UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
______________________________________________________
FORM 10-K
______________________________________________________
(Mark One)
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the fiscal year ended February 1, 2020January 28, 2023
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] | ||||
For the transition period from to
Commission file number 1-8344
______________________________________________________
(Exact name of registrant as specified in its charter)
| Delaware | 31-1029810 | ||||||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||
| Three Limited Parkway, | |||||||||||
| Columbus, | Ohio | 43230 | |||||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||
Registrant’s telephone number, including area code (614) (614) 415-7000
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
| Common Stock, $0.50 Par Value | The New York Stock Exchange | |||||||
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed second fiscal quarter was: $5,587,493,009.was approximately $8.1 billion.
Number of shares outstanding of the registrant’s Common Stock as of March 20, 2020: 276,533,315.10, 2023: 228,766,151.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Proxy Statement for the Registrant’s 20202023 Annual Meeting of Stockholders are incorporated by reference into Part III.
Table of Contents
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| Part I | ||||||||
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| Item 1A. | ||||||||
| Item 1B. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Part II | ||||||||
| Item 5. | ||||||||
| Item 6. | ||||||||
| Item 7. | ||||||||
| Item 7A. | ||||||||
| Item 8. | ||||||||
| Item 9. | ||||||||
| Item 9A. | ||||||||
| Item 9B. | ||||||||
| Item 9C. | ||||||||
| Part III | ||||||||
| Item 10. | ||||||||
| Item 11. | ||||||||
| Item 12. | ||||||||
| Item 13. | ||||||||
| Item 14. | ||||||||
| Part IV | ||||||||
| Item 15. | ||||||||
| Item 16. | ||||||||
PART I
ITEM 1. BUSINESS.
General
As of January 28, 2023, our merchandise was sold through 1,802 company-operated stores and e-commerce sites in the United States of America ("U.S.") and Canada. Additionally, Bath & Body Works has more than 275Canada, and in 427 stores and 31 e-commerce sites in more than 3045 other countries operating under franchise, license and wholesale arrangements.
Fiscal Year
Our fiscal year ends on the Saturday nearest to January 31. As used herein, “2019,“2022,” “2018,” “2016”“2021” and “2015”“2020” refer to the 52-week periods ended February 1, 2020, February 2, 2019, January 28, 20172023, January 29, 2022 and January 30, 2016,2021, respectively. "2017" refers
Our Competitive Strengths
We believe the following competitive strengths contribute to our leading market position, differentiate us from our competitors and will drive future long-term sustainable growth:
Industry Leading Brand and Products
We have developed and operate a well-known, beloved and broadly appealing brand, which allows us to target markets across the economic spectrum, across demographics and across the world. We are an affordable luxury brand with covetable offerings, and a key tenet of our strategy is offering products at all price points. Customers look to us to celebrate the season, transport them to another time and place, decorate their home and find the perfect gift.
We have also developed trusted and market leading products in the body care, home fragrance, and soap and sanitizer categories. Our products are differentiated through a combination of fragrance, packaging and quality at accessible prices. We also sell products under our trusted sub brands, including White Barn and Aromatherapy.
In-Store Experience and Store Operations
We view our customers' in-store experience as an important vehicle for communicating the image of our brand. We utilize visual presentation of merchandise, fragrance, in-store marketing, music and our sales associates to reinforce the image represented by our brand. Our in-store marketing is designed to convey the principal elements and personality of our brand. The store design, visual marketing and storytelling, fixtures, scents, and music are all carefully planned and coordinated to create a unique shopping experience. We display merchandise uniformly to ensure a consistent store experience, regardless of location. Store managers receive detailed plans designating fixture and merchandise placement to ensure coordinated execution of the Company-wide merchandising strategy. Our sales associates and store managers are a central element in bringing our seasonal storytelling to life by providing a high level of customer service.
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Digital Experience
In addition to our in-store experience, we strive to create a customer-centric digital platform that integrates the digital and physical brand experience and enables convenience for the customer when desired. Our digital presence, including social media, our websites and our loyalty application, allows us to get to know our customers better and communicate with them anytime and anywhere.
Product Development
Quality and innovation are at the core of our sourcing strategy. We seek to drive efficiencies and mitigate risk through our strong technical research and prolific product development. Our merchant, design and sourcing teams have a long history of bringing innovative and covetable products to our customers. Our product offering and assortment strategy are key to elevating our brand, increasing our long-term pricing power and extending our reach.
We believe a large part of our success comes from our ability to quickly assess and effectively adjust to changing consumer preferences. We leverage our differentiated product development capabilities to frequently deliver compelling new fragrances, packaging and other product launches. We are dedicated to delivering a full product pipeline by launching new fragrances and products every four to six weeks, with new products launching nearly every week.
Sourcing and Logistics
Our predominantly domestic, vertically integrated supply chain enables us to successfully navigate a dynamic environment and to respond to changing consumer preferences with speed and agility. Our supplier base includes long-standing vendor relationships, and the majority of our products are produced at Beauty Park, a business park that includes several key vendors within close proximity to our Columbus, Ohio distribution centers. These strategic vendor relationships provide deep capabilities across our product categories.
While our Company-owned distribution centers located in central Ohio are core to our operations, we also utilize third-party distribution centers located throughout North America to position inventory geographically closer to our customers. Third party-operated direct channel fulfillment centers and pop-up fulfillment facilities throughout North America are also used to support our peak needs. In addition, in the fall of 2022, we completed construction of our first Company-operated direct channel fulfillment center. Located near Columbus, Ohio, this facility has 1.1 million square feet of space and state-of-the-art fulfillment capabilities to support the future growth in our direct business (also referred to as digital or e-commerce) and enhanced fulfillment capabilities for our business.
Experienced and Committed Management Team
Our senior management team has significant retail and business experience at Bath & Body Works, Inc. and other companies such as Unilever, Avon Products, The Estée Lauder Companies, Ann Taylor and Loft, Banana Republic, Ross Stores, Abercrombie & Fitch, Madewell, Carter’s, Rosetta Stone and KPMG.
Our Board of Directors (the "Board") appointed Gina R. Boswell as our Chief Executive Officer and as a member of our Board, effective December 1, 2022. Sarah E. Nash, who had served as Executive Chair of the Board since February 2022 and Interim Chief Executive Officer since May 2022, remained Executive Chair through January 28, 2023, at which time she transitioned back to independent Chair of the Board.
Growth Strategies
Expanding our Customer Base and Customer Spend
As a leading fragrance company, we deliver customers their favorite fragrances in multiple forms and categories with industry- leading speed and innovation. We manage every touchpoint throughout the customer journey to deliver a highly differentiated shopping experience. We have a large, loyal customer base that spans income levels, age groups and ethnicities. We believe we have significant opportunity to acquire new customers, increase spend and further diversify our customer base.
We are continuing to prioritize investment in our customer experience. As part of this investment, we launched our loyalty program nationwide in the U.S. during August 2022. Our enrollment results have exceeded our initial expectations, with more than 33 million members enrolled to date, and more than 80% of these members were active in the last 12 months. We believe we have opportunity to drive more value and attract more customers to the 53-week period ended February loyalty program by increasing engagement through personalization, fully integrating the program across social, physical and digital interactions, and making future program enhancements like accelerators and flexible rewards. Our loyalty customers typically spend more, have greater retention rates and make more trips than non-loyalty customers. Our loyalty sales represent approximately two thirds of our U.S. sales since launch in August 2022.
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We also believe we have an opportunity to leverage data and analytics to build deeper customer connections to deliver more personalized marketing and develop a more targeted promotion strategy. We believe we can grow our customer base, increase engagement and drive incremental visits, all while decreasing our reliance on broad-based promotions, by implementing a more targeted marketing approach rooted in advanced analytics and customer segmentation.
Optimizing our Product Offering
Our product offering and assortment strategy are key to enhancing our brand, increasing our pricing power and extending our reach. We believe that offering our customer favorites in multiple forms is a competitive differentiator that drives our customer loyalty and purchases. Our cross-category assortment is a key reason for our customers to come back and visit our stores. Our products are designed to be used daily and replenished frequently. We believe we have a strong pipeline of products, and we expect to continue to launch new fragrances and products about every four to six weeks.
Innovation and newness are key drivers of our business, and we believe we have opportunity for growth in our existing categories through new product launches, formula upgrades and packaging refreshes, which we believe drives traffic and repeat customers. We recently launched a new single-wick vessel in candles, which rounds out our candle portfolio and offers a burn time of 30 to 50 hours. We continue to increase our assortment of scent control wallflower heaters that offer our customers choice in how much scent to enjoy in each room of their home. As we look ahead to 2023, we are focused on delivering fresh and compelling new scents and exciting new product expansions to our fragrance portfolio.
In addition, we continue to learn our customers’ preferences in new and adjacent product lines and plan to continue to add more new and innovative products over time as we work to expand our brand’s global reach. We are focused on leveraging our core strengths in fragrance and innovation to extend our product leadership into categories such as Men's and Wellness. Our Men’s business was our fastest growing product category in 2022 as we test new forms and merchandising ideas. We are also expanding our Wellness collection that is geared towards elevating our customer’s daily wellness routine with curated collections for body and home.
We are also focused on enhancing our brand by developing products with customers' ingredient preferences in mind and on re-thinking our packaging. By the end of 2023, we anticipate that more than half of our products will be formulated without parabens, sulfates and dyes. We are testing recyclable aluminum soap vessels and have introduced the use of post-consumer recycled content in packaging across several of our product categories. Later in 2023, we will be offering hand soap in large cartons that enable our customers to refill their soap containers. By the end of 2025, we plan to increase the amount of post-consumer recycled content to 33% of our total plastic packaging portfolio.
Expanding our International Business
We have an opportunity to drive growth in our international business, which on a reported basis was approximately 4% of our Net Sales in 2022, leveraging our partnership-based, asset-light model. In 2023, we expect our international business to continue to accelerate and continue to have Net Sales growth and accretive operating margins. We believe we have scaling opportunities in existing markets and opportunities to enter into new markets to drive the growth of our international business. We believe our fragrance portfolio allows successful olfactive distortions to local preferences.
Our franchise partners are committed to greater expansion and opened 89 net new stores in 2022, bringing the total to 427 in over 45 countries (excluding our Company-operated stores in Canada) as of January 28, 2023. Our partners plan to open between 50 and 80 net new international stores in 2023. Additionally, we expect to continue growing the digital components of our international business, including through country-specific web platforms tailored to local languages and preferences and through additional regional expansion. As of January 28, 2023, our partners operated 31 international e-commerce sites, an increase of four from January 29, 2022.
Advancing our Omnichannel Capabilities
We see a significant opportunity to better connect our stores and e-commerce platforms to deliver a seamless experience and increase our customer lifetime value. We are focused on omnichannel initiatives and enhanced capabilities to engage our customers how, when and where they want. During 2022, we rolled out buy online-pickup in store ("BOPIS") to over 800 Company-operated stores and have BOPIS capabilities in more than 1,300 stores as of January 28, 2023. In addition, in the fall of 2022, we completed construction of, and commenced initial operations in, our first Company-operated direct channel fulfillment center with 1.1 million square feet of space and state-of-the-art fulfillment capabilities.
We seek to continuously improve the online experience for our direct channel by enhancing graphics, video and the marketing/content mix, as well as making our websites and loyalty application easier to navigate. We believe our increased focus on mobile and application interactions will continue to provide flexibility and convenience to our customers, while creating a seamless shopping experience. Our shopping and services initiatives will continue to modernize the customer’s digital shopping experience through features like enhancing the loyalty program and a shoppable mobile application.
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Technology is a key enabler to our growth and separating our information technology systems from Victoria's Secret & Co. (as described below under "Information Systems") will enable us to make future strategic investments to strengthen our omnichannel capabilities.
Real Estate
| January 28, 2023 | January 29, 2022 | ||||||||||
| United States | 1,693 | 1,651 | |||||||||
| Canada | 109 | 104 | |||||||||
| Total | 1,802 | 1,755 | |||||||||
The following table provides the changes in shopping malls, lifestyle centers and street locationsthe number of our Company-operated retail stores for the past three fiscal years:
| Beginning of Year | Opened | Closed | End of Year | ||||||||||||||||||||||||||
| 2022 | 1,755 | 95 | (48) | 1,802 | |||||||||||||||||||||||||
| 2021 | 1,736 | 54 | (35) | 1,755 | |||||||||||||||||||||||||
| 2020 | 1,739 | 27 | (30) | 1,736 | |||||||||||||||||||||||||
We have a diversified store portfolio in the U.S., and Canada the U.K., Irelandacross venue tiers and Greater China.types, with approximately half of our stores located off-mall as of January 28, 2023. We are continuing our off-mall expansion to limit our exposure to vulnerable mall locations. As a result of our strong brandsbrand 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.
Over time, we expect low-single digit annual increases in North American square footage, with off-mall penetration steadily increasing. We will open new stores in emerging non-mall venues or as replacement stores for non-viable malls, while closing stores in non-viable or declining malls. During 2022, we opened 95 new, off-mall stores and permanently closed 48 stores, principally in malls, in North America, resulting in net square footage growth of 5% for the year. We are planning approximately 115 total real estate projects in 2023, consisting of approximately 90 new, off-mall stores and 25 remodels to our store design that incorporates our White Barn concept, partially offset by approximately 50 mall closures. We expect these projects to yield square footage growth of approximately 4% during 2023.
| February 1, 2020 | February 2, 2019 | ||||
| Victoria’s Secret U.S. | 1,053 | 1,098 | |||
| Victoria’s Secret Canada | 38 | 45 | |||
| Bath & Body Works U.S. | 1,637 | 1,619 | |||
| Bath & Body Works Canada | 102 | 102 | |||
| Victoria's Secret U.K. / Ireland | 26 | 26 | |||
| Victoria's Secret Greater China | 23 | 15 | |||
| Victoria's Secret Beauty and Accessories Greater China | 41 | 38 | |||
| Total | 2,920 | 2,943 | |||
Beginning of Year | Opened | Closed | Acquired (a) | Sold (b) | End of Year | ||||||||||||
| 2019 | 2,943 | 64 | (87 | ) | — | — | 2,920 | ||||||||||
| 2018 | 3,075 | 88 | (90 | ) | — | (130 | ) | 2,943 | |||||||||
| 2017 | 3,074 | 66 | (65 | ) | — | — | 3,075 | ||||||||||
| 2016 | 3,005 | 72 | (29 | ) | 26 | — | 3,074 | ||||||||||
| 2015 | 2,969 | 72 | (36 | ) | — | — | 3,005 | ||||||||||
Franchise, License and Wholesale Arrangements
In addition to our company-ownedCompany-operated stores, our products are sold at hundreds of partnerpartner-operated locations and websites in more than 70 countries. Under these arrangements, third parties operate45 countries through franchise, license and wholesale arrangements. Our 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.
The following table provides the number of international stores that selloperated by our products underpartners as of January 28, 2023 and January 29, 2022:
| January 28, 2023 | January 29, 2022 | ||||||||||
| International | 401 | 317 | |||||||||
| International - Travel Retail | 26 | 21 | |||||||||
| Total | 427 | 338 | |||||||||
Additionally, our brand names. partners operated 31 international e-commerce sites as of January 28, 2023, compared to 27 as of January 29, 2022.
Revenue recognized under franchise and license arrangements generally consists of royalties earned and recognized upon sale of merchandise by franchise and license partners to retail customers. Revenue is generally recognized under wholesale and sourcing arrangements at the time the title to the products passes to the partner. We continue to increase the number
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| February 1, 2020 | February 2, 2019 | ||||
| Victoria’s Secret Beauty and Accessories | 360 | 383 | |||
| Victoria’s Secret | 84 | 56 | |||
| Bath & Body Works | 278 | 235 | |||
| Total | 722 | 674 | |||
Additional Information
Merchandise Vendors
During 2019,2022, we purchased merchandise from approximately 340120 vendors, primarily located throughoutin the world. NoU.S. Our largest vendor supplied approximately 13% of our total merchandise purchases during 2022, while no other single vendor provided more than 10% or more of our merchandise purchases. Our five largest vendors supplied approximately 38% of our total merchandise purchases on a combined basis during 2022.
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. We use a variety of shipping terms that result inproactively evaluate our distribution channels to ensure we are able to provide the transfer of title ofright product at the merchandise at either the point of originright place to meet or point of destination.
exceed our customers’ expectations. Our policy is to maintain sufficient quantities of inventories on hand in our retail stores, fulfillment centers and distribution centers to enable us to offermeet customer demand.
We continue to actively manage our inventory to adjust for anticipated channel shifts and product category shifts. The current macroeconomic environment, including the impacts of continued inflationary cost pressure, requires agility, and we believe we are leveraging the speed that we have in our supply chain, our close partnerships with our suppliers and the capabilities of our sourcing, production and logistics teams to respond quickly. We believe Beauty Park and our predominantly domestic, vertically integrated supply chain enable us to successfully navigate a dynamic environment and present full and abundant product assortments on time to our customers an appropriate selection of current merchandise. We emphasize rapid turnoverwith speed and take markdowns as required to keep merchandise fresh and current.agility.
Information Systems
Our management information systems consist of a full range of retail, financial and merchandising systems. The systems include applications related to point-of-sale, e-commerce, merchandising, planning, sourcing, logistics, inventory management, data security and support systems, including human resources and finance.finance systems. Victoria's Secret & Co. currently administers and maintains operations of most existing technology and serves as a principal technology service provider to us under a transition services agreement we entered into in connection with the Separation ("TSA"). During the first quarter of 2022, we elected to accelerate the work of establishing separate information technology capabilities for the Company. Initiatives to separate systems are underway and we expect this work to be substantially completed in the summer of 2023. We believe the completion of the technology separation will enable us to more quickly develop critical capabilities to enhance our omnichannel capabilities and support the growth and profitability of our business.
Seasonal Business
Our operations are seasonal in nature and consist of two principal selling seasons: Spring (the first and second quarters) and Fall (the third and fourth quarters). The fourth quarter, including the holiday season, accountedtypically accounts for approximately one-third of our net sales for 2019, 2018 and 2017 and is typically our most profitable quarter. 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 facilities arefacility is available for additional working capital needs and investment opportunities.
Regulation
We and our products are subject to regulation by various federal, state, local and foreign regulatory authorities. We are subject to a variety of tax and customs regulations and international trade arrangements.
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. We believe our products are identified by our intellectual property and thus,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.
Competition
The sale of women's intimate and other apparel, home fragrance, personalbody care and beautysoap and sanitizer products and accessories through retail stores 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 factorsfactors.
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Other Information
For additional information about our business, see "Management’s Discussion and Analysis of Financial Condition and Results of Operations," included under Item 7. of Part II of this Annual Report on Form 10-K.
Human Capital Management
Human Capital
At Bath & Body Works, our purpose goes beyond selling product. We work to make a difference in retail store sales. Our online businesses compete with numerous online merchandisers. Image presentation, fulfillmentour communities and foster a safe, welcoming, inclusive and empowering workplace for our thousands of associates.
The Human Capital and Compensation Committee (the “HCC Committee”) of our Board oversees, amongst other things, the Company’s programs, policies, practices and strategies relating to culture, talent, diversity, equity and inclusion, equal employment opportunities and the factors affecting retail store sales discussed above areCompany’s executive compensation programs. Our Board oversees the principal competitive factors in online sales.succession planning process for our Chief Executive Officer.
Workforce Demographics
As of February 1, 2020,January 28, 2023, we employed approximately 94,400 associates; 68,90057,200 associates, 48,400 of whom were part-time. In addition,The Company supplements resources using temporary associates are hired during peak periods, such as the end-of-the-year holiday season. Approximately 94% of our associates work in our stores, 3% in our distribution and fulfillment centers and the balance in our home office locations. None of our associates in the U.S. are covered by a collective bargaining agreement.
In addition to gender diversity, we have a goal of employing a racially diverse workforce where everyone belongs and contributes fully to our success. As of December 31, 2022, our workforce was composed of 44% non-white associates, including 13% of leadership associates at the director level and above. In addition, as of the filing date of this Annual Report on Form 10-K, two of our six executive officers and four of our 13 members of the Board were people of color.
Focus on Inclusion
We focus on recruiting, retaining and advancing diverse talent that reflects the customers we serve and the communities where we live and work. By continuing to encourage and support a workplace environment where diversity, equity and inclusion ("DEI") are deferring annual merit increases.valued, we believe we can serve our customers better, as well as attract and retain highly talented associates, suppliers and vendors of different backgrounds and experiences.
•Recruitment: Increase the diversity of candidate slates and hires for all roles, with a specific focus on increasing representation of racially diverse associates at the director level and above.
•Education and Development: Provide culturally significant learning, professional development and growth opportunities for all associates.
•Engagement and Retention: Foster a culture of inclusion that engages associates in meaningful opportunities to build community.
•Business: Leverage the voices of diverse associates and those who are notinternal and external relationships to improve the customer experience and ensure our marketing and product assortment resonates with our customers.
•Supplier Diversity: Provide diverse companies sustainable, long-standing business opportunities through partnerships with us.
•Community: Increase volunteerism and investment in organizations focused on racial equity, gender equity and social justice.
More than 90% of our corporate associates at the director level and above had completed DEI training as of January 28, 2023, which includes training on unconscious bias, equity and conscious inclusion. The training emphasizes both the Company’s and associates’ responsibilities to build an inclusive culture at the Company and accountability for senior leaders. In addition, as of January 28, 2023, more than 95% of our corporate associates had completed our core DEI online learning module made available to new hires during their onboarding. To further strengthen our commitment to advancing DEI, under the leadership
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of our Chief Executive Officer, we joined the CEO Action for Diversity & Inclusion in December 2022, pledging to cultivate environments that support open dialogue on complex DEI conversations and share DEI best practices.
We currently workinghave eight associate Inclusion Resource Groups (up from five in 2021) that provide opportunities for associates to connect with one another around their shared passion for creating an inclusive workplace for all associates. These groups provide professional development for associates, support the online businessesneeds of the business, help shape the culture of our Company and provide engagement and volunteerism in the community. The Inclusion Resource Group programming is open to all associates who identify with, or who cannot work from home, effective April 5, 2020 until further notice. All furloughedare allies of, the following groups: Hispanic and Latino; LGBTQIA+; Black and African American; Asian and Pacific Islander; entry level and early career professionals; associates will continue to receive existing healthcare benefits. As circumstances change,with disabilities and caregivers; military and veteran community; and women. During 2022, we will make every effort to bring thesehosted 58 events with approximately 8,800 attendees, and our associates back to work as soon as possible. Furloughed associates will also be able to apply for unemployment benefits, if eligible.
The Company was recognized by The Human Rights Campaign's Corporate Equality Index as a 2022 "Best Place to Work for LGBTQIA+ Equality." For the fifth year in a row, the Company received a perfect score on the index, which rates companies on detailed criteria in the following four areas:
•Non-discrimination policies across business entities;
•Equitable benefits for LGBTQIA+ workers and their families;
•Supporting inclusive culture; and
•Corporate social responsibility.
Most recently, Newsweek announced that the Company is considered one of America’s Greatest Workplaces for Women in 2023. Companies are selected by those with the highest rankings on criteria such as “compensation and benefits”, “work-life balance” and “proactive management of a diverse workforce.” In addition, the Company was included on the Forbes Best Large Employer 2023 list. The ranking is determined by participants who rate their willingness to recommend their own employers to friends and family, followed by nominating organizations other than their own. We are also proud to be named a Diversity First Top 50 Company in 2023 by the Diversity Research Institute, which recognizes employers following extensive research and analysis into the racial and gender diversity of executive and board membership.
These designations are some of the ways we have been recognized for our ongoing commitment to DEI.
Commitment to Equitable and Competitive Wages
We are committed to equal opportunity and treatment for all associates which includes equal career advancement opportunities and equitable and competitive wages. Our commitment to pay equity is evaluated by conducting periodic assessments of pay equity based on gender, race and ethnicity. In addition, we evaluate fairness of total compensation with reference to both internal and external comparisons.
Our compensation programs are designed to link annual changes in compensation to overall Company performance, as well as each individual’s contribution to the $950 million borrowed under the Secured Revolving Facility on March 16, 2020.results achieved. Our Secured Revolving Facility has certain financial covenants, including a debt to consolidated EBITDA covenant, which may be breached as early as the end of the fiscal quarter ending May 2, 2020. If we were to violate a covenant, our lenders would have the right to accelerate our Secured Revolving Facility indebtedness, demand cash collateral in respect of the letters of credit issued thereunder and terminate the funding commitments available thereunder. While we believe that we would be able to obtain temporary waiverspay for any such breach of a covenant to prevent an accelerationperformance philosophy includes participation of our outstanding indebtedness or obtainstore 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. 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 replacement credit facility,company-matched savings and retirement plan; and flexible and affordable health, wellness and lifestyle benefits. Subject to certain eligibility requirements, associates can choose benefits and resources that fit their lifestyle, including, but not limited to, 14 weeks paid maternity leave, six weeks paid paternity leave, mental health benefits, family planning benefits including fertility, adoption and surrogacy, expanded bereavement leave time, military leave, tuition assistance, free access to life planning services and a generous merchandise discount.
During 2022, we cannot concludeexpanded our benefits with certainty thatthe addition of commuter benefits and a tobacco cessation program. In addition, we would have the abilityenhanced our associate stock purchase plan to obtain necessary waivers or negotiate less restrictive debt covenants with our lenders. allow associates to purchase Company stock at a discount.
Associate Engagement and Development
We are committed to investing in active conversationsall our associates. During 2022, we conducted a survey of our home office workforce to assess associate engagement, culture, leadership communication and effectiveness, diversity and inclusion efforts, work-life balance and career development. In 2022, 87% of associates responded to the survey with an 84% favorable engagement rate. Leaders created action plans that were incorporated into their annual goals in response to input received via the lenders under our credit facility to obtain a replacement credit facility that does not contain a debt to consolidated EBITDA financial covenant or a temporary waiver in respect of such financial covenant in our existing Secured Revolving Facility.survey.
We provide diverse learning opportunities and challenging work experiences. We believe that associates can reach their career goals through multiple roles, career paths and locations. We offer a variety of enrichment experiences for those joining us as interns, new graduates, in mid-career or as a capstone to a career. Examples include:
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•Leadership Development: Courses for associates in management positions to build critical skills and grow as effective leaders.
•Merchant-in-Training Program: Immersive program to learn the profession both on the job and from experts in the classroom.
•Onboarding: Dedicated time to learn the business and to form important relationships for mentoring and development.
•Tuition Assistance: Reimbursement of 100% of eligible tuition expenses, up to $3,000 per calendar year.
•English as a Second Language Classes: A new offering for our current cash balance, along withdistribution center associates, many of whom have English as a second language.
•Maintenance Technician Training: A new offering for our distribution center associates to build skills to aid in career advancement.
Safety Is Our Priority
We are committed to providing all of our associates a healthy and safe working environment and for protecting the actions taken as outlined above, provides us with sufficient current liquidity.safety of our customers. Our health and safety programs are designed to meet or exceed regulatory requirements for the various industry sectors of our business and in the jurisdictions in which we operate.
We have a material adverse effectwritten Code of Conduct that is based on our resultsvalues and is a resource which establishes standards for employee conduct that reinforces the Company's commitment to integrity and ethical conduct. We conduct an annual Code of operations, financial conditionConduct compliance process that requires associates to complete a Code of Conduct disclosure and cash flows. Additional information on this riska separate training course.
We maintain an Ethics Hotline, operated by a third-party, 24 hours a day, seven days a week where associates may anonymously report potential instances of unethical conduct and other uncertainties and factors, is set forth in Item 1A. Risk Factors.potential violations of law or Company policies.
Available Information
We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and its rules and regulations. The Exchange Act requires us to file reports, proxy statements and other information with the U.S. Securities and Exchange Commission ("SEC"). The SEC maintains a website that contains reports, proxy statements and other information regarding issuers that file electronically with the SEC. These materials may be obtained electronically by accessing the SEC's website at www.sec.gov.
Our annual reportsAnnual Reports on Form 10-K, quarterly reportsQuarterly Reports on Form 10-Q, current reportsCurrent Reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available, free of charge, on our website at www.lb.combbwinc.com. Our website and information included in or linked to our website are not part of this Annual Report on Form 10-K.
Copies of any of the above-referenced documents will also be made available, free of charge, upon written request to:
Investor Relations Department
Three Limited Parkway
Columbus, Ohio 43230
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ITEM 1A. RISK FACTORS.
We caution that any forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) contained in this report or made by our companyCompany or our management involve risks and uncertainties and are subject to change based on various factors, many of which are beyond our control. Accordingly, our future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. Words such as “estimate,” “project,” “plan,” “believe,” “expect,” “anticipate,” “intend,” “planned,” “potential”“potential,” "target," "goal" and any similar expressions may identify forward-looking statements. 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 our companyCompany 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, significant health hazards or pandemics, terrorist activities, financial crises, political crises or other major events, or the prospect of these events;
•the seasonality of our business;
•the risk thatanticipated benefits from the transactions contemplated (the “VS Transaction”) by the transaction agreement dated as of February 20, 2020 between us and SP VS Buyer LP (the “Transaction Agreement”) are not consummated, including the risk that required regulatory approvals for the VS TransactionVictoria's Secret & Co. spin-off may not be obtained;realized;
•our dependence on Victoria's Secret & Co. for information technology services and contractual restrictions while the VS Transaction is pending;transition of such services to our own information technology systems or to those of third-party technology service providers;
•our ability to attract, develop and retain qualified associates and manage labor-related costs;
•the dependence on mallstore traffic and the availability of suitable store locations on appropriate terms;
•our ability to growcontinued growth in part through new store openings and existing store remodels and expansions;
•our ability to successfully operate and expand internationally and related risks;
•our independent franchise, license and wholesale partners;
•our direct channel businesses;business;
•our ability to protect our reputation and our brand images;image;
•our ability to successfully complete environmental, social and governance initiatives, and associated costs thereof;
•our ability to successfully achieve expected annual cost savings in connection with our profit optimization efforts to reduce expenses and improve operating efficiency in the business;
•our ability to attract customers with marketing, advertising and promotional programs;
•our ability to maintain, enforce and protect our trade names, trademarks and patents;
•the highly competitive nature of the retail industry and the segments in which we operate;
•consumer acceptance of our products and our ability to manage the life cycle of our brands, keep up with fashion trends,brand, develop new merchandise and launch new product lines successfully;
•our ability to source, distribute and sell goods and materials on a global basis, including risks related to:
◦political instability, wars and other armed conflicts, environmental hazards or natural disasters;
◦significant health hazards or pandemics, such as the COVID-19 pandemic, which could result in closed factories and/or stores, reduced workforces, scarcity of raw materials, and scrutiny or embargoing of goods produced in infectedimpacted areas;
◦duties, taxes and other charges;
◦legal and regulatory matters;
◦volatility in currency exchange rates;
◦local business practices and political issues;
◦disruption due to labor disputes; and
◦changing expectations regarding product safety due to new legislation;
•our geographic concentration of vendor and distribution facilities in central Ohio;
•the ability of our vendors to deliver products in a timely manner, meet quality standards and comply with applicable laws and regulations;
•fluctuations in foreign currency exchange rates;
•fluctuations in product input costs;
•fluctuations in energy costs;
•our ability to adequately protect our assets from loss and theft;
•increases in the costs of mailing, paper, and printing;printing or other order fulfillment logistics;
•claims arising from our self-insurance;
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•our and our third-party service providers’, including Victoria’s Secret & Co. during the term of the Transition Services Agreement between us and Victoria’s Secret & Co., ability to implement and maintain information technology systems and to protect associated data;
•our ability to maintain the security of customer, associate, third-party and Company information;
•stock price volatility;
•our ability to pay dividends and make share repurchases under share repurchase authorizations;
•shareholder activism matters;
•our ability to maintain our credit ratings;
•our ability to service or company information;refinance our debt and maintain compliance with our restrictive covenants;
•the impact of the transition from London Interbank Offered Rate ("LIBOR") and our ability to adequately manage such transition;
•our ability to comply with laws, regulations and regulationstechnology 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.
We are not under any obligation and do not intend to make publicly available any update or other revisions to any of the forward-looking statements contained in this report to reflect circumstances existing after the date of this report or to reflect the occurrence of future events even if experience or future events make it clear that any expected results expressed or implied by those forward-looking statements will not be realized.
The following discussion of risk factors contains “forward-looking statements.” These risk factors may be important to understanding any statement in this Annual Report on Form 10-K, other filings or in any other discussions of our business. The following information should be read in conjunction with Item 7.7. Management’s Discussion and Analysis of Financial Condition and Results of Operation and Item 8.8. 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 future results.cash flows. The risks described below are not our only risks. Additional risks and uncertainties not currently known or that are currently deemed to be immaterial may also adversely affect our business, operating results of operations, financial condition and/or financial conditioncash flows in a material way.
Risks related to our business:
Our net sales, profit results and cash flows are sensitive to, have been affected by and may in the future be affectedfurther impacted by, general economic conditions, inflation, consumer confidence, customer spending patterns, weather, significant health hazards or pandemics, weather or other market disruptions.
Our net sales, profit, cash flows and future growth may be affected by negative local, regional, national or international political or economic trends or developments that reduce the consumers’ ability or willingness to spend, includingspend. These risks, which can vary substantially by country, include political, financial or social instability or conditions, geopolitical events, corruption, anti-American sentiment, social and ethnic unrest, military conflicts and terrorism, as well as changes in general economic conditions (including unemployment levels, inflation and the effects of nationalrecent market volatility and international security concerns such as war, terrorism orinstability in the threat thereof.banking sector). For example, the U.S. economy is being negatively impacted by high inflation rates, which have negatively impacted and may continue to negatively impact consumer demand. In addition, market disruptions due to natural disasters, significant health hazards or pandemics, including the COVID-19 pandemic, or other major events or the prospect of these events could also impact consumer spending and confidence levels. Extreme weather conditions in the areas in which our stores are located, particularly in markets where we have multiple stores, or in the Columbus, Ohio region where most of our distribution centers are located, could adversely affect our business. Purchases of women’s intimate and other apparel, beauty and personal care products and accessories often decline duringDuring periods when economic or market conditions are unsettled or weak.weak, purchases of our products have declined, and may in the future decline. In such circumstances, we have increased, and may in the future continue to increase, the number of promotional sales, which, when combined with inflationary cost pressures, have negatively affected our merchandise margin rates and, in the future, could have a material adverse effect on our results of operations, financial condition and cash flows.
Our net sales, operating income, cash and inventory levels fluctuate on a seasonal basis.
We experience major seasonal fluctuations in our net sales and operating income, with a significant portion of our operating income typically realized during the fourth quarter holiday season. 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 fashion trends are confirmed by customer purchases. We must carry a significant amount of
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inventory, especially before the holiday season selling period. If we are not successful in selling inventory, we may have to sell the inventory at significantly reduced prices or may not be able to sell the inventory at all, which could have a material adverse effect on our results of operations, financial condition and cash flows.
We have entered into an agreement pursuant tomay not realize the anticipated benefits from the Separation, which could harm our business.
On August 2, 2021, we will transfer certain assetscompleted the separation of the Bath & Body Works and liabilities relating to our business conducted underVictoria’s Secret businesses. We may incur significant additional expenses and challenges in connection with the separation of the Victoria’s Secret business, which may include expenses and PINK brands (the “Victoria’s Secret Business”)challenges related to a newly formed subsidiary (“our separation from the Victoria’s Secret Holdco”) and sell 55% of the equity interests of Victoria’s Secret Holdco to an affiliate of Sycamore Partners Management, L.P. (“Sycamore”). The proposed VS Transaction involves risks, including risks that the proposed transaction may not be completed on the currently contemplated timeline, or at all, and may not achieve the intended benefits.
The Separation could result in substantial tax liability to us and our stockholders.
We received an opinion of counsel to the effect that, we expect to achieve as a resultfor U.S. federal income tax purposes, the spin-off and certain related transactions qualify for tax-free treatment under certain sections of the VS Transaction,Internal Revenue Code. However, the opinion relies on certain assumptions, representations and undertakings, including those relating to the past and future conduct of our business, and the opinion would not be valid if such assumptions, representations and undertakings were incorrect. Furthermore, the opinion is not binding on the Internal Revenue Service ("IRS") or do not achieve them in the timecourts. If, notwithstanding receipt of the opinion, the spin-off or certain related transactions are determined to be taxable, we expect, our results of operations and financial condition could be materially adversely affected.
Even if the spin-off otherwise qualifies as a tax-free transaction, the distribution would be taxable to us (but not to our stockholders) in certain circumstances if future significant acquisitions of our stock or the stock of Victoria's Secret & Co. are determined to be part of a plan or series of related transactions that included the spin-off. In this event, the resulting tax liability could be substantial. In connection with the spin-off, we entered into a Tax Matters Agreement with Victoria's Secret & Co., pursuant to which Victoria's Secret & Co. agreed to not enter into any transaction that could cause the spin-off or any related transactions to be taxable to us without our consent and to indemnify us for any tax liability resulting from any such transaction. In addition, if key employees depart because of uncertainty about their future roles and thethese potential complexities of the VS Transaction, our business could be harmed. Furthermore, the Transaction Agreement contains restrictions on our ability take certain actions relating to the Victoria’s Secret Business outside the ordinary course of business prior to the closing, whichtax liabilities may discourage, delay or prevent a change of control of us.
Victoria’s Secret & Co. continues to provide certain information technology services to us from undertakingon a transitional basis as we continue to establish and transform our own information technology systems and transition certain actions or business opportunitiestechnology services to third-party information technology service providers. We may incur costs that may arise prior to the closing.
Our ability to effectively manage and operate our business depends significantly on information technology systems. We rely heavily on applications related to point-of-sale, e-commerce, merchandising, planning, sourcing, logistics, inventory management, data security and support systems including human resources and finance currently supplied to us by Victoria’s Secret & Co. pursuant to our Transition Services Agreement with Victoria’s Secret & Co. that we entered into in connection with the Separation. Victoria’s Secret & Co. is not in the business of providing information technology outsourcing services and does not have experience providing such services for third parties. Victoria's Secret & Co. may causenot successfully execute all of these services during the transition period. Further, we may have to expend significant efforts and/or costs materially in excess of those estimated by us to miss performance objectivestransition such services to our information technology systems or to those of our third-party technology service providers and transform our information technology capabilities to support our omnichannel strategy. We may also experience delays in connection with the transition of such services. Any interruption in, or deficiency of, these services could have a negative impact on our information technology systems or our internal controls over financial targetsreporting or disruptotherwise cause a material adverse effect on our relationships with our customers.business, 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 advantageadvantages is providing a positive, engaging and satisfying experienceexperiences for each individual customer,our customers, which requires us to have highly trained, engaged and engageddiverse associates. Our success depends in part upon our ability to attract, develop and retain a sufficient number of qualified associates, including store personnel and talented merchants. The turnover rate in the retail industry is generally high, and qualified individuals of the requisite caliber and number needed to fill these
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positions may be in short supply in some areas. Competition for such qualified individuals or changes in labor and healthcare laws could require us to incur higher labor costs. Our inability to recruit a sufficient number of qualified individuals in the future may delay planned openings of new stores or affect the speed with which we expand. Delayed store openings, significant increases in associate turnover rates or significant increases in labor-related costs could have a material adverse effect on our results of operations, financial condition and cash flows.
An increase in the costs of associate wages, benefits and insurance (including workers’ compensation, general liability, property and health) could adversely affect our operating results. In particular, labor shortages and the current competitive labor market have increased competition for qualified associates, which has compelled, and may continue to compel, us to pay higher wages to attract or retain qualified associates. Such increases in costs may result from general economic or competitive conditions or from government imposition of higher minimum wages at the federal, state or local level, including in connection with the increases in state minimum wages that have recently been enacted by various states. Moreover, there may be a long-term trend toward higher wages in developing markets. Any increase in such operating expenses could have a material adverse effect on our results of operations, financial results. Our continued involvement with Victoria’s Secret Holdco is also subjectcondition and cash flows.
Turnover in Company leadership or other key positions, and our ability to various arrangements,attract and conditions outsideretain new talent, may have an adverse impact on Company performance.
We may experience changes in key leadership or key positions in the future. The departure of our controlkey leadership personnel can result in the loss of significant knowledge and experience. This loss of knowledge and experience can be mitigated through successful hiring and transition, but there can be no assurance that we will be successful in such efforts. Attracting and retaining qualified senior leadership may be more challenging under adverse business conditions. Failure to attract and retain the right talent or to smoothly manage the transition of responsibilities resulting from such turnover could affect our future results.
Our net sales depend on a volume of traffic to our stores and the availability of suitable lease space.
Most of our stores are located in retail shopping areas including malls and other types of retail centers. Sales at these stores are derived, in part, from the volume of consumer traffic in those retail areas. Our stores benefit from the ability of the retail center and other attractions in an area, including “destination” retail stores, to generate consumer traffic in the vicinity of our stores. 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.
Part of our future growth is significantly dependent on our ability to operate stores in desirable locations with capital investment and lease costs providing the opportunity to earn a reasonable return. We cannot be sure as to when or whether such desirable locations will become available at reasonable costs. Some of our store locations require significant upfront capital investment and have material lease commitments. Additionally, we are dependent upon the suitability of the lease spaces that we currently use. The leases that we enter into are generally noncancelable leases with initial terms of 10 years. If we determine that it is no longer economical to operate a store and decide to close it, we may remain obligated under the applicable lease for, among other things, payment of the base rent for the balance of the lease term.
These risks could have a material adverse effect on our ability to grow and our results of operations, financial condition and cash flows.
Our ability to growcontinued growth and success depends in part on new store openings and existing store remodels and expansions.
Our continued growth and success will dependdepends 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. Accomplishing our new and existing store expansion goals will depend upon a number of factors, including the ability to partner with developers and landlords to obtain suitable sites for new and expanded stores at acceptable costs and on acceptable timelines, the hiring and training of qualified personnel and the integration of new stores into existing operations. 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. These risks could have a material adverse effect on our ability to grow and results of operations, financial condition and cash flows.
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Our international operations and our plans for international expansion include risks that could impact our results and reputation.
We intend to continue to operate internationally and further expand into international markets, including mainland China, through partner arrangements and/or company-owned stores.arrangements. The risks associated with our expansion into international markets include, among others, difficulties in attracting customers due to a lack of customer familiarity with our brands,brand, our lack of familiarity with local customer preferences, cultures or religious norms and seasonal differences in the market.international markets. Any of these difficulties may lead to disruption in the overall timing of our international expansion efforts orand increased costs. Further, entry into other markets may bring us into competition with new competitors or with existing competitors with an established market presence.presence in such markets. Other risks include general economic conditions in specific countries or markets, reliance on franchise and other partners that we do not control, volatility in the geopolitical landscape, restrictions on the repatriation of funds held internationally, disruptions or delays in shipments, occurrence of significant health hazards or pandemics, changes in diplomatic and trade relationships, political instability and foreign governmental regulation. For example, in December 2019, a strain of coronavirus was reported to have surfaced in Wuhan, China, resulting in temporary store closures and a decrease in consumer traffic in China. To date, this virus has begun to spread globally. We expect the coronavirus to negatively impact our results of operations, particularly in the Greater China business, and our plans for expansion in China, though the extent and duration of this impact remain uncertain. To the extent the impact of the coronavirus continues or worsens, we may have difficulty obtaining the materials necessary for the manufacturing of our products, factories which produce our products may remain closed for sustained periods of time and industry-wide shipment of products may be negatively impacts. Such expansions will also have upfront investment costs that may not be accompanied by sufficient revenues to achieve typical or expected operational and financial performance.
Further, our results of operations and financial condition may be adversely affected by fluctuations in currency exchange rates. See “Fluctuations in foreign currency exchange rates could impact our financial condition and results of operations” below.
These risks could have a material adverse effect on our results of operations, financial condition and cash flows.
Our licensees, franchisees and wholesalers could take actions that could harm our business or brand images.
We have global representation through digital sites and stores independently owned storesand/or operated by our franchise partners. Although we have criteria to evaluate and select prospective partners, the level of control we can exercise over our partners is limited, and the quality and success of their operations may be diminished by any number of factors beyond our control. For example, our partners may not have the business acumen or financial resources necessary to successfully operate stores in a manner consistent with our standards and may not hire and train qualified store managers and other personnel. Further, we have no control as to whether our partners comply with applicable laws and regulations in the international markets in which they operate. Our brand image and reputation may suffer materially, and our sales could decline, if our partners do not operate successfully. These risks could have an adverse effect on our results of operations, financial condition and cash flows.
Our direct channel businesses includebusiness includes risks that could have ana material adverse effect on our results.
Our direct operations arechannel (also referred to as digital or e-commerce) is subject to numerous risks that could have a material adverse effect on our results. Risksresults of operations, financial condition and cash flows. Such risks include, but are not limited to, the difficulty in recreating the in-store experience through our direct channels; domestic or international 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; and the failure of and risks related to the systems that operate 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 concerns, telecommunicationviolations, information technology and vendor system failures, and electronic break-ins, disruption of critical services caused by security threats and similar disruptions.
Our failure to maintain efficient and uninterrupted order-taking and fulfillment operations could also have a material adverse effect on our results.results of operations, financial condition and cash flows. We utilize third-party service providers for order management and for a majority of our fulfillment services. 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. 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 onlinedirect channel customers depends on their timely receipt of merchandise. If we encounter difficulties with the distribution facilities, or if the facilities were to shut down for any reason, including as a result of a pandemic, fire, natural disaster or work stoppage, we could face shortages of inventory; we could incur significantly higher costs and longer lead times associated with distributing our products to our customers; we could face regulatory scrutiny; and causeour customer dissatisfaction.may be dissatisfied.
Any of these issues could have a material adverse effect on our results of operations, financial condition and cash flows.
Our ability to protect our reputation could have a material adverse effect on our brand images.image.
Our ability to maintain our reputation is critical to our brand images.image. Our reputation could be jeopardized if we fail to maintain high standards for store and merchandise quality and integrity. Any negative publicity, including information publicized through traditional or social media platforms and similar venues such as blogs, websites and other forums, may affect our reputation and brand and, consequently, reduce demand for our merchandise, even if such publicity is unverified or inaccurate.
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Failure to comply with or the perception that the Company has failed to comply with ethical, social, product, labor, privacy, systems and data security and environmental standards, or related political considerations, could also jeopardize our reputation and potentially lead to various adverse consumer actions, including boycotts. Failure to comply with localapplicable laws and regulations, to maintain an effective system of internal controls, to maintain the security of customer, associate, third-party orand company information or to provide accurate and timely financial statement information could also hurt our reputation. Damage to our reputation or loss of consumer confidence for any of these or other reasons could have a material adverse effect on our results of operations, financial condition and cash flows, as well as require additional resources to rebuild our reputation.
Our ability, or perceived inability, to complete environmental, social and governance ("ESG") initiatives may have a material adverse effect on our reputation.
There has been an increased focus, including from investors and other stakeholders, the general public and U.S. and foreign governmental and nongovernmental organizations, on ESG initiatives, including with respect to climate change, greenhouse gas emissions, packaging and waste, diversity, equity and inclusion, worker pay and benefits, human rights, sustainable supply chain practices, animal health and welfare, deforestation and land, energy and water use. As part of our ongoing efforts, we maintain an ESG function to provide direction and coordinate ESG work throughout the Company. We anticipate increased public, regulatory and investor pressure to expand our disclosures in these areas, make further commitments, set additional targets or establish additional goals and take actions to meet them, which could expose us to market, operational, regulatory, legal and execution costs or risks. The metrics we disclose, whether they are based on the standards we set for ourselves or those set by others, may influence our reputation and the value of our brand. Our failure to achieve progress on our metrics and successfully achieve our targets and goals on a timely basis, or at all, could adversely affect our business, financial performance and growth. By electing to set and share publicly these metrics, targets and goals and expand upon our disclosures, our business may also face increased scrutiny related to ESG activities. As a result, we could damage our reputation and the value of our brand if we fail to act responsibly. 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.
We could also be affected by the physical effects of climate change and other environmental issues, to the extent such issues adversely affect the general economy, adversely impact our supply chain or our stores or increase the costs of our products and other supplies needed for our operations. 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.
We may not realize the anticipated benefits from our enterprise-wide profit optimization efforts to reduce expenses and improve operating efficiency in the business.
In February 2023, we announced that we are undertaking enterprise-wide profit optimization efforts to reduce expenses and improve operating efficiency in the business. We recently engaged external advisors to assist in a comprehensive analysis of margin expansion and expense reduction opportunities with the goal of positioning the business for improved profitability. The estimated cost savings associated with this effort are preliminary and may vary materially based on various factors including: time to execute these efforts and changes in management's assumptions and projections, which may be caused by a change in customer behavior due to macroeconomic conditions or otherwise. As a result of these events and circumstances, delays and unexpected costs may occur, which could result in our not realizing all, or any, of the anticipated benefits of these efforts.
If our marketing, advertising and promotional programs are unsuccessful, or if our competitors are more effective with their programs than we are, our revenue or results of operations, financial condition and cash flows may be adversely affected.
Customer traffic and demand for our merchandise are influenced by our advertising, marketing and promotional activities, the name recognition and reputation of our brandsbrand and the location of and service offered in our stores.stores and through our direct business. Although we use marketing, advertising and promotional programs to attract customers through various media, including social media, websites, mobile applications, email print and television,print, some of our competitors may expend more for their programs than we do or use different approaches than we do, which may provide them with a competitive advantage. Our programs may not be effective or could require increased expenditures, which could have a material adverse effect on our revenue and results of operations.
operations, financial condition and cash flows.
Our ability to adequately maintain, enforce and protect our trade names, trademarks and patents could have an impact on our brand imagesimage and ability to penetrate new markets.
We believe that our trade names, trademarks and patents are important assets and an essential element of our strategy. We have obtained or applied for federal registration of these trade names, trademarks and patents and have applied for or obtained registrations in many foreign countries. There can be no assurance that we will obtain such applied for registrations or that the registrations we obtain will prevent the imitation of our products or infringement or other violation of our intellectual property
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rights by others. In particular, the laws of certain foreign countries may not protect proprietary rights to the same extent as the laws of the U.S. If any third-partythird 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.
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. 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.
Our ability to compete favorably in our highly competitive segmentsegments of the retail industry could impact our results.results of operations, financial condition and cash flows.
The sale of women’s intimate and other apparel, personal care products and accessoriesretail 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. Brand image, marketing, design, price, service, assortment, quality, image presentation and fulfillment are all competitive factors in both the store-based and online channels.
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 shopping malls and centers and soretail 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 shopping malls andretail centers as our stores. In addition to competing for sales, we compete for favorable site locations and lease terms in shopping malls andretail centers.
Increased competition, combined with declines in mallstore and/or direct channel traffic, could result in price reductions, increased marketing expenditures and loss of pricing power and market share, any of which could have a material adverse effect on our results of operations, financial condition and cash flows.
Our ability to manage the life cyclecycles of our brandsbrand and to remain current with fashion trends and launch new product lines successfully could impact the image and relevance of our brands.brand.
Our success depends in part on management’s ability to effectively manage the life cyclecycles of our brands andbrand, to anticipate and respond to changing fashion preferences and consumer demands and to translate market trends into appropriate, salablesaleable product offerings in advance of the actual time of sale to the customer. We are dependent on certain product categories, and a decline in customer demand in these product categories could negatively impact our results of operations, financial condition and cash flows. Customer demands and fashion trends change rapidly. If we are unable to successfully anticipate, identify or react to changing stylespreferences or trends or we misjudge the market for our products or any new product lines, our sales will be lower, potentially resulting in significant amounts of unsold finished goods inventory. In response, we may be forced to increase our marketing promotions or price markdowns.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.
We may be impacted by our ability to adequately source, distribute and sell merchandise and other materials on a global basis.
We source merchandise and other materials directly in domestic and international markets and in our domestic market.markets. We distribute merchandise and other materials globally to our partners in international locations and to our stores. Many of our imports and exports are subject to a variety of customs regulations and international trade arrangements, including existing or potential duties, tariffs or safeguard quotas. We also compete with other companies for production facilities.
We also face a variety of other risks generally associated with doing business on a global basis. For example:
•political instability, geopolitical conflict, including the war between Russia and Ukraine, environmental hazards or natural disasters which could negatively affect international economies, financial markets and business activity;
•significant health hazards or pandemics, including the COVID-19 pandemic, which could result in closed factories, distribution centers and/or stores, reduced workforces, scarcity of raw materials and scrutiny or embargoing of goods produced in infected areas;
•imposition of new or retaliatory trade duties, sanctions or taxes and other charges on imports or exports;
•evolving, new or complex legal and regulatory matters;
•volatility in currency exchange rates;
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•local business practice and political issues (including issues relating to compliance with domestic or international labor standards) which may result in adverse publicity or threatened or actual adverse consumer actions, including boycotts;
•disruption due to labor disputes; and
•changing expectations regarding product safety due to new legislation or other factors.
Certain goods that we import are sourced from third-party suppliers in China. Our ability to successfully import such materials may be adversely affected by changes in U.S. laws. For example, in December 2021, the U.S. Congress passed the Uyghur Forced Labor Prevention Act (“UFLPA”), which imposed a presumptive ban on the import of goods to the U.S. that are made, wholly or in part, in the Xinjiang Uyghur Autonomous Region of China (“XUAR”) or by persons that participate in certain programs in the XUAR that entail the use of forced labor. U.S. Customs and Border Protection (“CBP”) has published both a list of entities that are known to utilize forced labor, and a list of commodities that are most at risk, such as cotton, tomatoes and silica-based products. Although none of our Chinese suppliers are located in the XUAR, we do not currently have full visibility to the entirety of each supplier's separate supply chains to be able to ensure that the raw materials or other inputs they use to manufacture their goods are not produced in the XUAR. 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. Among other consequences, such an outcome could result in negative publicity that harms our brand and reputation and could result in a delay or complete inability to import such materials, which could result in inventory shortages and greater supply chain compliance costs.
We also rely upon third-party transportation providers for substantially all of our product shipments, including shipments to and from our distribution centers, to our stores and to our customers. Our utilization of these delivery services for shipments is subject to risks, including increases in labor costs and fuel prices, which would increase our shipping costs, and associate strikes and inclement weather, which may impact our transportation providers’ ability to provide delivery services that adequately meet our shipping needs.
The COVID-19 pandemic has negatively impacted the illness, may make it difficult for our suppliersglobal economy, disrupted consumer spending and global supply chains and created significant volatility of financial markets. The COVID-19 pandemic continues to source raw materials in China, manufacture finished goods in China and export our products from China. Additionally, our suppliers throughout Asia source a significant amount of fabric from China. Ifhave the severity and reach of the coronavirus outbreak increases, there may be significant and material disruptionspotential to significantly impact our supply chain if the factories that manufacture our products, the distribution centers where we manage our inventory, or the operations of our logistics and operations,other service providers are disrupted, are temporarily closed or experience worker shortages. For instance, the COVID-19 pandemic previously caused, and may in the future cause, vessel, container and other transportation shortages, labor shortages and port congestion globally, which delayed, and may in the future delay, inventory orders and, in turn, deliveries to our customers and availability in our or our partners’ stores and e-commerce sites. Further, disruptions or delays in the manufacture and shipmentshipments may have negative impacts to pricing of certain components of our products, which may then have a material adverse effect on our results of operations. Our future performance will depend upon these andproducts. In addition, the other factors listed above, which are beyond our control, and the occurrence or deepening impact of one or moreCOVID-19 on macroeconomic conditions may impact the proper functioning of these events could have a material adverse effect on our results of operations, financial condition and cash flows.capital markets, foreign currency exchange rates, commodity prices and interest rates.
We rely on a number of vendor and distribution facilities located in the same vicinity, making our business susceptible to local and regional disruptions or adverse conditions.
To achieve the necessary speed and agility in producing our beauty, personal care and home fragrance products, we rely heavily on vendor and distribution facilities in close proximity to our headquarters in Central Ohio. As a result of geographic concentration of many of the vendor and distribution facilities that we rely upon, our operations are susceptible to local and regional factors, such as accidents, system failures, economic and weather conditions, natural disasters, demographic and population changes and other unforeseen events and circumstances. Any significant interruption in the operations of these facilities could lead to inventory issues, or increased costs or interruptions to our operations, which could have a material adverse effect on our results of operations, financial condition and cash flows.
A change in the relationship with our key vendors could have a material effect on our business.
We rely on a limited number of vendors to support our inventory purchasing needs. In 2022, our largest vendor supplied approximately 13% of our total merchandise purchases and our largest five vendors supplied approximately 38% of our total merchandise purchases on a combined basis. Our business depends on developing and maintaining close relationships with our vendors and on our vendors’ ability or willingness to sell quality products to us at favorable prices and on other favorable terms. Many factors outside of our control may harm these relationships and the ability or willingness of these vendors to sell us products on favorable terms. For example, financial or operational difficulties that our vendors may face could increase the cost of the products we purchase from them or our ability to source products from them.
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We may be impacted by our vendors’ ability to manufacture and deliver products in a timely manner, meet quality standards and comply with applicable laws and regulations.
We purchase products from third-party vendors. Factors outside our control, such as production issues, shipping delays, quality problems or natural disasters, could disrupt merchandise deliveries and result in lost sales, cancellation charges or excessive markdowns.
In addition, quality problems could result in product liability judgments or widespread product recalls that may negatively impact our sales and profitability for a period of time depending on product availability, reaction of competitors and consumer attitudes. 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. While our internal and vendor operating guidelines promote ethical business practices and our associates and third-party compliance auditors visit and monitor the operations of our third-party vendors, we do not control these vendors or their practices. Violations of labor, environmental or other laws by third-party vendors used by us or the divergence of a third-party vendor’s or partner’s labor or environmental practices from those generally accepted as ethical or appropriate could interrupt or otherwise disrupt the shipment of finished products to us or damage our reputation.
These risks could have a material adverse effect on our results of operations, financial condition and cash flows.
Fluctuations in foreign currency exchange rates could impact our results of operations, financial condition and results of operations.cash flows.
We are exposed to foreign currency exchange rate risk with respect to our sales, profits, assets and liabilities denominated in currencies other than the U.S. dollar. In addition, our royalty arrangements are calculated based on sales in local currency and, as such, we are exposed to foreign currency exchange rate fluctuations. Although we use foreign currency forward contracts to hedge certain foreign currency risks, these measures may not succeed in offsetting all of the short-term negative impacts of foreign currency rate movements on our business and results of operations.operations, financial condition and cash flows. Hedging would generally not be effective in offsetting the long-term impact of sustained shifts in foreign exchange rates on our business results. As a result, the fluctuation in the value of the U.S. dollar against other currencies could have a material adverse effect on our results of operations, financial condition and cash flows.
Our results may be affected by fluctuations in product input costs.
Product input costs, including freight, labor and raw materials, fluctuate subject to price volatility caused by any fluctuation in aggregate supply and demand or other external conditions, such as inflationary conditions, weather and climate conditions, geopolitical conflicts and wars, energy costs, natural events or disasters, taxes and tariffs (including as a result of trade disputes), industry demand, labor shortages, transportation issues, fuel costs, product recalls, governmental regulation and other factors, all of which are beyond our control and in many instances are unpredictable. These factors may result in an increase in our product input costs. We may not be able to, or may elect not to, fully pass these increases on to our customers which may adversely impact our profit margins. These risks could have a material adverse effect on our results of operations, financial condition and cash flows.
Our results may be affected by fluctuations in energy costs.
Energy costs have fluctuated in the past and may fluctuate in the future due to changes in factors beyond our control, such as weather and climate conditions or natural events or disasters, taxes and tariffs (including as a result of trade disputes), industry demand, high demand for renewable energy, inflationary conditions, labor shortages, transportation issues, fuel costs, geopolitical conflicts and wars, governmental regulation and other factors. These fluctuations may result in an increase in our transportation costs for distribution, utility costs for our retail stores, distribution centers and other Company locations and costs to purchase products from our manufacturers. A continual rise in energy costs could adversely affect consumer spending and demand for our products and increase our operating costs, both of which could have a material adverse effect on our results of operations, financial condition and cash flows.
Our results may be impacted by our ability to adequately protect our assets from loss and theft.
Our assets are subject to loss, including those caused by illegal or unethical conduct by associates, customers, vendors, partners or unaffiliated third parties. We experience events that cause inventory shrinkage, and we cannot assure that incidences of loss and theft will decrease in the future or that the measures we are taking will effectively reduce these losses. Higher rates of loss
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or increased security costs to combat theft could have a material adverse effect on our results of operations, financial condition and cash flows.
We may be impacted by increases in the cost of mailing, paper, printing or other order fulfillment logistics.
Postal rate increases and paper and printing costs will affect the cost of our order fulfillment and promotional mailings. We rely on discounts from the basic postal rate structure, such as discounts for bulk mailings and sorting. Future paper and postal rate increases could adversely impact our earnings if we are unable to recover these costs or if we are unable to implement more efficient printing, mailing, delivery and order fulfillment systems. We may face unexpected costs in transportation, warehousing or other logistics-related services. These risks could have a material adverse effect on our results of operations, financial condition and cash flows.
We self-insure certain risks and may be impacted by unfavorable claims experience.
We are self-insured for various types of insurable risks including associate medical benefits, workers’ compensation, property, general liability and automobile, up to certain stop-loss limits. Claims are difficult to predict and may be volatile. Any adverse claims experience could have a material adverse effect on our results of operations, financial condition and cash flows.
We significantly rely on our and our third-party service providers', including Victoria's Secret & Co., ability to implement and sustain information technology systems and to protect associated data and system availability.
Our success depends, in part, on the secure and uninterrupted performance of our and our third-party service providers' and vendors' information technology systems. Our information technology systems, as well as those of our service providers and vendors, are vulnerable to damage, interruption, service availability or breach from a variety of sources, including cyberattacks, ransomware attacks, telecommunication failures, malicious human acts and natural disasters. Moreover, despite maintaining comprehensive measures, some of our systems, e-commerce environments and servers and those of our service providers and vendors are potentially vulnerable to physical or electronic break-ins, malware (including, without limitation, ransomware), computer viruses and similar disruptive problems. Such incidents have disrupted, and could in the future further disrupt, our operations (whether directly or due to disruptions of our service providers’ and vendors’ operations) including our ability to timely ship and track product orders and project inventory requirements and lead to interruptions or delays in our supply chain. Additionally, these types of problems could result in an actual or perceived breach of confidential customer, merchandise, financial, associate or other important information (including personal information), which could result in damage to our reputation, costly litigation, customer complaints, negative publicity, breach notification obligations, regulatory or administrative sanctions, inquiries, orders or investigations, indemnity obligations, damages for contract breach or penalties for violations of applicable laws or regulations. The increased use of smartphones, tablets and other mobile devices may also heighten these and other operational risks. Despite the precautions we have taken, unanticipated problems or events may nevertheless cause failures in, or unauthorized access to, our and our third-party service providers’ and vendors' information technology systems. Sustained or repeated system disruptions that interrupt our ability to process orders and deliver products to the stores or directly to our customers, impact our ability to process transactions in our stores, impact our customers’ ability to access our websites and mobile applications in a timely manner or expose confidential customer, merchandise, financial, associate or other important information (including personal information) could have a material adverse effect on our results of operations, financial condition and cash flows.
We are party to a multi-year Transition Services Agreement with Victoria's Secret & Co. for certain information technology services and systems to support the day-to-day needs for most areas of technology. Over time, we will transition these information technology capabilities from Victoria's Secret & Co. to implement point-of-sale, mobile applications, merchandising, planning, sourcing, logistics, inventory management, human resources and financial systems to the platforms of our other third-party service providers and vendors or on to our own platforms, some of which are yet to be established.
As systems are provided, supported and managed by Victoria's Secret & Co. and transitioned to us or our third-party service providers or vendors, we are required to establish a number of new information technology systems as well as make hardware, software and code modifications and upgrades to certain existing information technology systems. The transition involves replacing existing systems with successor systems, making changes to existing systems, acquiring new systems with new functionality and engaging with qualified third-party service providers and vendors to utilize their systems. We are aware of inherent risks associated with replacing and modifying our information technology systems as well as the risks of transitioning information technology services to third-party service providers and vendors, including in each case risks relative to data integrity, internal controls over financial reporting and system disruptions. Information technology system disruptions or data corruption, if not appropriately mitigated, could have a material adverse effect on our results of operations, financial condition and cash flows.
We use, and as part of the transition of information technology services from Victoria’s Secret & Co. will increasingly use, third-party service providers to store, transmit and otherwise process certain of this information on our behalf, and our third-party service providers are subject to cybersecurity and privacy risks similar to us. Due to applicable laws and regulations or
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contractual obligations, we may be held responsible for any cybersecurity incidents or privacy violations attributed to our service providers as they relate to the information we share with them or to which they are granted access. Although we contractually require these service providers to implement and maintain a standard of security (such as implementing reasonable measures) and comply with applicable law, we cannot control third parties and cannot guarantee that a security breach or privacy violation will not occur in connection with their systems and practices.
Any significant compromise or breach of our data security, including the security of customer, associate, third-party or Company information, could have a material adverse effect on our reputation, results of operations, financial condition and cash flows.
In the operation of our business, we collect, use, transmit and otherwise process a large volume of personal and other confidential, proprietary and sensitive information. Information systems are susceptible to an increasing threat of continually evolving cybersecurity risks. Breaches or failures of security involving our information systems, including those provided, managed and supported by Victoria's Secret & Co., or those of any of our other third-party service providers have occurred, and in the future may occur. Any significant compromise or breach of our data security, media reports about such an incident, whether accurate or not, or our failure to make adequate or timely disclosures to the public or law enforcement agencies following any such event, whether due to delayed discovery or a failure to follow existing protocols, could significantly damage our reputation with our customers, associates, investors and other third parties, cause the disclosure of personal, confidential, proprietary or sensitive customer, associate, third-party or Company information, cause interruptions to our operations and distraction to our management, cause our customers to stop shopping with us, inhibit our ability to attract new customers and result in significant legal, regulatory and financial liabilities and lost revenues. Compounding these risks is the complexity of our information systems, which are a collection of our and our third-party service providers’ systems, and increased associated risks related to transitioning information systems from Victoria's Secret & Co. to other third-party service providers and us.
While we train our associates, have implemented systems, processes and security measures to protect our physical facilities and information technology systems against unauthorized access and prevent data loss and vetted our third-party service providers' systems, processes and security measures, there is no guarantee that these procedures are adequate to safeguard against all data security threats to us or our third-party service providers. Despite these measures, we have been and may in the future be vulnerable to targeted or random attacks on our systems that could lead to security breaches, denial of service, vandalism, computer viruses, malware, ransomware, misplaced, corrupted or lost data, programming and/or human errors or similar events. Our systems and facilities (and the systems of our third-party service providers) are also subject to compromise from internal threats, such as theft, misuse, unauthorized access or other improper actions by associates, contractors and third-party service providers with otherwise legitimate access to our (or such third-party service providers') systems, websites, mobile applications or facilities (which risks may be heightened as a result of our associates working-from-home). Furthermore, because the methods of cyberattack and deception change frequently, are increasingly complex and sophisticated and can originate from a wide variety of sources, including nation-state actors, despite our reasonable efforts to ensure the confidentiality, availability and integrity of our systems, websites and mobile applications, it is possible that we may not be able to anticipate, detect, appropriately react and respond to or implement effective preventative measures against all cybersecurity incidents, and our third-party service providers may be subject to the same risks.
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. As cybersecurity incidents continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities. In addition, our remediation efforts may not be successful or may not be completed in a timely manner. The inability to implement, maintain and upgrade adequate safeguards could have a material adverse effect on our results of operations, financial condition and cash flows. Moreover, there could be public announcements regarding any cybersecurity incidents and any steps we take to respond to or remediate such incidents, and if securities analysts or investors perceive these announcements to be negative, it could, among other things, have a substantial adverse effect on the price of our common stock.
While we currently maintain cybersecurity insurance, such insurance may not be sufficient in type or amount to cover us against claims related to breaches, violations of law, failures or other data security-related incidents, and we cannot be certain that cyber insurance will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim. 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.
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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 industry. Any guidance that we provide is based on goals that we believe are reasonably attainable at the time guidance is given. If, or when, we announce actual results that differ from those that have been predicted by us, outside investment analysts or others, our stock price could be adversely affected. Investors who rely on these predictions when making investment decisions with respect to our securities do so at their own risk.
Quarterly cash dividends and share repurchase programs have historically been part of our capital allocation strategy. We are not required to declare dividends or make any share repurchases under our share repurchase programs in the future. For example, in 2020, we did not repurchase any of our shares, and we suspended our quarterly cash dividends due to the anticipated covenant breach or to obtain a replacement credit facility without a similar covenant, our lenders would have the right to accelerate our Secured Revolving Facility indebtedness, demand cash collateral in respectimpact of the lettersCOVID-19 pandemic. Our Board will determine our future levels of credit issued thereunderdividend payments and terminateshare repurchase authorizations, if any, giving consideration to our levels of profit and cash flow, capital requirements, current and forecasted liquidity and the funding commitments available thereunder. If this occurs,restrictions placed upon us by our borrowing arrangements, as well as financial and other conditions which may be beyond our control. Any reduction, or failure, to pay dividends or repurchase our shares after we might not be ablehave announced our intention to repaydo so may negatively impact our debt or borrow sufficient funds to refinance it. Even if new financing is available, it may not be on terms that are acceptable to us.reputation, investor confidence in us and our stock price.
Shareholder activism could cause us to incur significant expense, hinderimpact the execution of our business strategy and impacthave an adverse effect on our stock price.business.
Shareholder activism, which can take many forms and arise in a variety of situations, could result in substantial costs and divert management’s and our board’s attention and resources from our business.business and our ability to execute our strategic plans. Additionally, such shareholder activism could give rise to perceived uncertainties as to our future, adversely affect our relationships with our associates, customers or service providers and make it more difficult to attract and retain qualified personnel. Also, we may be required to incur significant fees and other expenses related to activist shareholder matters, including for third-party advisors. Our stock price could be subject to significant fluctuation or otherwise be adversely affected by the events, risks and uncertainties of any shareholder activism.
Our ability to manufacturemaintain our credit ratings could affect our ability to access capital and deliver productscould increase our interest expense.
The credit rating agencies periodically review our capital structure and the quality and stability of our earnings. A deterioration in a timely manner, meetour capital structure or the quality standards and comply with applicable laws and regulations.
We may be unable to service or refinance our debt or maintain compliance with restrictive covenants in our debt instruments, including our asset-backed revolving credit facility.
We currently have substantial indebtedness. Our asset-backed revolving credit facility (the "ABL Facility") contains a covenant and negative covenants that under certain circumstances require maintenance of a certain financial ratio and also, under certain conditions, restrict our ability to pay dividends, repurchase shares of our common stock and make other restricted payments as defined in the agreement. Our cash flow from operations provides the primary source of funds for our debt service payments. If our cash flow from operations declines, we may be unable to service or refinance our current debt. If we fail to comply with any covenant, including our financial covenant, it could result in an event of default and our lenders could terminate the commitments under our ABL Facility and make the entire debt incurred thereunder immediately due and payable, or we may be forced to sell assets, restructure our indebtedness or seek additional equity capital, which would dilute our stockholders’ interests.
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The interest rates on our credit facilities may be impacted by increases in coststhe phase-out of mailing, paperLIBOR and printing.the transition to the Secured Overnight Financing Rate (“SOFR”).
Changes in laws, regulations or regulationstechnology platform rules relating to data 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 data privacy and data security, could have a material adverse effect on our reputation, results of operations, financial condition and cash flows.
We are, and may increasingly become, subject to various laws, directives, industry standards and regulations, as well as contractual obligations, relating to data privacy and data security in the jurisdictions in which we operate and may in the future operate. The legal and regulatory environment related to data privacy and data security is increasingly rigorous, with new and constantly changing requirements applicable to our business, and enforcement practices are likely to remain uncertain for the foreseeable future. These laws and regulations may be interpreted and applied differently over time and from jurisdiction to jurisdiction, and it is possible that theythe laws and regulations will be interpreted and applied in ways that may have a material adverse effect on our results of operations, financial condition and cash flows.
In the U.S., variousprivacy and data protection are regulated at federal, state and local levels. Various federal and state regulators, including governmental agencies like the Consumer Financial Protection Bureau and the Federal Trade Commission, have adopted, or are considering adopting, laws and regulations concerning personal informationprivacy and data security.security and have prioritized privacy and data security violations for enforcement actions. Certain state laws are, and in the future may continue to be, more stringent or broader in scope, or offer greater individual rights, with respect to personal information than federal, international or other state laws, and such laws may differ from each other, all of which may complicatecomplicates compliance efforts.efforts and increases risks to our business.
These laws and regulations range from the “sectoral” variety (i.e., laws that govern specific practices, services or technologies) to omnibus laws (i.e., laws that comprehensively seek to govern all aspects of data processing practices). As an omnichannel retailer, we are subject to both.
In North America, we are subject to sectoral laws that impose different enforcement regimes, whether enforced by government agencies or class action litigants, with fines and statutory damages that can result in significant exposure when applied to large customer segments. Illustrative of the sectoral variety are laws that govern telephonic communications (e.g., the Federal Telephone Consumer Protection Act), email communications (e.g., the Federal Controlling the Assault of Non-Solicited Pornography and Marketing Act and Canada’s Anti-Spam Legislation), the use of biometric technology (e.g., the Illinois Biometric Information Privacy Act), the printing of payment card numbers on certain transaction receipts (e.g., the Federal Fair and Accurate Credit Transactions Act), the use of call recordings (e.g., federal and state laws governing unlawful surveillance and consent for recordings), the collection of consumer information at retail point of sale (e.g., the California Song-Beverly Act), and the collection of driver’s license information (e.g., state laws governing the scanning of government identification).
We are further subject to omnibus privacy and data protection laws. For example, the California Consumer Privacy Act (“CCPA”), which broadly governs data privacy practices, increases privacy rights for California residents and imposes obligations on companies that process their personal information, went into effect on January 1, 2020.information. Among other things, the CCPA requires covered companies to provide new disclosures to California consumers and provide such consumers new data protection and privacy rights, including the ability to opt-out of certain salesdisclosures of their personal information and the ability to access and delete personal information. 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. Furthermore, the California Privacy Rights Act of 2020 (“CPRA”) became effective on January 1, 2023. The CPRA imposes additional obligations on companies covered by the legislation, including by expanding California residents’ rights with respect to certain sensitive personal information. The CPRA also created a new state agency that is vested with authority to implement and enforce the CCPA and CPRA. 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. In addition, laws in all 50 U.S. states require businesses to provide notice to
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consumers whose(and, in some cases, to regulators) of data breaches, which are when certain types of personal information hashave been disclosed as a result of a data breach.accessed or acquired without authorization. State laws are changing rapidly, and there is discussionare deliberations in Congress regarding the text of a new comprehensive federal data privacy law to which we would become subject if it is enacted. Such a law could add complexity, variation in requirements, restrictions and potential legal risk. Moreover, it could require additional investment of resources in compliance programs, impact strategies and the availability of previously useful data and result in increased compliance costs or changes in business practices and policies.
All of these evolving compliance and operational requirements impose significant costs, such as costs related to organizational changes, investing in and implementing additional data protection technologies and other safeguards and training associates and engaging consultants, which are likely to increase over time. 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. 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 data 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 wouldcould subject us to significant fines, sanctions, awards, penalties or judgments, allany of which could have a material adverse effect on our results of operations, financial condition and cash flows.
We may be impacted by our ability to comply with legal and regulatory requirements.
We are subject to numerous legal and regulatory requirements. Our policies, procedures and internal controls are designed to comply with all applicable foreign and domestic laws and regulations, including those required by the Sarbanes-Oxley Act of 2002, the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, the SEC and the New York Stock Exchange (the “NYSE”),NYSE, among others. Although we have put in place policies and procedures aimed at ensuring legal and regulatory compliance, our
associates, subcontractors, vendors, licensees, franchisees and other third parties could take actions that violate these laws and regulations. Any violations of such laws or regulations could have an adverse effect on our reputation, the market price of our common stock and our results of operations, financial condition and cash flows.
It can be difficult to comply with sometimes conflicting statutes or regulations in local, national or foreign jurisdictions as well as new or changing laws and regulations. Also, changes in such laws and regulations could make operating our business more expensive or require us to change the way we do business. For example, changes in product safety or other consumer protection laws could lead to increased costs for certain merchandise or additional labor costs associated with readying merchandise for
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sale. 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. Congress has greatly increased the complexity of legal compliance for us. It may be difficult for us to oversee regulatory changes impacting our business, and our responses to changes in the law couldcomply 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. Actions filed against us from time to time include commercial, tort, intellectual property, tax, customer, employment, wage and hour, data privacy, securities, anti-corruption and other claims, including purported class action lawsuits. The cost of defending against these types of claims against us or the ultimate resolution of such claims, whether by settlement or adverse court decision, may harm our business. Further, potential claimants may be encouraged to bring suits based on a settlement from us or adverse court decisions against us. We cannot currently assess the likely outcome of such suits, but if the outcome were negative, it could have a material adverse effect on our reputation, results of operations, financial condition and cash flows.
In addition, we may be impacted by litigation trends, including class action lawsuits involving consumers and shareholders,stockholders, that could have a material adverse effect on our reputation, the market price of our common stock and our results of operations, financial condition and cash flows.
We may be impacted by changes in taxation, trade and other regulatory requirements.
We are subject to income tax in local, national and international jurisdictions. In addition, our products are subject to import and excise duties and/or sales or value-added taxes in many jurisdictions. We are also subject to the examination of our tax returns and other tax matters by the Internal Revenue ServiceIRS and other tax authorities and governmental bodies. We regularly assess the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of our provision for taxes. There can be no assurance as to the outcome of these examinations. Fluctuations in tax rates and duties, changes in tax legislation or regulation or adverse outcomes of these examinations could have a material adverse effect on our results of operations, financial condition and cash flows.
There is increased uncertainty with respect to tax policy and trade relations between the U.S. and other countries.countries, including as a result of any executive action taken or legislative priorities set by the current U.S. presidential administration. Major developments in tax policy or trade relations, such as the imposition of unilateral tariffs on imported products, could have a material adverse effect on our results of operations, financial condition and cash flows.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
Company-operated
The following table provides the location, use and size of our Company-operated distribution, corporatefulfillment, office and product development facilities as of February 1, 2020:
January 28, 2023:
| Location | Use | Approximate Square Footage | |||||||||||||
| Columbus, Ohio area | |||||||||||||||
| Office | |||||||||||||||
We also lease various other office and product development/design locations in North America, primarily in New York and Kettering, Ohio.York.
As of February 1, 2020,January 28, 2023, we operate 2,690operated 1,693 and 109 retail stores located in leased facilities primarily in malls and shopping centers, throughout the U.S. and Canada, respectively. A substantial portion of these lease commitments consists ofour U.S. store leases generally withhave an initial term of 10 years, while our Canadian store leases generally have initial terms of 5 to 10 years. TheOur store leases expire at various dates between 20202023 and 2033.2034.
23
We lease officesutilize six permanent third-party operated direct channel fulfillment centers in the Montreal, Quebec, and Toronto, Ontario, areas.North America, comprising approximately 3.2 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.
International Partner-operated Stores
As of February 1, 2020, we operate 140January 28, 2023, our partners operated 427 retail stores located in leased facilities, primarily in malls and shopping centers, throughout the Canadian provinces. These lease commitments consist of store leases with initial terms of 5 to 10 years expiring on various dates between 2020 and 2030.
ITEM 3. LEGAL PROCEEDINGS.
We are a defendant in a variety of lawsuits arising in the ordinary course of business. Actions filed against our Company from time to time include commercial, tort, intellectual property, tax, customer, employment, wage and hour, data privacy, securities, anti-corruption and other claims, including purported class action lawsuits. Although it is not possible to predict with certainty the eventual outcome of any litigation, in the opinion of management, our current legal proceedings are not expected to have a material adverse effect on our results of operations, financial condition and cash flows.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
24
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information
Our common stock (“LB”) is traded on the NYSE. As of February 1, 2020, there wereJanuary 28, 2023, the Company had approximately 34,000 shareholders30,000 stockholders of record. However, including active associates who participate in our associate stock purchase plan, associates who own shares through our sponsored retirement plansplan and others holding shares in broker accounts under street names, we estimate the shareholder base as of January 28, 2023 to be approximately 138,000.222,000.
We paid a quarterly dividend of $0.20 per share during each quarter of 2022. Our Board will determine future dividends after giving consideration to our quarterly market priceslevels of profit and cash dividends per share for 2019flow, capital requirements, current and 2018:
| Market Price | Cash Dividend per Share | ||||||||||
| High | Low | ||||||||||
| 2019 | |||||||||||
| Fourth quarter | $ | 23.63 | $ | 15.80 | $ | 0.30 | |||||
| Third quarter | 24.09 | 15.82 | 0.30 | ||||||||
| Second quarter | 28.02 | 21.45 | 0.30 | ||||||||
| First quarter | 29.02 | 24.73 | 0.30 | ||||||||
| 2018 | |||||||||||
| Fourth quarter | $ | 38.00 | $ | 23.71 | $ | 0.60 | |||||
| Third quarter | 33.97 | 25.89 | 0.60 | ||||||||
| Second quarter | 38.14 | 30.42 | 0.60 | ||||||||
| First quarter | 51.13 | 33.88 | 0.60 | ||||||||
Performance Graph
The following graph shows the changes, over the past five-year period, in the value of $100 invested in our common stock, the Standard & Poor’s ("S&P") 500 Composite Stock Price Index and the Standard & Poor’s 500 Retail Composite Index.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN (a)(b) (c)
AMONG L BRANDS,BATH & BODY WORKS, INC., THE S&P 500 INDEX AND THE S&P 500 RETAIL COMPOSITE INDEX
_______________
(a)This table represents $100 invested in stock or in index at the closing price on February 3, 2018, including reinvestment of dividends.
(b)Stock prices prior to August 3, 2021 have been adjusted to give effect to the Victoria's Secret & Co. spin-off.
25
Common Stock Repurchases
The following table provides our repurchases of our common stock during the fourth quarter of 2019:2022:
| Period | Total Number of Shares Purchased (a) | Average Price Paid per Share (b) | Total Number of Shares Purchased as Part of Publicly Announced Programs (c) | Maximum Dollar Value of Shares that May Yet be Purchased Under the Programs (c) | ||||||||||
| (in thousands) | (in thousands) | |||||||||||||
| November 2019 | 20 | $ | 17.17 | — | $ | 78,677 | ||||||||
| December 2019 | 5 | 18.26 | — | 78,677 | ||||||||||
| January 2020 | 8 | 22.91 | — | 78,677 | ||||||||||
| Total | 33 | — | ||||||||||||
| Fiscal Period | Total Number of Shares Purchased (a) | Average Price Paid per Share (b) | Total Number of Shares Purchased as Part of Publicly Announced Programs (c) | Maximum Dollar Value of Shares that May Yet be Purchased Under the Programs (c) | ||||||||||||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||||||||||||
| November 2022 | 5 | $ | 33.07 | — | $ | 187,775 | ||||||||||||||||||||
| December 2022 | 7 | 41.27 | — | 187,775 | ||||||||||||||||||||||
| January 2023 | 2 | 43.72 | — | 187,775 | ||||||||||||||||||||||
| Total | 14 | — | ||||||||||||||||||||||||
(b)The average price paid per share includes any broker commissions. (c) |
| Fiscal Year Ended | ||||||||||||||||||||
| February 1, 2020 | February 2, 2019 | February 3, 2018 (a) | January 28, 2017 | January 30, 2016 | ||||||||||||||||
| Summary of Operations | (in millions) | |||||||||||||||||||
| Net Sales | $ | 12,914 | $ | 13,237 | $ | 12,632 | $ | 12,574 | $ | 12,154 | ||||||||||
| Gross Profit | 4,450 | 4,899 | 4,959 | 5,125 | 5,204 | |||||||||||||||
| Operating Income (b) | 258 | 1,237 | 1,728 | 2,003 | 2,192 | |||||||||||||||
| Net Income (Loss) (c) | (366 | ) | 644 | 983 | 1,158 | 1,253 | ||||||||||||||
| (as a percentage of net sales) | ||||||||||||||||||||
| Gross Profit | 34.5 | % | 37.0 | % | 39.3 | % | 40.8 | % | 42.8 | % | ||||||||||
| Operating Income | 2.0 | % | 9.3 | % | 13.7 | % | 15.9 | % | 18.0 | % | ||||||||||
| Net Income (Loss) | (2.8 | %) | 4.9 | % | 7.8 | % | 9.2 | % | 10.3 | % | ||||||||||
| Per Share Results | ||||||||||||||||||||
| Net Income (Loss) Per Basic Share | $ | (1.33 | ) | $ | 2.33 | $ | 3.46 | $ | 4.04 | $ | 4.30 | |||||||||
| Net Income (Loss) Per Diluted Share | $ | (1.33 | ) | $ | 2.31 | $ | 3.42 | $ | 3.98 | $ | 4.22 | |||||||||
| Dividends Per Share | $ | 1.20 | $ | 2.40 | $ | 2.40 | $ | 4.40 | $ | 4.00 | ||||||||||
| Weighted Average Diluted Shares Outstanding (in millions) | 276 | 279 | 287 | 291 | 297 | |||||||||||||||
| Other Financial Information | (in millions) | |||||||||||||||||||
| Cash and Cash Equivalents | $ | 1,499 | $ | 1,413 | $ | 1,515 | $ | 1,934 | $ | 2,548 | ||||||||||
| Total Assets (d) | 10,125 | 8,090 | 8,149 | 8,170 | 8,493 | |||||||||||||||
| Working Capital (d) | 873 | 1,274 | 1,262 | 1,451 | 2,281 | |||||||||||||||
| Net Cash Provided by Operating Activities | 1,236 | 1,377 | 1,406 | 1,990 | 2,027 | |||||||||||||||
| Capital Expenditures | 458 | 629 | 707 | 990 | 727 | |||||||||||||||
| Long-term Debt | 5,487 | 5,739 | 5,707 | 5,700 | 5,715 | |||||||||||||||
| Other Long-term Liabilities (d) | 490 | 1,004 | 924 | 831 | 904 | |||||||||||||||
| Shareholders’ Equity (Deficit) | (1,499 | ) | (869 | ) | (753 | ) | (729 | ) | (259 | ) | ||||||||||
| Comparable Sales Increase (Decrease) (e) | (1 | %) | 3 | % | (3 | %) | 2 | % | 5 | % | ||||||||||
| Comparable Store Sales Increase (Decrease) (e) | (3 | %) | (1 | %) | (4 | %) | 1 | % | 5 | % | ||||||||||
| Return on Average Assets (d) | (4 | %) | 8 | % | 12 | % | 14 | % | 16 | % | ||||||||||
| Current Ratio (d) | 1.4 | 1.6 | 1.6 | 1.7 | 2.2 | |||||||||||||||
| Stores and Associates at End of Year | ||||||||||||||||||||
| Number of Stores (f) | 2,920 | 2,943 | 3,075 | 3,074 | 3,005 | |||||||||||||||
| Selling Square Feet (in thousands) (f) | 12,258 | 12,396 | 12,656 | 12,395 | 11,902 | |||||||||||||||
| Number of Associates | 94,400 | 88,900 | 93,200 | 93,600 | 87,900 | |||||||||||||||
For additional share repurchase program information, on these special items, see the NotesNote 15 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.
ITEM 6. [Reserved]
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis of financial condition and results of operations areis based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") as codified in the Accounting Standards Codification.Codification ("ASC"). The following information should be read in conjunction with our financial statements and the related notes included in Item 8.8. Financial Statements and Supplementary Data.
Our operating results are generally impacted by economic changes and, therefore, we monitor the retail environment using, among other things, certain key industry performance indicators including competitor performance and mallstore traffic data. These indicators can provide insight into consumer spending patterns and shopping behavior in the current retail environment and assist us in assessing our performance as well as the potential impact of industry trends on our future operating results. Additionally, we evaluate a number of key performance indicators including comparable sales, gross profit, operating income and other performance metrics such as sales per average selling square foot and inventory per selling square foot in assessing our performance.
A discussion regarding our Financial Condition and Results of Operations for 2022 compared to Sycamore2021 (including the fourth quarter thereof) is presented below. A discussion regarding our Financial Condition and Results of Operations for proceeds2021 compared to 2020 (including the fourth quarter thereof) can be found under Item 7. of approximately $525 million. The transaction is designed to best positionPart II of our brandsAnnual Report on Form 10-K for long-term success and drive shareholder value, and we believe this transaction will highlight the value and performanceyear ended January 29, 2022, filed with the SEC on March 18, 2022.
Executive Overview
Fiscal 2022 was our first full-year as a standalone company following the separation of the standalone Bath & Body Works business, enhance management focus and reduce structural complexity.
26
•Assessed and retaining top talent;reacted quickly to a dynamic and challenging macroeconomic environment that included significant inflationary pressures, labor shortages and global supply chain challenges.
•Completed the construction of our first direct fulfillment distribution center, which we expect will provide us with additional capacity for our direct channel and investingenhanced fulfillment capabilities for our business.
•Accelerated our information technology separation from Victoria’s Secret & Co. to support our long-term growth and profitability.
•Expanded BOPIS availability to over 800 more Company-operated stores, ending the year with BOPIS capabilities in talented, trained and productive store associates.
Fiscal 2022 Overview
For 2022, Net Sales decreased $322 million, or 4%, to $7.560 billion, compared to 2021. In our stores and direct channels, Net Sales decreased 4% to $5.476 billion, and 8% to $1.745 billion, respectively. In the stores channel, the decrease was primarily related to a decline in average dollar sales, partially offset by declines at Victoria’s Secret. Our net sales decreased $323 millionthe incremental Net Sales originating from new stores. In the direct channel, the decrease was primarily related to $12.914 billion primarily driven by Victoria's Secret and the sale of La Senza and closure of Henri Bendela decline in the fourth quarter of 2018. Our operating income decreased $979 millionorders. In our international business, Net Sales increased 20% to $258$339 million primarily due to Victoria's Secret underperformance,the increases in partner-operated stores and goodwille-commerce sites.
For 2022, our Gross Profit decreased $600 million, or 16%, to $3.255 billion compared to 2021, and long-lived store asset impairment charges. Our operating incomeour Gross Profit rate (expressed as a percentage of Net Sales) decreased to 2.0% from 9.3%.
Taking the operating loss increased by $199above into account, for 2022 our Operating Income decreased $633 million, primarily driven by store assetor 32%, to $1.376 billion compared to 2021, and goodwill impairment charges in Greater China.our Operating Income rate (expressed as a percentage of Net Sales) decreased 730 basis points.
For additional information related to our 20192022 financial performance, see “Results of Operations – 20192022 Compared to 2018.2021.”
Fiscal 2023 Outlook
We expect ongoing macroeconomic uncertainty and customer price sensitivity in 2023. We expect fourth quarter 2022 sales trends to continue for the first half of 2023 and a moderate improvement in the back half of the year as we lap softening sales trends. We also expect inflationary cost pressures will continue in the first quarter and begin to moderate as we move through the year. In response, we will continue to test opportunities to increase our average unit retail prices and expand margin. Buying and Occupancy Expenses are expected to deleverage driven by the expected lower Net Sales and our anticipated investments in fulfillment and logistics capabilities to drive omnichannel growth, partially offset by the expected benefits of our profit optimization work (discussed below). General, Administrative and Store Operating Expenses are expected to deleverage primarily driven by our investments in customer-facing associate wages and technology separation, partially offset by the expected benefits of our profit optimization work.
Profit Optimization
We are committedworking to returning valueevaluate our cost structure and take action to our shareholders. During 2019,offset what we paid $332 millionsee as ongoing cost pressures in dividends. We use cash flow generated from operatingboth Gross Profit and financing activitiesGeneral, Administrative and Store Operating Expenses, as well as to fund our dividendsstrategic investments. Our efforts are broad-based with opportunities in transportation, product margin, store operations, home office expense and share repurchase programs. Since 2000,indirect spend. We are early in this process, but we have returned approximately $21 billionare targeting eventual annual cost savings of $200 million. We expect to shareholders through dividends and share repurchases.
realize over half of these savings in 2023, primarily in the second half of the year. We expect to realize a substantial portion of the remaining benefits in 2024.
Adjusted Financial Information from Continuing Operations
In addition to our results provided in accordance with GAAP above and throughout this Annual Report on Form 10-K, provided below are non-GAAP measurements which present operating income, net incomeOperating Income, Net Income from Continuing Operations and earnings per shareEarnings from Continuing Operations Per Diluted Share in 2019, 20182022 and 20172021 on an adjusted basis, which remove certain special items. We believe that these special items are not indicative of our ongoing operations due to their size and nature. We use adjusted financial information as key performance measures of results of operations for the purpose of evaluating performance internally. These non-GAAP measurements are not intended to replace the presentation of our financial results in accordance with GAAP. Instead, we believe that the presentation of adjusted financial information provides additional information to
27
investors to facilitate the comparison of past and present operations. Further, our definitiondefinitions of adjusted financial information may differ from similarly titled measures used by other companies.
The table below reconciles the GAAP financial measures to the non-GAAP financial measures.
| (in millions, except per share amounts) | 2019 | 2018 | 2017 | ||||||||
| Detail of Special Items included in Operating Income | |||||||||||
| Impairment of Goodwill (a) | $ | (720 | ) | $ | — | $ | — | ||||
| Victoria's Secret Long-lived Store Asset Impairment (b) | (253 | ) | (81 | ) | — | ||||||
| Loss on Divestiture of La Senza (c) | — | (99 | ) | — | |||||||
| Henri Bendel Closure Costs (d) | — | (20 | ) | — | |||||||
| Total Special Items included in Operating Income | $ | (973 | ) | $ | (200 | ) | $ | — | |||
| Detail of Special Items included in Other Income (Loss) | |||||||||||
| La Senza Charges (e) | (37 | ) | — | — | |||||||
| Loss on Extinguishment of Debt (f) | (40 | ) | — | (45 | ) | ||||||
| Total Special Items included in Other Income (Loss) | $ | (77 | ) | $ | — | $ | (45 | ) | |||
| Detail of Special Items included in Provision for Income Taxes | |||||||||||
| Tax Benefit related to Changes in U.S. Tax Legislation (g) | $ | — | $ | — | $ | 92 | |||||
| Tax Effect of Special Items included in Operating Income and Other Income (Loss) | 46 | 58 | 16 | ||||||||
| Total Special Items included in Provision for Income Taxes | $ | 46 | $ | 58 | $ | 108 | |||||
| Reconciliation of Reported Operating Income to Adjusted Operating Income | |||||||||||
| Reported Operating Income | $ | 258 | $ | 1,237 | $ | 1,728 | |||||
| Special Items included in Operating Income | 973 | 200 | — | ||||||||
| Adjusted Operating Income | $ | 1,231 | $ | 1,437 | $ | 1,728 | |||||
| Reconciliation of Reported Net Income (Loss) to Adjusted Net Income | |||||||||||
| Reported Net Income (Loss) | $ | (366 | ) | $ | 644 | $ | 983 | ||||
| Special Items included in Net Income (Loss) | 1,004 | 142 | (63 | ) | |||||||
| Adjusted Net Income | $ | 638 | $ | 786 | $ | 920 | |||||
| Reconciliation of Reported Earnings (Loss) Per Diluted Share to Adjusted Earnings Per Diluted Share | |||||||||||
| Reported Earnings (Loss) Per Diluted Share | $ | (1.33 | ) | $ | 2.31 | $ | 3.42 | ||||
| Special Items included in Earnings (Loss) Per Diluted Share | 3.62 | 0.51 | (0.22 | ) | |||||||
| Adjusted Earnings Per Diluted Share | $ | 2.29 | $ | 2.82 | $ | 3.20 | |||||
| (in millions, except per share amounts) | 2022 | 2021 | |||||||||||||||
| Reconciliation of Reported Operating Income to Adjusted Operating Income | |||||||||||||||||
| Reported Operating Income | $ | 1,376 | $ | 2,009 | |||||||||||||
| Write-off of Inventory due to Tornado (a) | — | 9 | |||||||||||||||
| Adjusted Operating Income | $ | 1,376 | $ | 2,019 | |||||||||||||
| Reconciliation of Reported Net Income from Continuing Operations to Adjusted Net Income from Continuing Operations | |||||||||||||||||
| Reported Net Income from Continuing Operations | $ | 794 | $ | 1,075 | |||||||||||||
| Write-off of Inventory due to Tornado (a) | — | 9 | |||||||||||||||
| Loss on Extinguishment of Debt (b) | — | 195 | |||||||||||||||
| Tax Benefit of Special Items in Operating Income and Other Income (Loss) | — | (49) | |||||||||||||||
| Adjusted Net Income from Continuing Operations | $ | 794 | $ | 1,230 | |||||||||||||
| Reconciliation of Reported Earnings from Continuing Operations Per Diluted Share to Adjusted Earnings from Continuing Operations Per Diluted Share | |||||||||||||||||
| Reported Earnings from Continuing Operations Per Diluted Share | $ | 3.40 | $ | 3.94 | |||||||||||||
| Write-off of Inventory due to Tornado (a) | — | 0.03 | |||||||||||||||
| Loss on Extinguishment of Debt (b) | — | 0.54 | |||||||||||||||
| Adjusted Earnings from Continuing Operations Per Diluted Share | $ | 3.40 | $ | 4.51 | |||||||||||||
(a)In the fourth quarter of 2021, we recognized a pre-tax loss of $9 million ($7 million after tax) related to the write-off of inventory that was destroyed by a tornado at a vendor's facility.
(b)In the third and first quarters of 2021, we recognized pre-tax losses of $89 million and $105 million (after-tax losses of $68 million and $80 million), respectively, due to the early extinguishments of outstanding notes. For additional information, see Note 11, "Long-term Debt and Borrowing Facilities" |
| % Change | |||||||||||||||||
| 2019 | 2018 | 2017 | 2019 | 2018 | |||||||||||||
| Sales per Average Selling Square Foot (a) | |||||||||||||||||
| Victoria’s Secret U.S. | $ | 684 | $ | 739 | $ | 784 | (7 | %) | (6 | %) | |||||||
| Bath & Body Works U.S. | 931 | 891 | 844 | 4 | % | 6 | % | ||||||||||
| Sales per Average Store (in thousands) (a) | |||||||||||||||||
| Victoria’s Secret U.S. | $ | 4,455 | $ | 4,763 | $ | 5,003 | (6 | %) | (5 | %) | |||||||
| Bath & Body Works U.S. | 2,428 | 2,279 | 2,107 | 7 | % | 8 | % | ||||||||||
| Average Store Size (selling square feet) | |||||||||||||||||
| Victoria’s Secret U.S. | 6,551 | 6,484 | 6,415 | 1 | % | 1 | % | ||||||||||
| Bath & Body Works U.S. | 2,631 | 2,585 | 2,532 | 2 | % | 2 | % | ||||||||||
| Total Selling Square Feet (in thousands) | |||||||||||||||||
| Victoria’s Secret U.S. | 6,898 | 7,119 | 7,210 | (3 | %) | (1 | %) | ||||||||||
| Bath & Body Works U.S. | 4,306 | 4,185 | 4,032 | 3 | % | 4 | % | ||||||||||
| Stores Operating at | Stores Operating at | ||||||||||
| February 2, 2019 | Opened | Closed | February 1, 2020 | ||||||||
| Victoria’s Secret U.S. | 1,098 | 7 | (52 | ) | 1,053 | ||||||
| Victoria’s Secret Canada | 45 | — | (7 | ) | 38 | ||||||
| Total Victoria's Secret | 1,143 | 7 | (59 | ) | 1,091 | ||||||
| Bath & Body Works U.S. | 1,619 | 38 | (20 | ) | 1,637 | ||||||
| Bath & Body Works Canada | 102 | 1 | (1 | ) | 102 | ||||||
| Total Bath & Body Works | 1,721 | 39 | (21 | ) | 1,739 | ||||||
| Victoria's Secret U.K. / Ireland | 26 | — | — | 26 | |||||||
| Victoria's Secret Beauty and Accessories | 38 | 10 | (7 | ) | 41 | ||||||
| Victoria's Secret Greater China | 15 | 8 | — | 23 | |||||||
| Total Victoria's Secret and Bath & Body Works International | 79 | 18 | (7 | ) | 90 | ||||||
| Total L Brands Stores | 2,943 | 64 | (87 | ) | 2,920 | ||||||
| Stores Operating at | Stores Operating at | |||||||||||||
| February 3, 2018 | Opened | Closed | Sold (a) | February 2, 2019 | ||||||||||
| Victoria’s Secret U.S. | 1,124 | 3 | (29 | ) | — | 1,098 | ||||||||
| Victoria’s Secret Canada | 46 | — | (1 | ) | — | 45 | ||||||||
| Total Victoria's Secret | 1,170 | 3 | (30 | ) | — | 1,143 | ||||||||
| Bath & Body Works U.S. | 1,592 | 54 | (27 | ) | — | 1,619 | ||||||||
| Bath & Body Works Canada | 102 | 1 | (1 | ) | — | 102 | ||||||||
| Total Bath & Body Works | 1,694 | 55 | (28 | ) | — | 1,721 | ||||||||
| Victoria's Secret U.K. / Ireland | 24 | 2 | — | — | 26 | |||||||||
| Victoria's Secret Beauty and Accessories | 29 | 13 | (4 | ) | — | 38 | ||||||||
| Victoria's Secret Greater China | 7 | 8 | — | — | 15 | |||||||||
| Total Victoria's Secret and Bath & Body Works International | 60 | 23 | (4 | ) | — | 79 | ||||||||
| Henri Bendel | 27 | — | (27 | ) | — | — | ||||||||
| La Senza U.S. | 5 | 7 | — | (12 | ) | — | ||||||||
| La Senza Canada | 119 | — | (1 | ) | (118 | ) | — | |||||||
| Total L Brands Stores | 3,075 | 88 | (90 | ) | (130 | ) | 2,943 | |||||||
included in Item 8. Financial Statements and Supplementary Data.
The following table compares U.S. Company-operated store data for 2022 and 2021:
| 2022 | 2021 | % Change | |||||||||||||||||||||||||||
| Sales per Average Selling Square Foot (a) | $ | 1,120 | $ | 1,220 | (8 | %) | |||||||||||||||||||||||
| Sales per Average Store (in thousands) (a) | $ | 3,079 | $ | 3,279 | (6 | %) | |||||||||||||||||||||||
| Average Store Size (selling square feet) | 2,783 | 2,716 | 2 | % | |||||||||||||||||||||||||
| Total Selling Square Feet (in thousands) | 4,712 | 4,485 | 5 | % | |||||||||||||||||||||||||
________________
(a)Sales per average selling square foot and sales per average store, which are indicators of store productivity, are calculated based on store sales for the period divided by the average, including the beginning and end of period, of total square footage and store count, respectively.
The following table represents company-ownedCompany-operated store data for 2017:2022:
| Stores | Stores | ||||||||||||||||||||||
| January 29, 2022 | Opened | Closed | January 28, 2023 | ||||||||||||||||||||
| United States | 1,651 | 90 | (48) | 1,693 | |||||||||||||||||||
| Canada | 104 | 5 | — | 109 | |||||||||||||||||||
| Total | 1,755 | 95 | (48) | 1,802 | |||||||||||||||||||
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| Stores Operating at | Stores Operating at | ||||||||||
| January 28, 2017 | Opened | Closed | February 3, 2018 | ||||||||
| Victoria’s Secret U.S. | 1,131 | 13 | (20 | ) | 1,124 | ||||||
| Victoria’s Secret Canada | 46 | 2 | (2 | ) | 46 | ||||||
| Total Victoria's Secret | 1,177 | 15 | (22 | ) | 1,170 | ||||||
| Bath & Body Works U.S. | 1,591 | 32 | (31 | ) | 1,592 | ||||||
| Bath & Body Works Canada | 102 | — | — | 102 | |||||||
| Total Bath & Body Works | 1,693 | 32 | (31 | ) | 1,694 | ||||||
| Victoria's Secret U.K. / Ireland | 18 | 6 | — | 24 | |||||||
| Victoria's Secret Beauty and Accessories | 31 | 4 | (6 | ) | 29 | ||||||
| Victoria's Secret Greater China | — | 7 | — | 7 | |||||||
| Total Victoria's Secret and Bath & Body Works International | 49 | 17 | (6 | ) | 60 | ||||||
| Henri Bendel | 29 | — | (2 | ) | 27 | ||||||
| La Senza U.S. | 4 | 1 | — | 5 | |||||||
| La Senza Canada | 122 | 1 | (4 | ) | 119 | ||||||
| Total L Brands Stores | 3,074 | 66 | (65 | ) | 3,075 | ||||||
The following table represents Company-operated store data for 2021:
| Stores | Stores | ||||||||||||||||||||||
| January 30, 2021 | Opened | Closed | January 29, 2022 | ||||||||||||||||||||
| United States | 1,633 | 53 | (35) | 1,651 | |||||||||||||||||||
| Canada | 103 | 1 | — | 104 | |||||||||||||||||||
| Total | 1,736 | 54 | (35) | 1,755 | |||||||||||||||||||
Partner-Operated Store Data
The following table represents noncompany-ownedpartner-operated store data for 2019:2022:
| Stores Operating at | Stores Operating at | ||||||||||
| February 2, 2019 | Opened | Closed | February 1, 2020 | ||||||||
| Victoria’s Secret Beauty & Accessories | 383 | 24 | (47 | ) | 360 | ||||||
| Victoria's Secret | 56 | 28 | — | 84 | |||||||
| Bath & Body Works | 235 | 47 | (4 | ) | 278 | ||||||
| Total | 674 | 99 | (51 | ) | 722 | ||||||
| Stores | Stores | ||||||||||||||||||||||
| January 29, 2022 | Opened | Closed | January 28, 2023 | ||||||||||||||||||||
| International | 317 | 89 | (5) | 401 | |||||||||||||||||||
| International - Travel Retail | 21 | 6 | (1) | 26 | |||||||||||||||||||
| Total International | 338 | 95 | (6) | 427 | |||||||||||||||||||
The following table represents noncompany-ownedpartner-operated store data for 2018:2021:
| Stores | Stores | ||||||||||||||||||||||
| January 30, 2021 | Opened | Closed | January 29, 2022 | ||||||||||||||||||||
| International | 270 | 55 | (8) | 317 | |||||||||||||||||||
| International - Travel Retail | 18 | 3 | — | 21 | |||||||||||||||||||
| Total International | 288 | 58 | (8) | 338 | |||||||||||||||||||
| Stores Operating at | Stores Operating at | |||||||||||||
| February 3, 2018 | Opened | Closed | Sold (a) | February 2, 2019 | ||||||||||
| Victoria’s Secret Beauty & Accessories | 397 | 32 | (46 | ) | — | 383 | ||||||||
| Victoria's Secret | 37 | 19 | — | — | 56 | |||||||||
| Bath & Body Works | 185 | 56 | (6 | ) | — | 235 | ||||||||
| La Senza | 194 | 2 | (17 | ) | (179 | ) | — | |||||||
| Total | 813 | 109 | (69 | ) | (179 | ) | 674 | |||||||
| Stores Operating at | Stores Operating at | ||||||||||
| January 28, 2017 | Opened | Closed | February 3, 2018 | ||||||||
| Victoria’s Secret Beauty & Accessories | 391 | 34 | (28 | ) | 397 | ||||||
| Victoria's Secret | 28 | 9 | — | 37 | |||||||
| Bath & Body Works | 159 | 28 | (2 | ) | 185 | ||||||
| La Senza | 203 | 4 | (13 | ) | 194 | ||||||
| Total | 781 | 75 | (43 | ) | 813 | ||||||
Results of Operations—20192022 Compared to 20182021
For 2022, Operating Income (Loss)
| Operating Income (Loss) Rate | |||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||
| (in millions) | |||||||||||||
| Victoria’s Secret | $ | (616 | ) | $ | 462 | (9.1 | %) | 6.3 | % | ||||
| Bath & Body Works | 1,191 | 1,077 | 23.0 | % | 23.3 | % | |||||||
| Victoria's Secret and Bath & Body Works International | (236 | ) | (37 | ) | (39.3 | %) | (6.2 | %) | |||||
| Other (a) | (81 | ) | (265 | ) | (23.9 | %) | (42.5 | %) | |||||
| Total Operating Income | $ | 258 | $ | 1,237 | 2.0 | % | 9.3 | % | |||||
Net Sales
The following table provides net salesNet Sales for 20192022 in comparison to 2018:2021:
| 2019 | 2018 | % Change | ||||||||
| (in millions) | ||||||||||
| Victoria’s Secret Stores (a) | $ | 5,112 | $ | 5,628 | (9 | %) | ||||
| Victoria’s Secret Direct | 1,693 | 1,747 | (3 | %) | ||||||
| Total Victoria’s Secret | 6,805 | 7,375 | (8 | %) | ||||||
| Bath & Body Works Stores (a) | 4,212 | 3,907 | 8 | % | ||||||
| Bath & Body Works Direct | 958 | 724 | 32 | % | ||||||
| Total Bath & Body Works | 5,170 | 4,631 | 12 | % | ||||||
| Victoria's Secret and Bath & Body Works International (b) | 600 | 605 | (1 | %) | ||||||
| Other (c) | 339 | 626 | (46 | %) | ||||||
| Total Net Sales | $ | 12,914 | $ | 13,237 | (2 | %) | ||||
| 2022 | 2021 | % Change | |||||||||||||||
| (in millions) | |||||||||||||||||
| Stores - U.S. and Canada | $ | 5,476 | $ | 5,709 | (4.1 | %) | |||||||||||
| Direct - U.S. and Canada | 1,745 | 1,890 | (7.6 | %) | |||||||||||||
| International (a) | 339 | 283 | 19.6 | % | |||||||||||||
| Total Net Sales | $ | 7,560 | $ | 7,882 | (4.1 | %) | |||||||||||
________________
(a)Results include royalties associated with franchised store and wholesale sales.
The following table provides a reconciliation of net salesNet Sales for 20182021 to 2019:2022:
Victoria’s Secret | Bath & Body Works | Victoria’s Secret and Bath & Body Works International | Other | Total | |||||||||||||||
| 2018 Net Sales | $ | 7,375 | $ | 4,631 | $ | 605 | $ | 626 | $ | 13,237 | |||||||||
| Comparable Store Sales | (461 | ) | 190 | (46 | ) | — | (317 | ) | |||||||||||
| Sales Associated with New, Closed and Non-comparable Remodeled Stores, Net | (55 | ) | 117 | 51 | — | 113 | |||||||||||||
| Divested/Closed Businesses | — | — | — | (316 | ) | (316 | ) | ||||||||||||
| Foreign Currency Translation | (3 | ) | (2 | ) | (12 | ) | — | (17 | ) | ||||||||||
| Direct Channels | (57 | ) | 234 | 1 | — | 178 | |||||||||||||
| Private Label Credit Card | 6 | — | — | — | 6 | ||||||||||||||
| International Wholesale, Royalty and Other | — | — | 1 | 29 | 30 | ||||||||||||||
| 2019 Net Sales | $ | 6,805 | $ | 5,170 | $ | 600 | $ | 339 | $ | 12,914 | |||||||||
| 2019 | 2018 | ||||
| Comparable Sales (Stores and Direct) (a) | |||||
| Victoria's Secret (b) | (7 | %) | (2 | %) | |
| Bath & Body Works (b) | 10 | % | 11 | % | |
| Total Comparable Sales | (1 | %) | 3 | % | |
| Comparable Store Sales (a) | |||||
| Victoria’s Secret (b) | (9 | %) | (6 | %) | |
| Bath & Body Works (b) | 5 | % | 8 | % | |
| Total Comparable Store Sales | (3 | %) | (1 | %) | |
| 2021 Net Sales | $ | 7,882 | |||
| Sales Associated with New, Closed and | 119 | ||||
| Direct Channel | (145) | ||||
| International Wholesale, Royalty and Other | 56 | ||||
| Foreign Currency Translation | (14) | ||||
| 2022 Net Sales | $ | 7,560 | |||
29
For 2019, net sales2022, Net Sales decreased $570$322 million to $6.805 billion; comparable sales$7.560 billion. Net Sales decreased 7%; and comparable store sales decreased 9%. Victoria's Secret Lingerie comparable sales were down in the high-single digit range,stores channel $233 million, or 4%, primarily due to declinesa decrease in brasaverage dollar sales, partially offset by the incremental Net Sales originating from new stores. Direct Net Sales decreased $145 million, or 8%, primarily due to a decline in orders. The decline in Direct orders is partially due to last year's strong results as well as our customers continuing to select our buy online-pick up in store option ("BOPIS") (which is recognized as store Net Sales), partially offset by increased Net Sales in the Canada Direct business that launched in the third quarter of 2021. International Net Sales increased by $56 million, or 20%, primarily due to the increases in partner-operated stores and apparel, driven by merchandise performance. PINK comparable salese-commerce sites.
In terms of category performance, home fragrance and sanitizers Net Sales were down in the low-double digit range, primarily driven by declines in apparel, principally in tops, duecompared to merchandise performance2021 as customer mindset and the exitneeds shifted coming out of the swim business. Victoria’s Secret Beauty comparable sales increased in the low-single digit range, asCOVID-19 pandemic. While total body care Net Sales were also down, we had growth in accessories and PINK beautyour Men's collection. These declines were partially offset by a declineimprovement in the lipour gifting business.
Gross Profit
For 2019,2022, our gross profitGross Profit decreased $449$600 million to $4.450$3.255 billion, and our gross profitGross Profit rate (expressed as a percentage of net sales)Net Sales) decreased to 34.5%43.1% from 37.0%48.9%. Gross Profit decreased primarily asdue to a result of:
estate, also contributed to the decrease in Gross Profit. The gross profitGross Profit rate decrease was driven by adecreased due to the significant decline in the merchandise margin rate, due to increases in supply chain and sourcing costs and the sales mix shift into the direct business, which has a lower merchandise margin rate than the stores channel.
General, Administrative and Store Operating Expenses
The following table provides detail for our General, Administrative and Store Operating Expenses for 2022 compared to 2021:
| 2022 | 2021 | Change | |||||||||||||||||||||||||||||||||
| (in millions) | % of Net Sales | (in millions) | % of Net Sales | (in millions) | % of Net Sales | ||||||||||||||||||||||||||||||
| Selling Expenses | $ | 1,205 | 15.9 | % | $ | 1,215 | 15.4 | % | $ | (10) | 0.5 | % | |||||||||||||||||||||||
| Home Office and Marketing Expenses | 674 | 8.9 | % | 631 | 8.0 | % | 43 | 0.9 | % | ||||||||||||||||||||||||||
| Total | $ | 1,879 | 24.9 | % | $ | 1,846 | 23.4 | % | $ | 33 | 1.5 | % | |||||||||||||||||||||||
For 2019,2022, our general, administrativeGeneral, Administrative and store operatingStore Operating Expenses increased $33 million to $1.879 billion, and the rate (expressed as a percentage of Net Sales) increased to 24.9% from 23.4%. Our home office expenses increased primarily due to our investments in technology in connection with our IT separation. The increase in technology costs was partially offset by savings from our third quarter of 2022 profit improvement initiatives of approximately $35 million, charitable contributions made in the first quarter of 2021, certain legal fees and other discrete items totaling approximately $20 million that were incurred in the second quarter of 2021 and an approximately $20 million decrease in incentive compensation payouts due to business performance during the 2022 Spring season. Our selling expenses decreased $91 million to $3.472 billionprimarily due to the elimination of the La Senzadecreases in Net Sales and Henri Bendel businesses and lower marketing andrelated store selling expenses at Victoria's Secret,bonus expense, partially offset by higher sellingincreases in customer-facing associate wages. The General, Administrative and marketing expenses relatedStore Operating Expense rate increased primarily due to higher sales volume at Bath & Body Works.
Other Income (Loss) and Expenses
Interest Expense
The following table provides the average daily borrowings and average borrowing rates for 20192022 and 2018:2021:
| 2019 | 2018 | ||||||
| Average daily borrowings (in millions) | $ | 5,725 | $ | 5,853 | |||
| Average borrowing rate (in percentages) | 6.6 | % | 6.6 | % | |||
| 2022 | 2021 | ||||||||||
| Average daily borrowings (in millions) | $ | 4,915 | $ | 5,409 | |||||||
| Average borrowing rate | 7.1 | % | 7.2 | % | |||||||
For 2019,2022, our interest expenseInterest Expense decreased $7$40 million to $378$348 million due to lower average daily borrowings and a lower average daily borrowings.borrowing rate.
Other Income (Loss)
For 2019,2021, our other income (loss) decreased $66Other Loss was $198 million, to a $61consisting primarily of $195 million loss due to a $40 millionof pre-tax losslosses associated with the early extinguishmentextinguishments of $764 million in outstanding notes maturing between 2020 and 2022 and $37 million of charges to increase reserves related to ongoing contingent obligations for the La Senza business, which was sold in the fourth quarter of 2018.notes.
Provision for Income Taxes
For 2019,2022, our effective tax rate was (101.9%)24.0% compared to 24.9%24.5% in 2018.2021. The 2019 rate varied from our combined estimated federal and state statutory rate primarily due to the Victoria's Secret goodwill impairment charges, which generated minimal tax benefit. The 20182022 rate was lower than our combined estimated federal and state statutory rate primarily due to the recognition of excess tax effectsbenefits recorded through the Consolidated
30
Statements of the La Senza business.Income on share-based awards that vested. The 2021 rate was in line with our combined estimated federal and state statutory rate.
Results of Operations—Fourth Quarter of 20192022 Compared to Fourth Quarter of 20182021
Operating Income
| Fourth Quarter | Operating Income (Loss) Rate | ||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||
| (in millions) | |||||||||||||
| Victoria’s Secret | $ | (543 | ) | $ | 301 | (23.9 | %) | 11.9 | % | ||||
| Bath & Body Works | 661 | 607 | 30.4 | % | 31.1 | % | |||||||
| Victoria's Secret and Bath & Body Works International | (15 | ) | 19 | (8.6 | %) | 9.8 | % | ||||||
| Other (a) | (21 | ) | (127 | ) | (25.8 | %) | (71.0 | %) | |||||
| Total Operating Income | $ | 82 | $ | 800 | 1.7 | % | 16.5 | % | |||||
Net Sales
The following table provides net salesNet Sales for the fourth quarter of 20192022 in comparison to the fourth quarter of 2018:2021:
| Fourth Quarter | 2019 | 2018 | % Change | ||||||||
| (in millions) | |||||||||||
| Victoria’s Secret Stores (a) | $ | 1,649 | $ | 1,849 | (11 | %) | |||||
| Victoria’s Secret Direct | 627 | 683 | (8 | %) | |||||||
| Total Victoria’s Secret | 2,276 | 2,532 | (10 | %) | |||||||
| Bath & Body Works Stores (a) | 1,744 | 1,626 | 7 | % | |||||||
| Bath & Body Works Direct | 431 | 325 | 33 | % | |||||||
| Total Bath & Body Works | 2,175 | 1,951 | 11 | % | |||||||
| Victoria's Secret and Bath & Body Works International (b) | 177 | 190 | (7 | %) | |||||||
| Other (c) | 79 | 179 | (56 | %) | |||||||
| Total Net Sales | $ | 4,707 | $ | 4,852 | (3 | %) | |||||
| 2022 | 2021 | % Change | |||||||||||||||
| (in millions) | |||||||||||||||||
| Stores - U.S. and Canada | $ | 2,078 | $ | 2,191 | (5.1 | %) | |||||||||||
| Direct - U.S. and Canada | 716 | 764 | (6.3 | %) | |||||||||||||
| International (a) | 95 | 72 | 29.9 | % | |||||||||||||
| Total Net Sales | $ | 2,889 | $ | 3,027 | (4.6 | %) | |||||||||||
________________
(a)Results include royalties associated with franchised store and wholesale sales.
The following table provides a reconciliation of net salesNet Sales for the fourth quarter of 20192021 to the fourth quarter of 2018:2022:
| Fourth Quarter | Victoria’s Secret | Bath & Body Works | Victoria’s Secret and Bath & Body Works International | Other | Total | |||||||||||||||
| (in millions) | ||||||||||||||||||||
| 2018 Net Sales | $ | 2,532 | $ | 1,951 | $ | 190 | $ | 179 | $ | 4,852 | ||||||||||
| Comparable Store Sales | (180 | ) | 79 | (18 | ) | — | (119 | ) | ||||||||||||
| Sales Associated with New, Closed and Non-comparable Remodeled Stores, Net | (17 | ) | 38 | 5 | — | 26 | ||||||||||||||
| Divested/Closed Businesses | — | — | — | (94 | ) | (94 | ) | |||||||||||||
| Foreign Currency Translation | 1 | 1 | 1 | — | 3 | |||||||||||||||
| Direct Channels | (55 | ) | 106 | (3 | ) | — | 48 | |||||||||||||
| Private Label Credit Card Income | (5 | ) | — | — | — | (5 | ) | |||||||||||||
| International, Wholesale, Royalty and Other | — | — | 2 | (6 | ) | (4 | ) | |||||||||||||
| 2019 Net Sales | $ | 2,276 | $ | 2,175 | $ | 177 | $ | 79 | $ | 4,707 | ||||||||||
| Fourth Quarter | 2019 | 2018 | ||||
| Comparable Sales (Stores and Direct) (a) | ||||||
| Victoria's Secret (b) | (10 | %) | (3 | %) | ||
| Bath & Body Works (b) | 10 | % | 12 | % | ||
| Total Comparable Sales | (2 | %) | 3 | % | ||
| Comparable Store Sales (a) | ||||||
| Victoria’s Secret (b) | (10 | %) | (7 | %) | ||
| Bath & Body Works (b) | 5 | % | 8 | % | ||
| Total Comparable Store Sales | (4 | %) | (1 | %) | ||
| 2021 Net Sales | $ | 3,027 | |||
| Sales Associated with New, Closed and | 25 | ||||
| Direct Channel | (48) | ||||
| International, Wholesale, Royalty and Other | 23 | ||||
| Foreign Currency Translation | (8) | ||||
| 2022 Net Sales | $ | 2,889 | |||
For the fourth quarter of 2019, net sales2022, Net Sales decreased $256$138 million to $2.276 billion; comparable sales$2.889 billion. Net Sales decreased 10%; and comparable store sales decreased 10%. Victoria's Secret Lingerie comparable sales were down in the mid-teens as we continued to pull back promotional activity in bras, andstores channel by $113 million, or 5%, primarily due to merchandise performance in sleepwear. PINK comparable sales were down in the mid-teens driven by declines in apparel, principally in tops, due to merchandise performance. PINK lingerie sales were about flat to last year. Victoria’s Secret Beauty comparable sales increased in the low-single digit range due to growth in prestige fragrance, driven by a strong launch of Bombshell Intense, and in PINK beauty and accessories.
In terms of category performance, home fragrance and closuresanitizers Net Sales were down compared to 2021 as customer mindset and needs shifted coming out of Henri Bendelthe COVID-19 pandemic. While total body care Net Sales were down slightly, we had growth in the fourth quarter of 2018.our Men's collection. These declines were partially offset by improvement in our gifting business.
Gross Profit
For the fourth quarter of 2019,2022, our gross profitGross Profit decreased $174$196 million to $1.794$1.250 billion, and our gross profitGross Profit rate (expressed as a percentage of net sales)Net Sales) decreased to 38.1%43.3% from 40.6%47.8%. Gross Profit decreased primarily asdue to a result of:
31
Table of 2019, the gross profit decrease was primarily due to $35 million in long-lived store asset impairment charges recognized in the fourth quarter of 2019, which was related to the operating lease asset of a store in Greater China.Contents
General, Administrative and Store Operating Expenses
The following table provides detail for our General, Administrative and Store Operating Expenses for the fourth quarter of 2022 compared to the fourth quarter of 2021:
| 2022 | 2021 | Change | |||||||||||||||||||||||||||||||||
| (in millions) | % of Net Sales | (in millions) | % of Net Sales | (in millions) | % of Net Sales | ||||||||||||||||||||||||||||||
| Selling Expenses | $ | 391 | 13.5 | % | $ | 391 | 12.9 | % | $ | — | 0.6 | % | |||||||||||||||||||||||
| Home Office and Marketing Expenses | 206 | 7.1 | % | 176 | 5.8 | % | 30 | 1.3 | % | ||||||||||||||||||||||||||
| Total | $ | 597 | 20.7 | % | $ | 567 | 18.7 | % | $ | 30 | 1.9 | % | |||||||||||||||||||||||
For the fourth quarter of 2019,2022, our general, administrativeGeneral, Administrative and store operating expenses decreased $47Store Operating Expenses increased $30 million to $1.022 billion$597 million and the rate (expressed as a percentage of Net Sales) increased to 20.7% from 18.7%. Our home office expenses increased due to our investments in technology in connection with our IT separation. The increase in technology costs was partially offset by savings from our third quarter of 2022 profit improvement initiatives of approximately $20 million. Our selling expenses remained flat due to increases in customer-facing associate wages, offset by decreases due to the elimination of the La Senzadecline in Net Sales. The General, Administrative and Henri Bendel businesses and lower marketing and store selling expenses at Victoria's Secret, partially offset by higher selling and marketing expenses related to higher sales volume at Bath & Body Works.
Other Income (Loss) and ExpenseExpenses
Interest Expense
The following table provides the average daily borrowings and average borrowing rates for the fourth quarter of 20192022 and 2018:2021:
| Fourth Quarter | 2019 | 2018 | ||||||
| Average daily borrowings (in millions) | $ | 5,617 | $ | 5,880 | ||||
| Average borrowing rate (in percentages) | 6.6 | % | 6.4 | % | ||||
| 2022 | 2021 | ||||||||||
| Average daily borrowings (in millions) | $ | 4,915 | $ | 4,915 | |||||||
| Average borrowing rate | 7.1 | % | 7.1 | % | |||||||
For the fourth quarter of 2019,2022, our interest expense decreased $1Interest Expense was $87 million and flat to 2021.
Other Income (Loss)
For fourth quarter of 2022, our Other Income (Loss) increased $11 million to $92income of $10 million, primarily due to loweran increase in the average daily borrowings partially offset by a higher average borrowing rate.interest rate earned on invested cash.
Provision for Income Taxes
For the fourth quarter of 2019,2022, our effective tax rate declinedwas 25.7% compared to 24.0%25.1% in 2018.2021. The 2019 rate varied from2022 and 2021 rates are in line with our combined estimated federal and state statutory rate primarily duerate.
FINANCIAL CONDITION
A discussion regarding our Financial Condition for 2021 compared to the Victoria's Secret goodwill impairment charge, which generated minimal tax benefit. The 2018 rate was lower than2020 can be found under Item 7. of Part II of our combined estimated federal and state statutory rate primarily due to the tax effects of the divestiture of the La Senza business.
| Operating Income Rate | |||||||||||||
| 2018 | 2017 | 2018 | 2017 | ||||||||||
| (in millions) | |||||||||||||
| Victoria’s Secret | $ | 462 | $ | 932 | 6.3 | % | 12.6 | % | |||||
| Bath & Body Works | 1,077 | 953 | 23.3 | % | 23.0 | % | |||||||
| Victoria's Secret and Bath & Body Works International | (37 | ) | 5 | (6.2 | %) | 1.0 | % | ||||||
| Other (a) | (265 | ) | (162 | ) | (42.5 | %) | (27.1 | %) | |||||
| Total Operating Income | $ | 1,237 | $ | 1,728 | 9.3 | % | 13.7 | % | |||||
| 2018 | 2017 | % Change | ||||||||
| (in millions) | ||||||||||
| Victoria’s Secret Stores (a) | $ | 5,628 | $ | 5,879 | (4 | %) | ||||
| Victoria’s Secret Direct | 1,747 | 1,508 | 16 | % | ||||||
| Total Victoria’s Secret | 7,375 | 7,387 | — | % | ||||||
| Bath & Body Works Stores (a) | 3,907 | 3,589 | 9 | % | ||||||
| Bath & Body Works Direct | 724 | 559 | 30 | % | ||||||
| Total Bath & Body Works | 4,631 | 4,148 | 12 | % | ||||||
| Victoria's Secret and Bath & Body Works International (b) | 605 | 502 | 20 | % | ||||||
| Other (c) | 626 | 595 | 5 | % | ||||||
| Total Net Sales | $ | 13,237 | $ | 12,632 | 5 | % | ||||
Victoria’s Secret | Bath & Body Works | Victoria’s Secret and Bath & Body Works International | Other | Total | |||||||||||||||
| 2017 Net Sales | $ | 7,387 | $ | 4,148 | $ | 502 | $ | 595 | $ | 12,632 | |||||||||
| Comparable Store Sales | (318 | ) | 256 | (31 | ) | 6 | (87 | ) | |||||||||||
| Sales Associated with New, Closed and Non-comparable Remodeled Stores, Net | (58 | ) | 67 | 93 | (25 | ) | 77 | ||||||||||||
| Foreign Currency Translation | (4 | ) | (5 | ) | 2 | (3 | ) | (10 | ) | ||||||||||
| Direct Channels | 181 | 165 | 28 | 13 | 387 | ||||||||||||||
| Private Label Credit Card | 187 | — | — | — | 187 | ||||||||||||||
| International Wholesale, Royalty and Other | — | — | 11 | 40 | 51 | ||||||||||||||
| 2018 Net Sales | $ | 7,375 | $ | 4,631 | $ | 605 | $ | 626 | $ | 13,237 | |||||||||
| 2018 | 2017 | ||||
| Comparable Sales (Stores and Direct) (a) | |||||
| Victoria's Secret (b) | (2 | %) | (8 | %) | |
| Bath & Body Works (b) | 11 | % | 5 | % | |
| Total Comparable Sales | 3 | % | (3 | %) | |
| Comparable Store Sales (a) | |||||
| Victoria’s Secret (b) | (6 | %) | (8 | %) | |
| Bath & Body Works (b) | 8 | % | 2 | % | |
| Total Comparable Store Sales | (1 | %) | (4 | %) | |
| 2018 | 2017 | ||||||
| Average daily borrowings (in millions) | $ | 5,853 | $ | 5,827 | |||
| Average borrowing rate (in percentages) | 6.6 | % | 7.0 | % | |||
| Fourth Quarter | Operating Income Rate | ||||||||||||
| 2018 | 2017 | 2018 | 2017 | ||||||||||
| (in millions) | |||||||||||||
| Victoria’s Secret | $ | 301 | $ | 457 | 11.9 | % | 17.1 | % | |||||
| Bath & Body Works | 607 | 557 | 31.1 | % | 31.0 | % | |||||||
| Victoria's Secret and Bath & Body Works International | 19 | 4 | 9.8 | % | 2.3 | % | |||||||
| Other (a) | (127 | ) | (31 | ) | (71.0 | %) | (16.1 | %) | |||||
| Total Operating Income | $ | 800 | $ | 987 | 16.5 | % | 20.5 | % | |||||
| Fourth Quarter | 2018 | 2017 | % Change | ||||||||
| (in millions) | |||||||||||
| Victoria’s Secret Stores (a) | $ | 1,849 | $ | 2,038 | (9 | %) | |||||
| Victoria’s Secret Direct | 683 | 631 | 8 | % | |||||||
| Total Victoria’s Secret | 2,532 | 2,669 | (5 | %) | |||||||
| Bath & Body Works Stores (a) | 1,626 | 1,545 | 5 | % | |||||||
| Bath & Body Works Direct | 325 | 249 | 30 | % | |||||||
| Total Bath & Body Works | 1,951 | 1,794 | 9 | % | |||||||
| Victoria's Secret and Bath & Body Works International (b) | 190 | 170 | 12 | % | |||||||
| Other (c) | 179 | 190 | (6 | %) | |||||||
| Total Net Sales | $ | 4,852 | $ | 4,823 | 1 | % | |||||
| Fourth Quarter | Victoria’s Secret | Bath & Body Works | Victoria’s Secret and Bath & Body Works International | Other | Total | |||||||||||||||
| (in millions) | ||||||||||||||||||||
| 2017 Net Sales | $ | 2,669 | $ | 1,794 | $ | 170 | $ | 190 | $ | 4,823 | ||||||||||
| Comparable Store Sales | (135 | ) | 109 | (7 | ) | 5 | (28 | ) | ||||||||||||
| Sales Associated with New, Closed and Non-comparable Remodeled Stores, Net | (95 | ) | (23 | ) | 23 | (22 | ) | (117 | ) | |||||||||||
| Foreign Currency Translation | (4 | ) | (5 | ) | (5 | ) | (3 | ) | (17 | ) | ||||||||||
| Direct Channels | 29 | 76 | 7 | 6 | 118 | |||||||||||||||
| Private Label Credit Card Income | 68 | — | — | — | 68 | |||||||||||||||
| International, Wholesale, Royalty and Other | — | — | 2 | 3 | 5 | |||||||||||||||
| 2018 Net Sales | $ | 2,532 | $ | 1,951 | $ | 190 | $ | 179 | $ | 4,852 | ||||||||||
| Fourth Quarter | 2018 | 2017 | ||||
| Comparable Sales (Stores and Direct) (a) | ||||||
| Victoria's Secret (b) | (3 | %) | (1 | %) | ||
| Bath & Body Works (b) | 12 | % | 6 | % | ||
| Total Comparable Sales | 3 | % | 2 | % | ||
| Comparable Store Sales (a) | ||||||
| Victoria’s Secret (b) | (7 | %) | (6 | %) | ||
| Bath & Body Works (b) | 8 | % | 4 | % | ||
| Total Comparable Store Sales | (1 | %) | (2 | %) | ||
| Fourth Quarter | 2018 | 2017 | ||||||
| Average daily borrowings (in millions) | $ | 5,880 | $ | 5,893 | ||||
| Average borrowing rate (in percentages) | 6.4 | % | 6.9 | % | ||||
Liquidity and Capital Resources
Liquidity, or access to cash, is an important factor in determining our financial stability. We are committed to maintaining adequate liquidity. Cash generated from our operating activities provides the primary resources to support current operations, growth initiatives, seasonal funding requirements and capital expenditures. Our cash provided from operations is impacted by our net income (loss) and working capital changes. Our net income (loss) is impacted by, among other things, sales volume, seasonal sales patterns, success of new product introductions, profit margins, income taxes and income taxes.inflationary pressures. Historically, our sales are higher during the fourth quarter of the fiscal year due to seasonal and holiday-related sales patterns. Generally, our need for working capital peaks during the summer and fall months as inventory builds in anticipation of the holiday period. Our cash and cash equivalents held by foreign subsidiaries were $265$126 million as of February 1, 2020.January 28, 2023.
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Working Capital and Capitalization
The following table provides a summary of our working capital position and capitalization as of February 1, 2020, February 2, 2019January 28, 2023 and February 3, 2018:January 29, 2022:
| January 28, 2023 | January 29, 2022 | |||||||||||||||||||||
| February 1, 2020 | February 2, 2019 | February 3, 2018 | (in millions) | |||||||||||||||||||
| (in millions) | ||||||||||||||||||||||
| Net Cash Provided by Operating Activities | $ | 1,236 | $ | 1,377 | $ | 1,406 | ||||||||||||||||
| Capital Expenditures | 458 | 629 | 707 | |||||||||||||||||||
| Working Capital (a) | 873 | 1,274 | 1,262 | |||||||||||||||||||
| Working Capital | Working Capital | $ | 887 | $ | 1,719 | |||||||||||||||||
| Capitalization: | Capitalization: | |||||||||||||||||||||
| Long-term Debt | 5,487 | 5,739 | 5,707 | Long-term Debt | 4,862 | 4,854 | ||||||||||||||||
| Shareholders’ Equity (Deficit) | (1,499 | ) | (869 | ) | (753 | ) | Shareholders’ Equity (Deficit) | (2,206) | (1,518) | |||||||||||||
| Total Capitalization | $ | 3,988 | $ | 4,870 | $ | 4,954 | Total Capitalization | $ | 2,656 | $ | 3,336 | |||||||||||
| Amounts Available Under Credit Agreements (b) | $ | 981 | $ | 991 | $ | 991 | ||||||||||||||||
| Amounts Available Under the ABL Facility (a) | Amounts Available Under the ABL Facility (a) | $ | 509 | $ | 479 | |||||||||||||||||
________________
(a) | Debt Leverage Ratio Our debt leverage ratio is defined as adjusted debt, which includes our long-term debt and total operating lease liabilities, divided by adjusted earnings before interest, taxes, depreciation, amortization and rent ("EBITDAR"). Adjusted EBITDAR is calculated as adjusted operating income (a non-GAAP measure that is reconciled under the heading "Adjusted Financial Information from Continuing Operations" in this Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations), which excludes interest and taxes, before depreciation, amortization and lease costs. 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. |
The following table provides certain measures of liquidity and capital resourcesour debt leverage ratio as of, February 1, 2020, February 2, 2019 and February 3, 2018:for the years ended, January 28, 2023 and January 29, 2022:
| January 28, 2023 | January 29, 2022 | ||||||||||
| (dollars in millions) | |||||||||||
| Long-term Debt | $ | 4,862 | $ | 4,854 | |||||||
| Total Operating Lease Liabilities | 1,191 | 1,159 | |||||||||
| Adjusted Debt | $ | 6,053 | $ | 6,013 | |||||||
| Adjusted Operating Income | $ | 1,376 | $ | 2,019 | |||||||
| Depreciation and Amortization | 221 | 205 | |||||||||
| Total Lease Costs | 382 | 358 | |||||||||
| Adjusted EBITDAR | $ | 1,979 | $ | 2,582 | |||||||
| Debt Leverage Ratio | 3.1 | 2.3 | |||||||||
Cash Flows
The cash flows related to discontinued operations have not been segregated. Accordingly, the 2021 Consolidated Statement of Cash Flows includes the results from continuing and discontinued operations. We did not report any cash flows from discontinued operations in 2022.
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| February 1, 2020 | February 2, 2019 | February 3, 2018 | ||||||
| Debt-to-capitalization Ratio (a) | 138 | % | 118 | % | 115 | % | ||
| Cash Flow to Capital Investment | 270 | % | 219 | % | 199 | % | ||
The following table provides a summary of our cash flow activityConsolidated Statements of Cash Flows for the fiscal years ended February 1, 2020, February 2, 20192022 and February 3, 2018:2021:
| 2019 | 2018 | 2017 | |||||||||
| (in millions) | |||||||||||
| Cash and Cash Equivalents, Beginning of Year | $ | 1,413 | $ | 1,515 | $ | 1,934 | |||||
| Net Cash Flows Provided by Operating Activities | 1,236 | 1,377 | 1,406 | ||||||||
| Net Cash Flows Used for Investing Activities | (480 | ) | (609 | ) | (698 | ) | |||||
| Net Cash Flows Used for Financing Activities | (666 | ) | (872 | ) | (1,127 | ) | |||||
| Effects of Exchange Rate Changes on Cash | (4 | ) | 2 | — | |||||||
| Net Increase (Decrease) in Cash and Cash Equivalents | 86 | (102 | ) | (419 | ) | ||||||
| Cash and Cash Equivalents, End of Year | $ | 1,499 | $ | 1,413 | $ | 1,515 | |||||
| 2022 | 2021 | ||||||||||||||||
| (in millions) | |||||||||||||||||
| Cash and Cash Equivalents, Beginning of Year | $ | 1,979 | $ | 3,933 | |||||||||||||
| Net Cash Flows Provided by Operating Activities | 1,144 | 1,492 | |||||||||||||||
| Net Cash Flows Used for Investing Activities | (328) | (259) | |||||||||||||||
| Net Cash Flows Used for Financing Activities | (1,562) | (3,188) | |||||||||||||||
| Effects of Exchange Rate Changes on Cash and Cash Equivalents | (1) | 1 | |||||||||||||||
| Net Decrease in Cash and Cash Equivalents | (747) | (1,954) | |||||||||||||||
| Cash and Cash Equivalents, End of Year | $ | 1,232 | $ | 1,979 | |||||||||||||
Operating Activities
Net cash provided by operating activities in 20192022 was $1.236$1.144 billion, including net lossincome of $366 million.$800 million (which included Income from Discontinued Operations, Net lossof Tax of $6 million). Net income included depreciation of $588 million, goodwill impairment charges of $720 million, long-lived store asset impairment charges of $263$221 million, share-based compensation expense of $87$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. The most significant items in working capital were the $44 million increase associated with Accounts Payable, Accrued Expenses and Other and the $39 million increase associated with Income Taxes Payable.
Net cash provided by operating activities in 2021 was $1.492 billion, including net income of $1.333 billion (which included Income from Discontinued Operations, Net of Tax of $258 million). Net income included depreciation of $363 million (which included $158 million related to the Victoria's Secret business classified as discontinued operations), loss on extinguishment of debt of $40$195 million, La Senza chargesshare-based compensation expense of $37$46 million (which included $15 million related to the Victoria's Secret business classified as discontinued operations), and deferred income tax benefitsexpense of $29$45 million. Other changes in assets and liabilities represent items that had a current period cash flow impact, such as changes in working capital. The most significant item in working capital was a decrease in operating cash flow of $93$177 million associated with the decrease in Accounts Payables, Accrued Expenses and Other.
Investing Activities
Net cash used for investing activities in 20192022 was $480$328 million consisting primarily of $458 million ofrelated to capital expenditures. The capital expenditures included $286approximately $164 million for openingrelated to new, off-mall stores and remodeling and improvingremodels of existing stores. RemainingThe remaining capital expenditures were primarily related to spending on technologyour new Company-operated direct channel fulfillment center and logistics to supportvarious IT projects primarily supporting the separation of our digital businesses and other retail capabilities.IT systems from Victoria's Secret & Co.'s IT systems.
Net cash used for investing activities in 20182021 was $609$259 million consisting primarily of $629$270 million of capital expenditures, partially offset by a $16 million returnproceeds from other investing activities of capital from Easton investments. The capital$11 million. Capital expenditures included $487 million for opening new stores and remodeling and improving existing stores. Remaining capital expenditures were primarily related to spending onour continuing operations were $205 million, approximately 60% of which related to real estate investments with the remaining investment principally in technology and infrastructurefulfillment center capabilities. Capital expenditures related to support growth.discontinued operations were $66 million.
Financing Activities
Net cash used for financing activities in 20192022 was $666$1.562 billion consisting of $1.312 billion in payments for share repurchases, including the payment of $1 billion related to our accelerated share repurchase program ("ASR"), dividend payments of $0.80 per share, or $186 million, tax payments of $32 million related to share-based awards and net payments of $25 million to Victoria's Secret & Co. related to the Separation.
Net cash used for financing activities in 2021 was $3.188 billion consisting primarily of $799 million$1.964 billion in repurchases of our common stock, $1.716 billion in payments for the early extinguishment of outstanding notes, maturing between 2020transfers and 2022, quarterlypayments of $376 million to Victoria's Secret & Co. related to the Separation, dividend payments of $1.20$0.45 per share, or $332$120 million, and tax payments of $59 million related to share-based awards of $13 million.awards. These uses were partially offset by the net proceeds of $486$976 million from the issuance of the 2029 NotesSeparation and $5 million of net new borrowings under our Foreign Facilities.
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Common Stock Share Repurchases
Our Board of Directors will determine share repurchase authorizations, giving consideration to our levels of profit and cash flow, capital requirements, current and forecasted liquidity, the restrictions placed upon us by our borrowing arrangements as well as financial and other conditions existing at the time. We use cash flow generated from operating and financing activities to fund our share repurchase programs. The timing and amount of any repurchases will be made at our discretion, taking into account a number of factors, including market conditions.
In March 2021, the Board authorized a $500 million share repurchase any shares during 2019.plan (the "March 2021 Program"), which replaced the $79 million remaining under a March 2018 share repurchase program.
In July 2021, the Board authorized a $1.5 billion share repurchase program (the "July 2021 Program"), which replaced the $36 million remaining under the March 2021 Program. Under the authorityauthorization of this program, in July 2021 we entered into a stock repurchase agreement with our Boardformer Chief Executive Officer and certain of Directors,his affiliated entities pursuant to which we repurchased 10 million shares of our common stock underfor an aggregate purchase price of $730 million.
We repurchased the following repurchase programsshares of our common stock during fiscal 2018 and 2017:2021:
| Repurchase Program | Amount Authorized | Shares Repurchased | Amount Repurchased | Average Stock Price | ||||||||||||||||||||||||||||||||||
| (in millions) | (in thousands) | (in millions) | ||||||||||||||||||||||||||||||||||||
| March 2021 (a) | $ | 500 | 6,996 | $ | 464 | $ | 66.30 | |||||||||||||||||||||||||||||||
| July 2021 (a) | 1,500 | 10,000 | 730 | 73.01 | ||||||||||||||||||||||||||||||||||
| July 2021 (b) | 11,234 | 770 | 68.53 | |||||||||||||||||||||||||||||||||||
| Total | 28,230 | $ | 1,964 | |||||||||||||||||||||||||||||||||||
| Shares Repurchased | Amount Repurchased | Average Stock Price of Shares Repurchased within Program | ||||||||||||||||||||
| Repurchase Program | Amount Authorized | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||
| (in millions) | (in thousands) | (in millions) | ||||||||||||||||||||
| March 2018 | $ | 250 | 4,852 | NA | $ | 171 | NA | $ | 35.29 | |||||||||||||
| September 2017 | 250 | 527 | 3,858 | 25 | $ | 202 | $ | 51.72 | ||||||||||||||
| February 2017 | 250 | NA | 5,500 | NA | 240 | $ | 43.57 | |||||||||||||||
| February 2016 | 500 | NA | 51 | NA | 3 | $ | 76.47 | |||||||||||||||
| Total | 5,379 | 9,409 | $ | 196 | $ | 445 | ||||||||||||||||
2022 Repurchase Program
In March 2018, ourFebruary 2022, the Board of Directors approvedauthorized a new $250 million$1.5 billion share repurchase program (the "February 2022 Program"). As part of the February 2022 Program, we entered into the ASR under which included the $23 million remainingwe repurchased $1 billion of our own outstanding common stock. The delivery of shares under the September 2017 repurchase program.ASR resulted in an immediate reduction of the shares used to calculate the weighted-average common shares outstanding for net income per basic and diluted share. Pursuant to the Board's authorization, we made other share repurchases in the open market under the February 2022 Program during 2022.
In November 2017,May 2022, we retired 36received an additional 7 million shares of our treasury stock.common stock from the ASR bank for the final settlement of the ASR. The retirement resulted infinal number of shares of common stock delivered under the ASR was based generally upon a reductiondiscount to the average daily Rule 10b-18 volume-weighted average price at which the shares of $2.036 billion in Treasury Stock, $18common stock traded during the regular trading sessions on the NYSE during the term of the repurchase period.
We repurchased the following shares of our common stock during 2022:
| Repurchase Program | Amount Authorized | Shares Repurchased | Amount Repurchased | Average Stock Price | |||||||||||||||||||||||||||||||
| (in millions) | (in thousands) | (in millions) | |||||||||||||||||||||||||||||||||
| February 2022 | $ | 1,500 | 6,401 | $ | 312 | $ | 48.77 | ||||||||||||||||||||||||||||
| February 2022 - Accelerated Share Repurchase Program | 20,295 | 1,000 | 49.27 | ||||||||||||||||||||||||||||||||
| Total | 26,696 | $ | 1,312 | ||||||||||||||||||||||||||||||||
The February 2022 Program had $188 million in the par value of Common Stock, $82 million in Paid-in Capital and $1.936 billion in Retained Earnings.remaining authority as of January 28, 2023.
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Dividend Policy and Procedures
Our Board of Directors will determine future dividends after giving consideration to our levels of profit and cash flow, capital requirements, current and forecasted liquidity, the restrictions placed upon us by our borrowing arrangements as well as financial and other conditions existing at the time. We use cash flow generated from operating and financing activities to fund our dividends and share repurchase programs.dividends.
| Ordinary Dividends | Total Paid | ||||||
| (per share) | (in millions) | ||||||
| 2019 | |||||||
| Fourth Quarter | $ | 0.30 | $ | 83 | |||
| Third Quarter | 0.30 | 83 | |||||
| Second Quarter | 0.30 | 83 | |||||
| First Quarter | 0.30 | 83 | |||||
| 2019 Total | $ | 1.20 | $ | 332 | |||
| 2018 | |||||||
| Fourth Quarter | $ | 0.60 | $ | 166 | |||
| Third Quarter | 0.60 | 165 | |||||
| Second Quarter | 0.60 | 167 | |||||
| First Quarter | 0.60 | 168 | |||||
| 2018 Total | $ | 2.40 | $ | 666 | |||
| 2017 | |||||||
| Fourth Quarter | $ | 0.60 | $ | 170 | |||
| Third Quarter | 0.60 | 172 | |||||
| Second Quarter | 0.60 | 172 | |||||
| First Quarter | 0.60 | 172 | |||||
| 2017 Total | $ | 2.40 | $ | 686 | |||
2020. In November 2018,March 2021, our Board of Directors reducedreinstated the annual dividend at $0.60 per share, beginning with the quarterly dividend paid in June 2021. In February 2022, our Board increased the annual ordinary dividend to $1.20 per share from $2.40$0.80 per share, beginning with the quarterly dividend paid in March 2019.2022.
| Ordinary Dividends | Total Paid | ||||||||||||||||
| (per share) | (in millions) | ||||||||||||||||
| 2022 | |||||||||||||||||
| First Quarter | $ | 0.20 | $ | 48 | |||||||||||||
| Second Quarter | 0.20 | 46 | |||||||||||||||
| Third Quarter | 0.20 | 46 | |||||||||||||||
| Fourth Quarter | 0.20 | 46 | |||||||||||||||
| 2022 Total | $ | 0.80 | $ | 186 | |||||||||||||
| 2021 | |||||||||||||||||
| First Quarter | $ | — | $ | — | |||||||||||||
| Second Quarter | 0.15 | 42 | |||||||||||||||
| Third Quarter | 0.15 | 39 | |||||||||||||||
| Fourth Quarter | 0.15 | 39 | |||||||||||||||
| 2021 Total | $ | 0.45 | $ | 120 | |||||||||||||
On March 3, 2023, we paid our Board of Directors declared the first quarter of 2020 ordinary2023 dividend of $0.30$0.20 per share.
share to stockholders of record at the close of business on February 17, 2023.
Long-term Debt and Borrowing Facilities
The following table provides our outstanding debtLong-term Debt balance, net of unamortized debt issuance costs and discounts, as of February 1, 2020January 28, 2023 and February 2, 2019:January 29, 2022:
| January 28, 2023 | January 29, 2022 | ||||||||||
| (in millions) | |||||||||||
| Senior Debt with Subsidiary Guarantee | |||||||||||
| $320 million, 9.375% Fixed Interest Rate Notes due July 2025 ("2025 Notes") | $ | 317 | $ | 316 | |||||||
| $297 million, 6.694% Fixed Interest Rate Notes due January 2027 ("2027 Notes") | 283 | 281 | |||||||||
| $500 million, 5.25% Fixed Interest Rate Notes due February 2028 (“2028 Notes”) | 498 | 497 | |||||||||
| $500 million, 7.50% Fixed Interest Rate Notes due June 2029 ("2029 Notes") | 491 | 489 | |||||||||
| $1 billion, 6.625% Fixed Interest Rate Notes due October 2030 ("2030 Notes") | 991 | 990 | |||||||||
| $1 billion, 6.875% Fixed Interest Rate Notes due November 2035 (“2035 Notes”) | 993 | 992 | |||||||||
| $700 million, 6.75% Fixed Interest Rate Notes due July 2036 (“2036 Notes”) | 694 | 694 | |||||||||
| Total Senior Debt with Subsidiary Guarantee | $ | 4,267 | $ | 4,259 | |||||||
| Senior Debt | |||||||||||
| $350 million, 6.95% Fixed Interest Rate Debentures due March 2033 (“2033 Notes”) | $ | 349 | $ | 349 | |||||||
| $247 million, 7.60% Fixed Interest Rate Notes due July 2037 (“2037 Notes”) | 246 | 246 | |||||||||
| Total Senior Debt | $ | 595 | $ | 595 | |||||||
| Total Long-term Debt | $ | 4,862 | $ | 4,854 | |||||||
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| February 1, 2020 | February 2, 2019 | ||||||
| (in millions) | |||||||
| Senior Debt with Subsidiary Guarantee | |||||||
| $1 billion, 6.875% Fixed Interest Rate Notes due November 2035 (“2035 Notes”) | $ | 991 | $ | 990 | |||
| $860 million, 5.625% Fixed Interest Rate Notes due February 2022 (“2022 Notes”) | 858 | 952 | |||||
| $700 million, 6.75% Fixed Interest Rate Notes due July 2036 (“2036 Notes”) | 693 | 693 | |||||
| $500 million, 5.625% Fixed Interest Rate Notes due October 2023 (“2023 Notes”) | 498 | 498 | |||||
| $500 million, 5.25% Fixed Interest Rate Notes due February 2028 (“2028 Notes”) | 496 | 496 | |||||
| $500 million, 7.50% Fixed Interest Rate Notes due June 2029 ("2029 Notes") | 487 | — | |||||
| $450 million, 6.625% Fixed Interest Rate Notes due April 2021 (“2021 Notes”) | 450 | 776 | |||||
| $297 million, 6.694% Fixed Interest Rate Notes due January 2027 ("2027 Notes") | 276 | 273 | |||||
| $338 million, 7.00% Fixed Interest Rate Notes due May 2020 (“2020 Notes”) | — | 337 | |||||
| Secured Foreign Facilities | 103 | 91 | |||||
| Total Senior Debt with Subsidiary Guarantee | $ | 4,852 | $ | 5,106 | |||
| Senior Debt | |||||||
| $350 million, 6.95% Fixed Interest Rate Debentures due March 2033 (“2033 Notes”) | $ | 348 | $ | 348 | |||
| $300 million, 7.60% Fixed Interest Rate Notes due July 2037 (“2037 Notes”) | 298 | 297 | |||||
| Unsecured Foreign Facilities | 50 | 60 | |||||
| Total Senior Debt | $ | 696 | $ | 705 | |||
| Total | $ | 5,548 | $ | 5,811 | |||
| Current Debt | (61 | ) | (72 | ) | |||
| Total Long-term Debt, Net of Current Portion | $ | 5,487 | $ | 5,739 | |||
Repurchases of Notes
In June 2019, we completed the early settlement of tender offers to repurchase $212 million of outstanding 2020 Notes, $330 million of outstandingApril 2021, Notes and $96 million of outstanding 2022 Notes for $669 million. We used the proceeds from the 2029 Notes, together with cash on hand, to fund the purchase price for the tender offers. Additionally, in July 2019, we redeemed the remaining $126$285 million of our outstanding 2020 Notes for $130 million.
In June 2018,September 2021, we completed privatethe tender offers to exchange $62 million, $220 million and $44purchase $270 million of our outstanding 2020 Notes, 2021 Notes5.625% senior notes due October 2023 (the "2023 Notes") and 2022 Notes, respectively, for $297$180 million of newly issued 6.694% notes dueour outstanding 2025 Notes for an aggregate purchase price of $532 million. Additionally, in January 2027 ("2027 Notes") and $52October 2021, we redeemed the remaining $50 million in cash consideration,of our outstanding 2023 Notes for an aggregate purchase price of $54 million. We recognized a pre-tax loss related to this extinguishment of debt of $89 million (after-tax loss of $68 million), which included a $24 million exchange premium. The exchange was treated as a modification under ASC 470, Debt, and no gain orthe write-off of unamortized issuance costs. This loss was recognized. The exchange premium is being amortized through the maturity date of January 2027 and is included within Long-term Debt onin Other Income (Loss) in the 2021 Consolidated Balance Sheets. The obligation to pay principal and interest on the 2027 Notes is jointly and severally guaranteed on a full and unconditional basis by the Guarantors.Statement of Income.
We and the Guarantorscertain of our 100% owned subsidiaries guarantee and pledge collateral to secure a revolving credit facility.our ABL Facility. The Secured RevolvingABL Facility, has aggregate availability of $1 billionwhich allows borrowings and allows us and certain of our non-U.S. subsidiaries to borrow and obtain letters of credit in U.S. dollars or Canadian dollars, Euros, Hong Kong dollarshas aggregate commitments of $750 million and an expiration date in August 2026.
Availability under the ABL Facility is the lesser of (i) the borrowing base, determined primarily based on our eligible U.S. and Canadian credit card receivables, accounts receivable, inventory and eligible real property, or British pounds.
The ABL Facility supports our letter of credit program. We had $16 million of outstanding letters of credit as of January 28, 2023 that reduced our availability under the Secured RevolvingABL Facility. As of January 28, 2023, our availability under the ABL Facility at $1 billion and extendedwas $509 million.
As of January 28, 2023, the expiration date from May 2022 to August 2024. We incurred fees related to the Amendment of $5 million, which were capitalized and are recorded in Other Assets on the February 1, 2020 Consolidated Balance Sheet and are being amortized over the remaining term of the Secured Revolving Facility.
The Secured RevolvingABL Facility contains fixed charge coverage and debt to EBITDA financial covenants. We are requiredrequires us to maintain a fixed charge coverage ratio of not less than 1.751.00 to 1.00 and a consolidated debt to consolidated EBITDA ratio not exceeding 4.00 to 1.00 for the most recent four-quarter period. Additionally, the Secured Revolving Facility provides that investments and restricted payments may be made, without limitationduring an event of default or any period commencing on amount, if (a) at the time of and after giving effect to such investment or restricted payment, the ratio of consolidated debt to consolidated EBITDA for the most recent four-quarter periodany day when specified excess availability is less than 3.50 to 1.00 and (b) no defaultthe greater of (i) $70 million or event(ii) 10% of default exists.the maximum borrowing amount. As of February 1, 2020,January 28, 2023, we were in compliance with both of our financial covenants, and the ratio of consolidated debtnot required to consolidated EBITDA was less than 3.50 to 1.00.
Credit Ratings
The following table provides our credit ratings as of February 1, 2020:January 28, 2023:
| Moody’s | S&P | ||||||||||
| Corporate | Ba2 | BB | |||||||||
| Senior Unsecured Debt with Subsidiary Guarantee | Ba2 | BB | |||||||||
| Senior Unsecured Debt | B1 | B+ | |||||||||
| Outlook | Stable | Stable | |||||||||
Guarantor Summarized Financial Information
Certain of our subsidiaries, which are listed on Exhibit 22 to this Annual Report on Form 10-K, have guaranteed our obligations under the 2025 Notes, 2027 Notes, 2028 Notes, 2029 Notes, 2030 Notes, 2035 Notes and 2036 Notes (collectively, the "Notes").
The Notes have been issued by Bath & Body Works, Inc. (the “Parent Company”). The Notes are its senior unsecured obligations and rank equally in right of payment with all of our existing and future senior unsecured obligations, are senior to any of our future subordinated indebtedness, are effectively subordinated to all of our existing and future indebtedness that is secured by a lien and are structurally subordinated to all existing and future obligations of each of our subsidiaries that do not guarantee the Notes.
The Notes are fully and unconditionally guaranteed on a joint and several basis by certain of our wholly-owned subsidiaries, including certain subsidiaries that also guarantee our obligations under our ABL Facility (such guarantees, the “Guarantees”; and, such guaranteeing subsidiaries, the “Subsidiary Guarantors”). The Guarantees of the Subsidiary Guarantors are subject to release in limited circumstances only upon the occurrence of certain customary conditions. Each Guarantee is limited, by its
37
terms, to an amount not to exceed the maximum amount that can be guaranteed by the applicable Subsidiary Guarantor subject to avoidance under applicable fraudulent conveyance provisions of U.S. and non-U.S. law.
The following tables set forth summarized financial information for the Parent Company and the Subsidiary Guarantors, on a combined basis after elimination of (i) intercompany transactions and balances among the Parent Company and the Subsidiary Guarantors and (ii) investments in and equity in the earnings of non-Guarantor subsidiaries.
| JANUARY 28, 2023 SUMMARIZED BALANCE SHEET | (in millions) | ||||||||||
| ASSETS | |||||||||||
| Current Assets (a) | $ | 2,642 | |||||||||
| Noncurrent Assets (b) | 2,561 | ||||||||||
| LIABILITIES | |||||||||||
| 3,084 | |||||||||||
(a)Includes amounts due from non-Guarantor subsidiaries of $589 million as of January 28, 2023.
(b)Includes amounts due from non-Guarantor subsidiaries of $40 million as of January 28, 2023.
(c)Includes amounts due to February 1, 2020, Moody's downgraded our Corporate and Senior Unsecured Debtnon-Guarantor subsidiaries of $1.987 billion as of January 28, 2023.
| 2022 SUMMARIZED STATEMENT OF INCOME | (in millions) | ||||||||||
| Net Sales (a) | $ | 7,336 | |||||||||
| Gross Profit | 3,012 | ||||||||||
| Operating Income | 1,245 | ||||||||||
| Income Before Income Taxes | 921 | ||||||||||
| Net Income (b) | 726 | ||||||||||
_______________
(a)Includes Net Sales of $291 million to non-Guarantor subsidiaries.
(b)Includes Net Loss of $7 million related to transactions with Subsidiary Guarantee ratings to Ba3, our Senior Unsecured Debt rating to B2 and updated our outlook to Stable. Additionally, S&P downgraded our Corporate and Senior Unsecured Debt with Subsidiary Guarantee ratings to B+, our Senior Unsecured Debt rating to B- and updated our outlook to Negative.non-Guarantor subsidiaries.
Contingent Liabilities and Contractual Obligations
The following table provides our contractual obligations, aggregated by type, including the maturity profile as of February 1, 2020:January 28, 2023:
| Payments Due by Period | Payments Due by Period | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | Less Than 1 Year | 1-3 Years | 4-5 Years | More than 5 Years | Other | Total | Less Than 1 Year | 1-3 Years | 4-5 Years | More Than 5 Years | Other | |||||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | (in millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Long-term Debt (a) | $ | 9,235 | $ | 409 | $ | 1,985 | $ | 1,102 | $ | 5,739 | $ | — | Long-term Debt (a) | $ | 8,047 | $ | 339 | $ | 983 | $ | 895 | $ | 5,830 | $ | — | |||||||||||||||||||||||||||||||||
| Future Lease Obligations (b) | 4,804 | 692 | 1,333 | 1,084 | 1,695 | — | Future Lease Obligations (b) | 1,562 | 260 | 497 | 386 | 419 | — | |||||||||||||||||||||||||||||||||||||||||||||
| Purchase Obligations (c) | 1,125 | 1,032 | 79 | 12 | 2 | — | Purchase Obligations (c) | 682 | 543 | 91 | 38 | 10 | — | |||||||||||||||||||||||||||||||||||||||||||||
| Other Liabilities (d) (e) | 411 | 66 | 291 | 30 | — | 24 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other Liabilities (d) | Other Liabilities (d) | 182 | 112 | 30 | — | — | 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 15,575 | $ | 2,199 | $ | 3,688 | $ | 2,228 | $ | 7,436 | $ | 24 | Total | $ | 10,473 | $ | 1,254 | $ | 1,601 | $ | 1,319 | $ | 6,259 | $ | 40 | |||||||||||||||||||||||||||||||||