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What changed in Bath & Body Works, Inc.'s 10-K — 2025 vs 2026

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Paragraph-level year-over-year comparison of Bath & Body Works, Inc.'s 2025 and 2026 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 2026 report.

+287 added−305 removedSource: 10-K (2025-03-14) vs 10-K (2024-03-22)

Top changes in Bath & Body Works, Inc.'s 2026 10-K

287 paragraphs added · 305 removed · 232 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeSeasonal 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.
Biggest changeThe fourth quarter, including the holiday season, typically accounts for approximately 40% of our Net Sales and is our most profitable quarter. Accordingly, cash requirements are highest in the third quarter as our inventories build in advance of the holiday season.
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.
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 completed all remaining separation activities in 2024.
In 2023, we continued our focus on ensuring associate well-being by opening a wellness center in our Columbus, Ohio headquarters, which provides accessible, low-cost medical care, physical therapy and an on-site pharmacy to our associates, and by expanding our employee assistance program to all seasonal associates.
In 2024, we continued our focus on ensuring associate well-being by promoting our wellness center in our Columbus, Ohio headquarters, which provides accessible, low-cost medical care, physical therapy and an on-site pharmacy to our associates, and by expanding our employee assistance program to all seasonal associates.
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.
We continue to leverage 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.
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.
Additional Information 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.
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 an environment that is focused on delivering exceptional fragrances and experiences to our customers.
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.
Loyalty Program Our loyalty program is a critical tool for engaging with our customers and meeting them where they are. As of February 1, 2025, we had approximately 39 million active members of our loyalty program.
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 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.
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.
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. These strategic vendor relationships provide deep capabilities across our product categories.
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.
In addition, our store leaders earn monthly bonuses based on performance. The emphasis on overall Company performance is intended to align the associates’ financial interests with the interests of our stockholders. 5 Table of Contents 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.
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”).
In connection with the IT separation from Victoria’s Secret, 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”).
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 continue to actively manage our inventory to adjust for anticipated channel shifts and product category shifts. 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.
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 following table provides the number of our Company-operated retail stores as of February 1, 2025 and February 3, 2024: February 1, 2025 February 3, 2024 United States 1,782 1,739 Canada 113 111 Total 1,895 1,850 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 2024 1,850 106 (61) 1,895 2023 1,802 95 (47) 1,850 2022 1,755 95 (48) 1,802 Over time, we expect low-single digit annual increases in North American square footage.
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.
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. Patent and Trademark Office and with the registries of many foreign countries and/or are protected by common law.
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.
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, Ford Motor Company, CVS Health, Merck, Madewell, J.Crew, Carter’s, Hasbro and Mattel.
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.
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 2024, nearly 80% of our U.S. sales came from our loyalty members, and our loyalty members continue to outperform non-loyalty members, leading to increased spend, trips, cross-channel purchases and higher retention.
Our 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 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 1, 2025 and February 3, 2024: February 1, 2025 February 3, 2024 International 494 454 International - Travel Retail 35 31 Total (a) 529 485 ________________ (a) Includes store locations only and does not include kiosks, shop-in-shops, gondola or beauty counter locations.
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.
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, equal employment opportunities and the Company’s executive compensation programs. In addition, our Board oversees the talent review and succession planning process for our Chief Executive Officer and other senior level critical roles.
The following table includes demographic information related to the full-time status or part-time status (which are associates who work less than 40 hours a week) of our associates as of February 3, 2024: Work Status Number of Associates Full-time 8,981 Part-time 48,176 Total 57,157 Focus on Inclusion We champion workplace diversity and an inclusive work environment with a focus on attracting, engaging, developing and advancing talent equitably in order to reflect the customers we serve and the communities where we live and work.
The following table includes demographic information related to the full-time status or part-time status (which are associates who work less than 40 hours a week) of our associates as of February 1, 2025: Work Status Number of Associates Full-time 8,975 Part-time 50,235 Total 59,210 Focus on Inclusion We champion an inclusive work environment with a focus on attracting, engaging and developing talent.
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.
This facility has 1.1 million square feet of space and state-of-the-art fulfillment capabilities to support our direct business (also referred to as digital or e-commerce) and enhanced fulfillment capabilities for our business. Finally, we also utilize third party-operated direct channel fulfillment centers throughout North America to support our needs.
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).
Our largest vendor supplied approximately 15% of our total merchandise purchases (on a dollar basis) during 2024, while no other single vendor accounted for more than 10% of our merchandise purchases (on a dollar basis). Our five largest vendors supplied approximately 40% of our total merchandise purchases (on a dollar basis) on a combined basis during 2024.
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.
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.
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.
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. 2 Table of Contents 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.
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.
As of February 1, 2025, our merchandise was sold through 1,895 Company-operated stores and e-commerce sites in the United States of America (“U.S.”) and Canada, and in 529 stores and 31 e-commerce sites in more than 45 other countries operating under franchise, license and wholesale arrangements.
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.
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 global leader in personal care and home fragrance making the world a brighter, happier place through the power of fragrance.
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.
By continuing to encourage and support a workplace environment where inclusion is valued, we believe we can serve our customers better, as well as attract and retain highly talented associates. We also strive to give all our team members access to opportunities, which includes career advancement opportunities and competitive wages.
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.
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. In addition, we operate a leased direct channel fulfillment center located near Columbus, Ohio.
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.
Real Estate Company-operated Stores We have a diversified store portfolio in the U.S. and Canada across venue tiers and types, and as a result of our strong brand and established retail presence, have been able to lease high-traffic locations in most retail centers in which we operate.
Accordingly, cash requirements are highest in the third quarter as our inventories build in advance of the holiday season. Working Capital We fund our business operations through a combination of available cash and cash equivalents and cash flows generated from operations. In addition, our credit facility is available for additional working capital needs and investment opportunities.
Working Capital We fund our business operations through a combination of available cash and cash equivalents and cash flows generated from operations. In addition, our credit facility is available for additional working capital needs and investment opportunities. 4 Table of Contents Regulation We and our products are subject to regulation by various federal, state, local and foreign regulatory authorities.
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.
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. Human Capital Management Human Capital At Bath & Body Works, our purpose goes beyond selling product.
Accordingly, we intend to maintain our intellectual property and related registrations and vigorously protect our intellectual property assets against infringement. Competition The sale of home fragrance, body care and soap and sanitizer products is a highly competitive business with numerous competitors, including individual and chain specialty stores, department stores, online retailers and discount retailers.
Competition The sale of home fragrance, body care and soap and sanitizer products is a highly competitive business with numerous competitors, including individual and chain specialty stores, department stores, online retailers and discount retailers. Brand image, presentation, marketing, design, price, service, fulfillment, assortment and quality are the principal competitive factors.
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.
We offer a breadth of exclusive fragrances for the body and home, including top-selling collections for 3-wick candles, home fragrance diffusers, fine fragrance mists, liquid hand soaps, body lotions and body creams.
Our pay for performance philosophy includes participation of our store leaders and all salaried associates in home office and distribution and fulfillment centers in our short-term cash incentive compensation program. In addition, our store leaders earn monthly bonuses based on performance.
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. Our pay for performance philosophy includes participation of our store leaders and all salaried associates in home office and distribution and fulfillment centers in our short-term cash incentive compensation program.
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.
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 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 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.
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. In 2024, we successfully transitioned to become a predominantly off-mall retailer with 57% of our North American store fleet located in off-mall locations as of February 1, 2025.
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.
During 2024, we opened 106 new North American stores, nearly all in off-mall locations, and permanently closed 61 stores, predominantly in malls, which, when combined with store remodel activity, resulted in net square footage growth of 3%. In 2025, we expect North American square footage growth of between 2% and 3%.
Patent and Trademark Office and with the registries of many foreign countries and/or are protected by common law. We believe our products are identified by our intellectual property and our intellectual property is an integral tool in protecting innovation. Thus, we believe our intellectual property is of significant value.
We believe our products are identified by our intellectual property and our intellectual property is an integral tool in protecting innovation. Thus, we believe our intellectual property is of significant value. Accordingly, we intend to maintain our intellectual property and related registrations and vigorously protect our intellectual property assets against infringement.
Approximately 95% of our associates work in our stores, with the remainder working in our home office or distribution and fulfillment centers.
Workforce Demographics As of February 1, 2025, we employed approximately 59,200 associates, none of whom were covered by a collective bargaining agreement. Approximately 94% of our associates work in our stores, with the remainder working in our home office or distribution and fulfillment centers.
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.
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.
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.
In our pursuit of accelerating top-line growth, we are focused on product innovation, marketing and technology, while also extending our reach through adjacencies and international expansion. Foundational to these growth drivers is the creation of great products and continuing to deliver innovation, newness and elevated experiences for our customers.
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.
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 2024, we added “Gingham Genius,” an artificial intelligence-powered tool that helps customers find their perfect fragrance, product or gift.
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.
In 2024, we launched collaborations with leading brands in pop culture through partnerships and plan to continue to build upon this strategy in 2025. 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.
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.
As a result, “2024” refers to the 52-week period ended February 1, 2025, “2023” refers to the 53-week period ended February 3, 2024 and “2022” refers to the 52-week period ended January 28, 2023.
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.
Throughout this Annual Report on Form 10-K, we refer to Bath & Body Works, Inc. as “we” and the “Company.” Fiscal Year We utilize the retail calendar for reporting and our fiscal year ends on the Saturday nearest to January 31.
In addition, we introduced DailyPay for our associates in distribution and fulfillment centers that provides earlier access to their earned wages as needed. The Company plans to introduce DailyPay for its store associates during fiscal 2024. Bath & Body Works Associates for Associates (“A4A”) allows associates to contribute funds that are matched by the Bath & Body Works Foundation.
In addition, we expanded DailyPay from our distribution and fulfillment centers to include our associates in stores. DailyPay provides earlier access to associates’ earned wages as needed. As part of our caring culture, our associates help fellow associates going through extreme personal hardships through the Bath & Body Works Associates for Associates Emergency Fund (“A4A”).
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We intend to transform an already strong foundation into a leading global omnichannel personal care and home fragrance brand.
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For more than 30 years, customers have looked to Bath & Body Works for quality, on-trend products and the newest, freshest fragrances which has positioned us as a global leader in personal care and home fragrance. We sell home fragrance, body care and soap and sanitizer products under the Bath & Body Works®, White Barn® and other brand names.
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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.
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Strategic Priorities Our management team is focused on strengthening our operational foundation while building a platform for sustained success to deliver top- and bottom-line growth and long-term shareholder value.
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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 key strategic priorities include: • Accelerating top-line growth; • Enhancing operational excellence and efficiency through disciplined cost management and a continuous improvement mindset; and • Strengthening our financial position through strong cash flow generation and disciplined capital allocation, ensuring we invest for growth while delivering returns to shareholders.
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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 are continuously offering innovation and newness to customers through compelling product introductions paired with exciting marketing activities. During 2024, we rolled out Everyday Luxuries, our prestige-inspired line of fine fragrance mists, and we view it as a platform to drive long-term growth and expect to expand the collection in 2025.
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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 also believe that adjacencies are an opportunity to expand our product portfolio, applying our fragrance expertise and leadership to large addressable markets.
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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.
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Another key element across our core business is collaborations, which allow us to deliver highly differentiated storytelling that generates top-of-mind brand awareness with existing and new customers, drive traffic and 1 Table of Contents enhance our cultural relevancy.
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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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During 2024, we created a new store design type called Gingham+, which is a refreshed in-store experience that is highly customer-centric and creates an easy and seamless shopping experience. This new format, which we have adopted for all new and renovated stores, has resonated very well with our customers and yielded operational efficiencies.
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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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Additionally, our buy online pick up in store (“BOPIS”) option continues to grow as our customers appreciate the convenience. As we look forward, we are investing in the capabilities to allow for greater capacity and efficiencies, including additional storage and technology enhancements.
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Our White Barn store design has demonstrated potential to increase sales and profitability, as White Barn locations typically experience increased sales and traffic following completion of the remodel.
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We have updated the quantity selector to create a more seamless shopping experience and expanded our targeted offers and products to increase conversion. Lastly, we have adopted a real-time abandon cart email that alerts customers right away when they leave product in carts to enable a quick purchase.
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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.
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During 2024, our reward redemption rate increased, reflecting the strength of the program. We have planned enhancements to the program in 2025, which we believe will drive further improvements to redemption. Product Development Quality and innovation are at the core of our sourcing strategy.
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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.
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We proactively manage our stores and adjust our investment levels based on individual store and fleet performance.
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Regulation We and our products are subject to regulation by various federal, state, local and foreign regulatory authorities.
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We are continuing our off-mall expansion to limit our exposure to vulnerable mall locations, with a target mix of 75% off-mall over time given continued consumer preference.
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In addition, our Board oversees the talent review and succession planning process for our Chief Executive Officer and other senior level critical roles, which takes into account our progress on our diversity, equity and inclusion (“DEI”) initiatives. Workforce Demographics As of February 3, 2024, we employed approximately 57,200 associates, none of whom are covered by a collective bargaining agreement.
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Additionally, our partners operated 31 international e-commerce sites as of February 1, 2025, compared to 28 as of February 3, 2024. Merchandise Vendors During 2024, we purchased merchandise from approximately 100 vendors, primarily located in the U.S.
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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.
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Our technology roadmap remains on-track, as we enhance our systems and put in place foundational tools to enable more personalization and seamless customer engagement to drive long-term growth. 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).
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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.
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Administered by the Columbus Foundation with funds donated by associates and matched by the Bath & Body Works Foundation, A4A provides monetary aid and/or make community resources available to associates facing crisis, such as fire destruction, a serious medical condition or a natural disaster. During 2024, the A4A fund awarded over $585,000 in grants to over 400 associates.
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In 2023, we achieved associate pay equity for women at $1.00 and people of color at $0.99 (amounts are relative to $1.00 in pay of what men were paid for similar work) as we strive to pay for performance without bias on gender, race and ethnicity.
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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.
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A4A supports fellow associates who experience a financial hardship resulting from an unexpected emergency, such as a large-scale natural disaster, house fire, injury or death of an immediate family member. During 2023, the A4A fund awarded over $400,000 in grants to over 250 associates.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe retail industry is highly competitive. We compete for sales with a broad range of other retailers, including individual and chain specialty stores, department stores and discount retailers. In addition to the traditional store-based retailers, we also compete with direct marketers or retailers that sell similar lines of merchandise and who target customers through online channels.
Biggest changeIn addition to the traditional store-based retailers, we also compete with direct marketers or retailers that sell similar lines of merchandise and who target customers through online channels. Brand image, marketing, design, price, service, assortment, quality, innovation, image presentation and fulfillment are all competitive factors in both the store-based and online channels.
Management’s Discussion and Analysis of Financial Condition and Results of Operation and Item 8. Financial Statements and Supplementary Data. In addition to the other information set forth in this report, the reader should carefully consider the following factors which could materially affect our business, results of operations, financial condition or cash flows.
Management’s Discussion and Analysis of Financial Condition and Results of Operation and Item 8. Financial Statements and Supplementary Data. In addition to the other information set forth in this report, the reader should carefully consider the following factors which could materially affect our business, results of operations, financial condition and/or 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.
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), the risks of which may be 15 Table of Contents 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.
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.
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 have been deliberations in the U.S.
These privacy laws broadly govern the entire lifecycle of personal information, enumerating principles that govern accountability; purpose; consent; assessment; privacy by default; limitations on collection, use, disclosure and retention; accuracy; safeguards; transparency; data rights of access, correction and deletion; and complaint-handling. Certain of the laws also contain a mandatory breach notification regime.
These data privacy laws broadly govern the entire lifecycle of personal information, enumerating principles that govern accountability; purpose; consent; assessment; privacy by default; limitations on collection, use, disclosure and retention; accuracy; safeguards; transparency; data rights of access, correction and deletion; and complaint-handling. Certain of the laws also contain a mandatory breach notification regime.
Risks 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.
Risks 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, tariffs, 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, standards, technology platform rules or other requirements related to data privacy and cybersecurity; • our ability to comply with regulatory requirements; • legal and compliance matters; and • tax, trade and other regulatory matters.
Sales volume and retail traffic may be adversely affected by factors that we cannot control, such as economic downturns, including due to inflationary pressures, or changes in consumer demographics in a particular area, consumer trends away from brick-and-mortar retail toward online shopping, competition from internet and other retailers and other retail areas where we do not have stores, significant health hazards or pandemics, the closing of other stores or the decline in popularity or safety in the shopping areas where our stores are located and the deterioration in the financial condition of the operators or developers of the shopping areas in which our stores are located.
Sales volume and retail traffic may be adversely affected by factors that we cannot control, such as economic downturns, including due to inflationary or tariff pressures, or changes in consumer demographics in a particular area, consumer trends away from brick-and-mortar retail toward online shopping, competition from internet and other retailers and other retail areas where we do not have stores, significant health hazards or pandemics, the closing of other stores or the decline in popularity or safety in the shopping areas where our stores are located and the deterioration in the financial condition of the operators or developers of the shopping areas in which our stores are located.
Any decrease in sales or margins during this period could have a material adverse effect on our results of operations, financial condition and cash flows. Seasonal fluctuations also affect our cash and inventory levels, since we usually order merchandise in advance of peak selling periods and sometimes before new trends are confirmed by customer purchases.
Any decrease in sales or margins during this critical period could have a material adverse effect on our results of operations, financial condition and cash flows. Seasonal fluctuations also affect our cash and inventory levels since we usually order merchandise in advance of peak selling periods and sometimes before new trends are confirmed by customer purchases.
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.
Additionally, 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.
We operate stores in all 50 states, Canada and Puerto Rico, which requires us to comply with a myriad of provincial, state and local laws pertaining to all aspects of our business, including our associates and consumers. The trend for states and localities in the United States to legislate in the absence of national laws passed by the U.S.
We operate stores in all 50 states, Canada and Puerto Rico, which requires us to comply with a myriad of provincial, state and local laws pertaining to all aspects of our business, including our associates and consumers. The trend for states and localities in the U.S. to legislate in the absence of national laws passed by the U.S.
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.
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 presence in such markets.
Even if product liability claims are unsuccessful or are not fully pursued, the negative publicity surrounding any assertions could adversely impact our reputation with existing and potential customers and our brand image. Our business could also suffer if our third-party vendors fail to comply with applicable laws and regulations.
Even if product liability claims are unfounded, unsuccessful or are not fully pursued, the negative publicity surrounding any assertions could adversely impact our reputation with existing and potential customers and our brand image. Our business could also suffer if our third-party vendors fail to comply with applicable laws and regulations.
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).
These trends and developments (including tariffs), 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).
Further, we may have difficulty replacing these third-party service providers and there can be no assurance we can do so in a timely manner or on terms favorable to us. The satisfaction of our direct channel customers depends on their timely receipt of merchandise.
Further, we may have difficulty replacing these third-party service providers and there can be no assurance we can do so in a timely manner or on terms favorable to us. The satisfaction of our direct channel customers also depends on their timely receipt of merchandise.
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.
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 and/or technology failures, malicious human acts, human errors and natural disasters.
In addition, such requirements may require us to modify our data processing practices and policies and distract management or divert resources from other initiatives and projects, all of which could have a material adverse effect on our results of operations, financial condition and cash flows.
In addition, such requirements may require us to modify our data processing or cybersecurity practices and policies and distract management or divert resources from other initiatives and projects, all of which could have a material adverse effect on our results of operations, financial condition and cash flows.
Other risks include general economic conditions in specific countries or markets, reliance on franchise partners, service providers and other distribution-related partners that we do not control, volatility in the geopolitical landscape (including social and ethnic unrest, military conflicts and terrorism), anti-American sentiment, foreign governmental regulation and enforcement (including the risks of operating in markets in which there are uncertainties regarding the interpretation and enforceability of legal requirements and the enforceability of contract rights and intellectual property rights), legal actions, disruptions or delays in shipments, restrictions on the repatriation of funds held internationally, occurrence of significant health hazards or pandemics, changes in diplomatic and trade relationships and political instability.
Other risks include general economic conditions in specific countries or markets, reliance on franchise partners, service providers and other distribution-related partners that we do not control, volatility in the geopolitical landscape (including social and ethnic unrest, military conflicts and terrorism), anti-American sentiment, foreign governmental regulation and enforcement (including the risks of local tariffs and operating in markets in which there are uncertainties regarding the interpretation and enforceability of legal requirements and the enforceability of contract rights and intellectual property rights), legal actions, disruptions or delays in shipments, restrictions on the repatriation of funds held internationally, occurrence of significant health hazards or pandemics, changes in diplomatic and trade relationships and political instability.
The departure of key personnel can result in the loss of significant knowledge and experience. This loss of knowledge and experience can be mitigated through successful internal succession planning or external hiring and transition, but there can be no assurance that we will be successful in such efforts.
The departure of key personnel can result in the loss of significant knowledge and experience. This loss of knowledge, expertise and experience can be mitigated through successful internal succession planning or external hiring and transition, but there can be no assurance that we will be successful in such efforts.
For example, during 2022 and 2023, the global economy was negatively impacted by high inflation rates, which has resulted in higher prices that have negatively impacted and may continue to negatively impact consumer demand.
For example, during 2022, 2023 and 2024, the global economy was negatively impacted by high inflation rates, which has resulted in higher prices that have negatively impacted and may continue to negatively impact consumer demand.
Following the substantial completion of our information technology separation from Victoria’s Secret in the second quarter of 2023, we have undertaken the IT Transformation Project, a multi-year project to significantly upgrade our digital and information technology systems and capabilities 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, enhance the security of and otherwise reduce risks associated with our IT systems, streamline our information technology operations and enable us to work more efficiently.
Following the substantial completion of our information technology separation from Victoria’s Secret in 2023, we have undertaken the IT Transformation Project, a multi-year project to significantly upgrade our digital and information technology systems and capabilities 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, enhance the security of and otherwise reduce risks associated with our IT systems, streamline our information technology operations and enable us to work more efficiently.
Among other things, the CCPA requires covered companies to provide new disclosures to California consumers and provide such consumers data protection and privacy rights, including the ability to opt out of certain disclosures of their personal information and the ability to access and delete personal information.
Among other things, the CCPA requires covered companies to provide disclosures to California consumers and provide such consumers data protection and privacy rights, including the ability to opt out of certain disclosures of their personal information and the ability to access and delete personal information.
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.
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, tariffs 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; 12 Table of Contents • disruption due to labor disputes; and • changing expectations regarding product safety due to new laws or regulations or other factors.
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.
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, severe weather, 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.
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.
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, tariffs, consumer confidence, consumer spending patterns, significant health hazards or pandemics, severe weather or other market disruptions.
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.
In the U.S., data privacy and 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 data privacy and cybersecurity and have prioritized data privacy and cybersecurity-related violations for enforcement actions.
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.
If we fail to 17 Table of Contents 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.
These risks could have a material adverse effect on our ability to grow and our results of operations, financial condition and cash flows. Our continued growth and success depends in part on new store openings and existing store remodels and expansions.
These risks could have a material adverse effect on our ability to grow and our results of operations, financial condition and cash flows. Our continued growth and success depend in part on new store openings and existing store remodels and expansions.
Any failure or perceived failure by us or our partners to comply with any applicable federal, state or similar foreign laws and regulations relating to privacy and data security could result in damage to our reputation and our relationship with our customers, as well as proceedings or litigation by governmental agencies or customers, including class action privacy and data-protection litigation in certain jurisdictions, which could subject us to significant fines, sanctions, awards, penalties or judgments, any of which could have a material adverse effect on our results of operations, financial condition and cash flows.
Any failure or perceived failure by us or our partners to comply with any applicable federal, state or similar foreign laws, regulations, standards or rules relating to data privacy and cybersecurity could result in damage to our reputation and our relationship with our customers, as well as proceedings or litigation by governmental agencies or customers, including class- action data-privacy and -protection litigation in certain jurisdictions, which could subject us to significant fines, sanctions, awards, penalties or judgments, any of which could have a material adverse effect on our results of operations, financial condition and cash flows.
We rely on a limited number of vendors (including manufacturers) to supply our inventory. In 2023, our largest vendor supplied approximately 15% of our total merchandise purchases (on a dollar basis) and our largest five vendors in the aggregate supplied approximately 40% of our total merchandise purchases (on a dollar basis).
We rely on a limited number of vendors (including manufacturers) to supply our inventory. In 2024, our largest vendor supplied approximately 15% of our total merchandise purchases (on a dollar basis) and our largest five vendors in the aggregate supplied approximately 40% of our total merchandise purchases (on a dollar basis).
As a result of the UFLPA, materials we import into the U.S. could be held by the CBP based on a suspicion that inputs used in such materials originated from the XUAR or that they may have been produced by Chinese suppliers accused of participating in forced labor, pending our providing satisfactory evidence to the contrary.
Materials we import into the U.S. could be held by the CBP based on a suspicion that inputs used in such materials originated from the XUAR or that they may have been produced by Chinese suppliers accused of participating in forced labor, pending our providing satisfactory evidence to the contrary.
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.
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 16 Table of Contents imposition of large deductible or co-insurance requirements, could have a material adverse effect on our results of operations, financial condition and cash flows.
We may be impacted by our ability to attract, develop and retain qualified associates and manage labor-related costs. We believe one of our competitive advantages is providing positive, engaging and satisfying experiences for our customers, which requires us to have highly trained, engaged and diverse associates.
We may be impacted by our ability to attract, develop and retain qualified associates and manage labor-related costs. We believe one of our competitive advantages is providing positive, engaging and satisfying experiences for our diverse customer base, which requires us to have highly trained, engaged and diverse associates.
Our continued growth and success depends in part on our ability to open and operate new, primarily off-mall stores and expand and remodel existing stores on a timely and profitable basis.
Our continued growth and success depend in part on our ability to open and operate new, primarily off-mall stores and expand and remodel existing stores on a timely and profitable basis.
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.
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.
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.
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.
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.
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 associates, subcontractors, manufacturers, other vendors, licensees, franchisees and other third parties could take actions that violate these laws and regulations.
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.
Risks related to laws and regulations: Changes in laws, regulations, standards, technology platform rules or other requirements relating to privacy and cybersecurity, or any actual or perceived failure by us to comply with such laws, regulations, rules or contractual or other obligations relating to data privacy and cybersecurity, could have a material adverse effect on our reputation, results of operations, financial condition and cash flows.
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.
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, or natural disasters, could disrupt merchandise deliveries and result in lost sales, cancellation charges or excessive markdowns.
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.
These risks could have a material adverse effect on our ability to grow and our results of operations, financial condition and cash flows. Our international operations and our plans for international expansion include risks that could impact our results and reputation.
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.
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, rules and standards in certain international 18 Table of Contents jurisdictions and may be subject to additional international laws, regulations, rules and standards, whether existing or enacted in the future, that apply broadly to the collection, use, retention, security, disclosure, handling transfer and other processing of personal information.
The turnover rate in the retail industry is generally high, and qualified individuals of the requisite caliber and number needed to fill these positions have been in short supply in some areas.
The turnover rate in the retail industry is generally high, and qualified individuals of the requisite caliber and number needed to fill these positions have 8 Table of Contents been in short supply in some areas.
Other states and countries have passed comprehensive data privacy laws that are similar to the CCPA and CPRA, further complicating the legal landscape, and similar bills are making their way through several state legislatures.
Other states and countries have passed omnibus data privacy laws that are similar to the CCPA, further complicating the legal landscape, and similar bills are making their way through several state legislatures.
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.
The legal and regulatory environment related to data privacy and cybersecurity is increasingly rigorous and rapidly evolving, 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.
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.
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 poly-vinyl chloride, cotton, tomatoes and silica-based products.
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.
Any 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.
There can be no assurance we will be able to achieve our store expansion goals, manage our growth effectively, successfully integrate the planned new stores into our operations or operate our new, remodeled and expanded stores profitably.
There can be no assurance we will be able to achieve our store expansion goals, manage our growth effectively, successfully integrate the planned new stores into our operations or operate our new, 9 Table of Contents remodeled and expanded stores profitably.
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.
During periods when economic or market conditions are unsettled or weak, purchases of our products have declined, and may in the future further decline.
Risks related to our common stock: Our stock price may be volatile. Our stock price may fluctuate substantially as a result of variations in our actual or projected performance or the financial performance of other companies in the retail or consumer product industries.
Risks related to our common stock: Our stock price may be volatile. Our stock price has fluctuated and may continue to fluctuate substantially as a result of variations in our actual or projected performance or the financial performance of other companies in the retail or consumer product industries.
If we are unable to successfully anticipate, identify or react to changing preferences or trends, we misjudge the market for our products or any new product lines, or our launches or expansions of new product lines are unsuccessful, we may not be able to achieve the growth in our business that we currently anticipate.
Customer demands and trends change rapidly. If we are unable to successfully anticipate, identify or react to changing preferences or trends, we misjudge the market for our products or any new product lines, or our launches or expansions of new product lines are unsuccessful, we may not be able to achieve the growth in our business that we currently anticipate.
Such risks include, but are not limited to, the difficulty in recreating the in-store experience through our direct channels; domestic or international large scale buyers and resellers purchasing merchandise and reselling it outside our control; our ability to anticipate and implement innovations in technology and logistics in order to appeal to existing and potential customers who increasingly rely on multiple channels to meet their shopping needs; legal and regulatory developments associated with digital, data, analytics, communications and ad-targeting practices (including, without limitation, the use of technologies and third-party services to personalize customer experiences); risks associated with increases in order fulfillment logistics costs; and the failure of and risks related to the resources that underlay and support the operation of our and our third-party partners’ web infrastructure, websites and the related support systems, including computer viruses, malware (including, without limitation, ransomware), unauthorized access to and theft of customer information, privacy violations, fraudulent branded phishing sites impersonating our direct channel, ad scams causing customer confusion, information technology and vendor system failures, deepfakes and other malicious uses of artificial intelligence, disruption of critical services caused by threat actors and similar disruptions.
Such risks include, but are not limited to, the difficulty in recreating the in-store experience through our direct channels; domestic or international large scale buyers and resellers purchasing merchandise and reselling it outside our control; resellers competing against us on domestic or international platforms where we legitimately sell our goods, or competition on marketplaces; our ability to anticipate and implement innovations in technology and logistics in order to appeal to existing and potential customers who increasingly rely on multiple channels to meet their shopping needs; legal and regulatory developments associated with digital, data, analytics, artificial intelligence, communications and ad-targeting practices (including, without limitation, the use of technologies and third-party services to personalize or create concierge-like customer experiences); risks associated with increases in order fulfillment logistics costs; risks associated with the level of support provided by third party partners’ web infrastructure, websites and related support systems; and the failure of and risks related to the resources that underlay and support the operation of our and our third-party partners’ web infrastructure, websites and the related support systems, including computer viruses, malware (including, without limitation, ransomware), unauthorized access to and theft of customer information, privacy violations, fraudulent branded phishing sites impersonating our direct channel, ad scams causing customer confusion, information 10 Table of Contents technology and vendor system failures, deepfakes and other malicious uses of artificial intelligence, disruption of critical services caused by threat actors and similar disruptions.
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.
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 (including as may be exacerbated by climate change), demographic and population changes and other unforeseen events and circumstances.
In Canada, we are subject to the Personal Information Protection and Electronic Documents Act (“PIPEDA”) as well as substantially similar provincial privacy laws (e.g., Quebec’s Law 25, which became effective in September 2023).
In Canada, we are subject to the Personal Information Protection and Electronic Documents Act (“PIPEDA”) as well as substantially similar provincial privacy laws (e.g., Quebec’s Law 25).
The conflict has affected, and may continue to affect, our business and operations as a result of, among other things, the economic consequences and disruptions from such conflict, supply chain availability, consumer boycotts of Western brands, and consumer reaction to perceived acts or failures to act by us or our franchise partners including commencing and/or maintaining operations in countries or regions that are linked to such conflicts.
For example, the conflict in the Middle East has resulted in unpredictable conditions in the region and around the world, and has affected, and may continue to affect, our business and operations as a result of, among other things, the economic consequences and disruptions from such conflict, supply chain availability, consumer boycotts of Western brands, and consumer reaction to perceived acts or failures to act by us or our franchise partners including commencing and/or maintaining operations in countries or regions that are linked to such conflicts.
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.
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 U.S. and Canadian laws and changes in those laws.
We are further subject to omnibus privacy and data protection laws. For example, the California Consumer Privacy Act (“CCPA”) broadly governs data privacy practices, increases privacy rights for California residents and imposes obligations on companies that process their personal information.
We are further subject to omnibus data privacy and protection laws. For example, the California Consumer Privacy Act, as amended by the California Privacy Rights Act (collectively, the “CCPA”), broadly governs data privacy practices, increases privacy rights for California residents and imposes obligations on companies that process their personal information, including certain sensitive personal information.
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 Uyghur Forced Labor Prevention Act (“UFLPA”) imposes 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.
These actions, legislation and developments could have a material adverse effect on our results of operations, financial condition and cash flows. ITEM 1B. UNRESOLVED STAFF COMMENTS. None.
These actions, legislation and developments and the response by foreign governments to these actions could have a material adverse effect on our results of operations, financial condition and cash flows. ITEM 1B. UNRESOLVED STAFF COMMENTS. None.
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 a new comprehensive federal data privacy law to which we would become subject if one were to be enacted. Such a law could add complexity, variation in requirements, restrictions and potential legal risk.
We are dependent on certain product categories, and declines in customer demand in these product categories has negatively impacted our results of operations, financial condition and cash flows. Our financial forecasts are dependent on our ability to drive growth through adjacent product categories, including men’s, fragrant haircare, laundry and lip. Customer demands and trends change rapidly.
We are dependent on certain product categories and declines in customer demand in these product categories have negatively impacted, and may in the future impact, our results of operations, financial condition and cash flows. Our financial forecasts are dependent on our ability to drive growth through adjacent product categories, including men’s, fragrant haircare, laundry and lip.
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.
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.
The GDPR, together with national legislation, regulations and guidelines of the EEA states and the U.K. governing the processing of personal data, impose strict obligations and restrictions on the ability to collect, use, retain, protect, disclose, transfer and otherwise process personal data, and other international jurisdictions are expected to pass similar laws that may include even more stringent requirements.
GDPR governing the processing of personal data, impose strict obligations and restrictions on the ability to collect, use, retain, protect, disclose, handle, transfer and otherwise process personal data, and other international jurisdictions are expected to pass similar laws that may include even more stringent requirements.
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.
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, associates in our home office, distribution and fulfillment centers and key product and support talent.
We are, and may increasingly become, subject to various laws, directives, industry standards and regulations, as well as contractual obligations, relating to privacy and data security in the jurisdictions in which we operate and may in the future operate.
We are, and may increasingly become, subject to various laws, directives, industry standards, rules and regulations, as well as contractual obligations, relating to data privacy and cybersecurity (including the use of artificial intelligence) in the jurisdictions in which we operate and may in the future operate.
In addition, future domestic and international legislative and regulatory efforts to combat climate change or other environmental considerations could result in increased regulation and additional taxes and other expenses in a manner that adversely affects our business, financial performance and growth.
Congress has greatly increased the complexity of legal compliance for us. In addition, future domestic and international legislative and regulatory efforts to combat climate change or other environmental considerations could result in increased regulation and additional taxes and other expenses in a manner that 19 Table of Contents adversely affects our business, financial performance and growth.
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.
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.
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.
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.
Competition for such qualified individuals and changes in labor and healthcare laws have caused us to incur higher labor 8 Table of Contents costs, and such increases in labor costs could continue in the future.
Competition for such qualified individuals and shifts in the labor market, including availability of skilled talent, and continued changes and complexity in labor and healthcare laws have caused us to incur higher labor costs, and such increases in labor costs could continue in the future.
We have global brand exposure through digital sites and stores independently owned and/or operated by our franchise partners and other distribution-related partners.
Our licensees, franchisees, wholesalers and other distribution-related partners could take actions that could harm our business or brand images. We have global brand exposure through digital sites and stores independently owned and/or operated by our franchise partners and other distribution-related partners.
Any harm to our reputation resulting from setting these metrics, targets and goals or expanding our disclosure or our failure, or perceived failure, to meet such metrics, targets and goals could adversely affect our business, financial performance and growth.
Setting these targets and goals or expanding or adjusting our disclosure or our failure, or perceived failure, to meet or properly adjust such targets and goals could adversely affect our reputation and, as a result, our business, financial performance and growth.
If any third party copies our products, our or our partners' websites or our or our partners' stores in a manner that projects lesser quality or carries a negative connotation, it could have a material adverse effect on our brand image and reputation as well as our results of operations, financial condition and cash flows.
If any third party copies our products, our or our partners’ websites or our or our partners’ stores in a manner that projects lesser quality or carries a negative connotation, it could have a material adverse effect on our brand image and reputation as well as our results of operations, financial condition and cash flows. 11 Table of Contents Third parties may assert rights in or ownership of our trademarks and other intellectual property rights, or trademarks that are similar to our trademarks, or claim that we are infringing, misappropriating or otherwise violating their intellectual property rights.
Congress has greatly increased the complexity of legal compliance for us. It may be difficult for us to comply with these laws, compliance may be costly and compliance and associated costs may negatively impact our operations. We may be adversely impacted by certain compliance or legal matters.
It may be difficult for us to comply with these laws, compliance may be costly and compliance and associated costs may negatively impact our operations. We may be adversely impacted by certain compliance or legal matters. We, along with third parties we do business with, are subject to complex compliance and litigation risks.
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.
Compounding these risks is the complexity of our information systems, which are a collection of our and our third-party service providers’ systems.
We may be unable to successfully resolve these types of conflicts to our satisfaction and may be required to enter into costly license agreements, be required to pay significant royalties, settlement costs or damages, be required to rebrand our products and/or be prevented from selling some of our products. 11 Table of Contents Our ability to compete favorably in our highly competitive segments of the retail industry could impact our results of operations, financial condition and cash flows.
We may be unable to successfully resolve these types of conflicts to our satisfaction and may be required to enter into costly license agreements, be required to pay significant royalties, settlement costs or damages, be required to rebrand our products and/or be prevented from selling some of our products.
See “Fluctuations in foreign currency exchange rates could impact our results of operations, financial condition and cash flows” below. All of the above risks could have a material adverse effect on our results of operations, financial condition and cash flows. Our licensees, franchisees, wholesalers and other distribution-related partners could take actions that could harm our business or brand images.
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 results of operations, financial condition and cash flows” below. All of the above risks could have a material adverse effect on our results of operations, financial condition and cash flows.
We rely to a greater degree than some of our competitors on physical locations in retail centers. Therefore, declines in traffic to such locations may affect us more significantly than our competitors. Some of our competitors sell their products in stores that are located in the same retail centers as our stores.
Some of our competitors may have greater financial, marketing and other resources available and trends across our product categories may favor our competitors. We rely to a greater degree than some of our competitors on physical locations in retail centers. Therefore, declines in traffic to such locations may affect us more significantly than our competitors.
In addition to competing for sales, we compete for favorable site locations and lease terms in retail centers.
Some of our competitors sell their products in stores that are located in the same retail centers as our stores. In addition to competing for sales, we compete for favorable site locations and lease terms in retail centers.
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.
Increased scrutiny of ESG initiatives by public, regulatory, investor and other stakeholders, including U.S. and foreign governmental agencies, may put pressure on us to adjust our disclosures in these areas, and make adjustments to our commitments, targets, or goals and take actions to meet or address such adjustments, which could expose us to market, operational, regulatory, legal and execution costs or risks.
In response, we may be forced to increase our marketing promotions or price markdowns and potentially discontinue a product line. These risks could have a material adverse effect on our brand image and reputation as well as our results of operations, financial condition and cash flows.
In response, we may be forced to increase our marketing, promotions or price markdowns and potentially discontinue a product line.
Similarly, the European Union's (“EU”) General Data Protection Regulation (“GDPR”) greatly increased the European Commission’s jurisdictional reach of its laws and added a broad array of requirements for handling personal data. Further, the GDPR serves and has served as a model for other jurisdictions’ data protection laws, including without limitation, the U.K.’s Data Protection Act of 2018.
Similarly, the European Union’s (“EU”) General Data Protection Regulation (“GDPR”) imposes strict data privacy and cybersecurity requirements for handling personal data. Further, the GDPR was transposed into U.K. law (“U.K. GDPR”) as supplemented by the U.K.’s Data Protection Act of 2018, which currently imposes the same obligations as the GDPR in most material respects.
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For example, the conflict in the Middle East has resulted in unpredictable conditions in the region and around the world.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeThe Company considers the following factors, among others, during its risk and control implementation assessments: the likelihood and severity of the risk; the impact on the Company, the Company’s customers, associates and stockholders, and others if a risk materializes; the feasibility and cost of controls; and the impact of controls on operations and others. 20 Table of Contents The Company’s information security program currently includes the following controls, which are deployed as the Company deems applicable: • endpoint threat detection and response; • identity and access management; • privileged access management; • logging and monitoring involving the use of security information and event management; • multi-factor authentication; • firewalls and intrusion detection and prevention; • web application firewalls and bot security tools; and • vulnerability and patch management.
Biggest changeThe Company’s information security program currently includes the following security measures and controls, which are deployed as the Company deems applicable: • endpoint threat detection and response; • identity and access management; • privileged access management; • logging and monitoring involving the use of security information and event management; • multi-factor authentication; • firewalls and intrusion detection and prevention; • web application firewalls and bot security tools; and • vulnerability and patch management. 20 Table of Contents All of the Company’s office-based associates and certain distribution and fulfillment center associates undergo mandatory security awareness training at the time of hiring and on an annual basis thereafter.
The Company’s Audit Committee oversees the Company’s information security program at the Board level.
The Audit Committee oversees the Company’s information security program at the Board level.
The Company, like many retailers, relies upon third-party service providers, such as payment processors and network providers, that have faced risks from threat actors and cybercriminal groups that seek to steal payment card data, consumer data, and other sensitive information; disrupt critical information technology systems; and/or demand ransom payments.
The Company, like many retailers, relies upon third-party service providers, such as payment processors, network providers and application providers, that have faced risks from threat actors and cybercriminal groups that seek to steal payment card data, consumer data, and other sensitive information; disrupt critical information technology systems; and/or demand ransom payments.
Under the information security program, the Company performs one or more cyber risk assessments each year based on recognized industry best practices and standards and cyber threat intelligence. The risk assessments, together with risk-based analysis and judgment, are used to determine security controls to address identified risks.
Under the information security program, the Company performs one or more cyber risk assessments each year based on recognized industry best practices and standards and cyber threat intelligence. The risk assessments, together with risk-based analysis and judgment, are used to determine security measures and controls to address identified risks.
As described above, the Company maintains an information security incident response plan that includes processes and procedures for evaluating and escalating cybersecurity incidents to, as determined to be appropriate, the Company’s executive management team and members of the Board.
As described above, the Company maintains an information security incident response plan that includes processes and procedures for evaluating and escalating cybersecurity threats and incidents to, as determined to be appropriate, the Company’s executive management team and members of the Board.
Based on the severity classification assigned by the core team, incidents may be escalated to representatives of the Company’s executive management team (which includes the Company’s Disclosure Committee), the Chairs of the Board and the Audit Committee, other members of the Audit Committee and/or the full Board.
Based on the severity classification assigned by the core team, incidents may be escalated to, as applicable, representatives of the Company’s executive management team (which includes the Disclosure Committee), the Chairs of the Board and the Audit Committee, other members of the Audit Committee and/or the full Board.
ITEM 1C. CYBERSECURITY The Company has developed an information security program to address material risks from cybersecurity threats, which is integrated within our overall enterprise risk management program. The program includes policies and procedures that identify how security measures and controls are developed, implemented and maintained.
ITEM 1C. CYBERSECURITY The Company has developed an information security program to address material risks from cybersecurity threats and incidents, which is integrated within its overall enterprise risk management program. The program includes policies and procedures that identify how security measures and controls are developed, implemented and maintained.
The Company’s Chief Information Security Officer (“CISO”) is the member of the Company’s management team with primary responsibility for the development, operation and maintenance of the Company’s information security program. The CISO holds a master of science degree in information assurance and has approximately 24 years of cybersecurity experience with Fortune 500 financial, defense, consulting and retail companies.
The Company’s Chief Information Security Officer (“CISO”) is the member of the management team with primary responsibility for the development, operation and maintenance of the Company’s information security program. The CISO holds a master of science degree in information assurance and has over 20 years of cybersecurity experience with Fortune 500 financial, defense, consulting and retail companies.
Although the Company has implemented controls to address these risks, if these risks were to materialize, such as in the event of a cybersecurity incident causing the networks of a third-party payment processor to not be operational, the impact to the Company could be material.
Although the Company has implemented security measures and controls designed to address these risks, if these risks were to materialize, such as in the event of a cybersecurity incident causing the networks of a third-party payment processor to not be operational, the impact to the Company could be material.
The initial impact level of each cybersecurity event is evaluated by a designated team of information security specialists using risk criteria that have been defined and approved by the Company’s executive management team and reviewed with the Company’s Audit Committee.
The initial impact level of each cybersecurity threat or incident is evaluated by a designated team of information security specialists using risk criteria that have been defined and approved by the Company’s executive management team and reviewed with the Audit Committee.
Cybersecurity incidents are assigned incident impact levels based on the core team’s determination of potential impact to the Company. The core team employs defined risk criteria to classify incidents and escalate incidents accordingly.
Cybersecurity threats and incidents are assigned incident impact levels based on the core 21 Table of Contents team’s determination of potential impact to the Company. The core team employs defined risk criteria to classify incidents and escalate incidents accordingly.
The Audit Committee, which is composed entirely of independent members of the Board, receives reports directly from the CISO at least twice per year regarding the Company’s cybersecurity program, including reports regarding items such as cybersecurity policies and practices, cybersecurity program resources, third-party 21 Table of Contents assessments of the Company’s information security program, key risks related to the Company’s information security program and the Company’s mitigating controls.
The Audit Committee, which is composed entirely of independent members of the Board, receives reports directly from the CISO at least three times per year regarding the Company’s information security program, including reports regarding items such as cybersecurity policies and practices, cybersecurity program resources, third-party assessments of the Company’s information security program, key risks related to the Company’s information security program and the Company’s security measures and controls.
As part of the Company’s overall enterprise risk management program, the Company has developed business continuity and disaster recovery plans, which include measures to respond to potential disruptions to our information technology systems (or information technology systems of third parties on which we rely).
As part of the Company’s overall enterprise risk management program, the Company has developed business continuity and disaster recovery plans, which include measures designed to respond to potential disruptions to its information technology systems (or information technology systems of third parties on which it relies).
If escalated, the incident is evaluated by a cross-functional core and extended team, as applicable, of Company managers that includes the Company’s CISO and the Company’s designated internal legal counsel, as well as identified associates from across the Company’s business and functions, as applicable.
If escalated, the threat or incident is evaluated by a cross-functional core and extended team, as applicable, of managers that includes the CISO and designated internal legal counsel with extensive cybersecurity experience, as well as identified associates from across the Company’s business and functions, as applicable.
As described above, the Company utilizes a risk-based approach and judgment to determine the security controls to implement, and it is possible that the Company may not implement appropriate controls if management does not recognize, or underestimates, a particular risk. In addition, security controls, no matter how well designed or implemented, may only partially mitigate, but not fully eliminate, risks.
As described above, the Company utilizes a risk-based approach and judgment to determine the security measures and controls to implement, and it is possible that the Company may not implement appropriate security measures and controls if management does not recognize, or underestimates, a particular risk.
We have not identified risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, which have materially affected us or are reasonably likely to materially affect us, including our business strategy, results of operations, or financial condition. However, we continue to face risks from cybersecurity threats that, if realized, may have such material effect.
The Company has not identified risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, which have materially affected, or are reasonably likely to materially affect, the Company, including its business strategy, results of operations, or financial condition.
The Company uses a variety of processes to address cybersecurity threats related to the use of third-party technology and services, including pre-acquisition diligence, imposition of contractual obligations and performance monitoring.
For example, third parties are used to conduct assessments, such as vulnerability scans and penetration testing. The Company also uses a variety of processes designed to address cybersecurity threats and incidents related to the use of third-party technology and services, including pre-acquisition diligence, imposition of contractual obligations and performance monitoring.
The Company also maintains a written information security incident response plan and conducts tabletop exercises to enhance incident response preparedness. The Company is also a member of an industry cybersecurity intelligence and risk sharing organization. The Company (or third parties on which it relies) may not be able to fully, continuously and effectively implement security controls as designed or intended.
The Company also maintains a written information security incident response plan and conducts tabletop exercises to enhance incident response preparedness. The Company is also a member of an industry cybersecurity intelligence and risk sharing organization.
The Company has an Enterprise Risk Management function that oversees the identification prioritization and mitigation of the Company’s enterprise risks, and cybersecurity is a risk category addressed by that function. The Company also has a Cybersecurity and Privacy Risk Council, which is composed of representatives of the Company’s senior management and operates to deliver management-level oversight of cybersecurity matters.
The Company has an Enterprise Risk Management function that oversees the identification, prioritization and mitigation of the Company’s enterprise risks, and cybersecurity is a risk category addressed by that function. The Company uses governance, risk and compliance tools designed to assess, identify and manage its cybersecurity risks.
The Company uses third-party security firms in different capacities to provide or operate some of these controls and technology systems, including cloud-based platforms and services. Third parties are used to conduct assessments, such as vulnerability scans and penetration testing.
The Company’s store-based associates receive ad hoc awareness communications and are provided with cybersecurity awareness materials as part of the store operating manual. The Company uses third-party security firms in different capacities to provide or operate certain security measures and controls and technology systems, including cloud-based platforms and services.
Despite our ongoing efforts, we cannot provide complete assurance that our cybersecurity risk management processes will be effective in detecting, preventing, or mitigating such cybersecurity risks. See also “We have undertaken a multi-year initiative to upgrade our digital and information technology systems and capabilities.
See also “We have undertaken a multi-year initiative to upgrade our digital and information technology systems and capabilities.
Security events, when detected by security tools or third parties, may not always be immediately understood or acted upon by the Company (or by third parties it relies upon).
In addition, security measures and controls, no matter how well designed or implemented, may only partially mitigate, but not fully eliminate, risks. Cybersecurity threats and incidents, even when detected or foreseeable, may not always be immediately understood or acted upon by the Company (or by third parties on which it relies).
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All of the Company’s office-based associates and certain distribution and fulfillment center associates undergo mandatory security awareness training at the time of hiring and on an annual basis thereafter. The Company’s store-based associates receive ad hoc awareness communications and are provided with cybersecurity awareness materials as part of the store operating manual.
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The Company considers the following factors, among others, during its risk and control implementation assessments: the likelihood and severity of the risk; the impact on the Company, the Company’s customers, associates and stockholders, and others if a risk materializes; the feasibility and cost of security measures and controls; and the impact of security measures and controls on operations and others.
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The incident response plan, which also incorporates processes to engage identified third-party cybersecurity consultants, advisors and response services, provides for continuous re-evaluation of identified cybersecurity incidents by the appropriate levels of management to ensure that the Company is able to satisfy its disclosure obligations under relevant rules and regulations.
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The Company (or third parties on which it relies) may not be able to fully, continuously and effectively implement security measures and controls as designed or intended.
Removed
The Company uses governance, risk and compliance tools to assess, identify and manage its cybersecurity risks.
Added
However, the Company continues to face risks from cybersecurity threats and incidents that, if realized, may have such material effect. Despite its ongoing efforts, the Company cannot provide complete assurance that its information security program will be effective in detecting, preventing, or mitigating such cybersecurity risks.

Item 2. Properties

Properties — owned and leased real estate

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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.
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 February 1, 2025, our partners operated 529 retail stores in more than 45 international countries.
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.
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 1, 2025: 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.
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.
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 2025 and fiscal 2035.
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.
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 1, 2025, we operated 1,782 and 113 retail stores located in leased facilities throughout the U.S. and Canada, respectively.
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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
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Third-party Operated Fulfillment and Distribution Centers As of February 1, 2025, we utilized and leased five third-party operated direct channel fulfillment centers in North America, comprising approximately 2.8 million square feet. Prior to February 1, 2025, we exercised our contractual termination rights and gave notice of our intention to exit one of these facilities.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Fair and Accurate Credit Transactions Act Cases We were named as a defendant in three putative class actions: Smidga, et al. v. Bath & Body Works, LLC in the Allegheny County, Pennsylvania Court of Common Pleas; Dahlin v. Bath & Body Works, LLC in the Santa Barbara County, California Superior Court; and Blanco v.
Removed
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.
Removed
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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The 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 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest change(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]
Biggest change(b) The average price paid per share includes any broker commissions. (c) For additional share repurchase program information, see Note 13 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.
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.
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 1, 2020, 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.
The 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.
The Company’s stock prices prior to August 3, 2021 have been adjusted to give effect to the Victoria’s Secret spin-off. 23 Table of Contents Common Stock Repurchases The following table provides our repurchases of our common stock during the fourth quarter of 2024: 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 2024 516 $ 32.02 513 $ 174,541 December 2024 552 38.26 538 153,933 January 2025 412 37.12 411 138,671 Total 1,480 1,462 ________________ (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.
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.
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 New York Stock Exchange under the symbol “BBWI.” As of February 1, 2025, the Company had approximately 26,000 stockholders of record.
Dividend Policy We paid a quarterly dividend of $0.20 per share during each quarter of 2023.
This number excludes persons whose stock is held in nominee or street name by brokers. Dividend Policy We paid a quarterly dividend of $0.20 per share during each quarter of 2024.
Added
(d) The January 2025 amount represents the remaining amount available under the $500 million share repurchase program authorized by our Board in January 2024, which was subsequently cancelled upon announcement of the new $500 million share repurchase authorization approved by our Board in January 2025. ITEM 6. [Reserved]

Item 7. Management's Discussion & Analysis

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

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Biggest changeCompany-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.
Biggest changeCompany-operated store data for 2024 and 2023: 2024 2023 % Change Sales per Average Selling Square Foot (a) $ 1,041 $ 1,074 (3 %) Sales per Average Store (in thousands) (a) $ 2,951 $ 3,015 (2 %) Average Store Size (selling square feet) 2,843 2,827 1 % Total Selling Square Feet (in thousands) 5,066 4,916 3 % ________________ (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. 26 Table of Contents The following table represents Company-operated store data for 2024: Stores Stores February 3, 2024 Opened Closed February 1, 2025 United States 1,739 104 (61) 1,782 Canada 111 2 — 113 Total 1,850 106 (61) 1,895 The 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 Partner-operated Store Data The following table represents partner-operated store data for 2024: Stores Stores February 3, 2024 Opened Closed February 1, 2025 International 454 61 (21) 494 International - Travel Retail 31 5 (1) 35 Total International (a) 485 66 (22) 529 ________________ (a) Includes store locations only and does not include kiosks, shop-in-shops, gondola or beauty counter locations.
Critical Accounting Policies and Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to adopt accounting policies related to estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period, as well as the related disclosure of contingent assets and liabilities at the date of the financial statements.
Critical Accounting Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to adopt accounting policies related to estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period, as well as the related disclosure of contingent assets and liabilities at the date of the financial statements.
For operating lease assets, we determine the fair value of the assets by comparing the contractual rent payments to estimated market rental rates. An individual asset within an asset group is not impaired below its estimated fair value. The fair value of long-lived store assets are determined using Level 3 inputs within the fair value hierarchy.
For operating lease assets, we determine the fair value of the assets by comparing the contractual rent payments to estimated market rental rates. An individual asset within an asset group is not impaired below its estimated fair value. The fair value of long-lived store assets is determined using Level 3 inputs within the fair value hierarchy.
The 2023 rate was lower than our combined estimated federal and state statutory rate primarily due to the recognition of the tax benefit related to the partial release of a valuation allowance on a foreign deferred tax asset.
The 2023 rate was lower than our combined estimated federal and state statutory rate primarily due to the recognition of the tax benefit related to the partial release of a valuation allowance on a deferred tax asset.
(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.
(d) Other liabilities include future estimated payments associated with unrecognized tax benefits. The “Less Than 1 Year” category includes $136 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.
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.
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 2024.
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”).
Credit Ratings The following table provides our credit ratings as of February 1, 2025: 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 2027 Notes, 2028 Notes, 2029 Notes, 2030 Notes, 2035 Notes and 2036 Notes (collectively, 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.
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 33 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.
Common Stock Repurchases 2022 Repurchase Program In February 2022, the Board authorized a $1.5 billion share repurchase program (the “February 2022 Program”).
Common Stock Repurchases 2022 Share Repurchase Program In February 2022, our Board authorized a $1.5 billion share repurchase program (the “February 2022 Program”).
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.
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. We also record inventory loss adjustments for estimated physical inventory losses that have occurred since the date of the last physical inventory.
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.
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. 35 Table of Contents Inventories Inventories are principally valued at the lower of cost or net realizable value, on an average cost basis.
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.
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. Our sales are highest during the fourth quarter of the fiscal year due to seasonal and holiday-related sales patterns.
The first step is to evaluate the tax position for recognition by determining if the available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any.
The first step is to evaluate the tax position for recognition by determining if the available 36 Table of Contents evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any.
A 10% increase or decrease in the estimated physical inventory loss adjustment would have impacted Net Income by approximately $2 million for 2023.
A 10% increase or decrease in the estimated physical inventory loss adjustment would have impacted Net Income by approximately $2 million for 2024.
We believe that our current cash position, our cash flow generated from operations and our borrowing capacity under our ABL Facility will be sufficient to meet our liquidity needs, including capital expenditure requirements, for at least the next 12 months.
We believe that our current cash position, our cash flows generated from operations and our borrowing capacity under our ABL Facility will be sufficient to meet our liquidity needs, including capital expenditure requirements, for at least the next twelve months.
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.
Adjusted Financial Information 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 and Net Income per Diluted Share in 2024 and 2023 on an adjusted basis, which removes certain items.
(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.
(c) In 2023, we recognized pre-tax gains of $34 million (after-tax gains of $26 million), included in Other Income, related to the repurchase and extinguishment of outstanding notes. For additional information, see Note 10 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.
(b) Includes a Net Loss of $9 million related to transactions with non-Guarantor subsidiaries.
(b) Includes a Net Loss of $15 million related to transactions with non-Guarantor subsidiaries.
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.
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 $232 million as of February 1, 2025 related to lease payments under the current terms of noncancelable leases, primarily related to office space, expiring at various dates through 2037.
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.
FINANCIAL CONDITION A discussion regarding our financial condition for 2023 compared to 2022 can be found under Item 7. of our Annual Report on Form 10-K for the year ended February 3, 2024, filed with the SEC on March 22, 2024. Liquidity and Capital Resources Liquidity, or access to cash, is an important factor in determining our financial stability.
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.
As of February 1, 2025, our availability under the ABL Facility was $542 million. As of February 1, 2025, 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.
For additional information, see Note 10 to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data.
For additional information, see Note 6 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.
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.
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 $171 million as of February 1, 2025.
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.
In addition, we have a liability of $17 million related to the deemed repatriation tax on our undistributed foreign earnings resulting from the Tax Cuts and Jobs Act, expected to be paid in 2025.
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.
A discussion regarding our financial condition and results of operations for 2023 compared to 2022 can be found under Item 7. of our Annual Report on Form 10-K for the year ended February 3, 2024, filed with the SEC on March 22, 2024.
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.
We use cash flow generated from operating and financing activities to fund our dividends. 31 Table of Contents We paid the following dividends during 2024 and 2023: Ordinary Dividends Total Paid (per share) (in millions) 2024 First Quarter $ 0.20 $ 45 Second Quarter 0.20 45 Third Quarter 0.20 44 Fourth Quarter 0.20 43 2024 Total $ 0.80 $ 177 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 On March 7, 2025, we paid our first quarter 2025 ordinary dividend of $0.20 per share to stockholders of record at the close of business on February 21, 2025.
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 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.
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, the interest rate on outstanding U.S. dollar borrowings was the Term Secured Overnight Financing Rate plus 1.25% and a credit spread adjustment of 0.10% per annum.
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.
As of February 1, 2025, our borrowing base was $553 million, and we had no borrowings outstanding under the ABL Facility. The ABL Facility supports our letter of credit program. We had $11 million of outstanding letters of credit as of February 1, 2025 that reduced our availability under the ABL Facility.
Under the February 2022 Program, we repurchased the following shares of our common stock during 2023: Repurchase Program Amount Authorized Shares Repurchased Amount Repurchased Average Stock Price (in millions) (in thousands) (in millions) February 2022 $ 1,500 4,096 $ 149 $ 36.38 The February 2022 Program had $39 million of remaining authority as of February 3, 2024.
Under the February 2022 Program, we repurchased the following shares of our common stock during 2024 and 2023: Repurchase Program Shares Repurchased Amount Repurchased Average Stock Price 2024 2023 2024 2023 2024 2023 (in thousands) (in millions) February 2022 842 4,096 $ 39 $ 149 $ 46.08 $ 36.38 The February 2022 Program had no remaining authority as of May 4, 2024.
As of February 3, 2024, we were not required to maintain this ratio.
As of February 1, 2025, we were not required to maintain this ratio.
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.
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 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 believe that these items are not indicative of our ongoing operations due to their size and nature. We use adjusted financial information as key performance measures for the purpose of evaluating performance internally. These non-GAAP measures are not intended to replace the presentation of our financial results in accordance with GAAP.
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.
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 reflects an estimate of shipments that have not yet been received by the customer based on shipping terms and historical delivery times.
During 2023, we repurchased and extinguished $485 million principal amount of our outstanding senior notes for an aggregate price of $447 million. Additionally, we repurchased 4.096 million shares of our common stock for an aggregate price of $149 million. We may, from time to time, repurchase, or otherwise retire, additional debt or shares of our common stock.
During 2024, we repurchased and extinguished $514 million principal amount of our outstanding senior notes for an aggregate price of $522 million. Additionally, we repurchased 10.425 million shares of our common stock for $400 million. We may, from time to time, repurchase, or otherwise retire, additional debt or shares of our common stock, as applicable.
Additionally, we evaluate a number of key performance indicators including net sales, gross profit, operating income and other performance metrics, such as sales per average selling square foot and sales per average store, in assessing our performance.
Additionally, we evaluate a number of key performance indicators including net sales, gross profit, operating income and other performance metrics, such as sales per average selling square foot and sales per average store, in assessing our performance. A discussion regarding our financial condition and results of operations for 2024 compared to 2023 is presented below.
The standard is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact of adopting this standard on our disclosures.
This standard is effective for annual reporting of fiscal years beginning after December 15, 2026, and for interim periods in the following year, with early adoption permitted. This standard should be applied prospectively, with retrospective application permitted. We are currently evaluating the impact of adopting this standard on our disclosures.
We expect to invest between $300 million and $325 million in capital projects during 2024. 31 Table of Contents Financing Activities Net cash used for financing activities in 2023 was $815 million, primarily consisting of $447 million for open market debt repurchases, dividend payments of $0.80 per share, or $182 million, $148 million for share repurchases, $15 million for payments on finance leases and tax payments of $11 million related to share-based awards.
Financing Activities Net cash used for financing activities in 2024 was $1.132 billion, primarily consisting of $522 million for debt repurchases, $401 million for share repurchases, dividend payments of $0.80 per share, or $177 million, $17 million for payments on finance leases and tax payments of $16 million related to share-based awards. 30 Table of Contents Net cash used for financing activities in 2023 was $815 million, primarily consisting of $447 million for debt repurchases, dividend payments of $0.80 per share, or $182 million, $148 million for share repurchases, $15 million for payments on finance leases and tax payments of $11 million related to share-based awards.
There were share repurchases of $1 million reflected in Accounts Payable on the February 3, 2024 Consolidated Balance Sheet.
There were share repurchases of $1 million reflected in Accounts Payable on the February 3, 2024 Consolidated Balance Sheet. 2024 Share Repurchase Program In January 2024, our Board authorized a $500 million share repurchase program (the “January 2024 Program”).
Net income included depreciation of $221 million, share-based compensation expense of $38 million and deferred income tax expense of $17 million. Other changes in assets and liabilities represent items that had a current period cash flow impact, such as changes in working capital.
Net income included depreciation of $282 million, a deferred income tax benefit of $112 million, share-based compensation expense of $40 million and an aggregate pre-tax gain on sales of certain Easton investments of $39 million. Other changes in assets and liabilities represent items that had a current period cash flow impact, such as changes in working capital.
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.
Long-term Debt and Borrowing Facility The following table provides our outstanding Long-term Debt balances, net of unamortized debt issuance costs and discounts, as of February 1, 2025 and February 3, 2024: February 1, 2025 February 3, 2024 (in millions) Senior Debt with Subsidiary Guarantee $500 million, 9.375% Fixed Interest Rate Notes due July 2025 (“2025 Notes”) $ — $ 313 $284 million, 6.694% Fixed Interest Rate Notes due January 2027 (“2027 Notes”) 277 287 $444 million, 5.250% Fixed Interest Rate Notes due February 2028 (“2028 Notes”) 443 460 $482 million, 7.500% Fixed Interest Rate Notes due June 2029 (“2029 Notes”) 476 492 $844 million, 6.625% Fixed Interest Rate Notes due October 2030 (“2030 Notes”) 838 930 $802 million, 6.875% Fixed Interest Rate Notes due November 2035 (“2035 Notes”) 796 806 $575 million, 6.750% Fixed Interest Rate Notes due July 2036 (“2036 Notes”) 571 608 Total Senior Debt with Subsidiary Guarantee 3,401 3,896 Senior Debt $284 million, 6.950% Fixed Interest Rate Debentures due March 2033 (“2033 Notes”) 283 293 $201 million, 7.600% Fixed Interest Rate Notes due July 2037 (“2037 Notes”) 200 199 Total Senior Debt 483 492 Total Long-term Debt $ 3,884 $ 4,388 Repurchases of Notes The losses and gains on the extinguishment of debt include the write-offs of unamortized issuance costs and are included in Other Income in the Consolidated Statements of Income. 2024 Repurchases During the first and second quarters of 2024, we repurchased in the open market and extinguished $200 million principal amount of our outstanding senior notes.
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.
Interest payments have been estimated based on the coupon rate for fixed rate obligations. Interest obligations exclude amounts which have been accrued through February 1, 2025. For additional information, see Note 10 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data. (b) Future lease obligations primarily represent minimum payments due under operating lease agreements.
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%.
General, Administrative and Store Operating Expenses The following table provides details for our General, Administrative and Store Operating Expenses for 2024 compared to 2023: 2024 2023 Change (in millions) % of Net Sales (in millions) % of Net Sales (in millions) % of Net Sales Selling Expenses $ 1,191 16.3 % $ 1,177 15.8 % $ 14 0.5 % Marketing Expenses 242 3.3 % 189 2.5 % 53 0.8 % General and Administrative Expenses 535 7.3 % 585 7.9 % (50) (0.6 %) Total $ 1,968 26.9 % $ 1,951 26.3 % $ 17 0.6 % For 2024, our General, Administrative and Store Operating Expenses increased $17 million to $1.968 billion, and the rate (expressed as a percentage of Net Sales) increased to 26.9% from 26.3%.
(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.
(b) Includes amounts due to non-Guarantor subsidiaries of $1.421 billion as of February 1, 2025. 2024 SUMMARIZED STATEMENT OF INCOME (in millions) Net Sales (a) $ 6,940 Gross Profit 2,988 Operating Income 1,149 Income Before Income Taxes 849 Net Income (b) 669 _______________ (a) Includes Net Sales of $189 million to non-Guarantor subsidiaries.
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.
The ABL Facility, which allows borrowings and letters of credit in U.S. dollars, has aggregate commitments of $750 million and an expiration date in August 2026.
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.
We follow the authoritative guidance included in ASC 740, Income Taxes , which contains a two-step approach to recognize and measure uncertain tax positions.
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.
FEBRUARY 1, 2025 SUMMARIZED BALANCE SHEET (in millions) ASSETS Current Assets (a) $ 2,075 Noncurrent Assets 2,411 LIABILITIES Current Liabilities (b) $ 2,394 Noncurrent Liabilities 4,898 _______________ (a) Includes amounts due from non-Guarantor subsidiaries of $572 million as of February 1, 2025.
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).
The most significant items in working capital were the $50 million decrease associated with Accounts Payable, Accrued Expenses and Other, the $26 million decrease associated with Inventory and the $23 million decrease associated with Income Taxes Payable. Net cash provided by operating activities in 2023 was $954 million, including net income of $878 million.
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.
Stores Net Sales increased $27 million, which was effectively flat, primarily due to new store growth and the increase in BOPIS fulfilled orders offset by a decline in average dollar sales and the 53rd week in 2023.
The remaining portion, totaling $38 million, is included in the “Other” category as it is not reasonably possible that the amounts could change in the next 12 months.
The remaining portion, totaling $36 million, is included in the “Other” category as it is not reasonably possible that the amounts could change in the next 12 months. For additional information, see Note 9 to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data.
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.
Direct Net Sales decreased $108 million, or 6.8%, due to a decline in orders, which was primarily due to our customers continuing to select our BOPIS option (which is recognized as store Net Sales) and the 53rd week in 2023, partially offset by an increased average order size.
Other Income, Net For 2023, our Other Income was $81 million, primarily related to interest income on cash balances and pre-tax gains of $34 million associated with the repurchase and early extinguishments of outstanding notes, partially offset by a pre-tax impairment charge of $8 million related to an equity method investment.
Included in 2023 is a $34 million pre-tax gain on the repurchase and early extinguishments of outstanding notes and an $8 million pre-tax impairment charge related to an equity method investment. The remaining difference in Other Income between the periods was primarily due to lower average invested cash balances and lower interest rates on invested cash in 2024.
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.
Further, our definitions of adjusted financial information may differ from similarly titled measures used by other companies. 25 Table of Contents The tables below reconcile the GAAP financial measures to the non-GAAP financial measures: (in millions, except per share amounts) 2024 2023 Reconciliation of Reported Net Income to Adjusted Net Income Reported Net Income $ 798 $ 878 Gain on Sales of Easton Investments (a) (39) — Impairment of Equity Method Investment (b) — 8 Gain on Extinguishment of Debt (c) — (34) Tax Effect of Adjustments included in Other Income 14 7 Tax Benefit from Valuation Allowance Release (d) (44) (112) Adjusted Net Income $ 729 $ 747 Reconciliation of Reported Net Income per Diluted Share to Adjusted Net Income per Diluted Share Reported Net Income Per Diluted Share $ 3.61 $ 3.84 Gain on Sales of Easton Investments (a) (0.18) — Impairment of Equity Method Investment (b) — 0.04 Gain on Extinguishment of Debt (c) — (0.15) Tax Effect of Adjustments included in Other Income 0.06 0.03 Tax Benefit from Valuation Allowance Release (d) (0.20) (0.49) Adjusted Net Income Per Diluted Share $ 3.29 $ 3.27 ________________ (a) In 2024, we sold our investments in Easton Town Center and Easton Gateway, resulting in an aggregate pre-tax gain of $39 million (after-tax gain of $25 million), included in Other Income.
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.
Other Income and Expenses Interest Expense The following table provides the average daily borrowings and average borrowing rates for 2024 and 2023: 2024 2023 Average daily borrowings (in millions) $ 4,273 $ 4,695 Average borrowing rate 7.3 % 7.3 % For 2024, our Interest Expense decreased $33 million to $312 million due to lower average daily borrowings, which were driven by the repurchase and early extinguishment of outstanding notes, and the 53rd week in 2023.
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.
Gross Profit For 2024, our Gross Profit decreased $2 million to $3.234 billion, and our Gross Profit rate (expressed as a percentage of Net Sales) increased to 44.3% from 43.6% in 2023.
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.
The capital expenditures included approximately $140 million related to new off-mall stores and remodels of existing stores, approximately $45 million for various IT projects, primarily to support the growth and profitability of our business, and approximately $25 million related to distribution and logistics capabilities. Net cash used for investing activities in 2023 was $286 million, primarily related to capital expenditures.
(c) In 2023, we recognized a $112 million tax benefit related to the partial release of a valuation allowance on a foreign deferred tax asset. For additional information, see Note 10 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data. Company-Operated Store Data The following table compares U.S.
For additional information, see Note 9 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data. Company-operated Store Data The following table compares U.S.
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. Investing Activities Net cash used for investing activities in 2023 was $286 million, primarily related to capital expenditures.
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.
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.
Contingent Liabilities and Contractual Obligations The following table provides our contractual obligations, aggregated by type, including the maturity profile as of February 1, 2025: 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) $ 5,933 $ 252 $ 791 $ 1,362 $ 3,528 $ — Future Lease Obligations (b) 1,404 267 474 321 342 — Purchase Obligations (c) 662 536 89 31 6 — Other Liabilities (d) 189 153 — — — 36 Total $ 8,188 $ 1,208 $ 1,354 $ 1,714 $ 3,876 $ 36 34 Table of Contents ________________ (a) Long-term Debt obligations relate to our principal and interest payments for outstanding notes and debentures.
The Gross Profit rate increase was due to an improvement to the merchandise margin rate driven by deflation in our cost structure, lower product costs, reduced transportation costs and increased average unit retails, partially offset by our continued investment in product reformulations and packaging innovation.
The Gross Profit rate increased primarily due to an increase in the merchandise margin rate, driven by cost saving initiatives, distribution productivity and international mix, partially offset by strategically planned promotional activities and our continued investment in product formulations and packaging innovation.
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.
Gross Profit dollars were effectively flat as the impact of lower Net Sales was offset by the increase in the merchandise margin rate.
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.
Instead, we believe that the presentation of adjusted financial information provides additional information to investors to facilitate the comparison of past and present operations.
These gains are included in Other Income in the 2023 Consolidated Statement of Income. 33 Table of Contents The following table provides details of the outstanding principal amount of senior notes repurchased and extinguished during 2023: (in millions) 2025 Notes $ 6 2028 Notes 38 2030 Notes 62 2033 Notes 56 2035 Notes 189 2036 Notes 87 2037 Notes 47 Total $ 485 Subsequent to February 3, 2024 through March 22, 2024, we repurchased in the open market and extinguished $45 million principal amount of our outstanding senior notes for an aggregate repurchase price of $45 million.
The following table provides details of the outstanding principal amounts of senior notes repurchased and extinguished during 2024 and 2023: 2024 2023 (in millions) 2025 Notes $ 314 $ 6 2027 Notes 14 — 2028 Notes 17 38 2029 Notes 17 — 2030 Notes 94 62 2033 Notes 10 56 2035 Notes 10 189 2036 Notes 38 87 2037 Notes — 47 Total $ 514 $ 485 Asset-backed Revolving Credit Facility We and certain of our 100% owned subsidiaries guarantee and pledge collateral to secure our ABL Facility.
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.
Cash Flows The following table provides a summary of our Consolidated Statements of Cash Flows for 2024 and 2023: 2024 2023 (in millions) Cash and Cash Equivalents, Beginning of Year $ 1,084 $ 1,232 Net Cash Flows Provided by Operating Activities 886 954 Net Cash Flows Used for Investing Activities (162) (286) Net Cash Flows Used for Financing Activities (1,132) (815) Effects of Exchange Rate Changes on Cash and Cash Equivalents (2) (1) Net Decrease in Cash and Cash Equivalents (410) (148) Cash and Cash Equivalents, End of Year $ 674 $ 1,084 Operating Activities Net cash provided by operating activities in 2024 was $886 million, including net income of $798 million.
Subsequent to February 3, 2024 through March 22, 2024, we repurchased an additional 606 thousand shares of our common stock for $27 million under the February 2022 Program. 2024 Repurchase Program In January 2024, our Board authorized a new $500 million share repurchase program (the “January 2024 Program”).
On February 27, 2025, we cancelled the remaining $121 million authorization available under the January 2024 Program and began repurchasing shares under the January 2025 Program. Subsequent to February 1, 2025 through March 14, 2025, we repurchased an additional 1.5 million shares of our common stock for $53 million under the January 2024 and January 2025 Programs.
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.
For additional information related to our 2024 financial performance, see “Results of Operations – 2024 Compared to 2023.” Fiscal 2025 Outlook We believe our strategy and actions position the Company to achieve sustainable, profitable growth and to drive long-term shareholder value.
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.
International Net Sales declined $41 million compared to 2023, primarily driven by a decline in wholesale shipments to our franchise partners affected by the war in the Middle East. For 2024, Operating Income decreased $19 million, or 1%, to $1.266 billion compared to 2023, and our Operating Income rate (expressed as a percentage of Net Sales) remained flat at 17.3%.
As such, the results for fiscal 2023 represent the 53-week period ended February 3, 2024, and the results for 2022 represent the 52-week period ended January 28, 2023. The extra week in 2023 resulted in $81 million of Net Sales and approximately $0.05 of Net Income from Continuing Operations per Diluted Share.
Fiscal 2024 Overview We utilize the retail calendar for reporting. As such, the results for fiscal 2024 represent the 52-week period ended February 1, 2025, and the results for 2023 represent the 53-week period ended February 3, 2024.
We are currently evaluating the impact of adopting this standard on our disclosures.
We are currently evaluating the impact of adopting this standard on our disclosures. In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses , that requires disclosures of disaggregated information about certain prescribed expense categories within relevant income statement expense captions.
(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.
For additional information, see Note 1 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data. (b) 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.
Removed
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.
Added
Executive Overview During 2024, we were focused on our three key strategic priorities of accelerating top-line growth, enhancing operational excellence and efficiency, and strengthening our financial positioning and disciplined deployment of capital.
Removed
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.
Added
During the year, we built momentum and established a strong foundation for long-term growth by successfully executing a number of key strategic initiatives; • Launched collaborations with leading brands in pop culture, which allow us to deliver highly differentiated storytelling that generates brand awareness with existing and new customer and enhances our cultural relevancy; • Introduced new product innovations such as Everyday Luxuries, our prestige-inspired line of fine fragrance mists, to attract new customers; • Grew our active loyalty membership to approximately 39 million members as of February 1, 2025, deepening brand connectivity with our customers; • Expanded our customer reach by growing category adjacencies such as Men’s, Hair, Lip and Laundry; and 24 Table of Contents • Delivered approximately $155 million of cost reductions as part of our cost optimization work, bringing our two-year total over $300 million, exceeding our initial targets of $200 million.
Removed
A discussion regarding our financial condition and results of operations for 2023 compared to 2022 is presented below.
Added
For 2024, Net Sales decreased $122 million, or 1.6%, to $7.307 billion, compared to 2023, and was negatively impacted by approximately 100 basis points due to the 53rd week in fiscal 2023. Total North American Net Sales declined $81 million compared to 2023, primarily due to the 53rd week in fiscal 2023, partially offset by new store growth.
Removed
Executive Overview In 2023, we managed our business in the face of macroeconomic pressures that affected customer behavior. Throughout the year, we experienced pressure on basket size and were impacted by decreased consumer savings rates as well as geopolitical unrest.
Added
Our Operating Income results were impacted by an increase in our Gross Profit rate, primarily driven by improvement in our merchandise margin rate, offset by General, Administrative and Store Operating Expenses deleveraging, primarily due to marketing investments and wage inflation.
Removed
Additionally, we continued to experience post-pandemic normalization of our candle and sanitizer categories following our accelerated growth in these categories during 2020 and 2021.
Added
We believe our continued innovation across our core categories supported by compelling marketing and enhanced technology, building on innovation platforms we launched in 2024 and extending our reach through adjacencies and international expansion, will accelerate Net Sales growth.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

7 edited+1 added−1 removed6 unchanged
Biggest changeInterest Rate Risk Our investment portfolio primarily consists of interest-bearing instruments that are classified as cash and cash equivalents based on their original maturities. Our investment portfolio is maintained in accordance with our investment policy, which specifies permitted types of investments, specifies credit quality standards and maturity profiles and limits credit exposure to any single issuer.
Biggest changeOur investment portfolio is maintained in accordance with our investment policy, which specifies permitted types of investments, specifies credit quality standards and maturity profiles and limits credit exposure to any single issuer. 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 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.
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. Concentration of Credit Risk We maintain cash and cash equivalents and derivative contracts with various major financial institutions.
Fair 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.
Fair Value Measurements The following table provides a summary of the principal value and estimated fair value of outstanding Long-term Debt as of February 1, 2025 and February 3, 2024: February 1, 2025 February 3, 2024 (in millions) Principal Value $ 3,916 $ 4,430 Fair Value, Estimated (a) 3,986 4,456 ________________ (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.
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
As of February 1, 2025, we believe that the carrying values of our Accounts Receivable, Accounts Payable and Accrued Expenses approximate their fair values because of their short maturities. 38 Table of Contents
Further, although our royalty arrangements with our international partners are denominated in U.S. dollars, the royalties we receive in U.S. dollars are calculated based on sales in the local currency. As a result, our royalties in these arrangements are exposed to foreign currency exchange rate fluctuations.
Further, although our royalty arrangements with our international partners are denominated in U.S. dollars, the royalties we receive in U.S. dollars are calculated based on sales in the local currency.
We will from time to time adjust our exposure to interest rate risk by entering into interest rate swap arrangements.
All of our Long-term Debt as of February 1, 2025 has fixed interest rates. We will from time to time adjust our exposure to interest rate risk by entering into interest rate swap arrangements.
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.
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.
Removed
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.
Added
As a result, our royalties in these arrangements are exposed to foreign currency exchange rate fluctuations. 37 Table of Contents Interest Rate Risk Our investment portfolio primarily consists of interest-bearing instruments that are classified as cash and cash equivalents based on their original maturities.

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