NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Description of Business and Basis of Presentation
Description of Business
As of July 31, 2021, L Brands, Inc. ("L Brands" or the "Company") was a specialty retailer of home fragrance products, body care, soaps and sanitizers, women’s intimate and other apparel, and personal and beauty care products. Through the Bath & Body Works, Victoria's Secret and PINK retail brands, the Company sold merchandise through company-operated specialty retail stores in the U.S., Canada and Greater China, and through its websites and other channels. The Company's international operations are primarily through franchise, license, wholesale and joint venture partners.
On August 2, 2021, in connection with the separation of the Victoria's Secret business discussed below, the Company changed its name from L Brands, Inc. to Bath & Body Works, Inc. Additionally, starting August 3, 2021, the Company's common stock began trading under the stock symbol "BBWI."
Victoria's Secret & Co. Spin-Off
On July 9, 2021, the Company announced that its Board of Directors approved the previously announced separation of the Victoria’s Secret business, including PINK (the "Separation"), into an independent, publicly traded company ("Victoria's Secret & Co."). On August 2, 2021 (the “Distribution Date”), after the New York Stock Exchange ("NYSE") market closing, the Separation was completed and the Company transferred certain assets and liabilities associated with its Victoria's Secret business to Victoria's Secret & Co. The Separation was achieved through the Company's distribution (the "Distribution") of 100% of the shares of Victoria's Secret & Co. common stock to holders of L Brands' common stock as of the close of business on the record date of July 22, 2021. The Company's stockholders of record received one share of Victoria’s Secret & Co. common stock for every three shares of the Company's common stock. On August 3, 2021, Victoria’s Secret & Co. became an independent, publicly-traded company trading on the NYSE under the stock symbol "VSCO." The Company retained no ownership interest in Victoria’s Secret & Co. following the Separation. Beginning in the third quarter of fiscal 2021, the historical financial results of the Victoria's Secret business for periods prior to the Distribution Date will be reflected in the Company’s consolidated financial statements as discontinued operations. On August 2, 2021, Victoria's Secret & Co. made cash payments of approximately $976 million to the Company in connection with the Separation.
Impacts of COVID-19
The coronavirus pandemic ("COVID-19") has created significant public health concerns as well as economic disruption, uncertainty and volatility. The Company's operations and financial performance have been materially impacted by the COVID-19 pandemic. In the first quarter of 2020, all the Company's stores in North America were closed on March 17, 2020, but the Company was able to re-open the majority of its stores as of the end of the second quarter of 2020. Additionally, operations for Victoria’s Secret Direct were temporarily suspended for approximately one week in late March 2020, while Bath & Body Works Direct remained open for the duration of 2020.
During 2020, the Company took prudent actions to manage expenses and to maintain its cash position and financial flexibility. The Company also has adopted new operating models focused on providing a safe store environment for its customers and associates, while also delivering an engaging shopping experience. The Company remains focused on the safe operations of its distribution, fulfillment and call centers while maximizing its direct businesses. There remains the potential for COVID-related risks of closure or operating restrictions, which could materially impact the Company's operations and financial performance in future periods.
Fiscal Year
The Company’s fiscal year ends on the Saturday nearest to January 31. As used herein, “second quarter of 2021” and “second quarter of 2020” refer to the thirteen-week periods ended July 31, 2021 and August 1, 2020, respectively. “Year-to-Date 2021” and “year-to-date 2020” refer to the twenty-six-week periods ending July 31, 2021 and August 1, 2020, respectively.
Basis of Consolidation
The Consolidated Financial Statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
The Company accounts for investments in unconsolidated entities where it exercises significant influence, but does not have control, using the equity method. Under the equity method of accounting, the Company recognizes its share of the investee's net income or loss. Losses are only recognized to the extent the Company has positive carrying value related to the investee. Carrying values are only reduced below zero if the Company has an obligation to provide funding to the investee. The Company’s share of net income or loss of unconsolidated entities from which the Company purchases merchandise or
merchandise components is included in Costs of Goods Sold, Buying and Occupancy in the Consolidated Statements of Income (Loss). The Company’s share of net income or loss from its investment in the Victoria's Secret U.K. joint venture with Next PLC is included in General, Administrative and Store Operating Expenses in the Consolidated Statements of Income (Loss). The Company’s share of net income or loss of all other unconsolidated entities is included in Other Income (Loss) in the Consolidated Statements of Income (Loss). The Company’s equity method investments are required to be reviewed for impairment when it is determined there may be an other-than-temporary loss in value.
Interim Financial Statements
The Consolidated Financial Statements as of and for the periods ended July 31, 2021 and August 1, 2020 are unaudited and are presented pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto contained in the Company’s 2020 Annual Report on Form 10-K.
In the opinion of management, the accompanying Consolidated Financial Statements reflect all adjustments, which are of a normal recurring nature and necessary for a fair presentation of the results for the interim periods.
Seasonality of Business
Due to the seasonal variations in the retail industry, the results of operations for the interim period is not necessarily indicative of the results expected for the full fiscal year.
Restricted Cash
In July 2021, Victoria’s Secret & Co., prior to the Separation and while a subsidiary of the Company, issued $600 million of 4.625% notes due in July 2029 (the "Victoria's Secret & Co. Notes"). As of July 31, 2021, the initial proceeds were held in escrow for release to Victoria's Secret & Co. upon satisfaction of certain conditions, including completion of the Separation. If the conditions for the release from escrow of the proceeds were not satisfied, the Victoria's Secret & Co. Notes would have been subject to mandatory redemption. The $600 million initial proceeds are included in Cash in Escrow related to Victoria's Secret & Co. Spin-Off on the July 31, 2021 Consolidated Balance Sheet. For additional information, see Note 9, “Long-term Debt and Borrowing Facilities.”
During 2020, the Company placed cash on deposit with certain financial institutions as collateral for their lending commitments. These deposits totaled $30 million and $128 million as of January 30, 2021 and August 1, 2020, respectively, and were recorded in Other Assets on the Consolidated Balance Sheets. During the second quarter of 2021, the Company terminated these lending commitments which released the restrictions on this cash. Accordingly, the balance was reclassified to Cash and Cash Equivalents during the second quarter of 2021.
As of July 31, 2021, the Company's total Cash and Cash Equivalents and restricted cash totaled $2.588 billion.
Derivative Financial Instruments
The Company uses derivative financial instruments to manage exposure to foreign currency exchange rates. The Company does not use derivative instruments for trading purposes. All derivative instruments are recorded on the Consolidated Balance Sheets at fair value.
The earnings of the Company's wholly owned foreign operations are subject to exchange rate risk as substantially all the merchandise is sourced through U.S. dollar transactions. The Company uses foreign currency forward contracts designated as cash flow hedges to mitigate this foreign currency exposure for its Canadian operations. Amounts are reclassified from accumulated other comprehensive income (loss) upon sale of the hedged merchandise to the customer. These gains and losses are recognized in Costs of Goods Sold, Buying and Occupancy in the Consolidated Statements of Income (Loss). The fair value of designated cash flow hedges is not significant for any period presented.
Concentration of Credit Risk
The Company maintains cash and cash equivalents, restricted cash and derivative contracts with various major financial institutions. The Company monitors the relative credit standing of financial institutions with whom the Company transacts and limits the amount of credit exposure with any one entity. The Company’s investment portfolio is primarily comprised of U.S. government obligations, U.S. Treasury and AAA-rated money market funds, commercial paper and bank deposits.
The Company also periodically reviews the relative credit standing of franchise, license and wholesale partners and other entities to which the Company grants credit terms in the normal course of business. The Company determines the required allowance for expected credit losses using information such as customer credit history and financial condition. Amounts are recorded to the allowance when it is determined that expected credit losses may occur.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period, as well as the related disclosure of contingent assets and liabilities at the date of the financial statements. Actual results may differ from those estimates, and the Company revises its estimates and assumptions as new information becomes available.
Recently Issued Accounting Pronouncements
The Company did not adopt any new accounting standards during the second quarter of 2021 that had a material impact on the Company's consolidated results of operations, financial position or cash flows. In addition, there are no new accounting standards not yet adopted that are expected to have a material impact on the Company's consolidated results of operations, financial position or cash flows.
2. Revenue Recognition
Accounts receivable, net from revenue-generating activities were $129 million as of July 31, 2021, $125 million as of January 30, 2021 and $186 million as of August 1, 2020. Accounts receivable primarily relate to amounts due from the Company's franchise, license and wholesale partners. Under these arrangements, payment terms are typically 60 to 90 days.
The Company records deferred revenue when cash payments are received in advance of transfer of control of goods or services. Deferred revenue primarily relates to gift cards, loyalty and private label credit card programs and direct channel shipments, which are all impacted by seasonal and holiday-related sales patterns. Deferred revenue was $325 million as of July 31, 2021, $371 million as of January 30, 2021 and $316 million as of August 1, 2020. The Company recognized $167 million as revenue year-to-date 2021 from amounts recorded as deferred revenue at the beginning of the year. As of July 31, 2021, the Company recorded deferred revenue of $316 million within Accrued Expenses and Other, and $9 million within Other Long-term Liabilities on the Consolidated Balance Sheet.
The following table provides a disaggregation of Net Sales for the second quarter and year-to-date 2021 and 2020:
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|
|
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|
|
Second Quarter
|
|
Year-to-Date
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
(in millions)
|
|
Bath & Body Works Stores - U.S. and Canada
|
$
|
1,230
|
|
|
$
|
678
|
|
|
$
|
2,280
|
|
|
$
|
1,102
|
|
|
Bath & Body Works Direct
|
407
|
|
|
519
|
|
|
756
|
|
|
807
|
|
|
Bath & Body Works International (a)
|
67
|
|
|
56
|
|
|
137
|
|
|
105
|
|
|
Total Bath & Body Works
|
1,704
|
|
|
1,253
|
|
|
3,173
|
|
|
2,014
|
|
|
Victoria’s Secret Stores - U.S. and Canada
|
1,037
|
|
|
364
|
|
|
1,970
|
|
|
877
|
|
|
Victoria’s Secret Direct
|
469
|
|
|
614
|
|
|
990
|
|
|
922
|
|
|
Victoria’s Secret International (b)
|
108
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|
|
88
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|
|
208
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|
|
161
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Total Victoria’s Secret
|
1,614
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|
|
1,066
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|
|
3,168
|
|
|
1,960
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Sales
|
$
|
3,318
|
|
|
$
|
2,319
|
|
|
$
|
6,341
|
|
|
$
|
3,974
|
|
_______________
(a)Results include royalties associated with franchised store and wholesale sales.
(b)Results include company-operated stores in the U.K. (pre-joint venture) and Greater China, and royalties associated with franchised stores and wholesale sales.
3. Restructuring Activities
During the second quarter of 2020, the Company completed a comprehensive review of its home office organizations in order to achieve meaningful reductions in overhead expenses and decentralize significant shared functions and services to support the separation of the Bath & Body Works and Victoria's Secret businesses. This resulted in a reduction of the home office headcount by approximately 15%, or about 850 associates. Pre-tax severance and related costs associated with these reductions, totaling $81 million, are included in General, Administrative and Store Operating Expenses in the 2020 Consolidated Statements of Loss. Costs of $51 million and $12 million are recorded within the Victoria's Secret and Bath & Body Works segments, respectively, while the remaining $18 million is recorded within Other.
During year-to-date 2021, the Company made payments of $22 million related to severance and related costs associated with these reductions. As of July 31, 2021, a liability of $14 million related to these reductions is included in Accrued Expenses and Other on the Consolidated Balance Sheet.
Victoria's Secret U.K.
Due to challenging business results for Victoria's Secret in the U.K., the Company entered into Administration in June 2020 to restructure store lease agreements and reduce operating losses in the Victoria's Secret U.K. business. In October 2020, the Company entered into a joint venture with Next PLC for the Victoria’s Secret business in the United Kingdom and Ireland. Under this agreement, the Company owns 49% of the joint venture, and Next owns 51% and is responsible for operations. The Company accounts for its investment in the joint venture under the equity method of accounting.
4. Earnings (Loss) Per Share and Shareholders’ Equity (Deficit)
Earnings (Loss) Per Share
Earnings (loss) per basic share is computed based on the weighted-average number of common shares. Earnings (loss) per diluted share include the weighted-average effect of dilutive restricted stock and options on the weighted-average shares outstanding.
The following table provides the weighted-average shares utilized for the calculation of basic and diluted earnings (loss) per share for the second quarter and year-to-date 2021 and 2020:
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|
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|
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Second Quarter
|
|
Year-to-Date
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
(in millions)
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|
|
|
|
|
|
|
|
|
|
Common Shares
|
288
|
|
|
286
|
|
|
288
|
|
|
285
|
|
|
Treasury Shares
|
(13)
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|
|
(8)
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|
|
(11)
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|
|
(8)
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|
|
Basic Shares
|
275
|
|
|
278
|
|
|
277
|
|
|
277
|
|
|
Effect of Dilutive Restricted Stock and Options
|
5
|
|
|
—
|
|
|
5
|
|
|
—
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|
|
Diluted Shares
|
280
|
|
|
278
|
|
|
282
|
|
|
277
|
|
|
Anti-dilutive Options and Awards (a)
|
1
|
|
|
11
|
|
|
1
|
|
|
12
|
|
_______________
(a)These options and awards were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive. For 2020, the dilutive impact of all outstanding options and awards were excluded from dilutive shares as a result of the Company's net loss for the period.
Shareholders’ Equity (Deficit)
Common Stock Share Repurchases
In March 2021, the Company's Board of Directors authorized a new $500 million share repurchase plan, which replaced the $79 million remaining under the March 2018 repurchase program. Pursuant to the Board's authorization, the Company entered into a Rule 10b5-1 purchase plan to effectuate share repurchases for the first $250 million. In May 2021, the Company initiated a second $250 million Rule 10b5-1 purchase plan to effectuate the remaining share repurchases under the March 2021 repurchase plan.
In July 2021, the Company's Board of Directors authorized a new $1.5 billion share repurchase program, which replaced the $36 million remaining under the March 2021 repurchase program. Under the authorization of this program, the Company entered into a stock repurchase agreement with its former Chief Executive Officer and certain of his affiliated entities pursuant to which the Company repurchased 10 million shares of its common stock for an aggregate purchase price of $730 million in July 2021.
The Company repurchased the following shares of its common stock during year-to-date 2021:
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Repurchase Program
|
|
Amount
Authorized
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Shares
Repurchased
|
|
Amount
Repurchased
|
|
Average Stock Price
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(in millions)
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(in thousands)
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|
(in millions)
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|
|
March 2021
|
|
$
|
500
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|
|
6,996
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|
|
$
|
464
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|
|
$
|
66.30
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|
|
|
|
|
|
July 2021
|
|
$
|
1,500
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|
|
10,000
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|
|
$
|
730
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|
|
$
|
73.01
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|
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|
The July 2021 Program had $770 million remaining as of July 31, 2021.
Subsequent to July 31, 2021, the Company repurchased an additional 1.0 million shares of its common stock for $65 million under the July 2021 Program.
Common Stock Retirement
In accordance with the Company's Board of Directors' resolution, shares of common stock repurchased under the July 2021 Program will be automatically retired and cancelled upon repurchase. As a result, the Company retired the 10 million shares repurchased under the July 2021 Program in the second quarter of 2021, which resulted in a reduction of $5 million in the par value of Common Stock, $32 million in Paid-in Capital and $693 million in Retained Earnings.
Dividends
Under the authority and declaration of the Board of Directors, the Company paid the following dividends during year-to-date 2021 and 2020:
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Ordinary Dividends
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Total Paid
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(per share)
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(in millions)
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2021
|
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|
|
|
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|
|
Second Quarter
|
|
$
|
0.15
|
|
|
|
|
|
|
$
|
42
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|
|
First Quarter
|
|
—
|
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|
|
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|
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—
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Total
|
|
$
|
0.15
|
|
|
|
|
|
|
$
|
42
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|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
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Second Quarter
|
|
$
|
—
|
|
|
|
|
|
|
$
|
—
|
|
|
First Quarter
|
|
0.30
|
|
|
|
|
|
|
83
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|
|
Total
|
|
$
|
0.30
|
|
|
|
|
|
|
$
|
83
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|
The Board of Directors suspended the quarterly cash dividend beginning in the second quarter of 2020 as a proactive measure to strengthen the Company's financial flexibility and manage through the COVID-19 pandemic. In March 2021, the Company's Board of Directors reinstated the annual dividend at $0.60 per share, beginning with the quarterly dividend paid in June 2021. In August 2021, the Company's Board of Directors declared the third quarter of 2021 ordinary dividend of $0.15 per share.
5. Inventories
The following table provides details of inventories as of July 31, 2021, January 30, 2021 and August 1, 2020:
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|
|
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|
|
|
July 31,
2021
|
|
January 30,
2021
|
|
August 1,
2020
|
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(in millions)
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|
Finished Goods Merchandise
|
$
|
1,245
|
|
|
$
|
1,073
|
|
|
$
|
1,259
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|
|
Raw Materials and Merchandise Components
|
228
|
|
|
200
|
|
|
217
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|
|
Total Inventories
|
$
|
1,473
|
|
|
$
|
1,273
|
|
|
$
|
1,476
|
|
Inventories are principally valued at the lower of cost or net realizable value, on an average cost basis.
6. Long-Lived Assets
The following table provides details of property and equipment, net as of July 31, 2021, January 30, 2021 and August 1, 2020:
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|
|
|
|
|
|
|
|
|
|
July 31,
2021
|
|
January 30,
2021
|
|
August 1,
2020
|
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(in millions)
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Property and Equipment, at Cost
|
$
|
6,274
|
|
|
$
|
6,204
|
|
|
$
|
6,276
|
|
|
Accumulated Depreciation and Amortization
|
(4,273)
|
|
|
(4,109)
|
|
|
(3,984)
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|
|
Property and Equipment, Net
|
$
|
2,001
|
|
|
$
|
2,095
|
|
|
$
|
2,292
|
|
Depreciation expense was $129 million and $127 million for the second quarter of 2021 and 2020, respectively. Depreciation expense was $258 million and $266 million for year-to-date 2021 and 2020, respectively.
Long-lived store assets, which include leasehold improvements, store related assets and operating lease assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Store assets are grouped at the lowest level for which they are largely independent of other assets or asset groups. If the estimated undiscounted future cash flows related to the asset group are less than the carrying value, the Company recognizes a loss equal to the difference between the carrying value and the estimated fair value, determined by the estimated
discounted future cash flows of the asset group. For operating lease assets, the Company determines the fair value of the assets by comparing the contractual rent payments to estimated market rental rates. An individual asset within an asset group is not impaired below its estimated fair value. The fair value of long-lived store assets are determined using Level 3 inputs within the fair value hierarchy.
As a result of the Victoria's Secret fleet rationalization executed during 2020 and the negative operating results of certain Victoria's Secret stores, the Company determined that the estimated undiscounted future cash flows were less than the carrying values for certain Victoria's Secret asset groups and, as a result, determined the estimated fair values of the store asset groups using estimated discounted future cash flows and estimated market rental rates. Long-lived store asset impairment charges are included within the Victoria's Secret segment, in Costs of Goods Sold, Buying and Occupancy in the 2020 Consolidated Statements of Loss.
The following table provides pre-tax long-lived store asset impairment charges included in the 2020 Consolidated Statements of Loss:
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|
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|
|
|
|
|
|
2020
|
|
|
|
Second Quarter
|
|
Year-to-Date
|
|
|
|
(in millions)
|
|
|
Store Asset Impairment
|
$
|
14
|
|
|
$
|
111
|
|
|
|
Operating Lease Asset Impairment
|
103
|
|
|
103
|
|
|
|
Total Impairment
|
$
|
117
|
|
|
$
|
214
|
|
|
Victoria's Secret Hong Kong
During the second quarter of 2020, the Company closed its unprofitable Victoria's Secret flagship store in Hong Kong. As a result of the store closure, the Company recognized a non-cash pre-tax gain of $39 million, primarily due to terminating the store lease and the related write-off of the operating lease liability in excess of the operating lease asset, which was partially impaired in fiscal 2019. This gain is included in Costs of Goods Sold, Buying and Occupancy in the 2020 Consolidated Statements of Loss. The Company also recorded $3 million of severance and related costs, included in General, Administrative and Store Operating Expenses in the 2020 Consolidated Statements of Loss.
7. Equity Investments
Easton
The Company has land and other investments in Easton, a planned community in Columbus, Ohio, that integrates office, hotel, retail, residential and recreational space. These investments, totaling $119 million as of July 31, 2021, $119 million as of January 30, 2021 and $124 million as of August 1, 2020, are recorded in Other Assets on the Consolidated Balance Sheets.
Included in the Company’s Easton investments are equity interests in Easton Town Center, LLC (“ETC”) and Easton Gateway, LLC (“EG”), entities that own and develop commercial entertainment and shopping centers. The Company’s investments in ETC and EG are accounted for using the equity method of accounting. The Company has a majority financial interest in ETC and EG, but another unaffiliated member manages them, and certain significant decisions regarding ETC and EG require the consent of unaffiliated members in addition to the Company.
8. Income Taxes
For the second quarter of 2021, the Company calculated the provision for income taxes on the current estimate of the annual effective tax rate and adjusted as necessary for quarterly events. Due to the impacts of the COVID-19 pandemic, the income tax expense for the second quarter of 2020 was computed on a year-to-date effective tax rate.
For the second quarter of 2021, the Company’s effective tax rate was 25.1% compared to 17.7% in the second quarter of 2020. The second quarter of 2021 rate was lower than the Company's combined estimated federal and state statutory rate primarily due to the recognition of excess tax benefits recorded through the Consolidated Statements of Income on share-based awards that vested in the quarter. In the second quarter of 2020, the Company recognized a benefit for income taxes of $11 million on a loss before income taxes of $60 million. The second quarter of 2020 rate was lower than the Company's combined federal and state statutory rate primarily due to losses related to certain foreign subsidiaries, which generated no tax benefit, offset by changes in tax legislation included in the CARES Act, which resulted in a $21 million tax benefit.
For year-to-date 2021, the Company's effective tax rate was 23.6% compared to 26.7% year-to-date 2020. The year-to-date 2021 rate was lower than the Company's combined estimated federal and state statutory rate primarily due to the recognition of excess tax benefits recorded through the Consolidated Statements of Income on share-based awards that vested year-to-date. The year-to-date 2020 rate was generally consistent with the Company's combined estimated federal and state statutory rate due
to the resolution of certain tax matters, which resulted in a $50 million tax benefit and changes in tax legislation included in the CARES Act, which resulted in a $21 million tax benefit, offset by losses related to certain foreign subsidiaries, which generate no tax benefit.
Income taxes paid were $320 million and $13 million for the second quarter of 2021 and 2020, respectively. Income taxes paid were $330 million and $22 million for year-to-date 2021 and 2020, respectively.
9. Long-term Debt and Borrowing Facilities
The following table provides the Company’s outstanding debt balance, net of unamortized debt issuance costs and discounts, as of July 31, 2021, January 30, 2021 and August 1, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31,
2021
|
|
January 30,
2021
|
|
August 1,
2020
|
|
|
(in millions)
|
|
Senior Secured Debt with Subsidiary Guarantee
|
|
|
|
|
|
|
$750 million, 6.875% Fixed Interest Rate Secured Notes due July 2025 ("2025 Secured Notes")
|
$
|
—
|
|
|
$
|
740
|
|
|
$
|
739
|
|
|
|
|
|
|
|
|
|
Foreign Facilities
|
—
|
|
|
—
|
|
|
101
|
|
|
Total Senior Secured Debt with Subsidiary Guarantee
|
$
|
—
|
|
|
$
|
740
|
|
|
$
|
840
|
|
|
Senior Debt with Subsidiary Guarantee
|
|
|
|
|
|
|
$1 billion, 6.625% Fixed Interest Rate Notes due April 2021 (“2021 Notes”)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
450
|
|
|
$1 billion, 5.625% Fixed Interest Rate Notes due February 2022 (“2022 Notes”)
|
—
|
|
|
284
|
|
|
858
|
|
|
$320 million, 5.625% Fixed Interest Rate Notes due October 2023 (“2023 Notes”)
|
319
|
|
|
319
|
|
|
498
|
|
|
$500 million, 9.375% Fixed Interest Rate Notes due July 2025 ("2025 Notes")
|
494
|
|
|
493
|
|
|
492
|
|
|
$297 million, 6.694% Fixed Interest Rate Notes due January 2027 (“2027 Notes”)
|
279
|
|
|
278
|
|
|
277
|
|
|
$500 million, 5.250% Fixed Interest Rate Notes due February 2028 (“2028 Notes”)
|
497
|
|
|
497
|
|
|
496
|
|
|
$500 million, 7.500% Fixed Interest Rate Notes due June 2029 ("2029 Notes")
|
489
|
|
|
488
|
|
|
488
|
|
|
$1 billion, 6.625% Fixed Interest Rate Notes due October 2030 ("2030 Notes")
|
989
|
|
|
988
|
|
|
—
|
|
|
$1 billion, 6.875% Fixed Interest Rate Notes due November 2035 (“2035 Notes”)
|
991
|
|
|
991
|
|
|
991
|
|
|
$700 million, 6.750% Fixed Interest Rate Notes due July 2036 (“2036 Notes”)
|
694
|
|
|
694
|
|
|
693
|
|
|
Total Senior Debt with Subsidiary Guarantee
|
$
|
4,752
|
|
|
$
|
5,032
|
|
|
$
|
5,243
|
|
|
Senior Debt
|
|
|
|
|
|
|
$350 million, 6.950% Fixed Interest Rate Debentures due March 2033 (“2033 Notes”)
|
$
|
348
|
|
|
$
|
348
|
|
|
$
|
348
|
|
|
$247 million, 7.600% Fixed Interest Rate Notes due July 2037 (“2037 Notes”)
|
246
|
|
|
246
|
|
|
298
|
|
|
|
|
|
|
|
|
|
Total Senior Debt
|
$
|
594
|
|
|
$
|
594
|
|
|
$
|
646
|
|
|
Victoria's Secret & Co. Notes
|
|
|
|
|
|
|
Victoria's Secret & Co. $600 million, 4.625% Fixed Interest Rate Notes due July 2029 ("Victoria's Secret & Co. Notes")
|
592
|
|
|
—
|
|
|
—
|
|
|
Total
|
$
|
5,938
|
|
|
$
|
6,366
|
|
|
$
|
6,729
|
|
|
Current Debt
|
—
|
|
|
—
|
|
|
(460)
|
|
|
Total Long-term Debt, Net of Current Portion
|
$
|
5,938
|
|
|
$
|
6,366
|
|
|
$
|
6,269
|
|
Repurchases of Notes
In April 2021, the Company completed a make-whole call to repurchase the remaining $285 million of outstanding 2022 Notes and the $750 million of outstanding 2025 Secured Notes. The Company recognized a pre-tax loss related to this extinguishment of debt of $105 million (after-tax loss of $80 million), which includes the write-offs of unamortized issuance costs. This loss is included in Other Income (Loss) in the year-to-date 2021 Consolidated Statement of Income.
Subsequent to July 31, 2021, the Company announced that it had commenced tender offers to purchase for cash its outstanding 2023 Notes, 2025 Notes and 2027 Notes up to a maximum aggregate principal amount of $500 million. The maximum aggregate amount to be purchased by the Company for the 2025 Notes and 2027 Notes is limited to $180 million. On September 2, 2021, the Company announced that it had accepted for early settlement tender offers to purchase $270 million of outstanding 2023 Notes and $180 million of outstanding 2025 Notes for an aggregate purchase price of $532 million. The
Company intends to make payment for these accepted notes on September 3, 2021, and expects to recognize a pre-tax loss of approximately $84 million in the third quarter of 2021 related to these purchases. The tender offers will expire on September 16, 2021, unless extended or earlier terminated by the Company.
Victoria's Secret & Co. Notes
In July 2021, Victoria’s Secret & Co., prior to the Separation and while a subsidiary of the Company, issued $600 million of 4.625% notes due in July 2029 in a transaction exempt from registration under the Securities Act of 1933, as amended. As of July 31, 2021, the initial proceeds were held in escrow for release to Victoria's Secret & Co. upon satisfaction of certain conditions, including completion of the Separation. If the conditions for the release from escrow of the proceeds were not satisfied, the Victoria's Secret & Co. Notes would have been subject to mandatory redemption. The $600 million initial proceeds are included in Cash in Escrow related to Victoria's Secret & Co. Spin-Off on the July 31, 2021 Consolidated Balance Sheet. The Victoria's Secret & Co. Notes were not guaranteed at issuance by any guarantors or by Bath & Body Works, Inc. or any of its subsidiaries following the Separation.
On August 2, 2021, the Victoria's Secret & Co. Notes became the obligations of Victoria's Secret & Co. concurrent with the Separation. Victoria's Secret & Co. received cash proceeds of $592 million, which were net of issuance costs of $8 million, which it used to partially fund the approximately $976 million cash payments to the Company in connection with the Separation.
Asset-Backed Revolving Credit Facility
The Company and certain of the Company's 100% owned subsidiaries guarantee and pledge collateral to secure a revolving credit facility ("Credit Agreement"). In April 2020, the Company entered into an amendment and restatement of the Credit Agreement to convert the Company’s credit facility into an asset-backed revolving credit facility (“ABL Facility”). During the first quarter of 2020, in an abundance of caution and as a proactive measure in response to the COVID-19 pandemic, the Company elected to borrow $950 million from its revolving facility. This borrowing was repaid during the first quarter of 2020 upon completion of the April amendment.
As of July 31, 2021, the ABL Facility, which allowed borrowings and letters of credit in U.S. dollars or Canadian dollars, had aggregate commitments at $1 billion and an expiration date in August 2024.
As of July 31, 2021, the availability under the ABL Facility was the lesser of (i) the borrowing base, determined primarily based on the Company's eligible U.S. and Canadian credit card receivables, accounts receivable, inventory and eligible real property, or (ii) the aggregate commitment. If at any time, the outstanding amount under the ABL Facility exceeded the lesser of (i) the borrowing base and (ii) the aggregate commitment, the Company would have been required to prepay the outstanding amounts under the ABL Facility to the extent of such excess. In addition, at any time that the Company's consolidated cash balance exceeded $350 million, it would have been required to prepay outstanding amounts under the ABL Facility to the extent of such excess. As of July 31, 2021, the Company's borrowing base was $1.045 billion, but it was unable to draw upon the ABL Facility as its consolidated cash balance exceeded $350 million.
The ABL Facility supports the Company’s letter of credit program. The Company had $58 million of outstanding letters of credit as of July 31, 2021 that reduced its availability under the ABL Facility.
As of July 31, 2021, the ABL Facility fees related to committed and unutilized amounts were 0.30% per annum, and the fees related to outstanding letters of credit were 1.75% per annum. In addition, the interest rate on outstanding U.S. dollar borrowings was the London Interbank Offered Rate plus 1.75% per annum. The interest rate on outstanding Canadian dollar-denominated borrowings was the Canadian Dollar Offered Rate plus 1.75% per annum.
The ABL Facility required the Company to maintain a fixed charge coverage ratio of not less than 1.00 to 1.00 during an event of default or any period commencing on any day when specified excess availability is less than the greater of (1) $100 million or (2) 15% of the maximum borrowing amount. As of July 31, 2021, the Company was not required to maintain this ratio.
As of July 31, 2021, there were no borrowings outstanding under the ABL Facility.
Subsequent to July 31, 2021, the Company entered into an amendment and restatement (“Amendment”) of the ABL Facility. The Amendment reduced the aggregate commitments under the ABL Facility to $750 million, reduced the interest rates on outstanding borrowings by 50 basis points, removed the requirement to prepay outstanding amounts under the ABL Facility should the Company's consolidated cash balance exceed $350 million, extended the expiration date from August 2024 to August 2026 and released Victoria's Secret & Co. subsidiaries as guarantors, among other things.
Foreign Facilities
Certain of the Company's Victoria's Secret subsidiaries in China previously utilized revolving and term loan bank facilities to support their operations ("Foreign Facilities"). During the second quarter of 2021, with no borrowings outstanding, the Company terminated the Foreign Facilities.
10. Fair Value Measurements
Cash and Cash Equivalents and restricted cash include cash on hand, deposits with financial institutions and highly liquid investments with original maturities of less than 90 days. The Company's Cash and Cash Equivalents and restricted cash are considered Level 1 fair value measurements as they are valued using unadjusted quoted prices in active markets for identical assets.
The following table provides a summary of the principal value and estimated fair value of outstanding publicly traded debt as of July 31, 2021, January 30, 2021 and August 1, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31,
2021
|
|
January 30,
2021
|
|
August 1,
2020
|
|
|
(in millions)
|
|
Principal Value
|
$
|
5,414
|
|
|
$
|
6,449
|
|
|
$
|
6,708
|
|
|
Fair Value, Estimated (a)
|
6,581
|
|
|
7,243
|
|
|
6,692
|
|
_______________
(a)The estimated fair value of the Company’s publicly traded debt is based on reported transaction prices, which are considered Level 2 inputs in accordance with ASC 820, Fair Value Measurement. The estimates presented are not necessarily indicative of the amounts that the Company could realize in a current market exchange.
As of July 31, 2021, the fair value of the Victoria's Secret & Co. Notes approximated its principal value. The estimated fair value is based on reported transaction prices, which are considered Level 2 inputs in accordance with ASC 820. This estimate is not necessarily indicative of the amount that the Company could realize in a current market exchange.
Management believes that the carrying values of accounts receivable, accounts payable and accrued expenses approximate fair value because of their short maturity.
11. Comprehensive Income
The following table provides the rollforward of accumulated other comprehensive income for year-to-date 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation
|
|
Cash Flow Hedges
|
|
Accumulated Other Comprehensive Income
|
|
|
(in millions)
|
|
Balance as of January 30, 2021
|
$
|
85
|
|
|
$
|
(2)
|
|
|
$
|
83
|
|
|
Other Comprehensive Income (Loss) Before Reclassifications
|
4
|
|
|
(1)
|
|
|
3
|
|
|
Amounts Reclassified from Accumulated Other Comprehensive Income
|
—
|
|
|
2
|
|
|
2
|
|
|
Tax Effect
|
—
|
|
|
(1)
|
|
|
(1)
|
|
|
Current-period Other Comprehensive Income
|
4
|
|
|
—
|
|
|
4
|
|
|
Balance as of July 31, 2021
|
$
|
89
|
|
|
$
|
(2)
|
|
|
$
|
87
|
|
The following table provides the rollforward of accumulated other comprehensive income for year-to-date 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation
|
|
Cash Flow Hedges
|
|
Accumulated Other Comprehensive Income
|
|
|
(in millions)
|
|
Balance as of February 1, 2020
|
$
|
52
|
|
|
$
|
—
|
|
|
$
|
52
|
|
|
Other Comprehensive Income (Loss) Before Reclassifications
|
(4)
|
|
|
2
|
|
|
(2)
|
|
|
Amounts Reclassified from Accumulated Other Comprehensive Income
|
—
|
|
|
(1)
|
|
|
(1)
|
|
|
Tax Effect
|
—
|
|
|
—
|
|
|
—
|
|
|
Current-period Other Comprehensive Income (Loss)
|
(4)
|
|
|
1
|
|
|
(3)
|
|
|
Balance as of August 1, 2020
|
$
|
48
|
|
|
$
|
1
|
|
|
$
|
49
|
|
12. Commitments and Contingencies
The Company is subject to various claims and contingencies related to lawsuits, taxes, insurance, regulatory and other matters arising out of the normal course of business. Actions filed against the Company from time to time include commercial, tort, intellectual property, customer, employment, data privacy, securities and other claims, including purported class action lawsuits. Management believes that the ultimate liability arising from such claims and contingencies, if any, is not likely to have a material adverse effect on the Company’s results of operations, financial condition or cash flows.
On May 19, 2020 and January 12, 2021, certain shareholders of the Company filed derivative lawsuits in the Court of Common Pleas for Franklin County, Ohio (subsequently removed to the United States District Court for the Southern District of Ohio) and the Delaware Court of Chancery, respectively, naming as defendants certain current and former directors and officers of the Company and alleging, among other things, breaches of fiduciary duty through asserted violations of law and failures to monitor workplace conduct (the “Lawsuits”). In addition, the Company also received litigation and books-and-records demands from certain other shareholders related to the same matters (together with the Lawsuits, the “Actions”).
In July 2021, the Company announced the global settlement resolving the Actions. The settlement resolves all derivative claims that have been or could have been asserted in the Actions or that involve in any way the allegations referred to in the Actions and releases all such claims against the Company and past and present Company employees, officers and directors, among others. As part of the settlement, the Company has agreed to implement certain management and governance measures, including the maintenance of a Diversity, Equity, and Inclusion Council. Following the August 2, 2021 spin-off of Victoria’s Secret & Co., the settlement terms will apply to both the Company and Victoria’s Secret & Co. Each company has committed to invest $45 million over at least five years to fund the management and governance measures.
La Senza
In connection with the sale of La Senza in the fourth quarter of 2018, certain of the Company's subsidiaries have remaining contingent obligations of approximately $30 million related to lease payments under the current terms of noncancelable leases expiring at various dates through 2028. These obligations include minimum rent and additional payments covering taxes, common area costs and certain other expenses and relate to leases that commenced prior to the disposition of the business.
13. Retirement Benefits
The Company sponsors a tax-qualified defined contribution retirement plan for substantially all its associates within the U.S. Participation is available to associates who meet certain age and service requirements. The qualified plan permits participating associates to elect contributions up to the maximum limits allowable under the Internal Revenue Code. The Company matches associate contributions according to a predetermined formula and contributes additional amounts based on a percentage of the associates’ eligible annual compensation and years of service. Associate contributions and Company matching contributions vest immediately. Additional Company contributions and the related investment earnings are subject to vesting based on years of service. Total expense recognized related to the qualified plan was $19 million and $18 million for the second quarter of 2021 and 2020, respectively. Total expense recognized related to the qualified plan was $40 million and $39 million for year-to-date 2021 and 2020, respectively.
The Company previously sponsored a non-qualified supplemental retirement plan. The non-qualified plan was an unfunded plan, which provided benefits beyond the Internal Revenue Code limits for qualified defined contribution plans. On June 27, 2020, the Human Capital and Compensation Committee of the Board of Directors authorized the termination of the non-qualified plan. In July 2021, the Company made payments of $143 million for the final settlement of all its obligations and benefits payable under the non-qualified plan. Total expense recognized related to the non-qualified plan was not significant for any period presented.
14. Segment Information
In the third quarter of 2020, the Company changed its segment reporting as a result of leadership changes and restructuring actions taken to facilitate the ongoing efforts to separate Bath & Body Works and Victoria’s Secret into separate businesses. As of July 31, 2021, the Company had two reportable segments: Bath & Body Works and Victoria's Secret. While this reporting change did not impact the Company's consolidated results, historical segment data has been recast to be consistent for all periods presented.
The Bath & Body Works segment sells body care, home fragrance products, soaps and sanitizers under the Bath & Body Works, White Barn and other brand names. Bath & Body Works merchandise is sold online and at retail stores located in the U.S. and Canada, and international stores operated by partners under franchise, license and wholesale arrangements. Additionally, this segment includes the Bath & Body Works merchandise sourcing and production function serving the Company and its international partners.
The Victoria’s Secret segment sells women’s intimate and other apparel, personal care and beauty products under the Victoria’s Secret and PINK brand names. Victoria’s Secret and PINK merchandise is sold online and through retail stores located in the
U.S., Canada and Greater China, and international stores operated by partners under franchise, license, wholesale and joint venture arrangements. Additionally, this segment includes the Victoria's Secret and PINK merchandise sourcing and production function serving the Company and its international partners. As discussed in Note 1, the Company completed the spin-off of its Victoria's Secret business into an independent, publicly traded company on August 2, 2021.
Other includes corporate infrastructure and governance functions and other non-recurring items that are deemed to be corporate in nature.
The following table provides the Company’s segment information for the second quarter and year-to-date of 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bath & Body
Works
|
|
Victoria’s
Secret
|
|
Other
|
|
Total
|
|
|
(in millions)
|
|
2021
|
|
|
|
|
|
|
|
|
Second Quarter:
|
|
|
|
|
|
|
|
|
Net Sales
|
$
|
1,704
|
|
|
$
|
1,614
|
|
|
$
|
—
|
|
|
$
|
3,318
|
|
|
Operating Income (Loss)
|
431
|
|
|
233
|
|
|
(65)
|
|
|
599
|
|
|
Year-to-Date:
|
|
|
|
|
|
|
|
|
Net Sales
|
$
|
3,173
|
|
|
$
|
3,168
|
|
|
$
|
—
|
|
|
$
|
6,341
|
|
|
Operating Income (Loss)
|
811
|
|
|
477
|
|
|
(117)
|
|
|
1,171
|
|
|
2020
|
|
|
|
|
|
|
|
|
Second Quarter:
|
|
|
|
|
|
|
|
|
Net Sales
|
$
|
1,253
|
|
|
$
|
1,066
|
|
|
$
|
—
|
|
|
$
|
2,319
|
|
|
Operating Income (Loss) (a)
|
337
|
|
|
(219)
|
|
|
(74)
|
|
|
44
|
|
|
Year-to-Date:
|
|
|
|
|
|
|
|
|
Net Sales
|
$
|
2,014
|
|
|
$
|
1,960
|
|
|
$
|
—
|
|
|
$
|
3,974
|
|
|
Operating Income (Loss) (a)
|
413
|
|
|
(573)
|
|
|
(114)
|
|
|
(274)
|
|
_______________
(a)Victoria's Secret includes store and lease asset impairment charges of $117 million and $214 million for the second quarter and year-to-date 2020, respectively. Additionally, Victoria's Secret includes a $36 million net gain related to the closure and lease termination of the Hong Kong flagship store. For additional information, see Note 6, “Long-Lived Assets." Bath & Body Works, Victoria's Secret and Other includes severance and related charges of $12 million, $51 million and $18 million, respectively, in the second quarter of 2020. For additional information, see Note 3, “Restructuring Activities."
The Company’s international net sales include sales from company-operated stores, royalty revenue from franchise and license arrangements, wholesale revenues and direct sales shipped internationally. Certain of these sales are subject to the impact of fluctuations in foreign currency. The Company’s international net sales totaled $289 million and $238 million for the second quarter of 2021 and 2020, respectively. The Company's international net sales totaled $568 million and $418 million for year-to-date 2021 and 2020, respectively.
15. Subsequent Events
Victoria's Secret & Co. Spin-Off
On August 2, 2021, after the NYSE market closing, the Separation of Victoria's Secret & Co. into an independent publicly-traded company was completed and the Company transferred certain assets and liabilities associated with its Victoria's Secret business to Victoria's Secret & Co. The Separation was achieved through the Company's distribution of 100% of the shares of Victoria's Secret & Co. common stock to holders of L Brands' common stock as of the close of business on the record date of July 22, 2021. The Company's stockholders of record received one share of Victoria’s Secret & Co. common stock for every three shares of the Company's common stock. On August 3, 2021, Victoria’s Secret & Co. began trading on the NYSE under the stock symbol "VSCO." The Company retained no ownership interest in Victoria’s Secret & Co. following the Separation. Beginning in the third quarter of fiscal 2021, the historical financial results of the Victoria's Secret business for periods prior to the Distribution Date will be reflected in the Company’s consolidated financial statements as discontinued operations. On August 2, 2021, Victoria's Secret & Co. made cash payments of approximately $976 million to the Company in connection with the Separation. Additionally, the Victoria's Secret & Co. Notes became the obligations of Victoria's Secret & Co. concurrent with the Separation.
Corporate Name Change
On August 2, 2021, in connection with the Separation of the Victoria's Secret business discussed above, the Company changed its name from L Brands, Inc. to Bath & Body Works, Inc. Starting August 3, 2021, the Company's common stock began trading under the stock symbol "BBWI."
Leadership Changes
As previously announced, the Company appointed Wendy C. Arlin as Executive Vice President and Chief Financial Officer effective August 2, 2021. Stuart B. Burgdoerfer retired and ceased serving as Executive Vice President and Chief Financial Officer effective August 2, 2021.
ABL Facility
Subsequent to July 31, 2021, the Company entered into an amendment and restatement of the ABL Facility. For additional information, see Note 9, “Long-term Debt and Borrowing Facilities.”
Repurchase of Notes
Subsequent to July 31, 2021, the Company announced that it had commenced tender offers to purchase for cash its outstanding 2023 Notes, 2025 Notes and 2027 Notes up to a maximum aggregate principal amount of $500 million. The maximum aggregate amount to be purchased by the Company for the 2025 Notes and 2027 Notes is limited to $180 million. On September 2, 2021, the Company announced that it had accepted for early settlement tender offers to purchase $270 million of outstanding 2023 Notes and $180 million of outstanding 2025 Notes for an aggregate purchase price of $532 million. The Company intends to make payment for these accepted notes on September 3, 2021, and expects to recognize a pre-tax loss of approximately $84 million in the third quarter of 2021 related to these purchases. The tender offers will expire on September 16, 2021, unless extended or earlier terminated by the Company.
Common Stock Share Repurchases
Subsequent to July 31, 2021, the Company repurchased an additional 1.0 million shares of its common stock for $65 million under the July 2021 Program.
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Bath & Body Works, Inc.
Results of Review of Interim Financial Statements
We have reviewed the accompanying consolidated balance sheets of Bath & Body Works, Inc. (the Company) as of July 31, 2021 and August 1, 2020, and the related consolidated statements of income (loss), comprehensive income (loss), and total equity (deficit) for the thirteen and twenty-six week periods ended July 31, 2021 and August 1, 2020, and the consolidated statements of cash flows for the twenty-six week periods ended July 31, 2021 and August 1, 2020, and the related notes (collectively referred to as the “consolidated interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial statements for them to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of January 30, 2021, and the related consolidated statements of income (loss), comprehensive income (loss), total equity (deficit), and cash flows for the year then ended, and the related notes (not presented herein); and in our report dated March 19, 2021, we expressed an unqualified audit opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of January 30, 2021, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
These financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
/s/ Ernst & Young LLP
Grandview Heights, Ohio
September 2, 2021
SAFE HARBOR STATEMENT UNDER THE PRIVATE
SECURITIES LITIGATION ACT OF 1995
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
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 company 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” 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 company or our management:
•the spin-off of Victoria’s Secret may not be tax-free for U.S. federal income tax purposes;
•a loss of synergies from separating the businesses that could negatively impact the balance sheet, profit margins or earnings of Bath & Body Works or that Bath & Body Works does not realize all of the expected benefits of the spin-off;
•general economic conditions, inflation, consumer confidence, consumer spending patterns and market disruptions including pandemics or significant health hazards, severe weather conditions, natural disasters, terrorist activities, financial crises, political crises or other major events, or the prospect of these events;
•the novel coronavirus (COVID-19) global pandemic has had and is expected to continue to have an adverse effect on our business and results of operations;
•the seasonality of our business;
•divestitures or other dispositions and related operations and contingent liabilities from businesses that we have divested;
•difficulties arising from turnover in company leadership or other key positions;
•our ability to attract, develop and retain qualified associates and manage labor-related costs;
•the dependence on mall traffic and the availability of suitable store locations on appropriate terms;
•our ability to grow 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;
•our ability to protect our reputation and our brand images;
•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, 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, environmental hazards or natural disasters;
▪significant health hazards or pandemics, which could result in closed factories, reduced workforces, scarcity of raw materials, and scrutiny or embargoing of goods produced in impacted areas;
▪duties, taxes and other charges;
▪legal and regulatory matters;
▪volatility in currency exchange rates;
▪local business practices and political issues;
▪potential delays or disruptions in shipping and transportation and related pricing impacts;
▪disruption due to labor disputes; and
▪changing expectations regarding product safety due to new legislation;
•our geographic concentration of vendor and distribution facilities in central Ohio;
•fluctuations in foreign currency exchange rates;
•the ability of our vendors to deliver products in a timely manner, meet quality standards and comply with applicable laws and regulations;
•fluctuations in product input costs, including those caused by inflation;
•our ability to adequately protect our assets from loss and theft;
•fluctuations in energy costs, including those caused by inflation;
•increases in the costs of mailing, paper, printing or other order fulfillment logistics;
•claims arising from our self-insurance
•our and our third-party service providers' ability to implement and maintain information technology systems and to protect associated data;
•our ability to maintain the security of customer, associate, third-party and company information;
•stock price volatility;
•our ability to pay dividends and related effects;
•shareholder activism matters;
•our ability to maintain our credit rating;
•our ability to service or refinance our debt and maintain compliance with our restrictive covenants;
•our ability to comply with laws, regulations and technology platform rules or other obligations related to data privacy and security;
•our ability to comply with regulatory requirements;
•legal and compliance matters; and
•tax, trade and other regulatory matters.
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. Additional information regarding these and other factors can be found in “Item 1A. Risk Factors” in this Form 10-Q and in our 2020 Annual Report on Form 10-K.