channel fulfillment center. Located near Columbus, Ohio, this facility has 1.1 million square feet of space and state-of-the-art fulfillment capabilities to support the future growth in our direct business (also referred to as digital or e-commerce) and enhanced fulfillment capabilities for our business.
Located near Columbus, Ohio, this facility has 1.1 million square feet of space and state-of-the-art fulfillment capabilities to support the future growth in our direct business (also referred to as digital or e-commerce) and enhanced fulfillment capabilities for our business.
Experienced and Committed Management Team Our senior management team has significant retail and business experience at Bath & Body Works, Inc. and other companies such as Unilever, Avon Products, The Estée Lauder Companies, Ann Taylor and Loft, Banana Republic, Ross Stores, Abercrombie & Fitch, Madewell, Carter’s, Rosetta Stone and KPMG. Our Board of Directors (the "Board") appointed Gina R.
Experienced and Committed Management Team Our senior management team has significant retail and business experience at Bath & Body Works, Inc. and other companies such as Unilever, Avon Products, The Estée Lauder Companies, Ann Taylor and Loft, Banana Republic, CVS Health, Merck, Target, McDonald’s, Ross Stores, Abercrombie & Fitch, Madewell, Carter’s, Rosetta Stone, Hasbro and Mattel.
Regulation We and our products are subject to regulation by various federal, state, local and foreign regulatory authorities. We are subject to a variety of tax and customs regulations and international trade arrangements. Intellectual Property Our trademarks, copyrights and patents, which constitute our primary intellectual property, have been registered or are the subject of pending applications in the U.S.
We are subject to a variety of tax and customs regulations and international trade arrangements. 4 Table of Contents Intellectual Property Our trademarks, copyrights and patents, which constitute our primary intellectual property, have been registered or are the subject of pending applications in the U.S.
The Human Capital and Compensation Committee (the “HCC Committee”) of our Board oversees, amongst other things, the Company’s programs, policies, practices and strategies relating to culture, talent, diversity, equity and inclusion, equal employment opportunities and the Company’s executive compensation programs. Our Board oversees the succession planning process for our Chief Executive Officer.
The Human Capital & Compensation Committee of our Board of Directors (the “Board”) oversees, among other things, the Company’s programs, policies, practices and strategies relating to culture, talent, diversity, equity and inclusion, equal employment opportunities and the Company’s executive compensation programs.
Subject to certain eligibility requirements, associates can choose benefits and resources that fit their lifestyle, including, but not limited to, 14 weeks paid maternity leave, six weeks paid paternity leave, mental health benefits, family planning benefits including fertility, adoption and surrogacy, expanded bereavement leave time, military leave, tuition assistance, free access to life planning services and a generous merchandise discount.
Subject to certain eligibility requirements, associates can choose benefits and resources that fit their lifestyle, including, but not limited to, 14 weeks paid maternity leave, six weeks paid parental leave, mental health benefits, family planning benefits including fertility, adoption and surrogacy, expanded bereavement leave time, military leave, tuition-free access to education, tuition assistance, free access to life planning services, removal of co-pays for insulin and other critical prescriptions, commuter benefits, a tobacco cessation program, an associate stock purchase plan that allows associates to purchase Company stock at a discount and a generous merchandise discount.
Code of Conduct We have a written Code of Conduct that is based on our values and is a resource which establishes standards for employee conduct that reinforces the Company's commitment to integrity and ethical conduct. We conduct an annual Code of Conduct compliance process that requires associates to complete a Code of Conduct disclosure and a separate training course.
Code of Conduct We have a written Code of Conduct that is based on our values and is a resource which establishes standards for associate conduct that reinforce the Company's commitment to integrity and ethical conduct. All associates are required to complete a Code of Conduct training course and certify their compliance annually.
Commitment to Equitable and Competitive Wages We are committed to equal opportunity and treatment for all associates which includes equal career advancement opportunities and equitable and competitive wages. Our commitment to pay equity is evaluated by conducting periodic assessments of pay equity based on gender, race and ethnicity.
We embrace diversity and strive to give our team members equitable access to opportunities and treatment for all associates, which includes career advancement opportunities and competitive wages. We demonstrate our commitment to pay equity by conducting periodic assessments based on gender, race and ethnicity.
Human Capital Management Human Capital At Bath & Body Works, our purpose goes beyond selling product. We work to make a difference in our communities and foster a safe, welcoming, inclusive and empowering workplace for our thousands of associates.
Human Capital Management Human Capital At Bath & Body Works, our purpose goes beyond selling product. We strive to be an employer of choice, make a difference in our communities and foster a safe, inclusive and empowering environment for our thousands of associates as well as our customers and suppliers. We believe everyone belongs at Bath & Body Works.
We are home to America’s Favorite Fragrances® and offer a breadth of exclusive fragrances for the body and home, including top-selling collections for fine fragrance mist, body lotion and body cream, 3-wick candles, home fragrance diffusers and liquid hand soap.
We offer a breadth of exclusive fragrances for the body and home, including top-selling collections for fine fragrance mist, body lotion and body cream, 3-wick candles, home fragrance diffusers and liquid hand soap. For more than 30 years, customers have looked to Bath & Body Works for quality, on-trend products and the newest, freshest fragrances.
Safety Is Our Priority We are committed to providing all of our associates a healthy and safe working environment and for protecting the safety of our customers. Our health and safety programs are designed to meet or exceed regulatory requirements for the various industry sectors of our business and in the jurisdictions in which we operate.
Safety Is Our Priority We are committed to providing all of our associates a healthy and safe working environment and for protecting the safety of our customers.
In-Store Experience and Store Operations We view our customers' in-store experience as an important vehicle for communicating the image of our brand. We utilize visual presentation of merchandise, fragrance, in-store marketing, music and our sales associates to reinforce the image represented by our brand. Our in-store marketing is designed to convey the principal elements and personality of our brand.
We utilize visual presentation of merchandise, fragrance, in-store marketing, music and our sales associates to reinforce the image represented by our brand. Our in-store marketing is designed to convey the principal elements and personality of our brand. The store design, visual marketing and storytelling, fixtures, fragrances and music are all carefully planned and coordinated to create a unique shopping experience.
We have also developed trusted and market leading products in the body care, home fragrance, and soap and sanitizer categories. Our products are differentiated through a combination of fragrance, packaging and quality at accessible prices. We also sell products under our trusted sub brands, including White Barn and Aromatherapy.
Customers look to us to celebrate the season, transport them to another time and place, decorate their home and find the perfect gift. We have also developed trusted and market-leading products in the home fragrance, body care, and soap and sanitizer categories. Our products are differentiated through a combination of fragrance, packaging and quality at accessible prices.
Real Estate Company-operated Stores The following table provides the number of our Company-operated retail stores as of January 28, 2023 and January 29, 2022: January 28, 2023 January 29, 2022 United States 1,693 1,651 Canada 109 104 Total 1,802 1,755 The following table provides the changes in the number of our Company-operated retail stores for the past three fiscal years: Beginning of Year Opened Closed End of Year 2022 1,755 95 (48) 1,802 2021 1,736 54 (35) 1,755 2020 1,739 27 (30) 1,736 We have a diversified store portfolio in the U.S. and Canada across venue tiers and types, with approximately half of our stores located off-mall as of January 28, 2023.
The following table provides the number of our Company-operated retail stores as of February 3, 2024 and January 28, 2023: February 3, 2024 January 28, 2023 United States 1,739 1,693 Canada 111 109 Total 1,850 1,802 The following table provides the changes in the number of our Company-operated retail stores for the past three fiscal years: Beginning of Year Opened Closed End of Year 2023 1,802 95 (47) 1,850 2022 1,755 95 (48) 1,802 2021 1,736 54 (35) 1,755 Over time, we expect low-single digit annual increases in North American square footage, with off-mall penetration steadily increasing.
The store design, visual marketing and storytelling, fixtures, scents, and music are all carefully planned and coordinated to create a unique shopping experience. We display merchandise uniformly to ensure a consistent store experience, regardless of location. Store managers receive detailed plans designating fixture and merchandise placement to ensure coordinated execution of the Company-wide merchandising strategy.
We display merchandise uniformly to ensure a consistent store experience, regardless of location. Store managers receive detailed plans designating fixture and merchandise placement to ensure coordinated execution of the Company-wide merchandising strategy. Our sales associates and store managers are a central element in bringing our seasonal storytelling to life by providing a high level of customer service.
All discussion within this Annual Report on Form 10-K, including amounts, percentages and disclosures for all periods presented, reflect only the continuing operations of the company unless otherwise noted. In connection with the spin-off of the Victoria's Secret business, the company changed its name from L Brands, Inc. to Bath & Body Works, Inc. ("we" or the "Company").
All discussion within this Annual Report on Form 10-K, including amounts, percentages and disclosures for all periods presented, reflect only the continuing operations of the Company unless otherwise noted. As such, the Victoria’s Secret business subject to the spin-off completed on August 2, 2021 has been excluded. See Note 2 to the Consolidated Financial Statements included in Item 8.
While our Company-owned distribution centers located in central Ohio are core to our operations, we also utilize third-party distribution centers located throughout North America to position inventory geographically closer to our customers. Third party-operated direct channel fulfillment centers and pop-up fulfillment facilities throughout North America are also used to support our peak needs.
These strategic vendor relationships provide deep capabilities across our product categories. 2 Table of Contents While our Company-owned distribution centers located in central Ohio are core to our operations, we also utilize third-party distribution centers located throughout North America to position inventory geographically closer to our customers.
As of January 28, 2023, our merchandise was sold through 1,802 company-operated stores and e-commerce sites in the United States of America ("U.S.") and Canada, and in 427 stores and 31 e-commerce sites in more than 45 other countries operating under franchise, license and wholesale arrangements.
Throughout this Annual Report on Form 10-K, we refer to Bath & Body Works, Inc. as “we” and the “Company.” As of February 3, 2024, our merchandise was sold through 1,850 Company-operated stores and e-commerce sites in the United States of America (“U.S.”) and Canada, and in 485 stores and 28 e-commerce sites in more than 40 other countries operating under franchise, license and wholesale arrangements.
For more than 30 years, customers have looked to Bath & Body Works for quality, on-trend products and the newest, freshest fragrances. We intend to build and transform an already strong foundation into a leading global omnichannel personal care and home fragrance brand.
We intend to transform an already strong foundation into a leading global omnichannel personal care and home fragrance brand.
Our largest vendor supplied approximately 13% of our total merchandise purchases during 2022, while no other single vendor provided more than 10% of our merchandise purchases. Our five largest vendors supplied approximately 38% of our total merchandise purchases on a combined basis during 2022.
Additional Information Merchandise Vendors During 2023, we purchased merchandise from approximately 120 vendors, primarily located in the U.S. Our largest vendor supplied approximately 15% of our total merchandise purchases (on a dollar basis) during 2023, while no other single vendor accounted for more than 10% of our merchandise purchases (on a dollar basis).
Over time, we expect low-single digit annual increases in North American square footage, with off-mall penetration steadily increasing. We will open new stores in emerging non-mall venues or as replacement stores for non-viable malls, while closing stores in non-viable or declining malls.
We plan to open new stores in emerging non-mall venues or as replacement stores for non-viable malls, while closing stores in non-viable or declining malls.
The systems include applications related to point-of-sale, e-commerce, merchandising, planning, sourcing, logistics, inventory management, data security and support systems, including human resources and finance systems.
These applications are related to point-of-sale, e-commerce, merchandising, marketing, planning, sourcing, logistics, inventory management, data security and support systems, including human resources and finance applications. We substantially completed our information technology (“IT”) separation from Victoria’s Secret & Co. (“Victoria’s Secret”) during the second quarter of 2023, and we expect to complete the remaining separation activities in 2024.
Distribution and Merchandise Inventory Most of our merchandise is produced in the U.S. and is shipped to our distribution centers in the Columbus, Ohio area. In addition to our Company-operated distribution centers, we also utilize third-party logistics providers to warehouse and distribute product throughout North America.
In addition to our Company-operated distribution centers, we also utilize third-party logistics providers to warehouse and distribute product throughout North America. We proactively evaluate our distribution channels to ensure we are able to provide the right product at the right place to meet or exceed our customers’ expectations.
We proactively evaluate our distribution channels to ensure we are able to provide the right product at the right place to meet or exceed our customers’ expectations. Our policy is to maintain sufficient quantities of inventories on hand in our retail stores, fulfillment centers and distribution centers to enable us to meet customer demand.
We strive to maintain sufficient quantities of inventories on hand in our retail stores, fulfillment centers and distribution centers to enable us to meet customer demand. We continue to actively manage our inventory to adjust for anticipated channel shifts and product category shifts.
Our merchant, design and sourcing teams have a long history of bringing innovative and covetable products to our customers. Our product offering and assortment strategy are key to elevating our brand, increasing our long-term pricing power and extending our reach.
We seek to drive efficiencies and mitigate risk through our strong technical research and prolific product development. Our merchant, design and sourcing teams have a long history of bringing innovative and covetable products to our customers.
In addition, in the fall of 2022, we completed construction of, and commenced initial operations in, our first Company-operated direct channel fulfillment center with 1.1 million square feet of space and state-of-the-art fulfillment capabilities.
Third party-operated direct channel fulfillment centers throughout North America are used to support our needs. In addition, in the fall of 2022, we completed construction of our first Company-operated direct channel fulfillment center.
We are dedicated to delivering a full product pipeline by launching new fragrances and products every four to six weeks, with new products launching nearly every week. Sourcing and Logistics Our predominantly domestic, vertically integrated supply chain enables us to successfully navigate a dynamic environment and to respond to changing consumer preferences with speed and agility.
We leverage our differentiated product development capabilities and our strong partnerships with fragrance houses to frequently deliver compelling new fragrances, packaging and other product launches. We are dedicated to delivering a full product pipeline by launching new fragrances and products every four to six weeks, with new products launching nearly every week.
Our sales associates and store managers are a central element in bringing our seasonal storytelling to life by providing a high level of customer service. 1 Table of Contents Digital Experience In addition to our in-store experience, we strive to create a customer-centric digital platform that integrates the digital and physical brand experience and enables convenience for the customer when desired.
Digital Experience In addition to our in-store experience, we strive to create a customer-centric digital platform that integrates the digital and physical brand experience and enables convenience for the customer when desired. Our digital presence, including social media, our websites and our loyalty application, allows us to get to know our customers better and communicate with them anytime and anywhere.
We are an affordable luxury brand with covetable offerings, and a key tenet of our strategy is offering products at all price points. Customers look to us to celebrate the season, transport them to another time and place, decorate their home and find the perfect gift.
As one of the premier fragrance companies in the world, we deliver customers their favorite fragrances in multiple forms and categories with industry-leading speed and innovation that power our deep customer connections. We are an affordable luxury brand with covetable offerings, and a key tenet of our strategy is offering products at multiple price points.
We believe a large part of our success comes from our ability to quickly assess and effectively adjust to changing consumer preferences. We leverage our differentiated product development capabilities to frequently deliver compelling new fragrances, packaging and other product launches.
Our product offering and assortment strategy is key to elevating our brand, increasing our long-term pricing power and expanding our business both into adjacent product categories and internationally. We believe a large part of our success comes from our ability to quickly assess and effectively adjust to changing customer preferences.
These groups provide professional development for associates, support the needs of the business, help shape the culture of our Company and provide engagement and volunteerism in the community.
In our efforts to foster an inclusive culture, we have eight associate inclusion resource groups that are sponsored by senior leaders at the Company. These groups provide our associates with opportunities for professional development, engagement, networking and volunteerism in the community.
During 2022, we opened 95 new, off-mall stores and permanently closed 48 stores, principally in malls, in North America, resulting in net square footage growth of 5% for the year.
During 2023, we opened 94 new off-mall stores and one mall store, while permanently closing 39 mall and eight off-mall stores, which, when combined with store remodel activity, resulted in net square footage growth of 4% for 2023.
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On August 2, 2021, the company completed the spin-off of its Victoria's Secret business, which included the Victoria's Secret and PINK brands, into an independent publicly traded company ("Victoria's Secret & Co." and such transaction, the "Separation") on a tax-free basis. Accordingly, the operating results of the Victoria's Secret business are reported as discontinued operations for all periods presented.
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Financial Statements and Supplementary Data for additional information regarding the spin-off. Fiscal Year Our fiscal year ends on the Saturday nearest to January 31. We utilize the retail calendar for reporting.
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Additionally, starting on August 3, 2021, the Company's common stock began trading on the New York Stock Exchange (the "NYSE") under the stock symbol "BBWI." Fiscal Year Our fiscal year ends on the Saturday nearest to January 31.
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As a result, “2023” refers to the 53-week period ended February 3, 2024, and “2022” and “2021” refer to the 52-week periods ended January 28, 2023 and January 29, 2022, respectively. Growth Strategies Our management team is focused on executing our strategy to deliver top- and bottom-line growth and long-term shareholder value.
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As used herein, “2022,” “2021” and “2020” refer to the 52-week periods ended January 28, 2023, January 29, 2022 and January 30, 2021, respectively.
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The major elements of our strategy include: • Elevating the brand through innovation and upgrades to our forms, packaging and merchandising; • Extending our reach through new category adjacencies and international growth; • Engaging with our customers through our loyalty program, enhanced technology and greater personalization; • Enabling a seamless omnichannel experience by advancing our digital platforms and integrating them with our stores; and • Enhancing operational excellence to drive efficiency.
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Our digital presence, including social media, our websites and our loyalty application, allows us to get to know our customers better and communicate with them anytime and anywhere. Product Development Quality and innovation are at the core of our sourcing strategy. We seek to drive efficiencies and mitigate risk through our strong technical research and prolific product development.
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Foundational to these growth drivers is the creation of great products and continuing to deliver innovation and newness for our customers. A critical element to support our strategy is our focus on technology and marketing initiatives.
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Boswell as our Chief Executive Officer and as a member of our Board, effective December 1, 2022. Sarah E. Nash, who had served as Executive Chair of the Board since February 2022 and Interim Chief Executive Officer since May 2022, remained Executive Chair through January 28, 2023, at which time she transitioned back to independent Chair of the Board.
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We also sell products under our trusted sub brands, including White Barn. 1 Table of Contents In-Store Experience and Store Operations We view our customers’ in-store experience as an important vehicle for communicating the image of our brand and engaging with our customers.
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Growth Strategies Expanding our Customer Base and Customer Spend As a leading fragrance company, we deliver customers their favorite fragrances in multiple forms and categories with industry- leading speed and innovation. We manage every touchpoint throughout the customer journey to deliver a highly differentiated shopping experience.
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We are prioritizing enhancements to our digital personalization capabilities to build and implement a more tailored and targeted approach to marketing and promotions, one that is rooted in data, analytics and customer segmentation. In 2023, we added social proofing badges on our website, highlighting trending and best-selling products, as well as those products with limited supply.
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We have a large, loyal customer base that spans income levels, age groups and ethnicities. We believe we have significant opportunity to acquire new customers, increase spend and further diversify our customer base. We are continuing to prioritize investment in our customer experience. As part of this investment, we launched our loyalty program nationwide in the U.S. during August 2022.
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During 2023, we also added personalized product recommendations based on shopping behavior and customized headers to welcome recognized users by name and highlight their loyalty account balance. By adding personalized landing pages, immersive content, and product recommendations, we plan to acquire more customers, increase retention of existing customers and drive more discovery and larger basket sizes.
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Our enrollment results have exceeded our initial expectations, with more than 33 million members enrolled to date, and more than 80% of these members were active in the last 12 months.
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Loyalty Program Our loyalty program is a critical tool for engaging with our customers and meeting them where they are. As of February 3, 2024, we had approximately 37 million active members of our loyalty program.
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We believe we have opportunity to drive more value and attract more customers to the loyalty program by increasing engagement through personalization, fully integrating the program across social, physical and digital interactions, and making future program enhancements like accelerators and flexible rewards. Our loyalty customers typically spend more, have greater retention rates and make more trips than non-loyalty customers.
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Active members of our loyalty program represent loyalty program members who have purchased at least once directly from the Company during the preceding twelve-month period. In 2023, nearly 80% of our U.S. sales came from our loyalty members, and our loyalty customers have, on average, higher spend, have greater retention rates, and make more trips.
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Our loyalty sales represent approximately two thirds of our U.S. sales since launch in August 2022. 2 Table of Contents We also believe we have an opportunity to leverage data and analytics to build deeper customer connections to deliver more personalized marketing and develop a more targeted promotion strategy.
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The pace of enrollment in the program since the August 2022 U.S. launch has been strong, and we believe there is opportunity to drive more engagement from our customers. During 2023, we offered special loyalty-member only events and, in the fourth quarter, introduced loyalty point accelerators, with the goal of helping customers redeem rewards more frequently.
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We believe we can grow our customer base, increase engagement and drive incremental visits, all while decreasing our reliance on broad-based promotions, by implementing a more targeted marketing approach rooted in advanced analytics and customer segmentation. Optimizing our Product Offering Our product offering and assortment strategy are key to enhancing our brand, increasing our pricing power and extending our reach.
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We are focused on fully integrating our loyalty experience throughout our channels and plan to test and bring additional enhancements to the loyalty program throughout 2024, including additional early access and member only events. Product Development Quality and innovation are at the core of our sourcing strategy.
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We believe that offering our customer favorites in multiple forms is a competitive differentiator that drives our customer loyalty and purchases. Our cross-category assortment is a key reason for our customers to come back and visit our stores. Our products are designed to be used daily and replenished frequently.
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Sourcing and Logistics Our predominantly domestic, vertically integrated supply chain enables us to continually deliver newness and meet the demands of our omnichannel customers and changing macro trends with speed and agility.
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We believe we have a strong pipeline of products, and we expect to continue to launch new fragrances and products about every four to six weeks.
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Real Estate Company-Operated Stores We have a diversified store portfolio in the U.S. and Canada across venue tiers and types, with more than half of our stores located off-mall as of February 3, 2024. We are continuing our off-mall expansion to limit our exposure to vulnerable mall locations.
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Innovation and newness are key drivers of our business, and we believe we have opportunity for growth in our existing categories through new product launches, formula upgrades and packaging refreshes, which we believe drives traffic and repeat customers.
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Our Company-operated stores continue to outperform pre-pandemic levels and substantially all of our store fleet is profitable.
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We recently launched a new single-wick vessel in candles, which rounds out our candle portfolio and offers a burn time of 30 to 50 hours. We continue to increase our assortment of scent control wallflower heaters that offer our customers choice in how much scent to enjoy in each room of their home.
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Our five largest vendors supplied approximately 40% of our total merchandise purchases (on a dollar basis) on a combined basis during 2023. Distribution and Merchandise Inventory Most of our merchandise is produced in the U.S. and is shipped to our distribution centers in the Columbus, Ohio area.
Removed
As we look ahead to 2023, we are focused on delivering fresh and compelling new scents and exciting new product expansions to our fragrance portfolio.
Added
Upon obtaining control over significant information technology systems during 2023, we have undertaken a multi-year project to significantly upgrade our digital and information technology systems, capabilities and organization to, among other things, advance our data analytics capabilities, enhance our in-store and online customer experience, enable us to more effectively personalize our marketing, shopping, and promotional experiences, streamline our IT and digital operations and enable us to work more efficiently (the “IT Transformation Project”).
Removed
In addition, we continue to learn our customers’ preferences in new and adjacent product lines and plan to continue to add more new and innovative products over time as we work to expand our brand’s global reach.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeRisks associated with the following factors, among others, in some cases have affected and in the future could affect our financial performance and actual results and could cause actual results to differ materially from those expressed or implied in any forward-looking statements included in this report or otherwise made by our Company or our management: • general economic conditions, inflation, consumer confidence, consumer spending patterns and market disruptions including pandemics or significant health hazards, severe weather conditions, natural disasters, terrorist activities, financial crises, political crises or other major events, or the prospect of these events; • the seasonality of our business; • the anticipated benefits from the Victoria's Secret & Co. spin-off may not be realized; • the spin-off of Victoria’s Secret & Co. may not be tax-free for U.S. federal income tax purposes; • our dependence on Victoria's Secret & Co. for information technology services and the transition of such services to our own information technology systems or to those of third-party technology service providers; • our ability to attract, develop and retain qualified associates and manage labor-related costs; • difficulties arising from turnover in Company leadership or other key positions; • the dependence on store traffic and the availability of suitable store locations on appropriate terms; • our continued growth in part through new store openings and existing store remodels and expansions; • our ability to successfully operate and expand internationally and related risks; • our independent franchise, license and wholesale partners; • our direct channel business; • our ability to protect our reputation and our brand image; • our ability to successfully complete environmental, social and governance initiatives, and associated costs thereof; • our ability to successfully achieve expected annual cost savings in connection with our profit optimization efforts to reduce expenses and improve operating efficiency in the business; • our ability to attract customers with marketing, advertising and promotional programs; • our ability to maintain, enforce and protect our trade names, trademarks and patents; • the highly competitive nature of the retail industry and the segments in which we operate; • consumer acceptance of our products and our ability to manage the life cycle of our brand, develop new merchandise and launch new product lines successfully; • our ability to source, distribute and sell goods and materials on a global basis, including risks related to: ◦ political instability, wars and other armed conflicts, environmental hazards or natural disasters; ◦ significant health hazards or pandemics, such as the COVID-19 pandemic, which could result in closed factories and/or stores, reduced workforces, scarcity of raw materials, and scrutiny or embargoing of goods produced in impacted areas; ◦ duties, taxes and other charges; ◦ legal and regulatory matters; ◦ volatility in currency exchange rates; ◦ local business practices and political issues; ◦ delays or disruptions in shipping and transportation and related pricing impacts; ◦ disruption due to labor disputes; and ◦ changing expectations regarding product safety due to new legislation; • our geographic concentration of vendor and distribution facilities in central Ohio; • our reliance on a limited number of suppliers to support a substantial portion of our inventory purchasing needs; • the ability of our vendors to deliver products in a timely manner, meet quality standards and comply with applicable laws and regulations; • fluctuations in foreign currency exchange rates; • fluctuations in product input costs; • fluctuations in energy costs; • our ability to adequately protect our assets from loss and theft; • increases in the costs of mailing, paper, printing or other order fulfillment logistics; • claims arising from our self-insurance; 9 Table of Contents • our and our third-party service providers’, including Victoria’s Secret & Co. during the term of the Transition Services Agreement between us and Victoria’s Secret & Co., ability to implement and maintain information technology systems and to protect associated data; • our ability to maintain the security of customer, associate, third-party and Company information; • stock price volatility; • our ability to pay dividends and make share repurchases under share repurchase authorizations; • shareholder activism matters; • our ability to maintain our credit ratings; • our ability to service or refinance our debt and maintain compliance with our restrictive covenants; • the impact of the transition from London Interbank Offered Rate ("LIBOR") and our ability to adequately manage such transition; • our ability to comply with laws, regulations and technology platform rules or other obligations related to data privacy and security; • our ability to comply with regulatory requirements; • legal and compliance matters; and • tax, trade and other regulatory matters.
Biggest changeRisks associated with the following factors, among others, in some cases have affected and in the future could affect our financial performance and actual results and could cause actual results to differ materially from those expressed or implied in any forward-looking statements included in this report or otherwise made by the Company or our management: • general economic conditions, inflation, consumer confidence, consumer spending patterns and market disruptions including pandemics or significant health hazards, severe weather conditions, natural disasters, terrorist activities, financial crises, political crises or other major events, or the prospect of these events; • the seasonality of our business; • our ability to attract, develop and retain qualified associates and manage labor-related costs; • difficulties arising from turnover in Company leadership or other key positions; • the dependence on store traffic and the availability of suitable store locations on appropriate terms; • our continued growth in part through new store openings and existing store remodels and expansions; • our ability to successfully operate and expand internationally and related risks; • our independent franchise, license, wholesale and other distribution-related partners; • our direct channel business; • our ability to protect our reputation and our brand image; • our ability to attract customers with marketing, advertising, promotional programs and our loyalty program; • our ability to maintain, enforce and protect our trade names, trademarks and patents; • the highly competitive nature of the retail industry and the segments in which we operate; • consumer acceptance of our products and our ability to manage the life cycle of our brand, develop new merchandise and launch and expand new product lines successfully; • our ability to source, distribute and sell goods and materials on a global basis, including risks related to: ▪ political instability, wars and other armed conflicts, environmental hazards or natural disasters; ▪ significant health hazards or pandemics, which could result in closed factories and/or stores, reduced workforces, scarcity of raw materials, and scrutiny or embargoing of goods produced in impacted areas; ▪ duties, taxes and other charges; ▪ legal and regulatory matters; ▪ volatility in currency exchange rates; ▪ local business practices and political issues; ▪ delays or disruptions in shipping and transportation and related pricing impacts; ▪ disruption due to labor disputes; or ▪ changing expectations regarding product safety due to new legislation; • our ability to successfully complete environmental, social and governance initiatives, and associated costs thereof; • the geographic concentration of third-party manufacturing facilities and our distribution facilities in central Ohio; • our reliance on a limited number of suppliers to support a substantial portion of our inventory purchasing needs; • the ability of our vendors to deliver products in a timely manner, meet quality standards and comply with applicable laws and regulations; • the spin-off of Victoria’s Secret may not be tax-free for U.S. federal income tax purposes; • fluctuations in foreign currency exchange rates; • fluctuations in product input costs; • fluctuations in energy costs; • our ability to adequately protect our assets from loss and theft; • claims arising from our self-insurance; • our and our third-party service providers’ ability to implement and maintain information technology systems and to protect associated data; • our ability to maintain the security of customer, associate, third-party and Company information; • stock price volatility; • our ability to pay dividends and make share repurchases under share repurchase authorizations; • shareholder activism matters; • our ability to maintain our credit ratings; • our ability to service or refinance our debt and maintain compliance with our restrictive covenants; 7 Table of Contents • our ability to comply with laws, regulations and technology platform rules or other obligations related to data privacy and security; • our ability to comply with regulatory requirements; • legal and compliance matters; and • tax, trade and other regulatory matters.
While we train our associates, have implemented systems, processes and security measures to protect our physical facilities and information technology systems against unauthorized access and prevent data loss and vetted our third-party service providers' systems, processes and security measures, there is no guarantee that these procedures are adequate to safeguard against all data security threats to us or our third-party service providers.
While we train our associates, have implemented systems, processes and security measures to protect our physical facilities and information technology systems against unauthorized access and prevent data loss, and have vetted our third-party service providers' systems, processes and security measures, there is no guarantee that these procedures are adequate to safeguard against all data security threats to us or our third-party service providers.
Moreover, there could be public announcements regarding any cybersecurity incidents and any steps we take to respond to or remediate such incidents, and if securities analysts or investors perceive these announcements to be negative, it could, among other things, have a substantial adverse effect on the price of our common stock.
Moreover, there could be public announcements regarding cybersecurity incidents and any steps we take to respond to or remediate such incidents, and if securities analysts or investors perceive these announcements to be negative, it could, among other things, have a substantial adverse effect on the price of our common stock.
Under the GDPR, EU member states have enacted certain implementing legislation that adds to and/or further interprets the GDPR requirements and, depending on the extent and degree to which we conduct business in the European Economic Area (“EEA”) and U.K., potentially extends our obligations and potential liability for failing to meet such obligations.
Under the GDPR, EU member states have enacted certain implementing legislation that adds to and/or further interprets the GDPR requirements and, depending on the extent and degree to which we conduct business in the European Economic Area (“EEA”) and the U.K., potentially extends our obligations and potential liability for failing to meet such obligations.
Any significant compromise or breach of our data security, media reports about such an incident, whether accurate or not, or our failure to make adequate or timely disclosures to the public or law enforcement agencies following any such event, whether due to delayed discovery or a failure to follow existing protocols, could significantly damage our reputation with our customers, associates, investors and other third parties, cause the disclosure of personal, confidential, proprietary or sensitive customer, associate, third-party or Company information, cause interruptions to our operations and distraction to our management, cause our customers to stop shopping with us, inhibit our ability to attract new customers and result in significant legal, regulatory and financial liabilities and lost revenues.
Any significant compromise or breach of our data security, media reports about such an incident, whether accurate or not, or our failure to make adequate or timely disclosures to the public, regulatory agencies or law enforcement agencies following any such event, whether due to delayed discovery or a failure to follow existing protocols or regulations, could significantly damage our reputation with our customers, associates, investors and other third parties, cause the disclosure of personal, confidential, proprietary or sensitive customer, associate, third-party or Company information, cause interruptions to our operations and distraction to our management, cause our customers to stop shopping with us, inhibit our ability to attract new customers and result in significant legal, regulatory and financial liabilities and lost revenues.
While we currently maintain cybersecurity insurance, such insurance may not be sufficient in type or amount to cover us against claims related to breaches, violations of law, failures or other data security-related incidents, and we cannot be certain that cyber insurance will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim.
While we currently maintain cybersecurity insurance, such insurance may not be sufficient in type or amount to cover us against claims related to breaches, violations of law, failures or other data security-related incidents, and we cannot be certain that cybersecurity insurance will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim.
Additionally, such shareholder activism could give rise to perceived uncertainties as to our future, adversely affect our relationships with our associates, customers or service providers and make it more difficult to attract and retain qualified personnel. Also, we may be required to incur significant fees and other expenses related to activist shareholder matters, including for third-party advisors.
Additionally, such shareholder activism could give rise to perceived uncertainties as to our future, adversely affect our relationships with our associates, customers, service providers or other vendors and make it more difficult to attract and retain qualified personnel. Also, we may be required to incur significant fees and other expenses related to activist shareholder matters, including for third-party advisors.
Our systems and facilities (and the systems of our third-party service providers) are also subject to compromise from internal threats, such as theft, misuse, unauthorized access or other improper actions by associates, contractors and third-party service providers with otherwise legitimate access to our (or such third-party service providers') systems, websites, mobile applications or facilities (which risks may be heightened as a result of our associates working-from-home).
Our systems and facilities (and the systems and facilities of our third-party service providers) are also subject to compromise from internal threats, such as theft, misuse, unauthorized access or other improper actions by associates, contractors and third-party service providers with otherwise legitimate access to our (or such third-party service providers’) systems, websites, mobile applications or facilities (which risks may be heightened as a result of our (or their) associates working from home).
Such increases in costs may result from general economic or competitive conditions or from government imposition of higher minimum wages at the federal, state or local level, including in connection with the increases in state minimum wages that have recently been enacted by various states. Moreover, there may be a long-term trend toward higher wages in developing markets.
Such increases in costs may result from general economic or competitive conditions or from government imposition of higher minimum wages at the federal, state or local level, including in connection with the increases in state minimum wages that have been enacted by various states. Moreover, there may be a long-term trend toward higher wages in developing markets.
Even if the spin-off otherwise qualifies as a tax-free transaction, the distribution would be taxable to us (but not to our stockholders) in certain circumstances if future significant acquisitions of our stock or the stock of Victoria's Secret & Co. are determined to be part of a plan or series of related transactions that included the spin-off.
Even if the spin-off otherwise qualifies as a tax-free transaction, the distribution would be taxable to us (but not to our stockholders) in certain circumstances if future significant acquisitions of our stock or the stock of Victoria’s Secret are determined to be part of a plan or series of related transactions that included the spin-off.
In connection with the spin-off, we entered into a Tax Matters Agreement with Victoria's Secret & Co., pursuant to which Victoria's Secret & Co. agreed to not enter into any transaction that could cause the spin-off or any related transactions to be taxable to us without our consent and to indemnify us for any tax liability resulting from any such transaction.
In connection with the spin-off, we entered into a Tax Matters Agreement with Victoria’s Secret, pursuant to which Victoria’s Secret agreed to not enter into any transaction that could cause the spin-off or any related transactions to be taxable to us without our consent and to indemnify us for any tax liability resulting from any such transaction.
In addition, if the spin-off is taxable, each holder of our common stock who received shares of Victoria's Secret & Co. common stock in connection with the spin-off would generally be treated as receiving a taxable dividend in an amount equal to the fair market value of the shares received.
In addition, if the spin-off is taxable, each holder of our common stock who received shares of Victoria’s Secret common stock in connection with the spin-off would generally be treated as receiving a taxable dividend in an amount equal to the fair market value of the shares received.
Our net sales, operating income, cash and inventory levels fluctuate on a seasonal basis. We experience major seasonal fluctuations in our net sales and operating income, with a significant portion of our operating income typically realized during the fourth quarter holiday season.
Our net sales, operating income, cash and inventory levels fluctuate on a seasonal basis. We experience major seasonal fluctuations in our net sales and operating income, with a significant portion of our operating income and cash flows typically realized during the fourth quarter holiday season.
Our ability to manage the life cycles of our brand and to remain current with trends and launch new product lines successfully could impact the image and relevance of our brand.
Our ability to manage the life cycles of our brand and to remain current with trends and launch and expand new product lines successfully could impact the image and relevance of our brand.
We also rely upon third-party transportation providers for substantially all of our product shipments, including shipments to and from our distribution centers, to our stores and to our customers.
We also rely upon third-party transportation providers for substantially all of our product shipments, including shipments to and from our distribution centers, to our stores and fulfillment centers, and to our customers.
While most of our international operations are conducted through franchise, license and wholesale arrangements, we are also subject to certain international laws, regulations and standards in certain international jurisdictions and may be subject to additional international laws, regulations and standards, whether existing or enacted in the future, that apply broadly to the collection, use, retention, security, disclosure, transfer and other processing of personal information.
While most of our international operations are conducted through franchise, license, wholesale and other distribution-related arrangements, we are also subject to certain international laws, regulations and standards in certain international jurisdictions and may be subject to additional international laws, regulations and standards, whether existing or enacted in the future, that apply broadly to the collection, use, retention, security, disclosure, transfer and other processing of personal information.
For example, financial or operational difficulties that our vendors may face could increase the cost of the products we purchase from them or our ability to source products from them. 16 Table of Contents We may be impacted by our vendors’ ability to manufacture and deliver products in a timely manner, meet quality standards and comply with applicable laws and regulations.
For example, financial or operational difficulties that our vendors may face could increase the cost of the products we purchase from them or our ability to source products from them. 13 Table of Contents We may be impacted by our vendors’ ability to manufacture and deliver products in a timely manner, meet quality standards and comply with applicable laws and regulations.
Our Board will determine our future levels of dividend payments and share repurchase authorizations, if any, giving consideration to our levels of profit and cash flow, capital requirements, current and forecasted liquidity and the restrictions placed upon us by our borrowing arrangements, as well as financial and other conditions which may be beyond our control.
Our Board will determine our future levels of dividend payments and share repurchase authorizations, if any, giving consideration to our levels of profit and cash flow, capital requirements, capital allocation strategy, current and forecasted liquidity and the restrictions placed upon us by our borrowing arrangements, as well as financial and other conditions which may be beyond our control.
Risks related to law and regulation: Changes in laws, regulations or technology platform rules relating to privacy and data security, or any actual or perceived failure by us to comply with such laws and regulations, or contractual or other obligations relating to privacy and data security, could have a material adverse effect on our reputation, results of operations, financial condition and cash flows.
Risks related to laws and regulations: Changes in laws, regulations or technology platform rules relating to privacy and data security, or any actual or perceived failure by us to comply with such laws and regulations, or contractual or other obligations relating to privacy and data security, could have a material adverse effect on our reputation, results of operations, financial condition and cash flows.
Many of our imports and exports are subject to a variety of customs regulations and international trade arrangements, including existing or potential duties, tariffs or safeguard quotas. We also compete with other companies for production facilities. We also face a variety of other risks generally associated with doing business on a global basis.
Many of our imports and exports are subject to a variety of customs regulations and international trade arrangements, including existing or potential duties, tariffs or safeguard quotas. We also compete with other companies for manufacturing facilities. We also face a variety of other risks generally associated with doing business on a global basis.
Although none of our Chinese suppliers are located in the XUAR, we do not currently have full visibility to the entirety of each supplier's separate supply chains to be able to ensure that the raw materials or other inputs they use to manufacture their goods are not produced in the XUAR.
Although none of our Chinese suppliers are located in the XUAR, we do not currently have full visibility to the entirety of each supplier's separate sub-tier supply chains to be able to ensure that the raw materials or other inputs they use to manufacture their goods are not produced in the XUAR.
Failure to attract and retain the right talent or to smoothly manage the transition of responsibilities resulting from such turnover could affect our ability to meet our challenges and may cause us to miss performance objectives or financial targets or disrupt our relationships with our customers, vendors or other third parties.
Failure to attract and retain the right talent or to smoothly manage the transition of responsibilities resulting from such turnover could affect our ability to meet our goals and may cause us to miss performance objectives or financial targets or disrupt our relationships with our customers, vendors or other third parties.
As a result of geographic concentration of many of the vendor and distribution facilities that we rely upon, our operations are susceptible to local and regional factors, such as accidents, system failures, economic and weather conditions, natural disasters, demographic and population changes and other unforeseen events and circumstances.
As a result of the geographic concentration of many of the manufacturing and distribution facilities that we rely upon, our operations are susceptible to local and regional factors, such as accidents, system failures, economic and weather conditions, natural disasters, demographic and population changes and other unforeseen events and circumstances.
We anticipate increased public, regulatory and investor pressure to expand our disclosures in these areas, make further commitments, set additional targets or establish additional goals and take actions to meet them, which could expose us to market, operational, regulatory, legal and execution costs or risks.
We anticipate increased public, regulatory, investor and other stakeholder pressure to expand our disclosures in these areas, make further commitments, set additional targets or establish additional goals and take actions to meet them, which could expose us to market, operational, regulatory, legal and execution costs or risks.
In North America, we are subject to sectoral laws that impose different enforcement regimes, whether enforced by government agencies or class action litigants, with fines and statutory damages that can result in significant exposure when applied to large customer segments.
In North America, we are subject to sectoral laws that impose different enforcement regimes, whether enforced by government agencies or class action and/or mass arbitration litigants, with fines and statutory damages that can result in significant exposure when applied to large customer segments.
However, the opinion relies on certain assumptions, representations and undertakings, including those relating to the past and future conduct of our business, and the opinion would not be valid if such assumptions, representations and undertakings were incorrect. Furthermore, the opinion is not binding on the Internal Revenue Service ("IRS") or the courts.
However, the opinion relies on certain assumptions, representations and undertakings, including those relating to the past and future conduct of our business, and the opinion would not be valid if such assumptions, representations and undertakings were incorrect. Furthermore, the opinion is not binding on the Internal Revenue Service (“IRS”) or the courts.
Certain goods that we import are sourced from third-party suppliers in China. Our ability to successfully import such materials may be adversely affected by changes in U.S. laws. For example, in December 2021, the U.S.
Certain goods that we import are sourced from third-party suppliers in China. Our ability to successfully import such materials may be adversely affected by changes in U.S. and Canadian laws. For example, in December 2021, the U.S.
Among other consequences, such an outcome could result in negative publicity that harms our brand and reputation and could result in a delay or complete inability to import such materials, which could result in inventory shortages and greater supply chain compliance costs.
Among other consequences, such an outcome could result in negative publicity that harms our brand and reputation and could result in a delay or complete inability to import such materials, which could result in inventory shortages and an increase in supply chain compliance costs.
These risks could have a material adverse effect on our ability to grow and results of operations, financial condition and cash flows. 12 Table of Contents Our international operations and our plans for international expansion include risks that could impact our results and reputation.
These risks could have a material adverse effect on our ability to grow and results of operations, financial condition and cash flows. 9 Table of Contents Our international operations and our plans for international expansion include risks that could impact our results and reputation.
Our direct channel (also referred to as digital or e-commerce) is subject to numerous risks that could have a material adverse effect on our results of operations, financial condition and cash flows.
Our direct channel business includes risks that could have a material adverse effect on our results. Our direct channel (also referred to as digital or e-commerce) is subject to numerous risks that could have a material adverse effect on our results of operations, financial condition and cash flows.
Compounding these risks is the complexity of our information systems, which are a collection of our and our third-party service providers’ systems, and increased associated risks related to transitioning information systems from Victoria's Secret & Co. to other third-party service providers and us.
Compounding these risks is the complexity of our information systems, which are a collection of our and our third-party service providers’ systems, and increased associated risks related to transitioning the remaining information systems from Victoria’s Secret to other third-party service providers and us.
If our marketing, advertising and promotional programs are unsuccessful, or if our competitors are more effective with their programs than we are, our results of operations, financial condition and cash flows may be adversely affected.
If our marketing, advertising, promotional programs or loyalty program are unsuccessful, or if our competitors are more effective with their programs than we are, our results of operations, financial condition and cash flows may be adversely affected.
Although we contractually require these service providers to implement and maintain a standard of security (such as implementing reasonable measures) and comply with applicable law, we cannot control third parties and cannot guarantee that a security breach or privacy violation will not occur in connection with their systems and practices.
Although we strive to contractually require these service providers and vendors to implement and maintain controls and a standard of security (such as implementing reasonable measures) and to comply with applicable law, we cannot control third parties and cannot guarantee that a security breach or privacy violation will not occur in connection with their systems and practices.
Congress passed the Uyghur Forced Labor Prevention Act (“UFLPA”), which imposed a presumptive ban on the import of goods to the U.S. that are made, wholly or in part, in the Xinjiang Uyghur Autonomous Region of China (“XUAR”) or by persons that participate in certain programs in the XUAR that entail the use of forced labor. U.S.
Congress passed the Uyghur Forced Labor Prevention Act (“UFLPA”), which imposed a presumptive ban on the import of goods to the U.S. that are made, wholly or in part, in the Xinjiang Uyghur Autonomous Region of China (“XUAR”) or by persons that participate in 12 Table of Contents certain programs in the XUAR that entail the use of forced labor.
The increased use of smartphones, tablets and other mobile devices may also heighten these and other operational risks. Despite the precautions we have taken, unanticipated problems or events may nevertheless cause failures in, or unauthorized access to, our and our third-party service providers’ and vendors' information technology systems.
The increased use of smartphones, tablets, mobile devices and data applications and services may also heighten these and other operational risks. Despite the precautions we have taken, unanticipated problems or events may nevertheless cause failures in, or unauthorized access to, our and our third-party service providers’ and vendors’ information technology systems.
Our asset-backed revolving credit facility (the "ABL Facility") contains a covenant and negative covenants that under certain circumstances require maintenance of a certain financial ratio and also, under certain conditions, restrict our ability to pay dividends, repurchase shares of our common stock and make other restricted payments as defined in the agreement.
Our asset-backed revolving credit facility (the “ABL Facility”) contains a covenant and negative covenants that under certain circumstances require maintenance of a certain financial ratio and also, under certain conditions, restrict our ability to pay dividends, repurchase shares of our common stock and make other restricted payments as defined in the agreement.
If these third-party service providers do not maintain efficient and uninterrupted service, we have experienced, and may in the future experience, merchandise delivery delays, loss of sales, stranded inventory, cancellation charges or excessive promotional activity to clear inventory.
If these third-party service providers do not maintain efficient and uninterrupted service, we have experienced, and may in the future experience, merchandise delivery delays, loss of sales, 10 Table of Contents stranded inventory, cancellation charges or excessive promotional activity to clear inventory.
The CCPA provides for civil penalties for violations, as well as a private right of action for certain data breaches that result in the loss of certain classifications of personal information. This private right of action may increase the likelihood of, and risks associated with, data breach litigation.
The CCPA provides for civil penalties for violations, as well as a private right of action for certain data breaches that result in the loss of 18 Table of Contents certain classifications of personal information. This private right of action may increase the likelihood of, and risks associated with, data breach litigation.
Additionally, we are dependent upon the suitability of the lease spaces that we currently use. The leases that we enter into are generally noncancelable leases with initial terms of 10 years.
Additionally, we are dependent upon the suitability of the lease spaces that we currently use. The leases that we enter into are generally noncancelable leases with initial terms of ten years.
Our business depends on developing and maintaining close relationships with our vendors and on our vendors’ ability or willingness to sell quality products to us at favorable prices and on other favorable terms. Many factors outside of our control may harm these relationships and the ability or willingness of these vendors to sell us products on favorable terms.
Our business depends on developing and maintaining close relationships with our vendors and on our vendors’ ability or willingness to sell quality products to us at competitive prices and on other favorable terms. Many factors outside of our control may impact these relationships and the ability or willingness of these vendors to sell us products on favorable terms.
Risks related to our business: Our net sales, profit results and cash flows are sensitive to, have been affected by and may in the future be further impacted by, general economic conditions, inflation, consumer confidence, customer spending patterns, significant health hazards or pandemics, weather or other market disruptions.
Risks related to our business: Our net sales, results of operations and cash flows are sensitive to, have been affected by and may in the future be further impacted by, general economic conditions, inflation, consumer confidence, consumer spending patterns, significant health hazards or pandemics, weather or other market disruptions.
Our ability, or perceived inability, to complete environmental, social and governance ("ESG") initiatives may have a material adverse effect on our reputation.
Our ability, or perceived inability, to complete environmental, social and governance (“ESG”) initiatives may have a material adverse effect on our reputation.
We may be impacted by our ability to adequately source, distribute and sell merchandise and other materials on a global basis. We source merchandise and other materials directly in domestic and international markets. We distribute merchandise and other materials globally to our partners in international locations and to our stores.
We may be impacted by our ability to adequately source, distribute and sell merchandise and other materials on a global basis. We source merchandise and other materials directly in domestic and international markets. We distribute merchandise and other materials globally to our franchise and other distribution-related partners in international locations and to our stores.
Customer traffic and demand for our merchandise are influenced by our advertising, marketing and promotional activities, the name recognition and reputation of our brand and the location of and service offered in our stores and through our direct business.
Customer traffic and demand for our merchandise are influenced by our advertising, marketing and promotional activities, the effectiveness of our loyalty program, the name recognition and reputation of our brand and the location of and service offered in our stores and through our direct business.
There can be no assurance that we will obtain such applied for registrations or that the registrations we obtain will prevent the imitation of our products or infringement or other violation of our intellectual property 14 Table of Contents rights by others.
There can be no assurance that we will obtain such applied for registrations or that the registrations we obtain will prevent the imitation of our products or infringement or other violation of our intellectual property rights by others.
Accordingly, our future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. Words such as “estimate,” “project,” “plan,” “believe,” “expect,” “anticipate,” “intend,” “planned,” “potential,” "target," "goal" and any similar expressions may identify forward-looking statements.
Accordingly, our future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. Words such as “estimate,” “project,” “plan,” “believe,” “expect,” “anticipate,” “intend,” “planned,” “potential,” “target,” “goal” and any similar expressions may identify forward-looking statements.
Furthermore, the California Privacy Rights Act of 2020 (“CPRA”) became effective on January 1, 2023. The CPRA imposes additional obligations on companies covered by the legislation, including by expanding California residents’ rights with respect to certain sensitive personal information. The CPRA also created a new state agency that is vested with authority to implement and enforce the CCPA and CPRA.
Furthermore, the California Privacy Rights Act of 2020 (“CPRA”) imposes additional obligations on companies covered by the legislation, including by expanding California residents’ rights with respect to certain sensitive personal information. The CPRA also created a new state agency that is vested with authority to implement and enforce the CCPA and CPRA.
We, along with third parties we do business with, are subject to complex compliance and litigation risks. Actions filed against us from time to time include commercial, tort, intellectual property, tax, customer, employment, wage and hour, privacy, securities, anti-corruption and other claims, including purported class action lawsuits.
We, along with third parties we do business with, are subject to complex compliance and litigation risks. Actions filed against us from time to time include commercial, tort, intellectual property, product liability, tax, customer, employment, wage and hour, data privacy, securities, anti-corruption and other claims, including purported class action lawsuits and mass arbitration claims.
These fluctuations may result in an increase in our transportation costs for distribution, utility costs for our retail stores, distribution centers and other Company locations and costs to purchase products from our manufacturers.
These fluctuations may result in an increase in our transportation costs for distribution, utility costs for our retail stores, distribution and fulfillment centers and other Company locations and costs to purchase products from third-party manufacturers.
If we encounter difficulties with the distribution facilities, or if the facilities were to shut down for any reason, including as a result of a pandemic, fire, natural disaster or work stoppage, we could face shortages of inventory; we could incur significantly higher costs and longer lead times associated with distributing our products to our customers; we could face regulatory scrutiny; and our customer may be dissatisfied.
If we encounter difficulties with the distribution and fulfillment facilities, or if the facilities were to shut down for any reason, including as a result of a pandemic, fire, natural disaster or work stoppage, we could face shortages of inventory; we could incur significantly higher costs and longer lead times associated with distributing our products to our customers; we could face scrutiny by regulators and litigants; and our customers may be dissatisfied.
Any of these difficulties may lead to disruption in the overall timing of our international expansion efforts and increased costs. Further, entry into other markets may bring us into competition with new competitors or with existing competitors with an established market presence in such markets.
Any of these difficulties may lead to disruption in the overall timing of our international expansion efforts, lower sales than we anticipate and increased costs. Further, entry into other markets may bring us into competition with new competitors or with existing competitors with an established market presence in such markets.
In the U.S., privacy and data protection are regulated at federal, state and local levels. Various federal and state regulators, including governmental agencies like the Consumer Financial Protection Bureau and the Federal Trade Commission, have adopted, or are considering adopting, laws and regulations concerning privacy and data security and have prioritized privacy and data security violations for enforcement actions.
In the U.S., privacy and data protection are regulated at federal, state and local levels. Various federal and state regulators, including governmental agencies like the SEC and the Federal Trade Commission, have adopted, or are considering adopting, laws and regulations concerning privacy and data security and have prioritized privacy and data security-related violations for enforcement actions.
Our information technology systems, as well as those of our service providers and vendors, are vulnerable to damage, interruption, service availability or breach from a variety of sources, including cyberattacks, ransomware attacks, telecommunication failures, malicious human acts and natural disasters.
Our information technology systems, as well as those of our service providers and vendors, are vulnerable to damage, interruption, service availability or breach from a variety of sources, including cyberattacks, ransomware attacks, deepfakes and other malicious uses of artificial intelligence, telecommunication failures, malicious human acts and natural disasters.
Breaches or failures of security involving our information systems, including those provided, managed and supported by Victoria's Secret & Co., or those of any of our other third-party service providers have occurred, and in the future may occur.
Breaches or failures of security involving our information systems, including those provided, managed and supported by any of our third-party service providers, have occurred, and in the future may occur.
All of these evolving compliance and operational requirements impose significant costs, such as costs related to organizational changes, investing in and implementing additional data protection technologies and other safeguards and training associates and engaging consultants, which are likely to increase over time.
All of these evolving compliance and operational requirements impose significant costs, such as costs related to organizational changes, investing in and implementing additional data protection technologies and other safeguards and training associates and engaging third-party service providers, which are likely to increase over time.
There has been an increased focus, including from investors and other stakeholders, the general public and U.S. and foreign governmental and nongovernmental organizations, on ESG initiatives, including with respect to climate change, greenhouse gas emissions, packaging and waste, diversity, equity and inclusion, worker pay and benefits, human rights, sustainable supply chain practices, animal health and welfare, deforestation and land, energy and water use.
Investors, other stakeholders, the general public and U.S. and foreign governmental and nongovernmental organizations have been focused on ESG initiatives, including with respect to climate change, greenhouse gas emissions, packaging and waste, diversity, equity and inclusion, worker pay and benefits, human rights, sustainable supply chain practices, animal health and welfare, deforestation and land, energy and water use.
Customs and Border Protection (“CBP”) has published both a list of entities that are known to utilize forced labor, and a list of commodities that are most at risk, such as cotton, tomatoes and silica-based products.
U.S. Customs and Border Protection (“CBP”) has published both a list of entities that are known to utilize forced labor, and a list of commodities that are most at risk, such as polyl-vinyl chloride, cotton, tomatoes and silica-based products.
During periods when economic or market conditions are unsettled or weak, purchases of our products have declined, and may in the future decline.
During periods when economic or market conditions are unsettled or weak, including during fiscal 2023, purchases of our products have declined, and may in the future further decline.
These risks, which can vary substantially by country, include political, financial or social instability or conditions, geopolitical events, corruption, anti-American sentiment, social and ethnic unrest, military conflicts and terrorism, as well as changes in general economic conditions (including unemployment levels, inflation and the recent market volatility and instability in the banking sector).
These trends and developments, which can vary substantially by country, include political, financial or social instability or conditions, geopolitical events, corruption, anti-American sentiment, social and ethnic unrest, military conflicts and terrorism, as well as changes in general economic conditions (including unemployment levels, inflation and market volatility).
For example: • political instability, geopolitical conflict, including the war between Russia and Ukraine, environmental hazards or natural disasters which could negatively affect international economies, financial markets and business activity; • significant health hazards or pandemics, including the COVID-19 pandemic, which could result in closed factories, distribution centers and/or stores, reduced workforces, scarcity of raw materials and scrutiny or embargoing of goods produced in infected areas; • imposition of new or retaliatory trade duties, sanctions or taxes and other charges on imports or exports; • evolving, new or complex legal and regulatory matters; • volatility in currency exchange rates; 15 Table of Contents • local business practice and political issues (including issues relating to compliance with domestic or international labor standards) which may result in adverse publicity or threatened or actual adverse consumer actions, including boycotts; • delays or disruptions in shipping and transportation and related pricing impacts; • disruption due to labor disputes; and • changing expectations regarding product safety due to new legislation or other factors.
For example: • political instability, geopolitical conflict, including the war between Russia and Ukraine and the conflict in the Middle East, environmental hazards or natural disasters, which could negatively affect international economies, financial markets and business activity; • significant health hazards or pandemics, which could result in closed factories, distribution and fulfillment centers and/or stores, reduced workforces, scarcity of raw materials and scrutiny or embargoing of goods produced in impacted areas; • imposition of new or retaliatory trade duties, sanctions or taxes and other charges on imports or exports; • evolving, new or complex legal and regulatory matters; • volatility in currency exchange rates; • local business practices and political issues (including issues relating to compliance with domestic or international labor standards) and anti-American sentiment, which may result in adverse publicity or threatened or actual adverse consumer actions, including boycotts; • delays or disruptions in shipping and transportation and related pricing impacts; • disruption due to labor disputes; and • changing expectations regarding product safety due to new laws or regulations or other factors.
Any negative ratings actions could constrain the capital available to our Company or our industry and could limit our access to funding for our operations. We are dependent upon our ability to access capital at rates and on terms we determine to be attractive.
Any 17 Table of Contents negative ratings actions could constrain the capital available to us or our industry and could limit our access to funding for our operations. We are dependent upon our ability to access capital at rates and on terms we determine to be attractive.
We must carry a significant amount of 10 Table of Contents inventory, especially before the holiday season selling period.
We must carry a significant amount of inventory, especially before the holiday season selling period.
These risks could have a material adverse effect on our results of operations, financial condition and cash flows. We self-insure certain risks and may be impacted by unfavorable claims experience. We are self-insured for various types of insurable risks including associate medical benefits, workers’ compensation, property, general liability and automobile, up to certain stop-loss limits.
We are self-insured for various types of insurable risks including associate medical benefits, workers’ compensation, property, general liability and automobile, up to certain stop-loss limits. Claims are difficult to predict and may be volatile. Any adverse claims experience could have a material adverse effect on our results of operations, financial condition and cash flows.
State laws are changing rapidly, and there are deliberations in Congress regarding the text of a new comprehensive federal data privacy law to which we would become subject if it is enacted. Such a law could add complexity, variation in requirements, restrictions and potential legal risk.
Congress regarding the text of a new comprehensive federal data privacy law to which we would become subject if it is enacted. Such a law could add complexity, variation in requirements, restrictions and potential legal risk.
We are party to a multi-year Transition Services Agreement with Victoria's Secret & Co. for certain information technology services and systems to support the day-to-day needs for most areas of technology.
We are party to a Transition Services Agreement with Victoria’s Secret for certain information technology services and systems to support the day-to-day needs for select areas of technology.
We rely on a number of vendor and distribution facilities located in the same vicinity, making our business susceptible to local and regional disruptions or adverse conditions. To achieve the necessary speed and agility in producing our products, we rely heavily on vendor and distribution facilities in close proximity to our headquarters in Central Ohio.
We rely on a number of manufacturing and distribution facilities located in the same vicinity, making our business susceptible to local and regional disruptions or adverse conditions. To achieve the necessary speed and agility in supply of our inventory, we rely heavily on third-party manufacturing facilities and our distribution facilities in close proximity to our headquarters in central Ohio.
Although we use marketing, advertising and promotional programs to attract customers through various media, including social media, websites, mobile applications, email and print, some of our competitors may expend more for their programs than we do or use different approaches than we do, which may provide them with a competitive advantage.
Although we use marketing, advertising and promotional programs and our loyalty program to attract customers through various media, including social media, websites, mobile applications, email and print, and we continue to invest to improve the online and mobile user experience for our customers, some of our competitors may expend more for their programs than we do or use different or more efficient approaches than we do, which may provide them with a competitive advantage.
We are aware of inherent risks associated with replacing and modifying our information technology systems as well as the risks of transitioning information technology services to third-party service providers and vendors, including in each case risks relative to data integrity, internal controls over financial reporting and system disruptions.
We are aware of inherent risks associated with replacing and modifying our information technology systems (including in connection with the IT Transformation Project) as well as the risks of transitioning information technology services to third-party service providers and vendors, including in each case risks relative to data integrity and system disruptions.
Sustained or repeated system disruptions that interrupt our ability to process orders and deliver products to the stores or directly to our customers, impact our ability to process transactions in our stores, impact our customers’ ability to access our websites and mobile applications in a timely manner or expose confidential customer, merchandise, financial, associate or other important information (including personal information) could have a material adverse effect on our results of operations, financial condition and cash flows.
Sustained or repeated system disruptions that interrupt our ability to process orders and deliver products to the stores or directly to our customers, impact our ability to process transactions in our stores, impact our customers’ ability to access our websites and mobile applications in a timely manner or expose confidential customer, merchandise, financial, associate or other important 15 Table of Contents information (including personal information), the risks of which may be heightened as we execute on the IT Transformation Project, could have a material adverse effect on our results of operations, financial condition and cash flows.
The legal and regulatory environment related to privacy and data security is increasingly rigorous, with new and constantly changing requirements applicable to our business, and enforcement practices are likely to remain uncertain for the foreseeable future.
The legal and regulatory environment related to privacy and data security is increasingly rigorous, with new requirements, constantly changing requirements, and new or novel interpretations of existing requirements applicable to our business, and enforcement actions and litigation are likely to remain uncertain for the foreseeable future.
Such expansions will also have upfront investment costs that may not be accompanied by sufficient revenues to achieve expected operational and financial performance. Further, our results of operations and financial condition may be adversely affected by fluctuations in currency exchange rates. See “Fluctuations in foreign currency exchange rates could impact our financial condition and results of operations” below.
Such expansions will also have upfront investment costs, some of which may be significant, that may not be accompanied by sufficient revenues to achieve expected operational and financial performance. Further, our results of operations and financial condition may be adversely affected by fluctuations in currency exchange rates.
Extreme weather conditions in the areas in which our stores are located, particularly in markets where we have multiple stores, or in the Columbus, Ohio region where most of our distribution centers are located, could adversely affect our business.
Extreme weather conditions in the areas in which our stores are located, particularly in markets where we have multiple stores, or in the central Ohio region where most of our third-party manufacturers and our distribution centers are located, have adversely affected and could in the future adversely affect our business.
We purchase products from third-party vendors. Factors outside our control, such as production issues, shipping delays, quality problems or natural disasters, could disrupt merchandise deliveries and result in lost sales, cancellation charges or excessive markdowns.
We purchase products from third-party vendors. Factors outside our control, such as production issues, shipping delays, quality problems, geopolitical conflicts and wars, outbreaks of disease such as the COVID-19 pandemic, or natural disasters, could disrupt merchandise deliveries and result in lost sales, cancellation charges or excessive markdowns.
The successful assertion of one or more large claims against us that exceed available insurance coverage or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our results of operations, financial condition and cash flows. 19 Table of Contents Risks related to our common stock: Our stock price may be volatile.
The successful assertion of one or more large claims against us that exceed available insurance coverage or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our results of operations, financial condition and cash flows.
In addition, laws in all 50 U.S. states require businesses to provide notice to 21 Table of Contents consumers (and, in some cases, to regulators) of data breaches, which are when certain types of personal information have been accessed or acquired without authorization.
In addition, laws in all 50 U.S. states require businesses to provide notice to consumers (and, in some cases, to regulators) of data breaches, which are when certain types of personal information have been accessed, impacted or acquired without authorization. State laws are changing rapidly, and there are deliberations in the U.S.
Bribery Act, the SEC and the NYSE, among others. Although we have put in place policies and procedures aimed at ensuring legal and regulatory compliance, our associates, subcontractors, vendors, licensees, franchisees and other third parties could take actions that violate these laws and regulations.
Bribery Act, the SEC and the New York Stock Exchange (“NYSE”), among others. Although we have put in place policies and procedures aimed at ensuring legal and regulatory compliance, our 19 Table of Contents associates, subcontractors, manufacturers, other vendors, licensees, franchisees and other third parties could take actions that violate these laws and regulations.
Furthermore, because the methods of cyberattack and deception change frequently, are increasingly complex and sophisticated and can originate from a wide variety of sources, including nation-state actors, despite our reasonable efforts to ensure the confidentiality, availability and integrity of our systems, websites and mobile applications, it is possible that we may not be able to anticipate, detect, appropriately react and respond to or implement effective preventative measures against all cybersecurity incidents, and our third-party service providers may be subject to the same risks.
Furthermore, because the methods of cyberattack and deception change frequently, are increasingly complex and sophisticated and can originate from a wide variety of sources, including nation-state actors, despite our efforts to ensure the confidentiality, availability and integrity of our systems, websites and mobile applications, it is possible that we may not be able to anticipate, detect, appropriately react and respond to or implement effective preventative measures against all cybersecurity threats, and our third-party service providers may be subject to the same risks. 16 Table of Contents We have and may in the future be required to expend significant capital and other resources to protect against, respond to and recover from any potential, attempted or existing cybersecurity incidents.
Due to applicable laws and regulations or 18 Table of Contents contractual obligations, we may be held responsible for any cybersecurity incidents or privacy violations attributed to our service providers as they relate to the information we share with them or to which they are granted access.
Due to applicable laws and regulations or contractual obligations, we may be held responsible for any cybersecurity incidents or privacy violations attributed to our service providers or vendors as they relate to the information we share with them, information to which they are granted access, or information that they process for us to deliver services to our customers.
Our success depends in part upon our ability to attract, develop and retain a sufficient number of qualified associates, including store personnel and talented merchants.
Our success depends in part upon our ability to attract, develop and retain a sufficient number of qualified associates, including, but not limited to, store personnel, merchants, designers and associates in our distribution and fulfillment centers.
If we fail to comply with any covenant, including our financial covenant, it could result in an event of default and our lenders could terminate the commitments under our ABL Facility and make the entire debt incurred thereunder immediately due and payable, or we may be forced to sell assets, restructure our indebtedness or seek additional equity capital, which would dilute our stockholders’ interests. 20 Table of Contents The interest rates on our credit facilities may be impacted by the phase-out of LIBOR and the transition to the Secured Overnight Financing Rate (“SOFR”).
If we fail to comply with any covenant, including our financial covenant, it could result in an event of default and our lenders could terminate the commitments under our ABL Facility and make the entire debt incurred thereunder immediately due and payable, or we may be forced to sell assets, restructure our indebtedness or seek additional equity capital, which would dilute our stockholders’ interests.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe also utilize six third-party operated regional distribution centers in North America, comprising approximately 1.1 million square feet, that enable us to position inventory geographically closer to our customers. International Partner-operated Stores As of January 28, 2023, our partners operated 427 retail stores in more than 45 international countries.
Biggest changeThird-party Operated Fulfillment and Distribution Centers We utilize five permanent third-party operated direct channel fulfillment centers in North America, comprising approximately 2.8 million square feet. We also utilize six third-party operated regional distribution centers in North America, comprising approximately 1.1 million square feet, that enable us to position inventory geographically closer to our customers.
Company-operated The following table provides the location, use and size of our Company-operated distribution, fulfillment, office and product development facilities as of January 28, 2023: Location Use Approximate Square Footage Columbus, Ohio area Office, distribution and fulfillment centers and shipping facilities 4,951,000 Other North America Office and product development/design 69,000 We own five office, distribution center and shipping facilities located in the Columbus, Ohio area comprising approximately 3.9 million square feet.
Company-Operated The following table provides the location, use and size of our Company-operated distribution, fulfillment, office and product development facilities as of February 3, 2024: Location Use Approximate Square Footage (in thousands) Columbus, Ohio area Office, distribution and fulfillment centers and shipping facilities 5,000 Other North America Office and product development/design 70 We own five office, distribution center and shipping facilities located in the Columbus, Ohio area comprising approximately 3.9 million square feet.
In addition, during Fall of 2022, we completed construction of a new 1.1 million square foot leased direct channel fulfillment center located near Columbus, Ohio. We also lease various other office and product development/design locations in North America, primarily in New York.
In addition, we operate a 1.1 million square foot leased direct channel fulfillment center located near Columbus, Ohio. We also lease various other office and product development/design locations in North America, primarily in New York. As of February 3, 2024, we operated 1,739 and 111 retail stores located in leased facilities throughout the U.S. and Canada, respectively.
As of January 28, 2023, we operated 1,693 and 109 retail stores located in leased facilities throughout the U.S. and Canada, respectively. A substantial portion of our U.S. store leases generally have an initial term of 10 years, while our Canadian store leases generally have initial terms of 5 to 10 years.
A substantial portion of our U.S. store leases generally have an initial term of ten years, while our Canadian store leases generally have initial terms of five to ten years. Our store leases expire at various dates between fiscal 2024 and fiscal 2034.
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Our store leases expire at various dates between 2023 and 2034. 23 Table of Contents Third-party Operated Fulfillment and Distribution Centers We utilize six permanent third-party operated direct channel fulfillment centers in North America, comprising approximately 3.2 million square feet.
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International Partner-operated Stores As of February 3, 2024, our partners operated 485 retail stores in more than 40 international countries. 22 Table of Contents

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWe believe that we have strong defenses to the claims and intend to continue to vigorously defend ourself against the allegations and do not believe that the resolution of the cases, individually or in the aggregate, will have a material adverse effect on our results of operations, financial condition or cash flows. ITEM 4. MINE SAFETY DISCLOSURES.
Biggest changeThe resolutions of these claims are not expected to have a material adverse effect on our results of operations, financial condition or cash flows. ITEM 4. MINE SAFETY DISCLOSURES. Not applicable. 23 Table of Contents PART II
ITEM 3. LEGAL PROCEEDINGS. We are a defendant in a variety of lawsuits arising in the ordinary course of business. Actions filed against our Company from time to time include commercial, tort, intellectual property, tax, customer, employment, wage and hour, data privacy, securities, anti-corruption and other claims, including purported class action lawsuits.
ITEM 3. LEGAL PROCEEDINGS. We are a defendant in a variety of lawsuits arising in the ordinary course of business. Actions filed against the Company from time to time may include commercial, tort, intellectual property, tax, customer, employment, wage and hour, data privacy, securities, anti-corruption and other claims, including purported class action lawsuits.
Although it is not possible to predict with certainty the eventual outcome of any litigation, in the opinion of management, our current legal proceedings are not expected to have a material adverse effect on our results of operations, financial condition and cash flows.
Although it is not possible to predict with certainty the eventual outcome of any litigation, in the opinion of management, our current legal proceedings are not expected to have a material adverse effect on our results of operations, financial condition or cash flows.
Bath & Body Works, LLC in the Cook County, Illinois Circuit Court. The complaints each allege that we violated the Fair and Accurate Credit Transactions Act by printing more than the last five digits of credit or debit card numbers on customers’ receipts and, among other things, seek statutory damages, attorneys’ fees and costs.
Bath & Body Works, LLC in the Cook County, Illinois Circuit Court. The complaints each alleged that we violated the Fair and Accurate Credit Transactions Act by printing more than the last five digits of credit or debit card numbers on customers’ receipts and, among other things, sought statutory damages, attorneys’ fees and costs.
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Each of these cases are in the preliminary stages of litigation.
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The Blanco case was sent to individual arbitration by court order, and we finalized a settlement of the case during the first quarter of 2024 that has resolved the arbitration and lawsuit. We also reached an agreement with the plaintiffs in the Smidga and Dahlin cases that will resolve those matters, subject to court approval.
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Not applicable. 24 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest change(b) Stock prices prior to August 3, 2021 have been adjusted to give effect to the Victoria's Secret & Co. spin-off. 25 Table of Contents Common Stock Repurchases The following table provides our repurchases of our common stock during the fourth quarter of 2022: Fiscal Period Total Number of Shares Purchased (a) Average Price Paid per Share (b) Total Number of Shares Purchased as Part of Publicly Announced Programs (c) Maximum Dollar Value of Shares that May Yet be Purchased Under the Programs (c) (in thousands) (in thousands) November 2022 5 $ 33.07 — $ 187,775 December 2022 7 41.27 — 187,775 January 2023 2 43.72 — 187,775 Total 14 — ________________ (a) The total number of shares repurchased represent shares in connection with tax payments due upon vesting of associate restricted stock and performance share unit awards and the use of our stock to pay the exercise price on associate stock options.
Biggest changeThe Company’s stock prices prior to August 3, 2021 have been adjusted to give effect to the Victoria’s Secret spin-off. 24 Table of Contents Common Stock Repurchases The following table provides our repurchases of our common stock during the fourth quarter of 2023: Fiscal Period Total Number of Shares Purchased (a) Average Price Paid per Share (b) Total Number of Shares Purchased as Part of Publicly Announced Programs (c) Maximum Dollar Value of Shares that May Yet be Purchased Under the Programs (c)(d) (in thousands) (in thousands) November 2023 477 $ 30.53 473 $ 73,353 December 2023 496 37.98 479 55,076 January 2024 387 42.96 379 538,774 Total 1,360 1,331 ________________ (a) The total number of shares repurchased includes shares repurchased as part of publicly announced programs, with the remainder relating to shares in connection with tax payments due upon vesting of associate restricted share and performance share unit awards and the use of our stock to pay the exercise price on associate stock options.
Dividend Policy We paid a quarterly dividend of $0.20 per share during each quarter of 2022.
Dividend Policy We paid a quarterly dividend of $0.20 per share during each quarter of 2023.
For additional discussion regarding our dividends, see "Liquidity and Capital Resources" included under Item 7. of Part II of this Annual Report on Form 10-K.
For additional discussion regarding our dividends, see “Liquidity and Capital Resources” included under Item 7. of this Annual Report on Form 10-K.
(b) The average price paid per share includes any broker commissions. (c) For additional share repurchase program information, see Note 15 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data. ITEM 6. [Reserved]
(b) The average price paid per share includes any broker commissions. (c) For additional share repurchase program information, see Note 14 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data. (d) The January 2024 amount includes the new $500 million share repurchase program authorized by the Board in January 2024. ITEM 6. [Reserved]
Performance Graph The following graph shows the changes, over the past five-year period, in the value of $100 invested in our common stock, the Standard & Poor’s ("S&P") 500 Composite Stock Price Index and the Standard & Poor’s 500 Retail Composite Index.
Performance Graph The following graph shows the changes, over the past five-year period, in the value of $100 invested at the closing stock price on February 2, 2019, including the reinvestment of dividends, in our common stock, the Standard & Poor’s (“S&P”) 500 Composite Stock Price Index and the S&P 500 Consumer Discretionary Distribution & Retail Index.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Market Information Our common stock is traded on the NYSE. As of January 28, 2023, the Company had approximately 30,000 stockholders of record.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Market Information Our common stock is traded on the NYSE under the symbol “BBWI.” As of February 3, 2024, the Company had approximately 27,000 stockholders of record. This number excludes persons whose stock is held in nominee or street name by brokers.
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However, including active associates who participate in our associate stock purchase plan, associates who own shares through our sponsored retirement plan and others holding shares in broker accounts under street names, we estimate the shareholder base as of January 28, 2023 to be approximately 222,000.
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COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN (a)(b) AMONG BATH & BODY WORKS, INC., THE S&P 500 INDEX AND THE S&P 500 RETAIL COMPOSITE INDEX _______________ (a) This table represents $100 invested in stock or in index at the closing price on February 3, 2018, including reinvestment of dividends.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe following table represents Company-operated store data for 2022: Stores Stores January 29, 2022 Opened Closed January 28, 2023 United States 1,651 90 (48) 1,693 Canada 104 5 — 109 Total 1,755 95 (48) 1,802 28 Table of Contents The following table represents Company-operated store data for 2021: Stores Stores January 30, 2021 Opened Closed January 29, 2022 United States 1,633 53 (35) 1,651 Canada 103 1 — 104 Total 1,736 54 (35) 1,755 Partner-Operated Store Data The following table represents partner-operated store data for 2022: Stores Stores January 29, 2022 Opened Closed January 28, 2023 International 317 89 (5) 401 International - Travel Retail 21 6 (1) 26 Total International 338 95 (6) 427 The following table represents partner-operated store data for 2021: Stores Stores January 30, 2021 Opened Closed January 29, 2022 International 270 55 (8) 317 International - Travel Retail 18 3 — 21 Total International 288 58 (8) 338 Results of Operations—2022 Compared to 2021 For 2022, Operating Income decreased $633 million to $1.376 billion, and the Operating Income rate (expressed as a percentage of Net Sales) decreased to 18.2% from 25.5% in 2021.
Biggest changeThe following table represents Company-operated store data for 2023: Stores Stores January 28, 2023 Opened Closed February 3, 2024 United States 1,693 93 (47) 1,739 Canada 109 2 — 111 Total 1,802 95 (47) 1,850 The following table represents Company-operated store data for 2022: Stores Stores January 29, 2022 Opened Closed January 28, 2023 United States 1,651 90 (48) 1,693 Canada 104 5 — 109 Total 1,755 95 (48) 1,802 Partner-Operated Store Data The following table represents partner-operated store data for 2023: Stores Stores January 28, 2023 Opened Closed February 3, 2024 International 401 65 (12) 454 International - Travel Retail 26 5 — 31 Total International 427 70 (12) 485 The following table represents partner-operated store data for 2022: Stores Stores January 29, 2022 Opened Closed January 28, 2023 International 317 89 (5) 401 International - Travel Retail 21 6 (1) 26 Total International 338 95 (6) 427 Results of Operations—2023 Compared to 2022 Net Sales The following table provides Net Sales for 2023 in comparison to 2022: 2023 2022 % Change (in millions) Stores - U.S. and Canada $ 5,507 $ 5,476 1 % Direct - U.S. and Canada 1,582 1,745 (9 %) International (a) 340 339 — % Total Net Sales $ 7,429 $ 7,560 (2 %) ________________ (a) Results include royalties associated with franchised store and wholesale sales. 28 Table of Contents The following table provides a reconciliation of Net Sales for 2022 to 2023: (in millions) 2022 Net Sales $ 7,560 Comparable Store Sales (249) Sales Associated with New, Closed and Non-comparable Remodeled Stores, Net, Excluding Sales Related to the 53rd Week 226 Direct Channel, Excluding Sales Related to the 53rd Week (176) International Wholesale, Royalty and Other, Excluding Sales Related to the 53rd Week (5) Foreign Currency Translation (8) Sales Related to the 53rd Week 81 2023 Net Sales $ 7,429 For 2023, Net Sales decreased $131 million to $7.429 billion.
Investing Activities Net cash used for investing activities in 2022 was $328 million related to capital expenditures. The capital expenditures included approximately $164 million related to new, off-mall stores and remodels of existing stores.
Net cash used for investing activities in 2022 was $328 million related to capital expenditures. The capital expenditures included approximately $164 million related to new off-mall stores and remodels of existing stores.
Our shipping and handling revenues are included in Net Sales with the related costs included in Costs of Goods Sold, Buying and Occupancy in our Consolidated Statements of Income. We also provide a reserve for projected merchandise returns based on historical experience. Net Sales exclude sales and other similar taxes collected from customers.
Our shipping and handling revenues are included in Net Sales with the related costs included in Costs of Goods Sold, Buying and Occupancy in the Consolidated Statements of Income. We also provide a reserve for projected merchandise returns based on historical experience. Net Sales exclude sales and other similar taxes collected from customers.
The following information should be read in conjunction with our financial statements and the related notes included in Item 8. Financial Statements and Supplementary Data. Our operating results are generally impacted by economic changes and, therefore, we monitor the retail environment using, among other things, certain key industry performance indicators including competitor performance and store traffic data.
The following information should be read in conjunction with our financial statements and the related notes included in Item 8. Financial Statements and Supplementary Data. Our operating results are generally impacted by economic changes and, therefore, we monitor the retail environment using, among other things, certain key industry performance indicators including competitor performance and traffic data.
(d) Other liabilities include future estimated payments associated with unrecognized tax benefits. The “Less Than 1 Year” category includes $112 million of these tax items because it is reasonably possible that the amounts could change in the next 12 months due to audit settlements or resolution of uncertainties.
(d) Other liabilities include future estimated payments associated with unrecognized tax benefits. The “Less Than 1 Year” category includes $118 million of these tax items because it is reasonably possible that the amounts could change in the next 12 months due to audit settlements or resolution of uncertainties.
Accordingly, the operating results of, and fees to separate, the Victoria's Secret business are reported in Income (Loss) from Discontinued Operations, Net of Tax in the Consolidated Statements of Income for all periods presented. Unless otherwise noted, all amounts, percentages and discussions reflect only the results of operations and financial condition of our continuing operations.
Accordingly, the operating results of, and fees to separate, the Victoria’s Secret business are reported in Income from Discontinued Operations, Net of Tax in the Consolidated Statements of Income for all applicable periods presented. Unless otherwise noted, all amounts, percentages and discussions reflect only the financial condition and results of operations of our continuing operations.
We offer a loyalty program that allows customers to earn points based on purchasing activity. As customers accumulate points and reach point thresholds, points are converted to awards that may be used to purchase merchandise in stores or online.
We offer a loyalty program that allows customers to earn points based on purchasing activity. As customers accumulate points and reach point thresholds, points are converted to rewards that may be used to purchase merchandise in stores or online.
The Notes are its senior unsecured obligations and rank equally in right of payment with all of our existing and future senior unsecured obligations, are senior to any of our future subordinated indebtedness, are effectively subordinated to all of our existing and future indebtedness that is secured by a lien and are structurally subordinated to all existing and future obligations of each of our subsidiaries that do not guarantee the Notes.
The Notes are its senior unsecured obligations and rank equally in right of payment with all of our existing and future senior unsecured obligations, are senior to 34 Table of Contents any of our future subordinated indebtedness, are effectively subordinated to all of our existing and future indebtedness that is secured by a lien and are structurally subordinated to all existing and future obligations of each of our subsidiaries that do not guarantee the Notes.
If the estimated undiscounted future cash flows related to the asset group are less than the carrying value, we recognize a loss 39 Table of Contents equal to the difference between the carrying value and the estimated fair value, determined by the estimated discounted future cash flows of the asset group.
If the estimated undiscounted future cash flows related to the asset group are less than the carrying value, we recognize a loss equal to the difference between the carrying value and the estimated fair value, determined by the estimated discounted future cash flows of the asset group.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion and analysis of financial condition and results of operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") as codified in the Accounting Standards Codification ("ASC").
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion and analysis of financial condition and results of operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) as codified in the Accounting Standards Codification (“ASC”).
Credit Ratings The following table provides our credit ratings as of January 28, 2023: Moody’s S&P Corporate Ba2 BB Senior Unsecured Debt with Subsidiary Guarantee Ba2 BB Senior Unsecured Debt B1 B+ Outlook Stable Stable Guarantor Summarized Financial Information Certain of our subsidiaries, which are listed on Exhibit 22 to this Annual Report on Form 10-K, have guaranteed our obligations under the 2025 Notes, 2027 Notes, 2028 Notes, 2029 Notes, 2030 Notes, 2035 Notes and 2036 Notes (collectively, the "Notes").
Credit Ratings The following table provides our credit ratings as of February 3, 2024: Moody’s S&P Corporate Ba2 BB Senior Unsecured Debt with Subsidiary Guarantee Ba2 BB Senior Unsecured Debt B1 B+ Outlook Stable Stable Guarantor Summarized Financial Information Certain of our subsidiaries, which are listed on Exhibit 22 to this Annual Report on Form 10-K, have guaranteed our obligations under the 2025 Notes, 2027 Notes, 2028 Notes, 2029 Notes, 2030 Notes, 2035 Notes and 2036 Notes (collectively, the “Notes”).
Financial Statements and Supplementary Data. 38 Table of Contents (c) Purchase obligations primarily include purchase orders for merchandise inventory and other agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transactions.
(c) Purchase obligations primarily include purchase orders for merchandise inventory and other agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transactions.
Our effective income tax rate is affected by items including changes in tax law, the tax jurisdiction of new stores or business ventures and the level of earnings. We follow the authoritative guidance included in ASC 740, Income Taxes , which contains a two-step approach to recognize and measure uncertain tax positions.
Our effective income tax rate is affected by items including changes in tax law, the tax jurisdiction of the Company’s operations and the level of earnings. We follow the authoritative guidance included in ASC 740, Income Taxes , which contains a two-step approach to recognize and measure uncertain tax positions.
Lease Guarantees In connection with the spin-off of Victoria's Secret & Co. and the disposal of a certain other business, we had remaining contingent obligations of $283 million as of January 28, 2023 related to lease payments under the current terms of noncancelable leases, primarily related to office space, expiring at various dates through 2037.
Lease Guarantees In connection with the spin-off of Victoria’s Secret and the disposal of a certain other business, we had remaining contingent obligations of $263 million as of February 3, 2024 related to lease payments under the current terms of noncancelable leases, primarily related to office space, expiring at various dates through 2037.
(b) Includes Net Loss of $7 million related to transactions with non-Guarantor subsidiaries.
(b) Includes a Net Loss of $9 million related to transactions with non-Guarantor subsidiaries.
Adjusted Financial Information from Continuing Operations In addition to our results provided in accordance with GAAP above and throughout this Annual Report on Form 10-K, provided below are non-GAAP measurements which present Operating Income, Net Income from Continuing Operations and Earnings from Continuing Operations Per Diluted Share in 2022 and 2021 on an adjusted basis, which remove certain special items.
Adjusted Financial Information from Continuing Operations In addition to our results provided in accordance with GAAP above and throughout this Annual Report on Form 10-K, provided below are non-GAAP measures that present Net Income from Continuing Operations and Net Income from Continuing Operations Per Diluted Share in 2023 on an adjusted basis, which removes certain special items.
Our debt leverage ratio is a non-GAAP financial measure which we believe is useful to analyze our capital structure. Our debt leverage ratio calculation may not be comparable to similarly-titled measures reported by other companies. Our debt leverage ratio should be evaluated in addition to, and not considered a substitute for, other GAAP financial measures.
Our debt leverage ratio is a non-GAAP financial measure which we believe is useful to analyze our capital structure. Our debt leverage ratio calculation may not be comparable to similarly-titled measures reported by other companies.
A 10% increase or decrease in the inventory valuation adjustment would have impacted net income from continuing operations by approximately $2 million for 2022. A 10% increase or decrease in the estimated physical inventory loss adjustment would have impacted net income from continuing operations by approximately $2 million for 2022.
A 10% increase or decrease in the estimated physical inventory loss adjustment would have impacted Net Income by approximately $2 million for 2023.
The 2022 rate was lower than our combined estimated federal and state statutory rate primarily due to the recognition of excess tax benefits recorded through the Consolidated 30 Table of Contents Statements of Income on share-based awards that vested. The 2021 rate was in line with our combined estimated federal and state statutory rate.
The 2022 rate was lower than our combined estimated federal and state statutory rate primarily due to the recognition of excess tax benefits recorded through the Consolidated Statement of Income on share-based awards that vested.
As of January 28, 2023, our availability under the ABL Facility was $509 million. As of January 28, 2023, the ABL Facility fees related to committed and unutilized amounts were 0.30% per annum, and the fees related to outstanding letters of credit were 1.25% per annum.
As of February 3, 2024, our availability under the ABL Facility was $529 million. As of February 3, 2024, the ABL Facility fees related to committed and unutilized amounts were 0.30% per annum, and the fees related to outstanding letters of credit were 1.25% per annum.
Valuation of Long-lived Store Assets Long-lived store assets, which include leasehold improvements, store related assets and operating lease assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.
Valuation of Long-lived Store Assets Long-lived store assets, which include leasehold improvements, store-related assets and operating lease assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Store assets are grouped at the lowest level for which they are largely independent of other assets or asset groups.
A discussion regarding our Financial Condition and Results of Operations for 2021 compared to 2020 (including the fourth quarter thereof) can be found under Item 7. of Part II of our Annual Report on Form 10-K for the year ended January 29, 2022, filed with the SEC on March 18, 2022.
A discussion regarding our financial condition and results of operations for 2022 compared to 2021 can be found under Item 7. of our Annual Report on Form 10-K for the year ended January 28, 2023, filed with the SEC on March 17, 2023.
We determine the gift card breakage rate based on historical redemption patterns. Gift card breakage is included in Net Sales in our Consolidated Statements of Income. We also recognize revenues associated with franchise, license, wholesale and sourcing arrangements.
Gift card breakage revenue is recognized in proportion to, and over the same period as, actual gift card redemptions. We determine the gift card breakage rate based on historical redemption patterns. Gift card breakage revenue is included in Net Sales in the Consolidated Statements of Income. We also recognize revenues associated with franchise, license, wholesale and sourcing arrangements.
Company-operated store data for 2022 and 2021: 2022 2021 % Change Sales per Average Selling Square Foot (a) $ 1,120 $ 1,220 (8 %) Sales per Average Store (in thousands) (a) $ 3,079 $ 3,279 (6 %) Average Store Size (selling square feet) 2,783 2,716 2 % Total Selling Square Feet (in thousands) 4,712 4,485 5 % ________________ (a) Sales per average selling square foot and sales per average store, which are indicators of store productivity, are calculated based on store sales for the period divided by the average, including the beginning and end of period, of total square footage and store count, respectively.
Company-operated store data for 2023 and 2022: 2023 2022 % Change Sales per Average Selling Square Foot (a) $ 1,074 $ 1,120 (4 %) Sales per Average Store (in thousands) (a) $ 3,015 $ 3,079 (2 %) Average Store Size (selling square feet) 2,827 2,783 2 % Total Selling Square Feet (in thousands) 4,916 4,712 4 % 27 Table of Contents ________________ (a) Sales per average selling square foot and sales per average store, which are indicators of store productivity, are calculated based on store sales for the period divided by the average, including the beginning and end of period, of total selling square footage and store count, respectively.
The most significant items in working capital were the $44 million increase associated with Accounts Payable, Accrued Expenses and Other and the $39 million increase associated with Income Taxes Payable. Net cash provided by operating activities in 2021 was $1.492 billion, including net income of $1.333 billion (which included Income from Discontinued Operations, Net of Tax of $258 million).
The most significant items in working capital were the $109 million decrease associated with Accounts Payable, Accrued Expenses and Other and the $34 million increase associated with Income Taxes Payable. Net cash provided by operating activities in 2022 was $1.144 billion, including net income of $800 million (which included Income from Discontinued Operations, Net of Tax of $6 million).
General, Administrative and Store Operating Expenses The following table provides detail for our General, Administrative and Store Operating Expenses for 2022 compared to 2021: 2022 2021 Change (in millions) % of Net Sales (in millions) % of Net Sales (in millions) % of Net Sales Selling Expenses $ 1,205 15.9 % $ 1,215 15.4 % $ (10) 0.5 % Home Office and Marketing Expenses 674 8.9 % 631 8.0 % 43 0.9 % Total $ 1,879 24.9 % $ 1,846 23.4 % $ 33 1.5 % For 2022, our General, Administrative and Store Operating Expenses increased $33 million to $1.879 billion, and the rate (expressed as a percentage of Net Sales) increased to 24.9% from 23.4%.
General, Administrative and Store Operating Expenses The following table provides details for our General, Administrative and Store Operating Expenses for 2023 compared to 2022: 2023 2022 Change (in millions) % of Net Sales (in millions) % of Net Sales (in millions) % of Net Sales Selling Expenses $ 1,177 15.8 % $ 1,205 15.9 % $ (28) (0.1 %) Home Office and Marketing Expenses 774 10.4 % 674 8.9 % 100 1.5 % Total $ 1,951 26.3 % $ 1,879 24.9 % $ 72 1.4 % For 2023, our General, Administrative and Store Operating Expenses increased $72 million to $1.951 billion, and the rate (expressed as a percentage of Net Sales) increased to 26.3% from 24.9%.
As of January 28, 2023, our borrowing base was $525 million, and we had no borrowings outstanding under the ABL Facility. The ABL Facility supports our letter of credit program. We had $16 million of outstanding letters of credit as of January 28, 2023 that reduced our availability under the ABL Facility.
As of February 3, 2024, our borrowing base was $539 million, and we had no borrowings outstanding under the ABL Facility. The ABL Facility supports our letter of credit program. We had $10 million of outstanding letters of credit as of February 3, 2024 that reduced our availability under the ABL Facility.
A discussion regarding our Financial Condition and Results of Operations for 2022 compared to 2021 (including the fourth quarter thereof) is presented below.
A discussion regarding our financial condition and results of operations for 2023 compared to 2022 is presented below.
We believe that these special items are not indicative of our ongoing operations due to their size and nature. We use adjusted financial information as key performance measures of results of operations for the purpose of evaluating performance internally. These non-GAAP measurements are not intended to replace the presentation of our financial results in accordance with GAAP.
We believe that these special items are not indicative of our ongoing operations due to their size and nature. We did not make any adjustments to our reported results in 2022. We use adjusted financial information as key performance measures for the purpose of evaluating performance internally.
We adjust our tax contingencies accrual and income tax provision in the period in which matters are effectively settled with tax authorities at amounts different from our established accrual, when the statute of limitations expires for the relevant taxing authority to examine the tax position or when more information becomes available.
We adjust our tax contingencies accrual and income tax provision in the period in which matters are effectively settled with tax authorities at amounts different from our established accrual, when the statute of limitations expires for the relevant taxing authority to examine the tax position or when more information becomes available. 37 Table of Contents Revenue Recognition We recognize revenue based on the amount we expect to receive when control of the goods or services is transferred to our customer.
For 2022, our General, Administrative and Store Operating Expenses increased $33 million, or 2%, to $1.879 billion compared to 2021, and our General, Administrative and Store Operating Expenses rate (expressed as a percentage of Net Sales) increased 150 basis points.
For 2023, our General, Administrative and Store Operating Expenses increased $72 million, or 4%, to $1.951 billion compared to 2022, and our General, Administrative and Store Operating Expenses rate (expressed as a percentage of Net Sales) increased approximately 140 basis points.
Instead, we believe that the presentation of adjusted financial information provides additional information to 27 Table of Contents investors to facilitate the comparison of past and present operations. Further, our definitions of adjusted financial information may differ from similarly titled measures used by other companies.
These non-GAAP measures are not intended to replace the presentation of our financial results in accordance with GAAP. Instead, we believe that the presentation of adjusted financial information provides additional information to investors to facilitate the comparison of past and present operations. Further, our definitions of adjusted financial information may differ from similarly titled measures used by other companies.
These uses were partially offset by proceeds of $976 million from the Separation and proceeds of $83 million from stock option exercises. 34 Table of Contents Common Stock Share Repurchases Our Board will determine share repurchase authorizations, giving consideration to our levels of profit and cash flow, capital requirements, current and forecasted liquidity, the restrictions placed upon us by our borrowing arrangements as well as financial and other conditions existing at the time.
Common Stock and Debt Repurchases Our Board will determine share and debt repurchase authorizations, giving consideration to our levels of profit and cash flow, capital requirements, current and forecasted liquidity, the restrictions placed upon us by our borrowing arrangements as well as financial and other conditions existing at the time.
Each Guarantee is limited, by its 37 Table of Contents terms, to an amount not to exceed the maximum amount that can be guaranteed by the applicable Subsidiary Guarantor subject to avoidance under applicable fraudulent conveyance provisions of U.S. and non-U.S. law.
The Guarantees of the Subsidiary Guarantors are subject to release in limited circumstances only upon the occurrence of certain customary conditions. Each Guarantee is limited, by its terms, to an amount not to exceed the maximum amount that can be guaranteed by the applicable Subsidiary Guarantor subject to avoidance under applicable fraudulent conveyance provisions of U.S. and non-U.S. law.
For additional information, see Note 7 to the Consolidated Financial Statements included in Item 8.
For additional information, see Note 10 to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data.
Revenue Recognition We recognize revenue based on the amount we expect to receive when control of the goods or services is transferred to our customer. We recognize sales upon customer receipt of merchandise, which for direct channel revenues reflect an estimate of shipments that have not yet been received by our customer based on shipping terms and historical delivery times.
We recognize sales upon customer receipt of merchandise, which for direct channel revenues reflects an estimate of shipments that have not yet been received by the customer based on shipping terms and historical delivery times.
Management has discussed the development and selection of our critical accounting policies and estimates with the Audit Committee of our Board of Directors and believes the following assumptions and estimates are most significant to reporting our results of operations and financial position.
Management has discussed the development and selection of our critical accounting policies and estimates with the Audit Committee of our Board and believes the following assumptions and estimates are most significant to reporting our results of operations and financial position. Inventories Inventories are principally valued at the lower of cost or net realizable value, on an average cost basis.
The ABL Facility, which allows borrowings and letters of credit in U.S. dollars or Canadian dollars, has aggregate commitments of $750 million and an expiration date in August 2026.
Asset-backed Revolving Credit Facility We and certain of our 100% owned subsidiaries guarantee and pledge collateral to secure our ABL Facility. The ABL Facility, which allows borrowings and letters of credit in U.S. dollars or Canadian dollars, has aggregate commitments of $750 million and an expiration date in August 2026.
In addition, the interest rate on outstanding U.S. dollar borrowings was LIBOR plus 1.25% per annum. The interest rate on outstanding Canadian dollar-denominated borrowings was the Canadian Dollar Offered Rate plus 1.25% per annum.
In addition, the interest rate on outstanding U.S. dollar borrowings was the Term SOFR plus 1.25% per annum and a credit spread adjustment of 0.10% per annum. The interest rate on outstanding Canadian dollar-denominated borrowings was the Canadian Dollar Offered Rate plus 1.25% per annum.
In addition, we recognize revenue on unredeemed gift cards where the likelihood of the gift card being redeemed is remote and there is no legal obligation to remit the unredeemed gift cards to relevant jurisdictions (gift card breakage). Gift card breakage revenue is recognized in proportion, and over the same period, as actual gift card redemptions.
We recognize revenue from gift cards when they are redeemed by the customer. In addition, we recognize revenue on unredeemed gift cards when the likelihood of the gift cards being redeemed is remote and there is no legal obligation to remit the unredeemed gift cards to relevant jurisdictions (gift card breakage).
Interest payments have been estimated based on the coupon rate for fixed rate obligations. Interest obligations exclude amounts which have been accrued through January 28, 2023. For additional information, see Note 11 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data. (b) Future lease obligations primarily represent minimum payments due under store lease agreements.
Interest payments have been estimated based on the coupon rate for fixed rate obligations. Interest obligations exclude 35 Table of Contents amounts which have been accrued through February 3, 2024. For additional information, see Note 11 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.
We paid the following dividends during 2022 and 2021: Ordinary Dividends Total Paid (per share) (in millions) 2022 First Quarter $ 0.20 $ 48 Second Quarter 0.20 46 Third Quarter 0.20 46 Fourth Quarter 0.20 46 2022 Total $ 0.80 $ 186 2021 First Quarter $ — $ — Second Quarter 0.15 42 Third Quarter 0.15 39 Fourth Quarter 0.15 39 2021 Total $ 0.45 $ 120 On March 3, 2023, we paid our first quarter 2023 dividend of $0.20 per share to stockholders of record at the close of business on February 17, 2023.
We use cash flow generated from operating and financing activities to fund our dividends. 32 Table of Contents We paid the following dividends during 2023 and 2022: Ordinary Dividends Total Paid (per share) (in millions) 2023 First Quarter $ 0.20 $ 46 Second Quarter 0.20 46 Third Quarter 0.20 45 Fourth Quarter 0.20 45 2023 Total $ 0.80 $ 182 2022 First Quarter $ 0.20 $ 48 Second Quarter 0.20 46 Third Quarter 0.20 46 Fourth Quarter 0.20 46 2022 Total $ 0.80 $ 186 On March 8, 2024, we paid our first quarter 2024 dividend of $0.20 per share to stockholders of record at the close of business on February 23, 2024.
As of January 28, 2023, we were not required to maintain this ratio.
As of February 3, 2024, we were not required to maintain this ratio.
(c) Includes amounts due to non-Guarantor subsidiaries of $1.987 billion as of January 28, 2023. 2022 SUMMARIZED STATEMENT OF INCOME (in millions) Net Sales (a) $ 7,336 Gross Profit 3,012 Operating Income 1,245 Income Before Income Taxes 921 Net Income (b) 726 _______________ (a) Includes Net Sales of $291 million to non-Guarantor subsidiaries.
(b) Includes amounts due to non-Guarantor subsidiaries of $1.905 billion as of February 3, 2024. 2023 SUMMARIZED STATEMENT OF INCOME (in millions) Net Sales (a) $ 7,173 Gross Profit 3,006 Operating Income 1,173 Income Before Income Taxes 905 Net Income (b) 696 _______________ (a) Includes Net Sales of $287 million to non-Guarantor subsidiaries.
The Gross Profit rate decreased due to the significant decline in the merchandise margin rate, the increase in Buying and Occupancy Expenses and deleverage on lower Net Sales.
The decline in Gross Profit was due to the decline in Net Sales and an increase in Buying and Occupancy Expenses, partially offset by an increase in merchandise margin dollars and rate.
The remaining capital expenditures were primarily related to our new Company-operated direct channel fulfillment center and various IT projects primarily supporting the separation of our IT systems from Victoria's Secret & Co.'s IT systems.
The remaining capital expenditures were primarily related to our Company-operated direct channel fulfillment center that became operational in 2022 and various IT projects primarily supporting the separation of our IT systems from Victoria’s Secret’s IT systems. In 2024, we expect to continue to prioritize investments in our business.
FINANCIAL CONDITION A discussion regarding our Financial Condition for 2021 compared to 2020 can be found under Item 7. of Part II of our Annual Report on Form 10-K for the year ended January 29, 2022, filed with the SEC on March 18, 2022.
FINANCIAL CONDITION A discussion regarding our financial condition for 2022 compared to 2021 can be found under Item 7. of our Annual Report on Form 10-K for the year ended January 28, 2023, filed with the SEC on March 17, 2023. Liquidity and Capital Resources Liquidity, or access to cash, is an important factor in determining our financial stability.
Liquidity and Capital Resources Liquidity, or access to cash, is an important factor in determining our financial stability. We are committed to maintaining adequate liquidity. Cash generated from our operating activities provides the primary resources to support current operations, growth initiatives, seasonal funding requirements and capital expenditures.
We are committed to maintaining adequate liquidity. Cash generated from our operating activities provides the primary resources to support current operations, growth initiatives, seasonal funding requirements, future common stock and debt repurchases, and capital expenditures. Our cash provided from operations is impacted by our net income and working capital changes.
Historically, our sales are higher during the fourth quarter of the fiscal year due to seasonal and holiday-related sales patterns. Generally, our need for working capital peaks during the summer and fall months as inventory builds in anticipation of the holiday period. Our cash and cash equivalents held by foreign subsidiaries were $126 million as of January 28, 2023.
Generally, our need for working capital peaks during the summer and fall months as inventory builds in anticipation of the holiday period. Our cash and cash equivalents held by foreign subsidiaries were $96 million as of February 3, 2024.
As of January 29, 2022, our borrowing base was $495 million and we had outstanding letters of credit of $16 million. Debt Leverage Ratio Our debt leverage ratio is defined as adjusted debt, which includes our long-term debt and total operating lease liabilities, divided by adjusted earnings before interest, taxes, depreciation, amortization and rent ("EBITDAR").
Debt Leverage Ratio Our debt leverage ratio is defined as adjusted debt, which includes our long-term debt and total operating lease liabilities, divided by earnings before interest, taxes, depreciation, amortization and rent (“EBITDAR”). EBITDAR is calculated as operating income, which excludes interest and taxes, before depreciation, amortization and lease costs.
Long-term Debt and Borrowing Facilities The following table provides our outstanding Long-term Debt balance, net of unamortized debt issuance costs and discounts, as of January 28, 2023 and January 29, 2022: January 28, 2023 January 29, 2022 (in millions) Senior Debt with Subsidiary Guarantee $320 million, 9.375% Fixed Interest Rate Notes due July 2025 ("2025 Notes") $ 317 $ 316 $297 million, 6.694% Fixed Interest Rate Notes due January 2027 ("2027 Notes") 283 281 $500 million, 5.25% Fixed Interest Rate Notes due February 2028 (“2028 Notes”) 498 497 $500 million, 7.50% Fixed Interest Rate Notes due June 2029 ("2029 Notes") 491 489 $1 billion, 6.625% Fixed Interest Rate Notes due October 2030 ("2030 Notes") 991 990 $1 billion, 6.875% Fixed Interest Rate Notes due November 2035 (“2035 Notes”) 993 992 $700 million, 6.75% Fixed Interest Rate Notes due July 2036 (“2036 Notes”) 694 694 Total Senior Debt with Subsidiary Guarantee $ 4,267 $ 4,259 Senior Debt $350 million, 6.95% Fixed Interest Rate Debentures due March 2033 (“2033 Notes”) $ 349 $ 349 $247 million, 7.60% Fixed Interest Rate Notes due July 2037 (“2037 Notes”) 246 246 Total Senior Debt $ 595 $ 595 Total Long-term Debt $ 4,862 $ 4,854 36 Table of Contents Repurchases of Notes In April 2021, we redeemed the remaining $285 million of our outstanding 5.625% senior notes due February 2022 and $750 million of our outstanding 6.875% senior secured notes due July 2025.
Long-term Debt and Borrowing Facility The following table provides our outstanding Long-term Debt balance, net of unamortized debt issuance costs and discounts, as of February 3, 2024 and January 28, 2023: February 3, 2024 January 28, 2023 (in millions) Senior Debt with Subsidiary Guarantee $314 million, 9.375% Fixed Interest Rate Notes due July 2025 (“2025 Notes”) $ 313 $ 317 $297 million, 6.694% Fixed Interest Rate Notes due January 2027 (“2027 Notes”) 287 283 $462 million, 5.250% Fixed Interest Rate Notes due February 2028 (“2028 Notes”) 460 498 $500 million, 7.500% Fixed Interest Rate Notes due June 2029 (“2029 Notes”) 492 491 $938 million, 6.625% Fixed Interest Rate Notes due October 2030 (“2030 Notes”) 930 991 $811 million, 6.875% Fixed Interest Rate Notes due November 2035 (“2035 Notes”) 806 993 $613 million, 6.750% Fixed Interest Rate Notes due July 2036 (“2036 Notes”) 608 694 Total Senior Debt with Subsidiary Guarantee 3,896 4,267 Senior Debt $294 million, 6.950% Fixed Interest Rate Debentures due March 2033 (“2033 Notes”) 293 349 $201 million, 7.600% Fixed Interest Rate Notes due July 2037 (“2037 Notes”) 199 246 Total Senior Debt 492 595 Total Long-term Debt $ 4,388 $ 4,862 Repurchases of Notes During 2023, we repurchased in the open market and extinguished $485 million principal amount of our outstanding senior notes.
JANUARY 28, 2023 SUMMARIZED BALANCE SHEET (in millions) ASSETS Current Assets (a) $ 2,642 Noncurrent Assets (b) 2,561 LIABILITIES Current Liabilities (c) $ 3,084 Noncurrent Liabilities 6,143 _______________ (a) Includes amounts due from non-Guarantor subsidiaries of $589 million as of January 28, 2023. (b) Includes amounts due from non-Guarantor subsidiaries of $40 million as of January 28, 2023.
FEBRUARY 3, 2024 SUMMARIZED BALANCE SHEET (in millions) ASSETS Current Assets (a) $ 2,545 Noncurrent Assets 2,554 LIABILITIES Current Liabilities (b) $ 2,935 Noncurrent Liabilities 5,650 _______________ (a) Includes amounts due from non-Guarantor subsidiaries of $622 million as of February 3, 2024.
Fiscal 2022 Overview For 2022, Net Sales decreased $322 million, or 4%, to $7.560 billion, compared to 2021. In our stores and direct channels, Net Sales decreased 4% to $5.476 billion, and 8% to $1.745 billion, respectively.
For 2023, Net Sales decreased $131 million, or 2%, to $7.429 billion, compared to 2022. In our stores and direct channels, Net Sales increased 1% to $5.507 billion, and decreased 9% to $1.582 billion, respectively.
Points expire if a loyalty account is inactive for a certain period of time, while awards expire if unused after approximately three months.
Points expire if a loyalty account is inactive for a certain period of time, while rewards expire if unused after approximately three months. We allocate revenue to points earned on qualifying purchases and defer recognition of revenue until the rewards are redeemed.
We allocate revenue to points earned on qualifying purchases and defer recognition until the awards are redeemed. 40 Table of Contents The amount of revenue deferred is based on the relative stand-alone selling price method, which includes an estimate for points and awards not expected to be redeemed based on historical experience.
The amount of revenue deferred is based on the relative stand-alone selling price method, which includes an estimate for points and rewards not expected to be redeemed based on historical experience. We sell gift cards with no expiration dates to customers. We do not charge administrative fees on unused gift cards.
Our cash provided from operations is impacted by our net income and working capital changes. Our net income is impacted by, among other things, sales volume, seasonal sales patterns, success of new product introductions, profit margins, income taxes and inflationary pressures.
Our net income is impacted by, among other things, sales volume, seasonal sales patterns, success of new product introductions and product and market expansions, profit margins, income taxes and inflationary pressures. Historically, our sales are higher during the fourth quarter of the fiscal year due to seasonal and holiday-related sales patterns.
Additionally, we evaluate a number of key performance indicators including comparable sales, gross profit, operating income and other performance metrics such as sales per average selling square foot in assessing our performance. On August 2, 2021, we completed the tax-free spin-off of our Victoria's Secret business, which included the Victoria's Secret and PINK brands, into an independent publicly traded company.
On August 2, 2021, we completed the tax-free spin-off of our Victoria’s Secret business, which included the Victoria’s Secret and PINK brands, into an independent publicly traded company.
Contingent Liabilities and Contractual Obligations The following table provides our contractual obligations, aggregated by type, including the maturity profile as of January 28, 2023: Payments Due by Period Total Less Than 1 Year 1-3 Years 4-5 Years More Than 5 Years Other (in millions) Long-term Debt (a) $ 8,047 $ 339 $ 983 $ 895 $ 5,830 $ — Future Lease Obligations (b) 1,562 260 497 386 419 — Purchase Obligations (c) 682 543 91 38 10 — Other Liabilities (d) 182 112 30 — — 40 Total $ 10,473 $ 1,254 $ 1,601 $ 1,319 $ 6,259 $ 40 ________________ (a) Long-term Debt obligations relate to our principal and interest payments for outstanding notes and debentures.
Contingent Liabilities and Contractual Obligations The following table provides our contractual obligations, aggregated by type, including the maturity profile as of February 3, 2024: Payments Due by Period Total Less Than 1 Year 1-3 Years 4-5 Years More Than 5 Years Other (in millions) Long-term Debt (a) $ 6,859 $ 306 $ 1,168 $ 963 $ 4,422 $ — Future Lease Obligations (b) 1,539 270 522 362 385 — Purchase Obligations (c) 695 527 107 51 10 — Other Liabilities (d) 186 131 17 — — 38 Total $ 9,279 $ 1,234 $ 1,814 $ 1,376 $ 4,817 $ 38 ________________ (a) Long-term Debt obligations relate to our principal and interest payments for outstanding notes and debentures.
The remaining portion totaling $40 million is included in the “Other” category as it is not reasonably possible that the amounts could change in the next 12 months. In addition, we have a remaining liability of $30 million related to the deemed repatriation tax on our undistributed foreign earnings resulting from the Tax Cuts and Jobs Act.
In addition, we have a remaining liability of $30 million related to the deemed repatriation tax on our undistributed foreign earnings resulting from the Tax Cuts and Jobs Act, of which $13 million is expected to be paid in 2024, and the remaining $17 million is expected to be paid in 2025.
Gross Profit For the fourth quarter of 2022, our Gross Profit decreased $196 million to $1.250 billion, and our Gross Profit rate (expressed as a percentage of Net Sales) decreased to 43.3% from 47.8%.
For 2023, our Gross Profit decreased $19 million, or 1%, to $3.236 billion compared to 2022, and our Gross Profit rate (expressed as a percentage of Net Sales) increased approximately 50 basis points.
For additional information related to our 2022 financial performance, see “Results of Operations – 2022 Compared to 2021.” Fiscal 2023 Outlook We expect ongoing macroeconomic uncertainty and customer price sensitivity in 2023.
For additional information related to our 2023 financial performance, see “Results of Operations – 2023 Compared to 2022.” Fiscal 2024 Outlook We anticipate continuing macroeconomic pressures as well as continuing post-pandemic normalization of candles and sanitizers in fiscal 2024. We expect the normalization to moderate as we move through the year.
Inventories Inventories are principally valued at the lower of cost or net realizable value, on an average cost basis. We record valuation adjustments to our inventories if the cost of inventory on hand exceeds the amount we expect to realize from the ultimate sale or disposal of the inventory.
We record valuation adjustments to our inventories if the cost of inventory on hand exceeds the amount we expect to realize from the ultimate sale or disposal of the inventory. These estimates are based on management’s judgment regarding future demand and market conditions and analysis of historical experience.
These estimates are based on management’s judgment regarding future demand and market conditions and analysis of historical experience. If actual demand or market conditions are different than those projected by management, future period merchandise margin rates may be unfavorably or favorably affected by adjustments to these estimates.
If actual demand or market conditions are different than those projected by management, future period merchandise margin rates may be unfavorably or favorably affected by adjustments to these estimates. 36 Table of Contents We also record inventory loss adjustments for estimated physical inventory losses that have occurred since the date of the last physical inventory.
Taking the above into account, for 2022 our Operating Income decreased $633 million, or 32%, to $1.376 billion compared to 2021, and our Operating Income rate (expressed as a percentage of Net Sales) decreased 730 basis points.
These increases were primarily driven by investments in technology and marketing, partially offset by the benefits of our cost optimization initiatives. Taking the above into account, our 2023 Operating Income decreased $91 million, or 7%, to $1.285 billion compared to 2022, and our Operating Income rate (expressed as a percentage of Net Sales) decreased approximately 90 basis points.
(b) In the third and first quarters of 2021, we recognized pre-tax losses of $89 million and $105 million (after-tax losses of $68 million and $80 million), respectively, due to the early extinguishments of outstanding notes. For additional information, see Note 11, "Long-term Debt and Borrowing Facilities" included in Item 8. Financial Statements and Supplementary Data.
(b) In 2023, we recognized pre-tax gains of $34 million (after-tax gain of $26 million), included in Other Income, related to the repurchase and extinguishment of outstanding notes. For additional information, see Note 11 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.
The timing and amount of any repurchases will be made at our discretion, taking into account a number of factors, including market conditions. 2021 Repurchase Programs In March 2021, the Board authorized a $500 million share repurchase plan (the "March 2021 Program"), which replaced the $79 million remaining under a March 2018 share repurchase program.
We use cash flow generated from operating and financing activities to fund our share and debt repurchase programs. The timing and amount of any repurchases will be made at our discretion, taking into account a number of factors, including market conditions.
Net Sales decreased in the stores channel $233 million, or 4%, primarily due to a decrease in average dollar sales, partially offset by the incremental Net Sales originating from new stores. Direct Net Sales decreased $145 million, or 8%, primarily due to a decline in orders.
Net Sales increased in the stores channel $31 million, or 1%, due to Net Sales from net new store growth and the benefit from the 53rd week in 2023, partially offset by a decline in average dollar sales.
We repurchased the following shares of our common stock during 2022: Repurchase Program Amount Authorized Shares Repurchased Amount Repurchased Average Stock Price (in millions) (in thousands) (in millions) February 2022 $ 1,500 6,401 $ 312 $ 48.77 February 2022 - Accelerated Share Repurchase Program 20,295 1,000 49.27 Total 26,696 $ 1,312 The February 2022 Program had $188 million of remaining authority as of January 28, 2023. 35 Table of Contents Dividend Policy and Procedures Our Board will determine future dividends after giving consideration to our levels of profit and cash flow, capital requirements, current and forecasted liquidity, the restrictions placed upon us by our borrowing arrangements as well as financial and other conditions existing at the time.
Dividend Policy and Procedures Our Board will determine future dividends after giving consideration to our levels of profit and cash flow, capital requirements, current and forecasted liquidity, the restrictions placed upon us by our borrowing arrangements as well as financial and other conditions existing at the time.
We also record inventory loss adjustments for estimated physical inventory losses that have occurred since the date of the last physical inventory. These estimates are based on management’s analysis of historical results and operating trends. Management believes that the assumptions used in these estimates are reasonable and appropriate.
These estimates are based on management’s analysis of historical results and current operating trends. Management believes that the assumptions used in these estimates are reasonable and appropriate. A 10% increase or decrease in the inventory valuation adjustment would have impacted Net Income by approximately $2 million for 2023.
The decline in Direct orders is partially due to our customers continuing to select our BOPIS option (which is recognized as store Net Sales). International Net Sales increased by $23 million, or 30%, primarily due to the increase in partner-operated stores as well as timing of wholesale shipments.
Direct Net Sales decreased $163 million, or 9%, due to a decline in orders, which was partially due to our customers continuing to select our BOPIS option (which is recognized as store Net Sales) as we completed our rollout of BOPIS capabilities to our U.S. stores in the first quarter of 2023, partially offset by the benefit from the 53rd week in 2023.
Financing Activities Net cash used for financing activities in 2022 was $1.562 billion consisting of $1.312 billion in payments for share repurchases, including the payment of $1 billion related to our accelerated share repurchase program ("ASR"), dividend payments of $0.80 per share, or $186 million, tax payments of $32 million related to share-based awards and net payments of $25 million to Victoria's Secret & Co. related to the Separation.
Net cash used for financing activities in 2022 was $1.562 billion consisting of $1.312 billion in payments for share repurchases, including the payment of $1 billion related to our ASR (as defined in Note 14 to the Consolidated Financial Statements included in Item 8.
(b) Reflects repurchases of Bath & Body Works, Inc. common stock subsequent to the August 2, 2021 spin-off of Victoria's Secret & Co. 2022 Repurchase Program In February 2022, the Board authorized a new $1.5 billion share repurchase program (the "February 2022 Program").
Common Stock Repurchases 2022 Repurchase Program In February 2022, the Board authorized a $1.5 billion share repurchase program (the “February 2022 Program”).
Other Income (Loss) For fourth quarter of 2022, our Other Income (Loss) increased $11 million to income of $10 million, primarily due to an increase in the average interest rate earned on invested cash. Provision for Income Taxes For the fourth quarter of 2022, our effective tax rate was 25.7% compared to 25.1% in 2021.
For 2022, our Other Income was $17 million, primarily related to interest income on cash balances. Provision for Income Taxes For 2023, our effective tax rate was 13.9% compared to 24.0% in 2022.
The table below reconciles the GAAP financial measures to the non-GAAP financial measures: (in millions, except per share amounts) 2022 2021 Reconciliation of Reported Operating Income to Adjusted Operating Income Reported Operating Income $ 1,376 $ 2,009 Write-off of Inventory due to Tornado (a) — 9 Adjusted Operating Income $ 1,376 $ 2,019 Reconciliation of Reported Net Income from Continuing Operations to Adjusted Net Income from Continuing Operations Reported Net Income from Continuing Operations $ 794 $ 1,075 Write-off of Inventory due to Tornado (a) — 9 Loss on Extinguishment of Debt (b) — 195 Tax Benefit of Special Items in Operating Income and Other Income (Loss) — (49) Adjusted Net Income from Continuing Operations $ 794 $ 1,230 Reconciliation of Reported Earnings from Continuing Operations Per Diluted Share to Adjusted Earnings from Continuing Operations Per Diluted Share Reported Earnings from Continuing Operations Per Diluted Share $ 3.40 $ 3.94 Write-off of Inventory due to Tornado (a) — 0.03 Loss on Extinguishment of Debt (b) — 0.54 Adjusted Earnings from Continuing Operations Per Diluted Share $ 3.40 $ 4.51 ________________ (a) In the fourth quarter of 2021, we recognized a pre-tax loss of $9 million ($7 million after tax) related to the write-off of inventory that was destroyed by a tornado at a vendor's facility.
The tables below reconciles the GAAP financial measures to the non-GAAP financial measures: (in millions, except per share amounts) 2023 Reconciliation of Reported Net Income from Continuing Operations to Adjusted Net Income from Continuing Operations Reported Net Income from Continuing Operations $ 878 Impairment of Equity Method Investment (a) 8 Gain on Extinguishment of Debt (b) (34) Tax Effect of Special Items included in Other Income 7 Tax Benefit from Foreign Valuation Allowance Release (c) (112) Adjusted Net Income from Continuing Operations $ 747 Reconciliation of Reported Net Income from Continuing Operations Per Diluted Share to Adjusted Net Income from Continuing Operations Per Diluted Share Reported Net Income from Continuing Operations Per Diluted Share $ 3.84 Impairment of Equity Method Investment (a) 0.04 Gain on Extinguishment of Debt (b) (0.15) Tax Effect of Special Items included in Other Income 0.03 Tax Benefit from Foreign Valuation Allowance Release (c) (0.49) Adjusted Net Income from Continuing Operations Per Diluted Share $ 3.27 ________________ (a) In 2023, we recognized a pre-tax impairment charge of $8 million (after-tax charge of $6 million), included in Other Income, related to an impairment charge on an equity method investment.
Our home office expenses increased primarily due to our investments in technology in connection with our IT separation.
Our Home Office Expenses increased primarily due to higher technology expenses, principally related to IT separation costs as well as strategic investments to drive future growth, marketing expenses and other corporate expenses.
We did not report any cash flows from discontinued operations in 2022. 33 Table of Contents The following table provides a summary of our Consolidated Statements of Cash Flows for 2022 and 2021: 2022 2021 (in millions) Cash and Cash Equivalents, Beginning of Year $ 1,979 $ 3,933 Net Cash Flows Provided by Operating Activities 1,144 1,492 Net Cash Flows Used for Investing Activities (328) (259) Net Cash Flows Used for Financing Activities (1,562) (3,188) Effects of Exchange Rate Changes on Cash and Cash Equivalents (1) 1 Net Decrease in Cash and Cash Equivalents (747) (1,954) Cash and Cash Equivalents, End of Year $ 1,232 $ 1,979 Operating Activities Net cash provided by operating activities in 2022 was $1.144 billion, including net income of $800 million (which included Income from Discontinued Operations, Net of Tax of $6 million).
Our debt leverage ratio should be evaluated in addition to, and not considered a substitute for, other GAAP financial measures. 30 Table of Contents The following table provides our debt leverage ratio as of, and for the years ended, February 3, 2024 and January 28, 2023: February 3, 2024 January 28, 2023 (dollars in millions) Long-term Debt $ 4,388 $ 4,862 Total Operating Lease Liabilities 1,185 1,191 Adjusted Debt $ 5,573 $ 6,053 Operating Income $ 1,285 $ 1,376 Depreciation and Amortization 269 221 Total Lease Costs 402 382 EBITDAR $ 1,956 $ 1,979 Debt Leverage Ratio 2.8 3.1 Cash Flows The following table provides a summary of our Consolidated Statements of Cash Flows for 2023 and 2022: 2023 2022 (in millions) Cash and Cash Equivalents, Beginning of Year $ 1,232 $ 1,979 Net Cash Flows Provided by Operating Activities 954 1,144 Net Cash Flows Used for Investing Activities (286) (328) Net Cash Flows Used for Financing Activities (815) (1,562) Effects of Exchange Rate Changes on Cash and Cash Equivalents (1) (1) Net Decrease in Cash and Cash Equivalents (148) (747) Cash and Cash Equivalents, End of Year $ 1,084 $ 1,232 Operating Activities Net cash provided by operating activities in 2023 was $954 million, including net income of $878 million.
Other changes in assets and liabilities represent items that had a current period cash flow impact, such as changes in working capital. The most significant item in working capital was a decrease in operating cash flow of $177 million associated with the increase in Inventories.
Net income included depreciation of $269 million, a deferred income tax benefit of $128 million, share-based compensation expense of $43 million and pre-tax gains on extinguishment of debt of $34 million. Other changes in assets and liabilities represent items that had a current period cash flow impact, such as changes in working capital.
In our international business, Net Sales increased 20% to $339 million primarily due to the increases in partner-operated stores and e-commerce sites. For 2022, our Gross Profit decreased $600 million, or 16%, to $3.255 billion compared to 2021, and our Gross Profit rate (expressed as a percentage of Net Sales) decreased 580 basis points.
Gross Profit For 2023, our Gross Profit decreased $19 million to $3.236 billion, and our Gross Profit rate (expressed as a percentage of Net Sales) increased to 43.6% from 43.1% in 2022. Gross Profit decreased due to the decline in Net Sales and an increase in occupancy expenses primarily associated with store growth.
The tax liability will be paid over the next three years. For additional information, see Note 10 to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data.
(b) Future lease obligations primarily represent minimum payments due under store lease agreements. For additional information, see Note 7 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.
Other Income (Loss) and Expenses Interest Expense The following table provides the average daily borrowings and average borrowing rates for 2022 and 2021: 2022 2021 Average daily borrowings (in millions) $ 4,915 $ 5,409 Average borrowing rate 7.1 % 7.2 % For 2022, our Interest Expense decreased $40 million to $348 million due to lower average daily borrowings and a lower average borrowing rate.
The General, Administrative and Store Operating Expense rate increased primarily due to our investments in technology as well as deleverage on lower Net Sales, partially offset by the benefits of our cost optimization work related to Selling Expenses. 29 Table of Contents Other Income and Expenses Interest Expense The following table provides the average daily borrowings and average borrowing rates for 2023 and 2022: 2023 2022 Average daily borrowings (in millions) $ 4,695 $ 4,915 Average borrowing rate 7.3 % 7.1 % For 2023, our Interest Expense decreased $3 million to $345 million due to lower average daily borrowings, which were driven by the repurchase and early extinguishment of outstanding notes, partially offset by a higher average borrowing rate and the 53rd week in 2023.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeFair Value of Financial Instruments As of January 28, 2023, we believe that the carrying values of Accounts Receivable, Accounts Payable and Accrued Expenses approximate fair value because of their short maturity. 41 Table of Contents The following table provides a summary of the principal value and estimated fair value of outstanding Long-term Debt as of January 28, 2023 and January 29, 2022: January 28, 2023 January 29, 2022 (in millions) Principal Value $ 4,915 $ 4,915 Fair Value, Estimated (a) 4,707 5,493 ________________ (a) The estimated fair values are based on reported transaction prices and are not necessarily indicative of the amounts that we could realize in a current market exchange. 42 Table of Contents
Biggest changeFair Value Measurements The following table provides a summary of the principal value and estimated fair value of outstanding Long-term Debt as of February 3, 2024 and January 28, 2023: February 3, 2024 January 28, 2023 (in millions) Principal Value $ 4,430 $ 4,915 Fair Value, Estimated (a) 4,456 4,707 ________________ (a) The estimated fair values are based on reported transaction prices and are not necessarily indicative of the amounts that we could realize in a current market exchange.
The primary objective of our investment activities is the preservation of principal, the maintenance of liquidity and the maximization of interest income while minimizing risk. Our investment portfolio is primarily composed of U.S. government obligations, U.S. Treasury and AAA-rated money market funds, commercial paper and bank deposits.
The primary objectives of our investment activities are the preservation of principal, the maintenance of liquidity and the maximization of interest income while minimizing risk. Our investment portfolio is primarily composed of U.S. government obligations, U.S. Treasury and AAA-rated money market funds, commercial paper and bank deposits.
Given the short-term nature and quality of investments in our portfolio, we do not believe there is any material risk to principal associated with increases or decreases in interest rates. All of our Long-term Debt as of January 28, 2023 has fixed interest rates.
Given the short-term nature and quality of investments in our portfolio, we do not believe there is any material risk to principal associated with increases or decreases in interest rates. All of our Long-term Debt as of February 3, 2024 has fixed interest rates.
Treasury and AAA-rated money market funds, commercial paper and bank deposits. We also periodically review the relative credit standing of franchise, license and wholesale partners and other entities to which we grant credit terms in the normal course of business.
We also periodically review the relative credit standing of franchise, license and wholesale partners and other entities to which we grant credit terms in the normal course of business.
Concentration of Credit Risk We maintain cash and cash equivalents and derivative contracts with various major financial institutions. We monitor the relative credit standing of financial institutions with whom we transact and limit the amount of credit exposure with any one entity. Our investment portfolio is primarily composed of U.S. government obligations, U.S.
We monitor the relative credit standing of financial institutions with whom we transact and limit the amount of credit exposure with any one entity. Our investment portfolio is primarily composed of U.S. government obligations, U.S. Treasury and AAA-rated money market funds, commercial paper and bank deposits.
We will from time to time adjust our exposure to interest rate risk by entering into interest rate swap arrangements. Our exposure to interest rate changes is limited to the fair value of the debt issued, which would not have a material impact on our earnings or cash flows.
Our exposure to interest rate changes is limited to the fair value of the debt issued, which would not have a material impact on our earnings or cash flows. 38 Table of Contents Concentration of Credit Risk We maintain cash and cash equivalents and derivative contracts with various major financial institutions.
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We will from time to time adjust our exposure to interest rate risk by entering into interest rate swap arrangements.
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As of February 3, 2024, we believe that the carrying values of our Accounts Receivable, Accounts Payable and Accrued Expenses approximate their fair values because of their short maturities. 39 Table of Contents

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