Bath & Body Works

Bath & Body Works designs, makes through a cluster of contract suppliers, and sells its own fragrance in three forms: body care (mists, lotions, creams, washes), home fragrance (the three-wick candle and the Wallflowers plug-in), and soaps and sanitisers. Almost everything is sold under the one brand, through about 1,930 company-run stores in the US and Canada, its own website and app, and since 2026 an authorised store on Amazon and a presence at Ulta. Abroad it does not run shops at all: 573 partner-operated stores at the end of FY2025, mostly franchised, pay it royalties and buy its product wholesale. In FY2025, the year to 31 January 2026, net sales were $7.29B, essentially flat, and adjusted operating income was $1.16B, a margin just under 16%.

The model's genius is that it took a commodity and gave it a calendar. A candle is wax, a jar and fragrance oil; a hand soap is less than that. The company's answer, refined over three decades, was to rotate the range by season — new fragrances for each season and holiday, favourites 'retired' and later brought back — so that the customer is always buying something that will not be there next time. Around that sits a promotional rhythm the customer can recite: a Semi-Annual Sale in June and December at up to 75% off, a Candle Day in early December when the three-wick candle listed at about $27.95 sells for $9.95, and a steady run of multi-buy offers in between. The episode calls this scarcity that exists in a product that is anything but scarce, and that is exactly right. The company is not discounting surplus. It is scheduling demand.

The weakness is the same mechanism seen from the other side. A customer trained to wait for the sale rarely pays the ticket, and when the new scents stop feeling new, the calendar has nothing left to sell. That is roughly what happened after 2021: sales fell from a pandemic-inflated $7.88B to $7.29B, every core category declined in the third quarter of 2025, and the new chief executive told investors the brand was 'not fulfilling its potential'. The current strategy, which he calls the Consumer First Formula, is an attempt to keep the calendar and change everything around it — the packaging, the marketing, and above all the places where a customer can find the product.

The real moat is not the brand, though the brand is large. It is the speed of the factory behind it. About ten miles from headquarters, in New Albany, Ohio, the company built what it calls Beauty Park: a campus where more than ten of its key suppliers — fragrance, formulation, bottles, filling — operate side by side, close enough to the design team that a scent can go from idea to shelf in a fraction of the time an overseas supply chain would need. The chief executive said in 2025 that more than 80% of the supply chain is in the US and more than half of that in Ohio. That is unusual in beauty, it limited (though did not prevent) the tariff damage of 2025, and it is what makes the seasonal calendar possible. A competitor can copy a scent in a quarter. It cannot copy a supply chain that launches hundreds of them a year and reorders the winners in weeks.

The second layer is scale and habit. Roughly 40 million active loyalty members buy directly from the company in a year, and in 2023 the company said nearly 80% of its US sales came from them. No other personal-care brand sells candles, mists and hand soap through nearly two thousand of its own shops, and a customer who walks in for one category is shown the other two at the till. Fragrance is also a habit good: people who like a scent tend to buy it again, and a hand soap runs out.

I am calling the moat narrow rather than wide because the parts that look strongest are the ones being competed away. Sol de Janeiro and the prestige mist brands have courted the same body-mist customer at higher prices; Target and Walmart sell perfectly good three-wick candles for less; and 'dupes' of the most famous fragrances are a genre of their own. The company's own diagnosis in November 2025 — declines in every core category, stagnant customer growth, too many collaborations and too many promotions — is a description of a brand that had been living off its calendar rather than refreshing it. Process power keeps the margin; it does not by itself keep the customer.

For thirty years Bath & Body Works did not allocate its own capital; L Brands did, and much of what Bath & Body Works earned went to prop up Victoria's Secret, to buy back L Brands stock and to service L Brands debt. The 2021 separation reversed the arrangement. The lingerie business left, and the company that stayed behind — renamed Bath & Body Works, Inc. — kept the long-dated bonds, the negative equity and the cash machine. Since then the allocation has been almost entirely about returning cash: $401M of buybacks in FY2024 and $400M in FY2025, about $170M a year of dividends, and $522M of debt repaid in FY2024. The diluted share count has fallen from 229M in FY2023 to 202M by mid-2026, more than a tenth of the company retired in three years.

The trouble with that record is the share price at which it happened. Shares bought in FY2025 cost on average about $26.50; the stock was below $19 in September 2026. That is not a disaster — the cash came from genuine profits — but it is the classic mistake of a mature retailer: buy back stock steadily into decline instead of investing in the product that is declining. The 2026 plan is a deliberate change. Buybacks are suspended, the $284M of 2027 notes is being redeemed early, and the money is going into product, marketing, a new brand identity and the new channels. I think that is right, and I think it was overdue. The scorecard is mixed: superb cash discipline, poor timing on the buybacks, and a reinvestment programme whose return is not yet visible.