# Bath & Body Works, Inc. (BBWI) FY 2022 MD&A Verbatim Item 7 Management's Discussion and Analysis from Bath & Body Works, Inc.'s 10-K for fiscal year 2022. SEC filing source: https://www.sec.gov/Archives/edgar/data/701985/000070198522000009/bbwi-20220129.htm Accession: 0000701985-22-000009 Filing date: 2022-03-18 Report date: 2022-01-29 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high Company profile: /company/BBWI/ All MD&A years: /company/BBWI/mda/ Next year: /company/BBWI/mda/fy2023/ (FY 2023) ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion and analysis of financial condition and results of operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") as codified in the Accounting Standards Codification ("ASC"). The following information should be read in conjunction with our financial statements and the related notes included in Item 8. Financial Statements and Supplementary Data. Our operating results are generally impacted by economic changes and, therefore, we monitor the retail environment using, among other things, certain key industry performance indicators including competitor performance and store traffic data. These indicators can provide insight into consumer spending patterns and shopping behavior in the current retail environment and assist us in assessing our performance as well as the potential impact of industry trends on our future operating results. Additionally, we evaluate a number of key performance indicators including comparable sales, gross profit, operating income and other performance metrics such as sales per average selling square foot in assessing our performance. Victoria's Secret Spin-Off On August 2, 2021, we completed the tax-free spin-off of our Victoria's Secret business, which included the Victoria's Secret and PINK brands, into an independent publicly traded company. As a result, the operating results of, and costs to separate, the Victoria's Secret business are reported in Income (Loss) from Discontinued Operations, Net of Tax in the Consolidated Statements of Income (Loss) for all periods presented. In addition, the related assets and liabilities are reported as Assets and Liabilities of Discontinued Operations on the Consolidated Balance Sheets. Unless otherwise noted, all amounts, percentages and discussions reflect only the results of operations and financial condition from our continuing operations. Victoria’s Secret & Co. is providing technology services and systems to us under a TSA while we create independent system environments, which we believe will help to minimize dis-synergies. Over the next two to three years we expect future capital and expense related to standing up a separate information technology function for our Company. Impacts of COVID-19 The COVID-19 pandemic has created significant public health concerns as well as economic disruption, uncertainty and volatility. Our operations and financial performance have been materially impacted by the COVID-19 pandemic. In the first quarter of 2020, all of our Company-operated stores were closed on March 17, 2020, but we were able to re-open the majority of our stores as of the end of the second quarter of 2020. Our direct business remained open for the duration of 2020. During 2020, we took prudent actions to manage expenses and to maintain our cash position and financial flexibility. We adopted new operating models focused on safety in connection with the pandemic. We continue to remain focused on providing a safe store environment for our customers and associates, while also delivering an engaging shopping experience. We also remain focused on the safe operations of our corporate facilities and our distribution and fulfillment centers while maximizing our direct business. There remains the potential for COVID-related closures or operating restrictions, which could materially impact our operations and financial performance in future periods. Executive and 2021 Overview The transformation of our business that started in 2020 continued into 2021 with the successful separation of L Brands, Inc. into Bath & Body Works, Inc. and Victoria’s Secret & Co. as separate, standalone companies in August 2021. The Separation enables us to pursue growth strategies best suited to our customer base and strategic objectives, with a goal to return the highest value to our stockholders. We have a demonstrated record of consistent sales and operating income growth, as well as a proven ability to respond quickly to evolving customer tastes with a high-speed sourcing and logistics model. With high brand awareness and an increasingly loyal and growing customer base, we believe we are well positioned for continued growth in North America, as well as globally. For 2021, sales were $7.882 billion, an increase of 22% compared to sales of $6.434 billion in 2020. Our gross profit increased $759 million to $3.855 billion driven by the increase in sales. Our gross profit rate increased to 48.9% from 48.1%, principally driven by sales leverage on our buying and occupancy expenses, partially offset by a decline in the merchandise margin rate. Increased inflationary costs amounted to approximately $175 million, most of which impacted gross margin. General, Administrative and Store Operating Expenses were $1.846 billion for 2021, an increase of 24% compared to 2020, and the rate increased by 20 basis points. The dollar increase was driven by higher store selling expenses given pandemic-related store closures in 2020 and an increase in marketing expense as we returned to more normalized activity. Operating income for 2021 was $2.009 billion, an increase of 25% compared to 2020, and the operating income rate increased by 60 basis points to 25.5%. For additional information related to our 2021 financial performance, see “Results of Operations – 2021 Compared to 2020.” 27 Table of Contents 2022 Outlook We believe that the Bath & Body Works brand is strong, with continued opportunities for growth. In 2022, we are investing in the business to support long-term growth, and there are macroeconomic factors, such as inflation, that will impact our results. The following macroeconomic pressures and investments could impact our results of operations and cash flows in 2022: •We are lapping two years of extraordinary growth in the business. Since 2019, sales have increased by 46%, and operating income has increased by 93%. The first quarter of 2021 benefited from customers receiving government stimulus payments; •We are experiencing increased inflationary pressures in raw materials, energy and fuel costs as well as transportation and wage rates. We estimate that these increased and incremental costs could range between $150 million and $175 million throughout 2022. While we have strategically raised prices and are carefully managing promotional activity to partially offset these costs, we plan to be thoughtful about customer response to additional price increases; •We continue to invest in the customer experience and plan to introduce our loyalty program to the balance of our U.S. chain starting in summer 2022. We expect that the loyalty program will drive sales and customer retention, deepening our relationships with customers over the long-term. The introduction of the program will result in an initial revenue deferral for our customers’ accumulated points until they are used; and •We are experiencing some deleverage and incremental project costs as we build and separate our own technology function to support our standalone business. We are also investing in a new Company-operated fulfillment center to complement our existing third-party network. 28 Table of Contents Adjusted Financial Information from Continuing Operations In addition to our results provided in accordance with GAAP above and throughout this Annual Report on Form 10-K, provided below are non-GAAP measurements which present operating income, net income from continuing operations and earnings from continuing operations per share in 2021, 2020 and 2019 on an adjusted basis, which remove certain special items. We believe that these special items are not indicative of our ongoing operations due to their size and nature. We use adjusted financial information as key performance measures of results of operations for the purpose of evaluating performance internally. These non-GAAP measurements are not intended to replace the presentation of our financial results in accordance with GAAP. Instead, we believe that the presentation of adjusted financial information provides additional information to investors to facilitate the comparison of past and present operations. Further, our definitions of adjusted financial information may differ from similarly titled measures used by other companies. The table below reconciles the GAAP financial measures to the non-GAAP financial measures. [[GREPCENT_TABLE]] [["(in millions, except per share amounts)","2021","","2020","","2019"],["Reconciliation of Reported Operating Income to Adjusted Operating Income"],["Reported Operating Income","$","2,009","","","$","1,604","","","$","1,040"],["Write-off of Inventory due to Tornado (a)","9","","","\u2014","","","\u2014"],["Restructuring Charges (b)","\u2014","","","30","","","\u2014"],["Adjusted Operating Income","$","2,019","","","$","1,634","","","$","1,040"],["Reconciliation of Reported Net Income from Continuing Operations to Adjusted Net Income from Continuing Operations"],["Reported Net Income from Continuing Operations","$","1,075","","","$","865","","","$","460"],["Write-off of Inventory due to Tornado (a)","9","","","\u2014","","","\u2014"],["Restructuring Charges (b)","\u2014","","","30","","","\u2014"],["Loss on Extinguishment of Debt (c)","195","","","53","","","40"],["La Senza Charges (d)","\u2014","","","\u2014","","","37"],["Tax Benefit from the Resolution of Certain Tax Matters (e)","\u2014","","","(50)","","","\u2014"],["Tax Benefit of Special Items in Operating Income and Other Loss","(49)","","","(18)","","","(19)"],["Adjusted Net Income from Continuing Operations","$","1,230","","","$","878","","","$","517"],["Reconciliation of Reported Earnings from Continuing Operations Per Diluted Share to Adjusted Earnings from Continuing Operations Per Diluted Share"],["Reported Earnings from Continuing Operations Per Diluted Share","$","3.94","","","$","3.07","","","$","1.65"],["Write-off of Inventory due to Tornado (a)","0.03","","","\u2014","","","\u2014"],["Restructuring Charges (b)","\u2014","","","0.08","","","\u2014"],["Loss on Extinguishment of Debt (c)","0.54","","","0.14","","","0.11"],["La Senza Charges (d)","\u2014","","","\u2014","","","0.10"],["Tax Benefit from the Resolution of Certain Tax Matters (e)","\u2014","","","(0.18)","","","\u2014"],["Adjusted Earnings from Continuing Operations Per Diluted Share","$","4.51","","","$","3.12","","","$","1.86"]] [[/GREPCENT_TABLE]]  ________________ (a)In the fourth quarter of 2021, we recognized a pre-tax loss of $9 million ($7 million after tax) related to the write-off of inventory that was destroyed by a tornado at a vendor's facility. (b)In the second quarter of 2020, we recognized pre-tax severance charges of $30 million ($24 million after tax) related to restructuring activities. For additional information, see Note 5, “Restructuring Activities" included in Item 8. Financial Statements and Supplementary Data. (c)In the third and first quarters of 2021, we recognized pre-tax losses of $89 million and $105 million (after-tax losses of $68 million and $80 million), respectively, due to the early extinguishment of outstanding notes. In the third quarter of 2020, we recognized a pre-tax loss of $53 million (after-tax loss of $40 million) due to the early extinguishment of outstanding notes. In the second quarter of 2019, we recognized a pre-tax loss of $40 million (after-tax loss of $30 million) due to the early extinguishment of outstanding notes. For additional information, see Note 13, "Long-term Debt and Borrowing Facilities" included in Item 8. Financial Statements and Supplementary Data. 29 Table of Contents (d)In the third quarter of 2019, we recognized $37 million of pre-tax charges ($28 million after-tax) to increase reserves related to ongoing contingent obligations for the La Senza business, which was sold in the fourth quarter of 2018. For additional information see Note 16, "Commitments and Contingencies" included in Item 8. Financial Statements and Supplementary Data. (e)In the first quarter of 2020, we recognized a $50 million tax benefit related to the resolution of certain tax matters. For additional information see Note 12, "Income Taxes" included in Item 8. Financial Statements and Supplementary Data. Company-Operated Store Data The following table compares U.S. Company-operated store data for 2021, 2020 and 2019: [[GREPCENT_TABLE]] [["","","","","","","","% Change"],["","2021","","2020","","2019","","2021","","2020"],["Sales per Average Selling Square Foot (a)","$","1,220","","","$","916","","","$","931","","","33","%","","(2","%)"],["Sales per Average Store (in thousands) (a)","$","3,279","","","$","2,424","","","$","2,428","","","35","%","","\u2014","%"],["Average Store Size (selling square feet)","2,716","","","2,660","","","2,631","","","2","%","","1","%"],["Total Selling Square Feet (in thousands)","4,485","","","4,343","","","4,306","","","3","%","","1","%"]] [[/GREPCENT_TABLE]]  ________________ (a)Sales per average selling square foot and sales per average store, which are indicators of store productivity, are calculated based on store sales for the period divided by the average, including the beginning and end of period, of total square footage and store count, respectively. As a result of the COVID-19 pandemic, all our stores in the U.S. were closed on March 17, 2020 with the majority having been re-opened as of the beginning of the third quarter of 2020. As a result, full year comparisons to 2020 are not a meaningful way to evaluate our operating results. The following table represents Company-operated store data for 2021: [[GREPCENT_TABLE]] [["","Stores","","","","","","Stores"],["","January 30, 2021","","Opened","","Closed","","January 29, 2022"],["United States","1,633","","","53","","","(35)","","","1,651"],["Canada","103","","","1","","","\u2014","","","104"],["Total Bath & Body Works","1,736","","","54","","","(35)","","","1,755"]] [[/GREPCENT_TABLE]] The following table represents Company-operated store data for 2020: [[GREPCENT_TABLE]] [["","Stores","","","","","","Stores"],["","February 1, 2020","","Opened","","Closed","","January 30, 2021"],["United States","1,637","","","26","","","(30)","","","1,633"],["Canada","102","","","1","","","\u2014","","","103"],["Total Bath & Body Works","1,739","","","27","","","(30)","","","1,736"]] [[/GREPCENT_TABLE]] The following table represents Company-operated store data for 2019: [[GREPCENT_TABLE]] [["","Stores","","","","","","Stores"],["","February 2, 2019","","Opened","","Closed","","February 1, 2020"],["United States","1,619","","","38","","","(20)","","","1,637"],["Canada","102","","","1","","","(1)","","","102"],["Total Bath & Body Works","1,721","","","39","","","(21)","","","1,739"]] [[/GREPCENT_TABLE]] 30 Table of Contents Partner-Operated Store Data The following table represents partner-operated store data for 2021: [[GREPCENT_TABLE]] [["","Stores","","","","","","Stores"],["","January 30, 2021","","Opened","","Closed","","January 29, 2022"],["International","270","","","55","","","(8)","","","317"],["International - Travel Retail","18","","","3","","","\u2014","","","21"],["Total International","288","","","58","","","(8)","","","338"]] [[/GREPCENT_TABLE]] The following table represents partner-operated store data for 2020: [[GREPCENT_TABLE]] [["","Stores","","","","","","Stores"],["","February 1, 2020","","Opened","","Closed","","January 30, 2021"],["International","262","","","12","","","(4)","","","270"],["International - Travel Retail","16","","","2","","","\u2014","","","18"],["Total International","278","","","14","","","(4)","","","288"]] [[/GREPCENT_TABLE]] The following table represents partner-operated store data for 2019: [[GREPCENT_TABLE]] [["","Stores","","","","","","Stores"],["","February 2, 2019","","Opened","","Closed","","February 1, 2020"],["International","223","","","43","","","(4)","","","262"],["International - Travel Retail","12","","","4","","","\u2014","","","16"],["Total International","235","","","47","","","(4)","","","278"]] [[/GREPCENT_TABLE]] Results of Operations—2021 Compared to 2020 For 2021, operating income increased $405 million to $2.009 billion, and the operating income rate increased to 25.5% from 24.9%. The drivers of the operating income results are discussed in the following sections. Net Sales The following table provides net sales for 2021 in comparison to 2020: [[GREPCENT_TABLE]] [["","2021","","2020","","% Change"],["","(in millions)"],["Stores - U.S. and Canada","$","5,709","","","$","4,207","","","35.7","%"],["Direct - U.S. and Canada","1,890","","","2,003","","","(5.7","%)"],["International (a)","283","","","224","","","26.7","%"],["Total Net Sales","$","7,882","","","$","6,434","","","22.5","%"]] [[/GREPCENT_TABLE]] ________________ (a)Results include royalties associated with franchised store and wholesale sales. The following table provides a reconciliation of net sales for 2020 to 2021: [[GREPCENT_TABLE]] [["","(in millions)"],["2020 Net Sales","$","6,434"],["Comparable Store Sales","76"],["Sales Associated with New, Closed and Non-comparable Remodeled Stores, Net (a)","1,414"],["Direct Channels","(113)"],["International Wholesale, Royalty and Other","59"],["Foreign Currency Translation","12"],["2021 Net Sales","$","7,882"]] [[/GREPCENT_TABLE]] ________________ 31 Table of Contents (a)Includes the increased sales period over period due to the 2020 COVID-19-related stores closures. The following table compares 2021 comparable sales to 2020: [[GREPCENT_TABLE]] [["","2021","","2020"],["Comparable Sales (Stores and Direct) (a)","(1","%)","","45","%"],["Comparable Store Sales (a)","2","%","","26","%"]] [[/GREPCENT_TABLE]]  ________________ (a)The percentage change in comparable sales represents direct and comparable store sales. The percentage change in comparable store sales represents the change in sales at comparable stores only and excludes the change in sales from our direct channels. The change in comparable sales provides an indication of period over period growth (decline). A store is typically included in the calculation of comparable sales when it has been open 12 months or more and it has not had a change in selling square footage of 20% or more. Closed stores are excluded from the comparable sales calculation if they have been closed for four consecutive days or more. Upon re-opening, the stores are included in the calculation. Therefore, comparable sales results exclude the closure period of stores that were closed for four consecutive days or more as a result of the COVID-19 pandemic. Additionally, stores are excluded if total selling square footage in the center changes by 20% or more through the opening or closing of a second store. The percentage change in comparable sales is calculated on a comparable calendar period as opposed to a fiscal basis. Comparable sales attributable to our Canadian stores are calculated on a constant currency basis. For 2021, net sales increased $1.448 billion to $7.882 billion. Net sales increased in the stores channel $1.502 billion, or 35.7%, primarily due to the COVID-19-related store closures in 2020. In the direct channel, net sales decreased $113 million, or 5.7%, primarily due to the reopening of stores this year, as compared to the prior year when stores were closed which drove an increase in sales in the direct channel. International net sales increased by $59 million, or 26.7%, due to increases in partner-operated stores and digital sites as well as the COVID-19-related closures in 2020. Performance was strong throughout the period as we saw positive customer response to our merchandise. We experienced growth in fragrant body care, home fragrance and gifting and accessories. As expected, soaps and sanitizers declined versus 2020's meaningful growth. Gross Profit For 2021, our gross profit increased $759 million to $3.855 billion, and our gross profit rate (expressed as a percentage of net sales) increased to 48.9% from 48.1%. Gross profit increased due to the increase in merchandise margin dollars related to the increase in net sales, partially offset by higher occupancy expenses due to the increase in net sales. The gross profit rate increased due to buying and occupancy leverage on higher net sales, partially offset by a decline in the merchandise margin rate as a result of increased inflationary costs. General, Administrative and Store Operating Expenses For 2021, our general, administrative and store operating expenses increased $354 million to $1.846 billion, and the rate increased to 23.4% from 23.2%. General, administrative and store operating expenses increased due to higher store selling expenses given pandemic-related store closures in 2020, an increase in marketing expense as we returned to more normalized activity and an increase in charitable contributions to support philanthropic funds. These increases were partially offset by severance and related costs associated with headcount reductions totaling $30 million in the prior year. The general, administrative and store operating expense rate increased primarily due to the increase in marketing investments. Other Income (Loss) and Expenses Interest Expense The following table provides the average daily borrowings and average borrowing rates for 2021 and 2020: [[GREPCENT_TABLE]] [["","2021","","2020"],["Average daily borrowings (in millions)","$","5,409","","","$","6,317"],["Average borrowing rate","7.2","%","","6.8","%"]] [[/GREPCENT_TABLE]] For 2021, our interest expense decreased $44 million to $388 million due to lower average daily borrowings partially offset by a higher average borrowing rate. 32 Table of Contents Other Loss For 2021, our other loss was $198 million, consisting primarily of $195 million pre-tax losses associated with the early extinguishment of outstanding notes. For 2020, our other loss was $50 million, consisting primarily of a $53 million pre-tax loss associated with the early extinguishment of outstanding notes. Provision for Income Taxes For 2021, our effective tax rate was 24.5% compared to 22.9% in 2020. The 2021 rate is in line with our combined estimated federal and state statutory rate. The 2020 rate was lower than our combined estimated federal and state statutory rate primarily due to the resolution of certain tax matters, which resulted in a $50 million tax benefit. Results of Operations—Fourth Quarter of 2021 Compared to Fourth Quarter of 2020 For the fourth quarter of 2021, operating income increased $9 million to $879 million, and the operating income rate decreased to 29.0% from 32.0%. The drivers of the operating income results are discussed in the following sections. Net Sales The following table provides net sales for the fourth quarter of 2021 in comparison to the fourth quarter of 2020: [[GREPCENT_TABLE]] [["","2021","","2020","","% Change"],["","(in millions)"],["Stores - U.S. and Canada","$","2,191","","","$","1,903","","","15.1","%"],["Direct - U.S. and Canada","764","","","750","","","1.9","%"],["International (a)","72","","","66","","","11.5","%"],["Total Net Sales","$","3,027","","","$","2,719","","","11.4","%"]] [[/GREPCENT_TABLE]] ________________ (a)Results include royalties associated with franchised store and wholesale sales. The following table provides a reconciliation of net sales for the fourth quarter of 2020 to the fourth quarter of 2021: [[GREPCENT_TABLE]] [["","(in millions)"],["2020 Net Sales","$","2,719"],["Comparable Store Sales","199"],["Sales Associated with New, Closed and Non-comparable Remodeled Stores, Net","87"],["Direct Channels","14"],["International, Wholesale, Royalty and Other","6"],["Foreign Currency Translation","2"],["2021 Net Sales","$","3,027"]] [[/GREPCENT_TABLE]] The following table compares fourth quarter of 2021 comparable sales to fourth quarter of 2020: [[GREPCENT_TABLE]] [["","2021","","2020"],["Comparable Sales (Stores and Direct) (a)","7","%","","22","%"],["Comparable Store Sales (a)","11","%","","9","%"]] [[/GREPCENT_TABLE]]  ________________ (a)The percentage change in comparable sales represents direct and comparable store sales. The percentage change in comparable store sales represents the change in sales at comparable stores only and excludes the change in sales from our direct channels. The change in comparable sales provides an indication of period over period growth (decline). A store is typically included in the calculation of comparable sales when it has been open 12 months or more and it has not had a change in selling square footage of 20% or more. Closed stores are excluded from the comparable sales calculation if they have been closed for four consecutive days or more. Upon re-opening, the stores are included in the calculation. Therefore, comparable sales results exclude the closure period of stores that were closed for four consecutive days or more as a result of the COVID-19 pandemic. Additionally, stores are excluded if total selling square footage in the center changes by 20% or more through the opening or closing of a second store. The percentage change in comparable sales is calculated on a comparable calendar period as opposed to a fiscal basis. Comparable sales attributable to our Canadian stores are calculated on a constant currency basis. 33 Table of Contents For the fourth quarter of 2021, net sales increased $308 million to $3.027 billion. Net sales increased in the stores channel by $288 million, or 15.1%, primarily due to an increase in sales transactions and in the average dollar sale. In addition, store capacity constraints due to COVID-19 protocols were less restrictive than the fourth quarter of 2020, which benefited store traffic. Direct net sales increased $14 million, or 1.9%, primarily due to the launch of our e-commerce site in Canada, partially offset by a decline in digital traffic given the impact from the store restrictions last year. International net sales increased by $6 million, or 11.5%, due to increases in partner-operated stores and digital sites. In terms of category performance, during the fourth quarter of 2021, we experienced solid growth in fragrant body care, home fragrance and gifting and accessories compared to 2020. As expected, soaps and sanitizers declined versus the meaningful growth experienced in 2020. Gross Profit For the fourth quarter of 2021, our gross profit increased $39 million to $1.446 billion, and our gross profit rate (expressed as a percentage of net sales) decreased to 47.8% from 51.7%. Gross profit increased due to the increase in merchandise margin dollars related to the increase in net sales, partially offset by higher occupancy expenses due to the increase in net sales. The gross profit rate decreased primarily due to a decline in the merchandise margin rate driven by increased inflationary costs, and buying and occupancy expense deleverage driven by lapping one-time rent concessions in the fourth quarter of 2020 and continued investments in direct fulfillment capabilities. General, Administrative and Store Operating Expenses For the fourth quarter of 2021, our general, administrative and store operating expenses increased $30 million to $567 million and the rate decreased to 18.7% from 19.8%. General, administrative and store operating expenses increased principally driven by an increase in marketing as we returned to more normalized activity and an increase in technology costs as we began the work to stand up a separate information technology function following the spin-off of Victoria’s Secret & Co., partially offset by a decline in store payroll primarily due to lower bonus payouts. The general, administrative and store operating expense rate decreased primarily due to leverage on higher net sales. Other Income (Loss) and Expenses Interest Expense The following table provides the average daily borrowings and average borrowing rates for the fourth quarter of 2021 and 2020: [[GREPCENT_TABLE]] [["","2021","","2020"],["Average daily borrowings (in millions)","$","4,915","","","$","6,449"],["Average borrowing rate","7.1","%","","7.2","%"]] [[/GREPCENT_TABLE]] For the fourth quarter of 2021, our interest expense decreased $29 million to $87 million due to both lower average daily borrowings and average borrowing rate. Provision for Income Taxes For the fourth quarter of 2021, our effective tax rate was 25.1% compared to 25.9% in 2020. The 2021 and 2020 rates are generally consistent with our combined estimated federal and state statutory rate. Results of Operations—2020 Compared to 2019 For 2020, operating income increased $564 million to $1.604 billion, and the operating income rate increased to 24.9% from 19.2%. The drivers of the operating income results are discussed in the following sections. Net Sales The following table provides net sales for 2020 in comparison to 2019: [[GREPCENT_TABLE]] [["","2020","","2019","","% Change"],["","(in millions)"],["Stores - U.S. and Canada","$","4,207","","","$","4,212","","","(0.1","%)"],["Direct - U.S. and Canada","2,003","","","958","","","109.1","%"],["International (a)","224","","","185","","","20.8","%"],["Other (b)","\u2014","","","50","","","(100.0","%)"],["Total Net Sales","$","6,434","","","$","5,405","","","19.0","%"]] [[/GREPCENT_TABLE]] ________________ (a)Results include royalties associated with franchised store and wholesale sales. 34 Table of Contents (b)Results include wholesale revenues to La Senza subsequent to our divestiture of the business in 2018. The following table provides a reconciliation of net sales for 2019 to 2020: [[GREPCENT_TABLE]] [["","Bath & Body Works","","Other","","Total"],["","(in millions)"],["2019 Net Sales","$","5,355","","","$","50","","","$","5,405"],["Comparable Store Sales","824","","","\u2014","","","824"],["Sales Associated with New, Closed and Non-comparable Remodeled Stores, Net (a)","(830)","","","\u2014","","","(830)"],["Direct Channels","1,045","","","\u2014","","","1,045"],["International Wholesale, Royalty and Other","39","","","(50)","","","(11)"],["Foreign Currency Translation","1","","","\u2014","","","1"],["2020 Net Sales","$","6,434","","","$","\u2014","","","$","6,434"]] [[/GREPCENT_TABLE]] ________________ (a)Includes the impact of COVID-19-related stores closures. The following table compares 2020 comparable sales to 2019: [[GREPCENT_TABLE]] [["","2020","","2019"],["Comparable Sales (Stores and Direct) (a)","45","%","","10","%"],["Comparable Store Sales (a)","26","%","","5","%"]] [[/GREPCENT_TABLE]]  ________________ (a)The percentage change in comparable sales represents direct and comparable store sales. The percentage change in comparable store sales represents the change in sales at comparable stores only and excludes the change in sales from our direct channels. The change in comparable sales provides an indication of period over period growth (decline). A store is typically included in the calculation of comparable sales when it has been open 12 months or more and it has not had a change in selling square footage of 20% or more. Closed stores are excluded from the comparable sales calculation if they have been closed for four consecutive days or more. Upon re-opening, the stores are included in the calculation. Therefore, comparable sales results for 2020 exclude the closure period of stores that were closed for four consecutive days or more as a result of the COVID-19 pandemic. Additionally, stores are excluded if total selling square footage in the center changes by 20% or more through the opening or closing of a second store. The percentage change in comparable sales is calculated on a comparable calendar period as opposed to a fiscal basis. Comparable sales attributable to our Canadian stores are calculated on a constant currency basis. For 2020, net sales increased $1.029 billion to $6.434 billion. In the stores and direct channels, sales were strong across all merchandise categories, driven by continued high demand for soaps and sanitizers combined with strong sales performance in home fragrance and body care. The direct channel, which remained open throughout 2020, grew sales by 109.1% to $2.003 billion. These increases were partially offset by a decrease as a result of the COVID-19-related store closures as our stores were closed for a significant amount of time, primarily in the first and second quarter of 2020. Additionally, net sales decreased $50 million as we no longer provided sourcing services to La Senza, a company we divested in fiscal 2018. The increase in comparable sales was driven by increases in digital traffic, conversion and average unit retail, partially offset by a decline in store traffic. Gross Profit For 2020, our gross profit increased $709 million to $3.096 billion, and our gross profit rate (expressed as a percentage of net sales) increased to 48.1% from 44.2%. The gross profit increase was due to increased merchandise margin dollars related to the increase in net sales and the strong customer response to our merchandise assortment which allowed us to strategically pull back on promotional activity and marketing related offers, partially offset by higher expenses due to increased direct channel fulfillment and shipping costs. The gross profit rate increase was driven by an increase in the merchandise margin rate reflecting a meaningful pullback in promotional activity and buying and occupancy leverage on higher net sales. 35 Table of Contents General, Administrative and Store Operating Expenses For 2020, our general, administrative and store operating expenses increased $145 million to $1.492 billion, and the rate decreased to 23.2% from 24.9%. General, administrative and store operating expenses increased due to increases in store selling expenses in connection with the increase in net sales and to support COVID-19 guidelines, and severance and related costs associated with headcount reductions totaling $30 million. The general, administrative and store operating expense rate decreased driven by leverage on higher net sales. Other Income (Loss) and Expenses Interest Expense The following table provides the average daily borrowings and average borrowing rates for 2020 and 2019: [[GREPCENT_TABLE]] [["","2020","","2019"],["Average daily borrowings (in millions)","$","6,317","","","$","5,568"],["Average borrowing rate","6.8","%","","6.7","%"]] [[/GREPCENT_TABLE]] For 2020, our interest expense increased $62 million to $432 million due to both higher average daily borrowings and average borrowing rate. Other Loss For 2020, our other loss of $50 million, consisting primarily of a $53 million pre-tax loss associated with the early extinguishment of outstanding notes. For 2019, our other loss was $62 million, consisting primarily of a $40 million pre-tax loss associated with the early extinguishment of outstanding notes and a $37 million charge to increase reserves related to ongoing contingent obligations for the La Senza business, partially offset by interest income received on invested cash. Provision for Income Taxes For 2020, our effective tax rate was 22.9% compared to 24.3% in 2019. The 2020 rate was lower than our combined estimated federal and state statutory rate primarily due to the resolution of certain tax matters, which resulted in a $50 million tax benefit. The 2019 rate was lower than our combined estimated federal and state statutory rate primarily due to the resolution of certain tax matters. Results of Operations—Fourth Quarter of 2020 Compared to Fourth Quarter of 2019 For the fourth quarter of 2020, operating income increased $257 million to $870 million, and the operating income rate increased to 32.0% from 27.5%. The drivers of the operating income results are discussed in the following sections. Net Sales The following table provides net sales for the fourth quarter of 2020 in comparison to the fourth quarter of 2019: [[GREPCENT_TABLE]] [["","2020","","2019","","% Change"],["","(in millions)"],["Stores - U.S. and Canada","$","1,903","","","$","1,744","","","9.1","%"],["Direct - U.S. and Canada","750","","","431","","","74.0","%"],["International (a)","66","","","56","","","16.4","%"],["Total Net Sales","$","2,719","","","$","2,231","","","21.8","%"]] [[/GREPCENT_TABLE]] ________________ (a)Results include royalties associated with franchised store and wholesale sales. The following table provides a reconciliation of net sales for the fourth quarter of 2019 to the fourth quarter of 2020: [[GREPCENT_TABLE]] [["","(in millions)"],["2019 Net Sales","$","2,231"],["Comparable Store Sales","154"],["Sales Associated with New, Closed and Non-comparable Remodeled Stores, Net","4"],["Direct Channels","319"],["International Wholesale, Royalty and Other","9"],["Foreign Currency Translation","2"],["2020 Net Sales","$","2,719"]] [[/GREPCENT_TABLE]] 36 Table of Contents The following table compares fourth quarter of 2020 comparable sales to fourth quarter of 2019: [[GREPCENT_TABLE]] [["","2020","","2019"],["Comparable Sales (Stores and Direct) (a)","22","%","","10","%"],["Comparable Store Sales (a)","9","%","","5","%"]] [[/GREPCENT_TABLE]]  ________________ (a)The percentage change in comparable sales represents direct and comparable store sales. The percentage change in comparable store sales represents the change in sales at comparable stores only and excludes the change in sales from our direct channels. The change in comparable sales provides an indication of period over period growth (decline). A store is typically included in the calculation of comparable sales when it has been open 12 months or more and it has not had a change in selling square footage of 20% or more. Closed stores are excluded from the comparable sales calculation if they have been closed for four consecutive days or more. Upon re-opening, the stores are included in the calculation. Therefore, comparable sales results for 2020 exclude the closure period of stores that were closed for four consecutive days or more as a result of the COVID-19 pandemic. Additionally, stores are excluded if total selling square footage in the center changes by 20% or more through the opening or closing of a second store. The percentage change in comparable sales is calculated on a comparable calendar period as opposed to a fiscal basis. Comparable sales attributable to our Canadian stores are calculated on a constant currency basis. For the fourth quarter of 2020, net sales increased $488 million to $2.719 billion. We achieved growth in all merchandise categories with two-thirds of our dollar growth coming from our home fragrance and body care categories, and one-third of the growth coming from soaps and sanitizers. In the direct channel, fourth quarter sales increased by 74.0%, or $319 million. Traffic in the stores channel was limited during the Holiday time period by capacity constraints in stores on high volume days. The increase in comparable sales was driven by increases in digital traffic, conversion and average unit retail, partially offset by a decline in store traffic, which was particularly constrained on high volume Holiday days. Gross Profit For the fourth quarter of 2020, our gross profit increased $351 million to $1.407 billion, and our gross profit rate (expressed as a percentage of net sales) increased to 51.7% from 47.3%. The gross profit increase was due to increased merchandise margin dollars related to the increase in net sales and the strong customer response to our merchandise assortment which allowed us to strategically pull back on promotional activity and marketing related offers. This was partially offset by higher expenses due to increased direct channel fulfillment and shipping costs. The gross profit rate increase was driven by an increase in the merchandise margin rate reflecting a meaningful pullback in promotional activity and buying and occupancy leverage on higher net sales. General, Administrative and Store Operating Expenses For the fourth quarter of 2020, our general, administrative and store operating expenses increased $94 million to $537 million, and the rate decreased to 19.8% from 19.9%. General, administrative and store operating expenses increased due to an increase in store selling expenses related to the increase in net sales and to support COVID-19 guidelines, and an increase in incentive compensation payouts as a result of Company performance. The general, administrative and store operating expense rate decreased driven by leverage on higher net sales. Other Income (Loss) and Expenses Interest Expense The following table provides the average daily borrowings and average borrowing rates for the fourth quarter of 2020 and 2019: [[GREPCENT_TABLE]] [["","2020","","2019"],["Average daily borrowings (in millions)","$","6,449","","","$","5,459"],["Average borrowing rate","7.2","%","","6.7","%"]] [[/GREPCENT_TABLE]] For the fourth quarter of 2020, our interest expense increased $26 million to $116 million due to both higher average daily borrowings and average borrowing rate. Provision for Income Taxes For the fourth quarter of 2020, our effective tax rate was 25.9% compared to 25.4% in 2019. The 2020 rate is generally consistent with our combined estimated federal and state statutory rate. The 2019 rate was lower than our combined estimated federal and state statutory rate primarily due to the resolution of certain tax matters. 37 Table of Contents FINANCIAL CONDITION Liquidity and Capital Resources Liquidity, or access to cash, is an important factor in determining our financial stability. We are committed to maintaining adequate liquidity. Cash generated from our operating activities provides the primary resources to support current operations, growth initiatives, seasonal funding requirements, capital expenditures, the payment of dividends and our share repurchases. Our cash provided from operations is impacted by our net income and working capital changes. Our net income is impacted by, among other things, sales volume, seasonal sales patterns, success of new product introductions, profit margins and income taxes. Historically, sales are higher during the fourth quarter of the fiscal year due to seasonal and holiday-related sales patterns. Generally, our need for working capital peaks during the summer and fall months as inventory builds in anticipation of the holiday period. Our cash and cash equivalents held by foreign subsidiaries were $81 million as of January 29, 2022. We believe that our available short-term and long-term capital resources are sufficient to fund foreseeable requirements. Working Capital and Capitalization The following table provides a summary of our working capital position and capitalization as of January 29, 2022 and January 30, 2021: [[GREPCENT_TABLE]] [["","January 29, 2022","","January 30, 2021"],["","(in millions)"],["Working Capital, Net of Assets and Liabilities from Discontinued Operations (a)","$","1,719","","","$","3,012"],["Capitalization:"],["Long-term Debt","4,854","","","6,366"],["Shareholders\u2019 Equity (Deficit)","(1,518)","","","(662)"],["Total Capitalization","$","3,336","","","$","5,704"],["Amounts Available Under the ABL Facility (b)","$","479","","","$","\u2014"]] [[/GREPCENT_TABLE]]  ________________ (a)The balance as of January 30, 2021 excludes the carrying value of assets and liabilities reported as discontinued operations on the Consolidated Balance Sheets. (b)As of January 29, 2022, our borrowing base was $495 million and we had outstanding letters of credit, which reduce our availability under the ABL Facility, of $16 million. As of January 30, 2021 we were unable to draw upon the ABL Facility as our consolidated cash balance exceeded $350 million. Debt Leverage Ratio Our debt leverage ratio is defined as adjusted debt, which includes our long-term debt and total operating lease liabilities, divided by adjusted earnings before interest, taxes, depreciation, amortization and rent ("EBITDAR"). Adjusted EBITDAR is calculated as adjusted operating income (a non-GAAP measure that is reconciled under the heading "Adjusted Financial Information from Continuing Operations," in this Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations), which excludes interest and taxes, before depreciation, amortization and lease costs. Our debt leverage ratio is a non-GAAP financial measure which we believe is useful to analyze our capital structure. Our debt leverage ratio calculation may not be comparable to similarly-titled measures reported by other companies. Our debt leverage ratio should be evaluated in addition to, and not considered a substitute for, other GAAP financial measures. 38 Table of Contents The following table provides our debt leverage ratio as of, and for the years ended, January 29, 2022 and January 30, 2021: [[GREPCENT_TABLE]] [["","January 29, 2022","","January 30, 2021"],["","(dollars in millions)"],["Long-term Debt","$","4,854","","","$","6,366"],["Total Operating Lease Liabilities","1,159","","","1,115"],["Adjusted Debt","$","6,013","","","$","7,481"],["Adjusted Operating Income","$","2,019","","","$","1,634"],["Depreciation and Amortization","205","","","195"],["Total Lease Costs","358","","","311"],["Adjusted EBITDAR","$","2,582","","","$","2,140"],["Debt Leverage Ratio","2.33","","3.50"]] [[/GREPCENT_TABLE]] Cash Flow The cash flows related to discontinued operations have not been segregated in our Consolidated Statements of Cash Flows. Accordingly, the cash flows discussed below include the results of continuing and discontinued operations. The following table provides a summary of our cash flow activity for the fiscal years ended January 29, 2022, January 30, 2021 and February 1, 2020:  [[GREPCENT_TABLE]] [["","2021","","2020","","2019"],["","(in millions)"],["Cash and Cash Equivalents and Restricted Cash, Beginning of Year","$","3,933","","","$","1,499","","","$","1,413"],["Net Cash Flows Provided by Operating Activities","1,492","","","2,039","","","1,236"],["Net Cash Flows Used for Investing Activities","(259)","","","(219)","","","(480)"],["Net Cash Flows Provided by (Used for) Financing Activities","(3,188)","","","610","","","(666)"],["Effects of Exchange Rate Changes on Cash and Cash Equivalents and Restricted Cash","1","","","4","","","(4)"],["Net Increase (Decrease) in Cash and Cash Equivalents and Restricted Cash","(1,954)","","","2,434","","","86"],["Cash and Cash Equivalents and Restricted Cash, End of Year","$","1,979","","","$","3,933","","","$","1,499"]] [[/GREPCENT_TABLE]] Operating Activities Net cash provided by operating activities in 2021 was $1.492 billion, including net income of $1.333 billion. Net income included depreciation of $363 million, loss on extinguishment of debt of $195 million, share-based compensation expense of $46 million, and deferred income tax expense of $45 million. Other changes in assets and liabilities represent items that had a current period cash flow impact, such as changes in working capital. The most significant item in working capital was a decrease in operating cash flow of $177 million associated with the increase in Inventories. Net cash provided by operating activities in 2020 was $2.039 billion, including net income of $844 million. Net income included depreciation of $521 million, Victoria's Secret store and lease asset impairment charges of $254 million, gain from formation of the Victoria's Secret U.K. and Ireland joint venture of $54 million, loss on extinguishment of debt of $53 million, share-based compensation expense of $50 million, non-cash gain from Victoria's Secret Hong Kong store closure and lease termination of $39 million and deferred income tax expense of $33 million. Other changes in assets and liabilities represent items that had a current period cash flow impact, such as changes in working capital. The most significant item in working capital was an increase in operating cash flow of $379 million associated with the increase in Accounts Payables, Accrued Expenses and Other and Other Assets and Liabilities. Net cash provided by operating activities in 2019 was $1.236 billion, including net loss of $366 million. Net loss included depreciation of $588 million, Victoria's Secret goodwill impairment charges of $720 million, Victoria's Secret store and lease asset impairment charges of $263 million, share-based compensation expense of $87 million, loss on extinguishment of debt of $40 million, La Senza charges of $37 million and deferred income tax benefits of $29 million. Other changes in assets and liabilities represent items that had a current period cash flow impact, such as changes in working capital. The most significant item in working capital was a decrease in operating cash flow of $93 million associated with the decrease in Accounts Payables, Accrued Expenses and Other. 39 Table of Contents Investing Activities Net cash used for investing activities in 2021 was $259 million consisting primarily of $270 million of capital expenditures. Capital expenditures related to our continuing operations totaled $205 million, approximately 60% of which related to real estate investments with the remaining investment principally in technology and fulfillment center capabilities. Capital expenditures related to discontinued operations were $66 million. Net cash used for investing activities in 2020 was $219 million consisting primarily of $228 million of capital expenditures. The capital expenditures were primarily related to spending on technology and logistics to support our and the Victoria's Secret digital businesses and other retail capabilities. Capital expenditures of approximately $80 million related to the opening of new stores or the remodeling and improving of existing stores, primarily for Bath & Body Works. Net cash used for investing activities in 2019 was $480 million consisting primarily of $458 million of capital expenditures. The capital expenditures included $286 million for opening new stores and remodeling and improving existing stores. Remaining capital expenditures were primarily related to spending on technology and logistics to support our and the Victoria's Secret digital businesses and other retail capabilities. We will continue to invest in our Bath & Body Works business to support growth in new off-mall stores and remodels, direct channel technology and fulfillment capabilities, as well as standing up a new information technology function. We are estimating 2022 capital expenditures to be approximately $400 million, with about 40% relating to real estate investments. The remaining capital expenditures forecast is principally related to our information technology investments and the new direct fulfillment center. Financing Activities Net cash used for financing activities in 2021 was $3.188 billion primarily consisting of $1.964 billion in repurchases of our common stock, $1.716 billion in payments for the early extinguishment of outstanding notes, transfers and payments to Victoria's Secret & Co. related to the spin-off of $376 million, dividend payments of $0.45 per share, or $120 million, and $59 million of tax payments related to share-based awards. These uses were partially offset by proceeds of $976 million from the Victoria's Secret & Co. spin-off and proceeds from stock option exercises of $83 million. Net cash provided by financing activities in 2020 was $610 million consisting primarily of net proceeds of $2.218 billion from the issuance of new notes, partially offset by $1.307 billion in payments for the early extinguishment of outstanding notes, $155 million of net repayments under foreign borrowing facilities to support the Victoria's Secret business ("Victoria's Secret Foreign Facilities"), dividend payments of $0.30 per share, or $83 million, and payments of finance lease obligations of $53 million. We also borrowed and repaid $950 million under our Credit Agreement (as defined below) during 2020. Net cash used for financing activities in 2019 was $666 million consisting primarily of $799 million in payments for the early extinguishment of outstanding notes, dividend payments of $1.20 per share, or $332 million, and tax payments related to share-based awards of $13 million. These were partially offset by the net proceeds of $486 million from the issuance of the 2029 Notes (as defined below) and $5 million of net new borrowings under the Victoria's Secret Foreign Facilities. On February 2, 2022, we announced that our Board authorized a new $1.5 billion share repurchase program (the "February 2022 Program"). Also on February 2, 2022, as part of the February 2022 Program, we entered into an accelerated share repurchase agreement ("ASR") under which we will repurchase $1 billion of our own outstanding common stock. On February 4, 2022, we delivered $1 billion to the ASR bank, and the bank delivered approximately 14 million shares of our common stock to us (the "Initial Shares"). Pursuant to the terms of the ASR, the Initial Shares represented 80% of the number of shares determined by dividing our $1 billion payment by the closing price of our common stock on February 2, 2022. The aggregate number of shares of common stock to be delivered under the ASR will be based generally upon a discount to the Rule 10b-18 volume-weighted average price at which the shares of common stock trade during the regular trading sessions on the NYSE during the term of repurchase period. At final settlement, the ASR bank may be obligated to deliver additional shares of our common stock to us or we may be obligated to make delivery of shares of our common stock or a cash payment to the ASR bank, at our option. We expect final settlement of the share repurchases under the ASR to occur during the second quarter of 2022. Also in February 2022, our Board increased the annual dividend to $0.80 per share and declared the quarterly dividend of $0.20 per share, paid on March 4, 2022, to stockholders of record as of February 18, 2022. Common Stock Share Repurchases Our Board will determine share repurchase authorizations, giving consideration to our levels of profit and cash flow, capital requirements, current and forecasted liquidity, the restrictions placed upon us by our borrowing arrangements as well as financial and other conditions existing at the time. We use cash flow generated from operating and financing activities to fund our share repurchase programs. The timing and amount of any repurchases will be made at our discretion, taking into account a number of factors, including market conditions. 40 Table of Contents In March 2021, our Board authorized a $500 million share repurchase plan (the "March 2021 Plan"), which replaced the $79 million remaining under a March 2018 repurchase program. Pursuant to the Board's authorization, we entered into a Rule 10b5-1 purchase plan to effectuate share repurchases for the first $250 million. In May 2021, we initiated a second $250 million Rule 10b5-1 purchase plan to effectuate the remaining share repurchases under the March 2021 Plan. In July 2021, our Board authorized a new $1.5 billion share repurchase program (the "July 2021 Program"), which replaced the $36 million remaining under the March 2021 Plan. Under the authorization of this program, in July 2021 we entered into a stock repurchase agreement with our former CEO and certain of his affiliated entities pursuant to which we repurchased 10 million shares of our common stock for an aggregate purchase price of $730 million. We did not repurchase any shares of our common stock in 2019 or 2020. We repurchased the following shares of our common stock during 2021: [[GREPCENT_TABLE]] [["Repurchase Program","","Amount Authorized","","Shares Repurchased","","Amount Repurchased","","Average Stock Price"],["","","(in millions)","","(in thousands)","","(in millions)"],["March 2021 (a)","","$","500","","","6,996","","","$","464","","","$","66.30"],["July 2021 (a)","","1,500","","","10,000","","","730","","","73.01"],["July 2021 (b)","","","11,234","","","770","","","68.53"]] [[/GREPCENT_TABLE]]  _______________ (a)Reflects repurchases of L Brands, Inc. common stock prior to the August 2, 2021 spin-off of Victoria's Secret & Co. (b)Reflects repurchases of Bath & Body Works, Inc. common stock subsequent to the August 2, 2021 spin-off of Victoria's Secret & Co. On February 2, 2022, we announced that our Board authorized a new $1.5 billion share repurchase program. Also on February 2, 2022, as part of the February 2022 Program, we entered into an ASR under which we will repurchase $1 billion of our outstanding common stock. For additional information, refer to discussion under the heading "Cash Flow," in this Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Additionally, subsequent to January 29, 2022, we repurchased an additional 1.9 million shares of our common stock for $92 million under the February 2022 Program. Common Stock Retirement In accordance with our Board's resolution, shares of common stock repurchased under the July 2021 Program were to be retired and cancelled upon repurchase. As a result, we retired the 21 million shares repurchased under the July 2021 Program during 2021, which resulted in reductions of $11 million in the par value of Common Stock, $69 million in Paid-in Capital and $1.420 billion in Retained Earnings (Accumulated Deficit). Dividend Policy and Procedures Our Board will determine future dividends after giving consideration to our levels of profit and cash flow, capital requirements, current and forecasted liquidity, the restrictions placed upon us by our borrowing arrangements, as well as financial and other conditions existing at the time. We use cash flow generated from operating and financing activities to fund our dividends. Our Board suspended our quarterly cash dividend beginning in the second quarter of 2020 as a proactive measure to strengthen our financial flexibility and manage through the COVID-19 pandemic. In March 2021, our Board reinstated our annual dividend at $0.60 per share, beginning with the quarterly dividend paid in June 2021. In February 2022, our Board increased the annual dividend to $0.80 per share and declared the quarterly dividend of $0.20 per share, paid on March 4, 2022, to stockholders of record as of February 18, 2022. 41 Table of Contents Under the authority and declaration of our Board, we paid the following dividends during 2021, 2020 and 2019: [[GREPCENT_TABLE]] [["","Ordinary Dividends","","","","Total Paid"],["","(per share)","","","","(in millions)"],["2021"],["First Quarter","$","\u2014","","","","","$","\u2014"],["Second Quarter","0.15","","","","","42"],["Third Quarter","0.15","","","","","39"],["Fourth Quarter","0.15","","","","","39"],["2021 Total","$","0.45","","","","","$","120"],["2020"],["First Quarter","$","0.30","","","","","$","83"],["Second Quarter","\u2014","","","","","\u2014"],["Third Quarter","\u2014","","","","","\u2014"],["Fourth Quarter","\u2014","","","","","\u2014"],["2020 Total","$","0.30","","","","","$","83"],["2019"],["First Quarter","$","0.30","","","","","$","83"],["Second Quarter","0.30","","","","","83"],["Third Quarter","0.30","","","","","83"],["Fourth Quarter","0.30","","","","","83"],["2019 Total","$","1.20","","","","","$","332"]] [[/GREPCENT_TABLE]] 42 Table of Contents Long-term Debt and Borrowing Facilities The following table provides our outstanding debt balance, net of unamortized debt issuance costs and discounts, as of January 29, 2022 and January 30, 2021: [[GREPCENT_TABLE]] [["","January 29, 2022","","January 30, 2021"],["","(in millions)"],["Senior Secured Debt with Subsidiary Guarantee"],["$750 million, 6.875% Fixed Interest Rate Secured Notes due July 2025 (\"2025 Secured Notes\")","$","\u2014","","","$","740"],["Senior Debt with Subsidiary Guarantee"],["$1 billion, 5.625% Fixed Interest Rate Notes due February 2022 (\u201c2022 Notes\u201d)","\u2014","","","284"],["$500 million, 5.625% Fixed Interest Rate Notes due October 2023 (\u201c2023 Notes\u201d)","\u2014","","","319"],["$320 million, 9.375% Fixed Interest Rate Notes due July 2025 (\"2025 Notes\")","316","","","493"],["$297 million, 6.694% Fixed Interest Rate Notes due January 2027 (\"2027 Notes\")","281","","","278"],["$500 million, 5.25% Fixed Interest Rate Notes due February 2028 (\u201c2028 Notes\u201d)","497","","","497"],["$500 million, 7.50% Fixed Interest Rate Notes due June 2029 (\"2029 Notes\")","489","","","488"],["$1 billion, 6.625% Fixed Interest Rate Notes due October 2030 (\"2030 Notes\")","990","","","988"],["$1 billion, 6.875% Fixed Interest Rate Notes due November 2035 (\u201c2035 Notes\u201d)","992","","","991"],["$700 million, 6.75% Fixed Interest Rate Notes due July 2036 (\u201c2036 Notes\u201d)","694","","","694"],["Total Senior Debt with Subsidiary Guarantee","$","4,259","","","$","5,032"],["Senior Debt"],["$350 million, 6.95% Fixed Interest Rate Debentures due March 2033 (\u201c2033 Notes\u201d)","$","349","","","$","348"],["$247 million, 7.60% Fixed Interest Rate Notes due July 2037 (\u201c2037 Notes\u201d)","246","","","246"],["Total Senior Debt","$","595","","","$","594"],["Total Long-term Debt","$","4,854","","","$","6,366"]] [[/GREPCENT_TABLE]] Issuance of Notes In September 2020, we issued $1 billion of 6.625% senior notes due October 2030. The obligation to pay principal and interest on these notes is jointly and severally guaranteed on a full and unconditional basis by us and certain of our 100% owned subsidiaries. The proceeds from the issuance were $988 million, which were net of issuance costs of $12 million. The issuance costs are being amortized through the maturity date and are included within Long-term Debt on the Consolidated Balance Sheets. In June 2020, we issued $750 million of 6.875% senior secured notes due July 2025. The obligation to pay principal and interest on these notes was jointly and severally guaranteed on a full and unconditional basis by us and certain of our 100% owned subsidiaries. The proceeds from the issuance were $738 million, which were net of issuance costs of $12 million. In June 2020, we also issued $500 million of 9.375% senior notes due in July 2025. The obligation to pay principal and interest on these notes is jointly and severally guaranteed on a full and unconditional basis by us and certain of our 100% owned subsidiaries. The proceeds from the issuance were $492 million, which were net of issuance costs of $8 million. The issuance costs are being amortized through the maturity date and are included within Long-term Debt on the Consolidated Balance Sheets. Repurchases of Notes In September 2021, we completed tender offers to purchase $270 million of our outstanding 2023 Notes and $180 million of our outstanding 2025 Notes for an aggregate purchase price of $532 million. Additionally, in October 2021, we redeemed the remaining $50 million of our outstanding 2023 Notes for $54 million. We recognized a pre-tax loss related to this extinguishment of debt of $89 million (after-tax loss of $68 million), which includes the write-off of unamortized issuance costs. This loss is included in Other Loss in the 2021 Consolidated Statement of Income. In April 2021, we redeemed the remaining $285 million of our outstanding 2022 Notes and the $750 million of our outstanding 2025 Secured Notes. We recognized a pre-tax loss related to this extinguishment of debt of $105 million (after-tax loss of $80 million), which includes the write-off of unamortized issuance costs. This loss is included in Other Loss in the 2021 Consolidated Statement of Income. 43 Table of Contents In October 2020, we completed tender offers to purchase $576 million of our outstanding 2022 Notes, $180 million of our outstanding 2023 Notes and $53 million of our outstanding 2037 Notes for $844 million. We used the proceeds from the 2030 Notes to fund the purchase price of the tender offers. Additionally, utilizing cash on hand, we redeemed the remaining $450 million of our outstanding 6.625% Fixed Interest Rates Notes due April 2021 (the "2021 Notes") for $463 million. We recognized a pre-tax loss related to this extinguishment of debt of $53 million (after-tax loss of $40 million), which includes the write-off of unamortized issuance costs. This loss is included in Other Loss in the 2020 Consolidated Statement of Income. In June 2019, we completed tender offers to purchase $212 million of our outstanding 7.000% Fixed Interest Rates Notes due May 2020 (the "2020 Notes"), $330 million of our outstanding 2021 Notes and $96 million of our outstanding 2022 Notes for $669 million. We used the proceeds from the 2029 Notes, together with cash on hand, to fund the purchase price for the tender offers. Additionally, in July 2019, we redeemed the remaining $126 million of outstanding 2020 Notes for $130 million. We recognized a pre-tax loss on this extinguishment of debt of $40 million (after-tax loss of $30 million), which includes the write-off of unamortized issuance costs. This loss is included in Other Loss in the 2019 Consolidated Statement of Loss. Asset-backed Revolving Credit Facility We and certain of our 100% owned subsidiaries guarantee and pledge collateral to secure a revolving credit facility (the "Credit Agreement"). During the first quarter of 2020, in an abundance of caution and as a proactive measure in response to the COVID-19 pandemic, we elected to borrow $950 million under our Credit Agreement. In April 2020, we entered into an amendment and restatement of the Credit Agreement to convert our credit facility into an ABL Facility, which allows borrowings and letters of credit in U.S. dollars or Canadian dollars. The $950 million borrowing was repaid during the first quarter of 2020 upon completion of the April amendment. In August 2021, we entered into an amendment and restatement (the "Amendment") of the Credit Agreement. 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 our 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. Availability under the ABL Facility is the lesser of (i) the borrowing base, determined primarily based on our eligible U.S. and Canadian credit card receivables, accounts receivable, inventory and eligible real property, or (ii) the aggregate commitment. If at any time, the outstanding amount under the ABL Facility exceeds the lesser of (i) the borrowing base and (ii) the aggregate commitment, we are required to repay the outstanding amounts under the ABL Facility to the extent of such excess. As of January 29, 2022, our borrowing base was $495 million and we had no borrowings outstanding under the ABL Facility. The ABL Facility supports our letter of credit program. We had $16 million of outstanding letters of credit as of January 29, 2022 that reduced our availability under the ABL Facility. As of January 29, 2022, our availability under the ABL Facility was $479 million. As of January 29, 2022, the ABL Facility fees related to committed and unutilized amounts were 0.25% per annum, and the fees related to outstanding letters of credit were 1.25% per annum. In addition, the interest rate on outstanding U.S. dollar borrowings was LIBOR plus 1.25% per annum. The interest rate on outstanding Canadian dollar-denominated borrowings was Canadian Dollar Offered Rate plus 1.25% per annum. The ABL Facility requires us 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) $70 million or (2) 10% of the maximum borrowing amount. As of January 29, 2022, we were not required to maintain this ratio. Credit Ratings The following table provides our credit ratings as of January 29, 2022:  [[GREPCENT_TABLE]] [["","Moody\u2019s","","S&P"],["Corporate","Ba2","","BB"],["Senior Unsecured Debt with Subsidiary Guarantee","Ba2","","BB"],["Senior Unsecured Debt","B1","","B+"],["Outlook","Positive","","Positive"]] [[/GREPCENT_TABLE]] Guarantor Summarized Financial Information Certain of our subsidiaries, which are listed on Exhibit 22 to this Annual Report on Form 10-K, have guaranteed our obligations under the 2025 Notes, 2027 Notes, 2028 Notes, 2029 Notes, 2030 Notes, 2035 Notes and 2036 Notes (collectively, the "Notes"). As a result of the Separation and Amendment to our ABL Facility, both of which were completed on August 2, 2021, certain of our current and former subsidiaries were released as guarantors under the Notes. 44 Table of Contents The Notes have been issued by Bath & Body Works, Inc. (the “Parent Company”). The Notes are its senior unsecured obligations and rank equally in right of payment with all of our existing and future senior unsecured obligations, are senior to any of our future subordinated indebtedness, are effectively subordinated to all of our existing and future indebtedness that is secured by a lien and are structurally subordinated to all existing and future obligations of each of our subsidiaries that do not guarantee the Notes. The Notes are fully and unconditionally guaranteed on a joint and several basis by certain of our wholly-owned subsidiaries, including each subsidiary that also guarantees our obligations under certain of our senior secured credit facilities (such guarantees, the “Guarantees”; and, such guaranteeing subsidiaries, the “Subsidiary Guarantors”). The Guarantees of the Subsidiary Guarantors are subject to release in limited circumstances only upon the occurrence of certain customary conditions. Each Guarantee is limited, by its terms, to an amount not to exceed the maximum amount that can be guaranteed by the applicable Subsidiary Guarantor subject to avoidance under applicable fraudulent conveyance provisions of U.S. and non-U.S. law. The following tables set forth summarized financial information for the Parent Company and the Subsidiary Guarantors, on a combined basis after elimination of (i) intercompany transactions and balances among the Parent Company and the Subsidiary Guarantors and (ii) investments in and equity in the earnings of non-Guarantor subsidiaries. Summarized financial information for periods prior to the Separation and Amendment to our ABL Facility on August 2, 2021 reflect the Subsidiary Guarantors in effect for those periods. [[GREPCENT_TABLE]] [["SUMMARIZED BALANCE SHEET","January 29, 2022"],["","(in millions)"],["ASSETS"],["Current Assets (a)","$","3,365"],["Noncurrent Assets","2,481"],["LIABILITIES"],["Current Liabilities (b)","$","2,956"],["Noncurrent Liabilities (c)","6,155"]] [[/GREPCENT_TABLE]]  _______________ (a)Includes amounts due from non-Guarantor subsidiaries of $530 million as of January 29, 2022. (b)Includes amounts due to non-Guarantor subsidiaries of $1.927 billion as of January 29, 2022. (c)Includes amounts due to non-Guarantor subsidiaries of $5 million as of January 29, 2022. [[GREPCENT_TABLE]] [["SUMMARIZED STATEMENT OF INCOME"],["","","","2021"],["","","","(in millions)"],["Net Sales (a)","","","$","10,699"],["Gross Profit","","","4,907"],["Operating Income","","","2,307"],["Income Before Income Taxes","","","1,689"],["Net Income (b)","","","1,274"]] [[/GREPCENT_TABLE]]  _______________ (a)Includes net sales of $199 million to non-Guarantor subsidiaries. (b)Includes net loss of $74 million related to transactions with non-Guarantor subsidiaries. 45 Table of Contents Contingent Liabilities and Contractual Obligations The following table provides our contractual obligations, aggregated by type, including the maturity profile as of January 29, 2022: [[GREPCENT_TABLE]] [["","Payments Due by Period"],["","Total","","Less Than 1 Year","","1-3 Years","","4-5 Years","","More than 5 Years","","Other"],["","(in millions)"],["Long-term Debt (a)","$","8,386","","","$","339","","","$","678","","","$","1,250","","","$","6,119","","","$","\u2014"],["Future Lease Obligations (b)","1,466","","","242","","","443","","","375","","","406","","","\u2014"],["Purchase Obligations (c)","747","","","582","","","91","","","41","","","33","","","\u2014"],["Other Liabilities (d)","185","","","105","","","23","","","17","","","\u2014","","","40"],["Total","$","10,784","","","$","1,268","","","$","1,235","","","$","1,683","","","$","6,558","","","$","40"]] [[/GREPCENT_TABLE]] ________________ (a)Long-term debt obligations relate to our principal and interest payments for outstanding notes and debentures. Interest payments have been estimated based on the coupon rate for fixed rate obligations. Interest obligations exclude amounts which have been accrued through January 29, 2022. For additional information, see Note 13 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data. (b)Future lease obligations primarily represent minimum payments due under store lease agreements. For additional information, see Note 8 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data. (c)Purchase obligations primarily include purchase orders for merchandise inventory and other agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transactions. (d)Other liabilities includes future estimated payments associated with unrecognized tax benefits. The “Less Than 1 Year” category includes $104 million of these tax items because it is reasonably possible that the amounts could change in the next 12 months due to audit settlements or resolution of uncertainties. The remaining portion totaling $40 million is included in the “Other” category as it is not reasonably possible that the amounts could change in the next 12 months. In addition, we have a remaining liability of $40 million related to the deemed repatriation tax on our undistributed foreign earnings resulting from the Tax Cuts and Jobs Act. The tax liability will be paid over the next three years. For additional information, see Note 12 to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data. Lease Guarantees In connection with the spin-off of Victoria's Secret & Co., we have remaining contingent obligations of approximately $265 million as of January 29, 2022 related to lease payments under the current terms of noncancelable leases, primarily related to office space, expiring at various dates through 2037. In addition, in connection with the sale of La Senza in the fourth quarter of 2018, we have remaining contingent obligations of approximately $25 million as of January 29, 2022 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 these businesses. Our reserves related to these obligations were not significant as of January 29, 2022. Recently Issued Accounting Pronouncements We did not adopt any new accounting standards during 2021 that had a material impact on our consolidated results of operations, financial position or cash flows. In addition, as of March 18, 2022, there are no new accounting standards not yet adopted that are expected to have a material impact on our consolidated results of operations, financial position or cash flows. Critical Accounting Policies and Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to adopt accounting policies related to 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. On an ongoing basis, management evaluates its accounting policies, estimates and judgments, including those related to inventories, valuation of long-lived store assets, claims and contingencies, income taxes and revenue recognition. Management bases our estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may 46 Table of Contents differ from these estimates. Management has discussed the development and selection of our critical accounting policies and estimates with the Audit Committee of our Board of Directors and believes the following assumptions and estimates are most significant to reporting our results of operations and financial position. Inventories Inventories are principally valued at the lower of cost or net realizable value, on an average cost basis. We record valuation adjustments to our inventories if the cost of inventory on hand exceeds the amount we expect to realize from the ultimate sale or disposal of the inventory. These estimates are based on management’s judgment regarding future demand and market conditions and analysis of historical experience. If actual demand or market conditions are different than those projected by management, future period merchandise margin rates may be unfavorably or favorably affected by adjustments to these estimates. We also record inventory loss adjustments for estimated physical inventory losses that have occurred since the date of the last physical inventory. These estimates are based on management’s analysis of historical results and operating trends. Management believes that the assumptions used in these estimates are reasonable and appropriate. A 10% increase or decrease in the inventory valuation adjustment would have impacted net income from continuing operations by approximately $2 million for 2021. A 10% increase or decrease in the estimated physical inventory loss adjustment would have impacted net income from continuing operations by approximately $1 million for 2021. Valuation of Long-lived Store Assets 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, we recognize 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, we determine 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. When a decision has been made to dispose of property and equipment prior to the end of the previously estimated useful life, depreciation estimates are revised to reflect the use of the asset over the shortened estimated useful life. Claims and Contingencies We are subject to various claims and contingencies related to lawsuits, taxes, insurance, regulatory and other matters arising out of the normal course of business. Our determination of the treatment of claims and contingencies in the Consolidated Financial Statements is based on management’s view of the expected outcome of the applicable claim or contingency. We consult with legal counsel on matters related to litigation and seek input from both internal and external experts with respect to matters in the ordinary course of business. We accrue a liability if the likelihood of an adverse outcome is probable and the amount is reasonably estimable. If the likelihood of an adverse outcome is only reasonably possible (as opposed to probable) or if an estimate is not reasonably determinable, disclosure of a material claim or contingency is disclosed in the Notes to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data. Income Taxes We account for income taxes under the asset and liability method. Under this method, taxes currently payable or refundable are accrued, and deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets are also recognized for realizable operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted income tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in income tax rates is recognized in our Consolidated Statements of Income (Loss) in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets if it is more likely than not that such assets will not be realized. Significant judgment is required in determining the provision for income taxes and related accruals, deferred tax assets and liabilities. In determining our provision for income taxes, we consider permanent differences between book and tax income and statutory income tax rates. Our effective income tax rate is affected by items including changes in tax law, the tax jurisdiction of new stores or business ventures and the level of earnings. We follow the authoritative guidance included in ASC 740, Income Taxes, which contains a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals 47 Table of Contents or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and for which actual outcomes may differ from forecasted outcomes. Our policy is to include interest and penalties related to uncertain tax positions in income tax expense. Our income tax returns, like those of most companies, are periodically audited by domestic and foreign tax authorities. These audits include questions regarding our tax filing positions, including the timing and amount of deductions and the allocation of income among various tax jurisdictions. At any one time, multiple tax years are subject to audit by the various tax authorities. A number of years may elapse before a particular matter for which we have established an accrual is audited and fully resolved or clarified. We adjust our tax contingencies accrual and income tax provision in the period in which matters are effectively settled with tax authorities at amounts different from our established accrual, when the statute of limitations expires for the relevant taxing authority to examine the tax position or when more information becomes available. Revenue Recognition We recognize revenue based on the amount we expect to receive when control of the goods or services is transferred to our customer. We recognize sales upon customer receipt of merchandise, which for direct channel revenues reflect an estimate of shipments that have not yet been received by our customer based on shipping terms and historical delivery times. Our shipping and handling revenues are included in Net Sales with the related costs included in Costs of Goods Sold, Buying and Occupancy in our Consolidated Statements of Income (Loss). We also provide a reserve for projected merchandise returns based on historical experience. Net Sales exclude sales and other similar taxes collected from customers. We offer a loyalty program that allows customers to earn points based on purchasing activity. As customers accumulate points and reach point thresholds, they can use the points to purchase merchandise in stores or online. We allocate revenue to points earned on qualifying purchases and defer recognition until the points are redeemed. The amount of revenue deferred is based on the relative stand-alone selling price method, which includes an estimate for points not expected to be redeemed based on historical experience. We sell gift cards with no expiration dates to customers. We do not charge administrative fees on unused gift cards. We recognize revenue from gift cards when they are redeemed by the customer. In addition, we recognize revenue on unredeemed gift cards where the likelihood of the gift card being redeemed is remote and there is no legal obligation to remit the unredeemed gift cards to relevant jurisdictions (gift card breakage). Gift card breakage revenue is recognized in proportion, and over the same period, as actual gift card redemptions. We determine the gift card breakage rate based on historical redemption patterns. Gift card breakage is included in Net Sales in our Consolidated Statements of Income (Loss). We also recognize revenues associated with franchise, license, wholesale and sourcing arrangements. Revenue recognized under franchise and license arrangements generally consists of royalties earned and recognized upon sale of merchandise by franchise and license partners to retail customers. Revenue is generally recognized under wholesale and sourcing arrangements at the time the title passes to the partner.