Aug 26, 2026 earnings call — Consumer First Formula progress and guidance update
Company raised full year adjusted earnings per diluted share to $2.60 to $2.80 after Q2 outperformance.
Revenue $1.5B (est $1.5B) · EPS $0.62 (est $0.24)
Key quotes
"The launch exceeded our sales expectations and achieved a higher AUR than our core fragrance body care assortment and drove strong customer engagement with several forms selling out."
"Our owned digital business returned to growth in the quarter, improving 4 percentage points sequentially from Q1."
"In addition to the forward tariffs, we've increased investment into the Consumer First Formula of about $35 million."
Analyst Q&A 8
Why Q3 guidance not higher
Q (Paul Lejuez · Citi): Analyst asked why third-quarter sales guide isn't higher given recent investments and the Consumer First Formula. He also asked how the tariff refund money is being spent and what consumers will see from that spending.
A: Management said the strategy is showing real progress but the gains are not yet large enough to change the business trajectory. Store traffic remains pressured and body care is still below potential, and they will not become more promotional to chase top-line. They received approximately $80 million in Q2, are covering about $30 million of forward tariffs and increased investment into the Consumer First Formula by about $35 million, with about 70% of that pointed to Q3 marketing.
"But that progress at this point is not yet large enough to change the whole trajectory of the business." — Daniel Heaf (CEO)
Fruit Fusion launch results
Q (Irwin Boruchow · Wells Fargo): Analyst asked for early learnings from the Fruit Fusion launch and the Hilary Duff campaign and how those learnings will inform future decisions. He also asked for more detail on management's comment that they expect revenue growth in 2027 and the timing of that.
A: Management said Fruit Fusion exceeded sales expectations, some forms sold out, and supply chains are working to replenish inventory. They view Fruit Fusion as a repeatable go-to-market playbook: product with skin care benefits, stronger storytelling including the Hilary Duff campaign, coordinated execution across channels, and disciplined franchise management; they plan two new fragrances in Q3 and new forms in 2027. On 2027, they said growth in 2027 is their strategic North Star but they are not giving financial guidance this quarter.
"Fruit Fusion is really the Consumer First Formula in action." — Daniel Heaf (CEO)
Amazon, Ulta, and free shipping impact
Q (Lorraine Maikis · BofA): Analyst asked what the team learned from launching on Amazon and Ulta and how they avoid cannibalizing their own stores and website. She also asked about the impact of free ship $50 on sales and margins.
A: Management said Amazon tripled in the quarter after the February launch, but only about 10% of assortment is on Amazon and they have been learning customer behavior and pricing there. Ulta is early but encouraging for trial and gifting, and they have not observed any cannibalization in stores or on the website to date. On free ship $50, more consumers are choosing free ship over BOPIS as expected; the loss of shipping revenue was planned and is a modest headwind to merchandise margin that should be fully lapped by Q4.
"On everything that we are seeing to date, we have not observed any cannibalization in our own stores or website." — Daniel Heaf (CEO)
Sustainability of digital and margins
Q (Simeon Siegel · Guggenheim): Analyst asked whether the digital improvements are sustainable and what other digital changes to expect. He also asked how learnings from digital might apply to stores and for more detail on profitability drivers in the full-year guide.
A: Management said they are bullish on digital and see mid-single-digit growth in the quarter as a positive sign, with a roadmap of continued improvements into the back half and 2027. On margins, gross profit is projected down slightly, driven primarily by deleverage in B&O on lower sales; merchandise margin faces headwinds from flat AUR, investment into product and transformation, and faster growth in lower-margin wholesale and expanded distribution which is still OI accretive. SG&A deleverage is due to lower sales while all dollar growth is pointed to marketing and Fuel for Growth offsets other investments.
"Gross profit is projected down slightly, and that's driven primarily by deleverage in B&O on lower sales." — Tom Javitch (CFO)
Q3 category drivers and margin target
Q (Matthew Boss · JPMorgan): Analyst asked which categories drive the expected sequential softening in Q3 and whether near-term consumer behavior changed. He also asked Tom what long-term operating margin is achievable and the revenue growth needed for margin expansion.
A: Management pointed to six strategic indicators they track: new-to-brand consumers, AUR on innovation, sequential body care improvement, digital growth, expanded distribution, and savings/Fuel for Growth. They do not expect a change in consumer behavior but need to make improvements broader and more consistent, attract new consumers and reduce store traffic pressure. Tom said they are focused on delivering the second half and that margin expansion should be achievable with positive sales growth in line with market growth, "up mid-single digits," plus improved brand health and AUR growth over time.
"we should be able to get margin expansion with positive sales growth in line with market growth, let's say, up mid-single digits and with improved brand health that would allow us to realize AUR growth over time." — Tom Javitch (CFO)
Assortment and store remerchandising
Q (Adrienne Yih-Tennant · Barclays): Analyst asked how much of the intended product offering will be online versus in stores, where SKU rationalization stands, and how many stores are in the cleaner format and can be updated before year end.
A: Management said they have a strong innovation pipeline through the back half and are focused on hero categories; SKU exits like laundry were because they didn't reach a commercial threshold rather than chasing a target number. They said they are broadly where they expected to be on SKU rationalization. On stores, they completed a large remerchandising across 1,900 stores, consumer response has been good and conversion is up, and they will test eventing and lease line disruption in hundreds of doors before rolling successful ideas out to thousands.
"rolling out that change across 1,900 stores is no mean feat, and the team executed it well and consumer response has been good." — Daniel Heaf (CEO)
Store traffic and store fleet plans
Q (Alexandra Straton · Morgan Stanley): Analyst asked how much of the Q2 store headwind will persist into the back half and what the clearest KPI is to show an inflection. She also asked if management has updated views on the right size of the North America store fleet.
A: Management said Q2 store traffic was pressured by both company issues and the macro, they do not expect macro improvement and will not use softer mall traffic as an excuse. They have a list of initiatives to reverse traffic softness, are focused on the six strategic indicators and on the retail equation to earn visits, and will activate initiatives in the coming weeks. Management said the store fleet is very profitable, virtually all stores are profitable, and they view the store base as a competitive advantage; they actively manage openings, closures and remodels and will continue to optimize capital and footage over time.
"Virtually all stores are profitable, and we view our store base as a competitive advantage and an important component of our overall marketplace strategy." — Tom Javitch (CFO)
Role of semiannual sale going forward
Q (Katharine McShane · Goldman Sachs): Analyst asked how the June semiannual sale (SAS) role will change going forward after lower levels of clearance.
A: Management said they deliberately entered SAS with less distressed inventory because they are buying seasonal business correctly and want to protect certain franchises and long-term growth drivers. They said SAS, January sales and promotions remain important to the business and the consumer, but they do not intend to be increasingly promotional in the back half versus last year. They prefer to rely more on brand marketing and product to drive growth, saying "you can't promote a business back to health."
"We are not looking to pull them away from the business and from the consumer, but we don't intend to be increasingly promotional in the back half of the year versus the LY." — Daniel Heaf (CEO)