The news: Bath & Body Works has stopped buying seasonal inventory to fill its semiannual clearance sales. It now sizes those buys to what it expects to sell at full price, and lets the sale clear whatever is left.
CEO Daniel Heaf said on the second-quarter call the company went into its June sale with less distressed stock because it is “buying our seasonal business correctly.”
Inventory was down 10% from a year earlier at quarter end. The leaner sale cost about one percentage point of second-quarter sales, interim CFO Tom Javitch said.
What changed: The company used to buy big for seasons like Halloween and the holidays, then clear the leftovers in its June and January sales. It stopped after concluding last November that the core business had come to rely too much on promotions, Heaf said.
“We aren’t looking to buy large amounts of inventory that we can flush through in semiannual sales,” Heaf said. “There are certain things, certain franchises, certain long-term drivers of growth that we want to protect.”
The two big sales stay, and Heaf called promotions and markdowns “a very important driver of our business.” But the company will not run more of them in the second half than it did last year.
“My macro is you can’t promote a business back to health,” he said. “So we’re using that lever less, and we’re using brand marketing and product as the things that we are leaning on to drive growth in the back half.”
The company has already budgeted that marketing: about $35 million more in the second half, roughly 70% of it in the third quarter ahead of the holidays.
The company also cut what it sells. It shrank its Halloween assortment and exited laundry and kitchen products, a category under 1% of sales that Heaf said was too complicated to run for what it brought in. “We’re not chasing a SKU reduction number,” Heaf said. “What we’re trying to get to is growth in our core categories, growth in the business overall and a cleaner environment in our stores.” He said the company is “broadly” where it expects to be on SKU rationalization.
Inventory has now been below the prior year for three straight quarters, ending this one at $883 million against $977 million, per the quarterly filing. The company spent $185 million building stock between January and August, down from $241 million a year earlier.
How it works: Committing later only works if the supply can follow. Bath & Body Works buys from about 90 vendors, most of them in the US, and its annual report says most of its third-party manufacturers and distribution centers sit in central Ohio, near its Columbus headquarters. The company has said that closeness “allows us to be more agile in responding to shifting consumer demands.” Javitch made the same point about the back half: guidance assumes current trends continue, he said, and “our agile model allows us to chase upside.”
That flexibility did not spread the cost evenly. Stores absorbed most of the hit from the leaner sale: store sales fell 5.4%, and Javitch said the lower clearance stock mostly showed up there. Online sales rose 3% to $275 million, the first growth in that channel since 2021, helped by a lower free-shipping threshold of $50.
The pattern: At least four other retailers described tighter buying or smaller assortments in August earnings calls.
BJ's Wholesale Club plans to cut its SKU count by 20%, to 6,000 or 6,500 items, after President and CEO Bob Eddy said the club was “over SKUed.” It may drop several body wash scents and push that volume into the ones that remain.
Dollar General finished two years of chain-wide SKU cuts and said the next round will target individual stores. Its inventory was flat on sales up 5.2%, and it expects inventory to keep growing more slowly than sales.
Williams-Sonoma held inventory up 1% on revenue up 6.7%. CFO Jeff Howie said the company is “chasing inventory in our best sellers” rather than buying ahead.
Ulta Beauty kept inventory flat at $2.4 billion on sales up 8.9%, which it credited to “improved inventory management.”
Two others bought heavier. Off-price chain Ross Stores grew inventory 18% on sales up 13%, buying merchandise it will store in its packaway program to sell in later seasons. Best Buy grew inventory 8.3% on sales up 3.6% to get ahead of memory price increases.
The counter: BJ’s has tried this before and undid it. “We just cut SKUs, which cut sales, and then we added some SKUs back,” Eddy told analysts, and said the earlier effort was not done “in the right way.”
Several forms of Fruit Fusion, the quarter’s main launch, sold out. Heaf said “our supply chains are working hard to make sure that we replenish that inventory.” H&M reported the same problem in June: its tighter inventory management “has, however, in some cases affected our ability to fully meet demand.”
Sales are also still falling. The company expects third quarter sales to drop 2.5% to 5%. And an $80 million tariff refund, not the operating business, accounted for half of the second quarter’s adjusted profit.
What’s next: Two more Fruit Fusion fragrances arrive in the third quarter, along with the replenishment of the forms that sold out. The company reports third quarter results in November. That will be the first holiday-season quarter under the tighter buying approach.
