Bath & Body Works Inc

NYSE:BBWI

Earnings Call Transcript 2022-Q2

[Operator]

Good morning. My name is Madison, and I will be your conference operator today. At this time, I would like to welcome everyone to the Bath & Body Works Second Quarter 2022 Earnings Conference Call. Please be advised that today’s conference is being recorded. [Operator Instructions]

I would now turn the call over to Ms. Wendy Arlin, Chief Financial Officer at Bath & Body Works. Thank you. Wendy, you may begin.

[Wendy Arlin, Chief Financial Officer]

Good morning. Welcome to Bath & Body Works’ second quarter earnings conference call for the period ended July 30, 2022. As a matter of formality, any forward-looking statements we may make today are subject to our Safe Harbor statements found in our SEC filings and in our press releases.

Joining me on the call today are Executive Chair of the Board and Interim CEO, Sarah Nash; and Brand President, Julie Rosen. All results we discuss on the call today are adjusted results and exclude the significant items as described in our press release. All results we discuss today represent the continuing operations of the Bath & Body Works business. The results of the Victoria’s Secret business has been classified as discontinued operations.

I’ll now turn the call over to Sarah.

[Sarah Nash]

Thanks, Wendy, and thank you, everyone, for joining the call today. I am delighted to be here speaking with you in my role as the company's Interim CEO. The more time I spend in the day-to-day operations of the business, the more I appreciate the talented and experienced management team who lead this business. I also have been so impressed by the associates in our business and our customer first focus. The time spent with our team has only reinforced for me how the company's innovation capabilities and predominantly North American supply chain provide us speed and agility that set us apart. And I would also like to appreciate all our vendor partners who support us in bringing our products to our customers.

First, let's start with our second quarter results. We are very pleased to share with you that the results for the second quarter exceeded our most recent expectations. This was driven by improvements in both sales and expenses in the second half of July as we closed out the quarter, which enabled us to report earnings of $0.52 per share. During the month of June and during our semiannual sale, we saw a deceleration in traffic trends as compared to our first quarter.

Although our customers love our sale, they love our newness more. So as we entered July, we listened to our customers and took action to deliver the newness that they were looking for. Fans were thrilled when we launched our coveted Halloween collection early. Accessories are a large part of this collection, and customers are loving how they pair with our spooky sense for ghoulish fun. Our nimble, vertical supply chain enabled us to quickly react to customer want. We also launched our new Poppy floor set in July, which included our notable fall sense. Poppy was the most successful ever July single launch fragrance across 22 forms.

Now, for an update on Loyalty. We are truly excited that Loyalty has finally arrived for Bath & Body Works. This week, we successfully launched the program to our associates with significant enthusiasm, and we can't wait to launch across the country next week on August 22 and to invite our base of approximately 60 million customers to participate.

Our store associates are excited and ready to go. We have numerous incentives and fun programs in place to encourage the buzz and enrollment, and they are dressing up for the occasion. In our test markets, we saw that our Loyalty customers have higher spend and retention rates than our average customer. We look forward to enrolling a significant number of our customers in the first year as well as attracting new customers, capitalizing on enthusiasm for the brand and helping drive the growth of our customer base.

Now, a little bit about our positioning of Bath & Body Works for the future and some changes in our organizational structure. As we look to the back half of the year, we are investing in our customer experience, looking to chase winners and taking action to better position the business to drive future growth and improved profitability.

We are proactively working to combat the inflationary pressures by challenging ourselves on expense management and working within our supply chain to decrease costs where possible, all without compromising quality and our focus on the customer, something we will never do.

As part of our effort to more strongly position the business, we reviewed our operating structure and saw areas where we could streamline and simplify along with enhancing our omnichannel approach.

Julie Rosen now has responsibility for the entire customer experience, including design, merchandising, marketing, planning, and the channel. We are committed to becoming a truly omni and customer-focused company. As part of these efforts, we are eliminating 130 roles from the organization. Some of those are open headcount, which we will not fill and some will be a reduction in force, primarily of leadership position.

Chris Cramer has decided to step down from his role as Chief Operating Officer to pursue other opportunities. We wish him all the best in his next chapter. We do not plan to fill the Chief Operating Officer role, and Chris' responsibilities have been absorbed by Julie Rosen, Wendy Arlin and Tom Mazurek. With these changes, we are confident that the organization will be more effective and efficient going forward in addition to delivering a true omni experience for our customers.

By shifting areas of responsibility and changing how our teams work together across the company, we will be operating like the truly global omni-brand that we are. Taken together, we expect these organizational changes and additional cost control and margin improvement actions will generate savings of approximately $30 million in the second half of 2022. We will be taking meaningful actions to address the merchandise margin, and we are focused on pricing, promotions and assortment. We are also focused on strong expense discipline as well as providing customers the best possible omni experience. Everyone, including those departing the business, has worked so very hard to position Bath & Body Works for great things in the future. I am incredibly grateful to everyone.

Over time, I see exceptional opportunities to capitalize on Bath & Body Works' existing strength, including our agility, our speed, our innovation and our customers love of our brand. We are excited to continue to extend the brand's global potential as we make the world a brighter and happier place through the power of fragrance.

With that, I turn it back to Wendy.

[Wendy Arlin, Chief Financial Officer]

Thank you, Sarah. I will be providing financial highlights, but I encourage you to review our slides, posted remarks and press release, which each contain additional details. First, for the second quarter. As Sarah said, we exceeded our revised earnings guidance for the second quarter. We reported $0.52 per share as compared to our updated guidance of $0.40 to $0.42 per share. The increase as compared to our most recent guidance was driven primarily by improved sales in the latter half of July as well as some expense favorability.

In US and Canadian stores, first quarter sales were $1.16 billion, a decrease of 6% compared to last year. Sales were up $278 million compared to 2019 or 31%. Second quarter direct sales were $367 million, a decrease of 10% compared to last year. Sales were up $189 million or 106% compared to 2019. Our customers love and are continuing to take advantage of our omni-focused option of buy online, pick up in store.

We ended the second quarter with BOPIS availability in more than 1,200 stores, which is 500 more stores than we had just a quarter ago. Our BOPIS sales are recognized as store sales. Our international business sales for the quarter were $90 million and increased 35% compared to last year. All franchise partners experienced growth in the quarter.

Now to guidance for the remainder of the year. For the third quarter of 2022, we expect sales to decrease between mid to high single-digits compared to the prior year. We are forecasting third quarter earnings from continuing operations per diluted share between $0.10 and $0.20, which includes an estimated $6 million expense for the previously announced and mentioned organizational changes. For the full year, we are forecasting sales to be down mid to high single-digits compared to 2021, in line with our most recent guidance.

We are forecasting full year earnings per share to be between $2.70 and $3. Our full year guidance contemplates expected incremental inflationary costs totaling $230 million to $240 million and the estimated revenue deferral totaling approximately $40 million from the loyalty program rollout.

Turning to the balance sheet. Total inventories ended the quarter up 33% compared to last year, in line with expectations. Finished goods units were up 13% compared to last year. The difference between dollar growth and unit growth is due primarily to inflationary pressures and product costs.

Approximately one-third of the unit growth represents planned accelerated receipts to generate capacity during the third quarter peak period, enabling our agility in the back half. The balance of the unit increase relates to certain categories, including body care and soaps, where we were lean in the prior year and a strategic investment in gifting and accessories.

In summary, our guidance reflects a prudent outlook on the back half of the year, as the environment remains dynamic and uncertain. We, of course, will be looking to chase sales upside, maximize margin dollars and maintain a disciplined focus on expenses.

I will now turn the call over to Julie.

[Julie Rosen, President]

Thank you, Wendy. I'm excited, as we enter the second half of the year. I'm thrilled to be leading this customer-focused organization, with merchandising, marketing, planning and the channels all under my purview, we will be able to put the customer at the forefront of everything we do. This will accelerate our journey and provide the best omni experience for our customer.

For the second quarter, we were able to deliver newness, innovation and trends that really resonated with our customer. Our single fragrance launch, Poppy, was a notable success, our best selling July singles fragrance launch ever. The customer responded well to our packaging innovation and the collections Happy Break Fragrance.

On social media, we had high levels of engagement across all platforms, including TikTok and Instagram. You might recall, we had another single fragrance launch success last quarter with Butterfly. These two launches are terrific proof points of our strategy going forward.

We know how to leverage our product, innovation capabilities and combination with our unique ability to introduce fragrance throughout the shop in every category: body care, home fragrance, soaps and sanitizers.

And the customer clearly told us that they love our bold cross-category offering. Increasingly, we plan to leverage the fact that we own the entire shop and have the unmatched ability to bring fragrance to many facets of our customers' lives.

Soaps continued to perform well during the second quarter and benefited from the exciting July launch of our cleansing formula gel, which is formulated without paraben, sulfates or dyes and in a PCR bottle. We will be testing aluminum soap dispensers and refill cartons this quarter as well.

Men's continue to outpace our shop, as our Father's Day collection of Hero, Sport and Legend were all very successful. I've mentioned it before, but just to reiterate, men's is a huge opportunity for us. It's an $8 billion market.

As a reminder, we delivered $400 million last year, and we believe we can double that business. We've had robust testing in stores right now on antiperspirant deodorant in about 600 stores, and we're very excited to roll this form to all stores in spring of 2023. This is the number one form in men. So in order to gain share, we have to win with this form.

Our Pride collections performed well and was an opportunity for us to partner with nonprofits, including The It Gets Better Project to support the LGBTQIA+ community. Halloween, which launched in mid-July was incredibly well received and drove both traffic in stores, in sales, in stores and online. Halloween is led by decor with our accessories and wallflowers categories, where we saw success in our eyeball water globe and a distortion to our now famous, Witch’s Hand.

These items are prime examples of our strategic investment in gifting and accessories, where based on customer demand, we believe there's a greater opportunity. As we look forward to the call and a little teaser, we're excited to be launching a new innovative brand an exciting new product. More to come.

In closing, we are navigating the current environment and taking aggressive actions to capture new opportunities and drive future growth. As always, we continue to focus on maximizing our performance by leveraging the strength of our brands, maintaining close connection to our customers and delivering compelling products and experiences at a great value. Wendy?

[Wendy Arlin, Chief Financial Officer]

Thanks, Julie. That concludes our prepared comments. At this time, we'd be happy to take any questions you may have. We plan to go to about 9:45 this morning. [Operator Instructions] that -- Madison, we are ready to go to Q&A. .

[Operator]

Thank you so much. Our first question comes from Lorraine Hutchinson from Bank of America. Lorraine, your line is open.

[Lorraine Hutchinson, Bank of America]

Thank you, good morning. There are a lot of outsized SG&A pressures this year, seem to be particularly accelerating in the third quarter. As you look out to your longer-term plan or algorithm, can you talk about where you expect that SG&A rate to settle? And then also from a near-term perspective, just some of the larger drivers of that accelerated growth in 3Q? Thank you.

[Sarah Nash]

Sure. Thank you, Lorraine. So SG&A – just a couple of comments on SG&A. When you look at our SG&A, blend -- basket of costs, about two-thirds of our SG&A expenses are store selling and related expenses. So, as we think about that, we do obviously try and flex store selling up and down with sales. But we do plan on consistently increasing wages. So you'd expect, as you think, look out that we would see low to mid increases in that overtime as we invest in our store associates.

In terms of the change between Q2 and Q3, which you're alluding to, we are this fall, the fall is a very important time for our stores. And we are choosing to invest in our store associates by paying them a peak premium starting in Q3. So, as you compare Q2 to Q3, the store selling change represents us making a very thoughtful investment in our store associates as we go into that key time period.

The other piece, the second biggest piece of SG&A is home office and as we said in our remarks, when you look at the home office expense in Q2 as compared to Q3, there's a couple of things to note. Number one, as we called out in our remarks, in Q2 LY, we are lapping about $20 million of some corporate and legal-related expenses that we incurred pre-spend that we did not have this year. So, that's a key difference when looking at the rate between Q2 and Q3. The other thing to note in between the difference between Q2 and Q3 is due to business performance in the first half of the year, our bonus expense was de minimis in Q2. As of right now, our models are assuming a par type payout for Q3. So, there is a key piece in the home office. It's different between Q2 and Q3.

And then the last piece, I think I would point out in terms of the difference between Q2 and Q3 is that in the technology expense that we talked about in our last call is a little bit back half weighted as we ramp up the separation work that we've talked about.

So, you can think about that of the incremental spend that we talked about last call, roughly a third of it was front half of the year and about two-thirds of the back half. So, those are the key walks between Q2 and Q3.

The other thing I would point out on SG&A, as you -- in terms of your question in terms of the future years. The last piece of our SG&A is marketing. Marketing depends on the time period, but we generally shoot to spend about 2% to 3% of sales on marketing expense. Thanks Lorraine. Next question please.

[Operator]

Our next question comes from Ike Boruchow from Wells Fargo. Ike your line is open.

[Jesse Sobelson, Wells Fargo]

Hey guys, this is Jesse Sobelson on for Ike. We noticed that 2Q gross margins were under pressure, but remained above 2019 levels, while the second half gross margin guide implies a material decline versus 2019. This is despite similar AUR, mid-single-digit decline embedded in the plan and we're looking at slightly less inflation. Is this just conservatism, or I guess, could you guys just kind of help us with the pieces there and understand the moving parts, please?

[Wendy Arlin, Chief Financial Officer]

Yes. Thanks, Jesse. So, yes, so as you've seen in our models, we do have a deceleration in the gross profit when you compare Q3 to Q2. And also, as you point out, our AUR assumption for Q3 and Q2 is about the same, so down mid-single-digits in Q3. So, in terms of what accounts for the drivers, about two-thirds of the sequential change, what you're asking about, is due to the merch margin rate.

Lots of items in the merch margin rate, but the item that I would point out to be the most significant driver is the impact of the Loyalty program, which we're super excited to launch next week. So, as we've talked about, when we launch it and our customers accumulate points, we do book a revenue deferral related to the points accumulation. And as we're rolling that nationwide next week, we will have an impact in 3Q that you didn't see in Q2.

Then I would say though after that merch margin is about two-thirds, the balance is B&O expense deleverage, also a lot of things in the details there. A couple of things I would call out is you've got a little bit of deleverage on the negative sales assumption. Our third quarter right now is planned to be a little bit smaller than the second quarter.

And then the second thing is consistent with SG&A, our buying organization is in gross profit in that line in the P&L. And consistent with the SG&A part of the organization, we had no bonus in Q2, and we are planning a par, so to speak, in Q3. So, those are the key differences. Thanks for your question. Madison, next question.

[Operator]

Our next question comes from Simeon Siegel from BMO Capital Markets. Simeon, your line is open.

[Simeon Siegel, BMO Capital Markets]

Thanks. Good morning everyone. Hope you had a nice summer. So at this point, I guess, what is the breakdown between price versus units in the 45% sales growth versus 2019? And then you're referencing it, I mean you guys have a really nice cross-section of the US population. So how divergent are the results that you're seeing between high versus low income? And then how are you thinking about approaching the balance between revenues with discounts versus maintaining the higher margin and potentially giving up some discount driven volume? Thank you.

[Wendy Arlin, Chief Financial Officer]

Yes. Why don't we go to Julie for that question and I can add some color at the end.

[Julie Rosen, President]

Simeon, can you just say the first part of your question again?

[Simeon Siegel, BMO Capital Markets]

Sure. So I think price versus units versus pre-pandemic. I think you said sales were up 45%. So just trying to think through the AUR that you've been able to get and retain and how you're thinking about that going forward?

[Wendy Arlin, Chief Financial Officer]

Yes, maybe I'll take that, Julie can add. So from an AUR standpoint, we have consistently and in Q2 as well, we consistently to see AURs at around the 20% higher than they were in 2019. So that is still where we are seeing the price growth. So the balance of the increase is units. And then, Julie, I'll go to you for the high versus low the income question.

[Julie Rosen, President]

Yes. So we are seeing pressure, Simeon, in our lower income customers spending less. That is where the pressure is which is why we are diligently working and doing aggressive testing to figure out what is the sweet spot. That being said, it is very clear to us that our customer comes to us for fashion trend and newness. And if they love it, they're going to buy it. So there are a lot of pressures out there macro economically and we're just trying to balance all of those things and figure out the sweet spot and ensure that we're delivering enough newness to capture their share of wallet.

[Wendy Arlin, Chief Financial Officer]

Does that cover all your questions, Simeon? Okay. Madison, we’ll take the next question.

[Operator]

Our next question comes from Alex Straton from Morgan Stanley. Alex, your line is open.

[Alex Straton, Morgan Stanley]

Great. Thanks for taking my question and congrats on a nice finish to the quarter. If August month-to-date is trending in line with the down mid single-digit to high single-digit third quarter guidance, does that mean you've seen a step down from the second half of July performance? I just want to make sure I'm understanding that correctly? And if I am, kind of what are the drivers of that dynamic?

[Wendy Arlin, Chief Financial Officer]

Sure. So I would say that our overall business trends so far in the month of August is generally consistent with what we saw in July. So we were generally seeing consistent trends. Keep in mind, though, we're only two weeks in, in the month of August. We've got a lot of quarter left and a lot of key weekends and events in front of us. And we think that we're well positioned, but we also think that our guidance is prudent given the quarter to come. So, more to come. Thanks. Madison, next question, please.

[Operator]

Our next question comes from Kate McShane from Goldman Sachs. Kate, your line is open.

[Leah Jordan, Goldman Sachs]

Hi. This is Leah Jordan on for Kate. Our question is about the improvement opportunities for the merch margin. What are you primarily focused on in the near-term? And how should we think about any timing impacts? Also, the review that you're undertaking seems fairly comprehensive. Should we anticipate more initiatives as the year goes on?

[Wendy Arlin, Chief Financial Officer]

Great. So maybe I'll take it first and then I can hand it to Julie for additional focus. So right now, we are definitely focused on winning in fall and winning at holiday. So that is our focus. Of course, we're trying to expand our merchandise margin. But as we're doing this comprehensive review, we do see the potential for more improvements in 2023 and beyond as opposed to the short term.

As you said, what are we looking at? We are looking at everything as you can imagine. We're looking at pricing, promotion. We would, of course, would like to see some deflation in our cost base. We're partnering with our vendors. They're great partners. We're looking at value engineering. So many initiatives in the business are ongoing focused on improving the merch margin rate, and we do anticipate seeing many of those come to fruition in 2023. Julie?

[Julie Rosen, President]

Yes. Maybe I can add some color there as well. So obviously, we are constantly evaluating our ticket prices as inflationary and macroeconomic costing pressures continue. So we are taking a very targeted approach to both ticket pricing and our multiple unit pricing. We have taken a good, better, best approach in many of our categories, which we haven't necessarily had in the past as opposed to a single price point for each form.

We have also increased prices in body care, where we have reformulated and better-for-you formula. And we have also gone back and taken up some of our multiple pricing. So for instance, in soaps, we've gone from 5 for 20 to 5 for 25. We've also raised our multiple pricing for 5 for 25. And I know you all know, but we continue to have a robust testing agenda where we're constantly testing alternate pricing ideas to see really where we can garner more gross margin dollars. And we're looking at different ways to build the basket with pairings of different multiples. So it's a multipronged approach. We test and learn and play.

[Wendy Arlin, Chief Financial Officer]

Thank you. Next question, please.

[Operator]

Our next question comes from Olivia Tong from Raymond James. Olivia, your line is open.

[Olivia Tong, Raymond James]

Thanks, good morning. I want to ask you a question about the reduction in management. Obviously, based on the anticipated savings from the role reduction, it looks like fairly senior positions. So could you discuss if there are any specific functions or categories and whether it suggest any change in terms of your strategic initiatives? Thank you.

[Wendy Arlin, Chief Financial Officer]

Thanks, Olivia. Yes. As we mentioned, and as you have pointed out, our focus was primarily on leadership position. First of all, we've been a public company for a year. So over the last year, we've been settling in as a public company and thinking about how to run the organization and what makes sense.

And we saw some opportunities to really simplify and get synergies across the organization in a way that really benefits us being focused as an omni retailer. So you heard in our opening remarks that we are really emphasizing that. And we did a lot of combining teams, in particular, under Julie's leadership to really think about the customer as one customer and to think about us using one voice to the customer and thinking about inventory across all of our channels consistently. So it's truly a reorg to focus us to be nimble for the future, and continue to grow as an omni-focused organization. Thank you. Next question, please.

[Operator]

Our next question comes from Stephanie Wissink from Jefferies. Stephanie, your line is open.

[Stephanie Wissink, Jefferies]

Thank you. Good morning, everyone. Hopefully, these will be two quick ones, but I wanted to just hear a little bit about your customer file size, the 60 million that you quoted, how that's changed over the last couple of years? And Wendy, I think you mentioned that the $6 million one-time cost for the restructuring is included in your EPS guidance. I just wanted to clarify that, that your EPS is GAAP and not non-GAAP. And, would you like us to back that out or keep that in the EPS estimate for the third quarter? Thank you.

[Wendy Arlin, Chief Financial Officer]

Okay. Stephanie, I'll take the second part first, and then I will go to Julie for the customer question. The $6 million is included in our guidance. We chose not to back it out based really on materiality. So – but it is included in the guide of $0.10 to $0.20 for Q3. Julie, do you want to talk about customer a little bit?

[Julie Rosen, President]

Yeah. I mean, as we all know, we had explosive growth in our customer file during the pandemic. So in 2019, we had about 53 million customers, and we got upwards of 60 million during the pandemic. And I am thrilled to say that, we have lost very few customers. So we feel that while we grew our customer base, they're still coming back. They still love us. And with the addition of this loyalty program that we'll be launching next Monday, live, I think that the opportunity to get the $60 million of roles in the program, and incredibly loyal will only reap great benefits for us in the back half.

[Wendy Arlin, Chief Financial Officer]

Thank you, Stephanie. Next question, please.

[Operator]

Our next question comes from Susan Anderson from B. Riley. Susan, your line is open.

[Alec Legg, B. Riley]

Hi. Good morning. Alec Legg on for Susan. On the trends throughout the quarter, can you talk about store traffic and online traffic and how that trended throughout the quarter in addition to the conversion rate as you rolled out newness and saw gas prices coming down?

[Wendy Arlin, Chief Financial Officer]

Sure. So, the story of the second quarter was interesting. So we started out in May, performing consistent with our guidance at the beginning of the quarter, and it was generally performing as we expected. And then when we turned to the month of June, starting in early to mid-June, we started to see a deceleration in traffic, in particular, in our stores. And that continued through June into early July. We – in response to that, we were in semiannual sale. Semiannual sale is a key event for us to get our inventories clean, and so we did promote in semiannual sales to move our backward-facing old units, and we successfully cleared those units through SaaS.

Now, when we flip the calendar into July, we knew that the customer was potentially getting tired of SaaS and wanted newness. We know our customer loves newness. And so as you heard us talk about it earlier this morning, we had a newness launch with a new favorable old fragrance launch with Poppy, and we accelerated our Halloween collection and those two items of newness along with the balance of shop showing new, resulted in an improvement of trends in July as compared to what we saw during semiannual sale. So that was the story of the quarter. Julie, is there anything you'd like to -- ?

[Julie Rosen, President]

Yes. I think that what we really saw was that the customer got a little bit tired of the semiannual sale. And while they are slightly price-conscious, they still want fashion trend in newness, and we deliver that for them.

So we've taken a look at our flow calendar through the rest of the quarter and the year. And we will be, as usual, delivering new themes, single-fragrance launches and ideas every four to six weeks, but you will see other drops basically every week just to get that excitement and to garner more traffic.

[Alec Legg, B. Riley]

That’s very helpful. Thank you.

[Wendy Arlin, Chief Financial Officer]

Thank you, Alec. Next question, please.

[Operator]

Our next question comes from Matthew Boss from JPMorgan. Matthew, your line is open.

[Matthew Boss, JPMorgan]

Great. Thanks. So, Julie, could you just maybe elaborate on the demand that you're seeing across categories in August, maybe early customer response to your fall assortment? And what do you see as the constraint to traffic that you're seeing versus the first quarter?

And then, Wendy, I guess, maybe just high level. On AUR growth relative to 2019, what do you believe is the fair number to hold on to over time, relative to the 20% growth that we entered the year at?

[Wendy Arlin, Chief Financial Officer]

Great. We'll go to Julie first.

[Julie Rosen, President]

Yes. So, I mean, I think that traffic was a bit up and down in the quarter. I think that where we saw traffic softening, as we have said, is during our semiannual sale. I think that, we have always put a semiannual sale that was anywhere from 28 to 35 days. This sale, quite frankly, was 30 days, so not longer than in past, but the customer got tired of it.

So what is happening is the mindset is shifting. And they're sort of moving on to new ideas and new items sooner. The beauty of our agile production capability is that we were able to move Halloween up and really move fall up and give the customer what they wanted about a week early.

So we're finding that when we have the right deal, the right product, fashion trend and newness, we get the spikes in traffic. Which is why, as I just mentioned, we're going back and looking at how we're delivering all of our drops to ensure that we're garnering the most traffic possible, as well as offering the right deals that hit the right mindset.

[Wendy Arlin, Chief Financial Officer]

Great. Thanks, Julie. And Matt, to the second part of your question, I would say, it's upper teens to 20. It's generally consistent with what we've been saying in terms of what number you should look to for AUR growth. Thank you. Next question, please?

[Operator]

Our next question comes from Dana Telsey from Telsey Advisory Group. Dana, your line is open.

[Dana Telsey, Telsey Advisory Group]

Hi. Good morning, everyone. As you moved up the introduction of the Halloween collection that seems to have garnered a lot of interest, how are you thinking about the cadence of other collections moving forward in terms of timing?

And then, as you think about promotions and -- the cadence of promotions and the depth of promotions, relative to last year, how you're planning it and how you're thinking about the AUR as a result of that? Thank you.

[Wendy Arlin, Chief Financial Officer]

Great. Dana, we will go to Julie for your question on Halloween and the cadence throughout the back half on activity.

[Julie Rosen, President]

Hi, there, Dana. How are you?

[Dana Telsey, Telsey Advisory Group]

Good. How are you?

[Julie Rosen, President]

Yes, I’m good. It's nice to hear your voice. So, yes, we did move Halloween up a week. The thing to note is this year, we had planned two drops with Halloween. So we had the opportunity after we pulled the first drop up to opportunity after we pulled the first drop up to then follow through with the second drop. So that was very successful.

As I mentioned, we will be delivering every couple of weeks a new idea, whether it's a cross-category single fragrance launch or whether we deliver our best in fall with our favorite fall stand, an early Christmas preview, so we have a lot of ideas every couple of weeks to spark newness and excitement. So we are not worried about that because as you know, we're about to go into Q4, which is our largest quarter, as Wendy likes to say, the Super Bowl of our...

[Wendy Arlin, Chief Financial Officer]

Of quarters.

[Julie Rosen, President]

Of our quarters. And we will have our Christmas preview late in September and then in October, really go out full on with Christmas. So we feel like we're covered with many not only great themes, ideas in single fragrance launches, but the sense and the effective spaces that our customers’ love from us and expects to find.

[Wendy Arlin, Chief Financial Officer]

And then I would add on AUR. So for Q3, we are expecting our AURs to be down mid single-digits, which is consistent with what we saw in Q2. In Q4, that will moderate a bit. And the reason is because in Q4, we -- because there are so many huge days for us, as an example, Candle Day is a huge event for us.

On those huge days or those huge weeks were -- just given the nature of the quarter, we're not planning to go down AURs in many of those promotions. So you get a little bit of a better impact in Q4 but we are down mid single-digits in Q3.

Thanks, Dana. Next question, please.

[Operator]

Our next question comes from Jonna Kim from Cowen & Co. Jungwon, your line is open.

[Jonna Kim, Cowen & Co.]

Thank you for taking my questions. Just wanted to delve deferring to the promotion strategy. Do you think it's up versus 2019? And maybe, if there are things that change now versus 2019. So we'd love to hear more color on your promo as you think about the back half? Thank you.

[Wendy Arlin, Chief Financial Officer]

Yes. So maybe I'll start and then Julie can add comments. So we are -- even though we are planning to be more promotional compared to LY, our promotional levels in the back half will still be substantially less than they were in pre-pandemic time periods. So our strategy is still less than what we saw during that time period. Julie?

[Julie Rosen, President]

Yes. I mean, I think from a promotional situation, the thing to focus on is that based on pre-pandemic, our AUR is up. So we are not more promotional than we were then. We also have e-mail exclusives that we do, and those are down. So we are winning on key event weekends, and that's really what we're focusing on, how big can big be, and how do we win even bigger.

[Jonna Kim, Cowen & Co.]

Great. Thanks.

[Wendy Arlin, Chief Financial Officer]

Madison, I think we have time for one more question.

[Operator]

Great. Our last question comes from Korinne Wolfmeyer from Piper Sandler. Korinne, your line is open.

[Korinne Wolfmeyer, Piper Sandler]

Hi. Good morning and thanks for taking the question. So I'd like to touch a bit on the BOPIS capabilities. I mean, you mentioned that's taking about 10% out of the digital demand. So I'm putting that back in, it does seem like maybe digital was a bit stronger than the numbers suggest. One, is that the correct way to be thinking about that?

And then going forward, should we expect that kind of 10% to stay consistent, or are you expecting that to kind of increase over time as you roll it out to more stores? Thank you.

[Wendy Arlin, Chief Financial Officer]

Thanks for your question. So on BOPIS, so first of all, we are so excited to roll this capability. Right now, in the US, we're basically in every store where we want to be. And we have had really positive feedback from our customers. They like the capability and they enjoy coming into the store. And in many cases, our store associates are able to convert them to buy even more goods when they come into the store.

So, we think that BOPIS, not only is it a great omni initiative for our customer, we think it's also great for us because we're able to get them to experience the store and our associates are fantastic at converting them to buy even more stuff.

So, in terms of what -- so the impact, as you said, is clear. We have seen some customers maybe who chose in the past engage with us online are transferring to the store.

In terms of where that's going to settle out, we'll see. It's hard to forecast. We just rolled 1,200 stores this we know it's right for our brand and over time, we will see where that shakes out in terms of percentages. But Korrine, thank you for your question.

[Wendy Arlin, Chief Financial Officer]

That concludes our call this morning. Thank you all for your continuing interest in Bath & Body Works. Thanks.

[Operator]

That concludes today's conference. Thank you for participating. You may disconnect at this time.