UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 _________________________________

FORM 10-Q

 _________________________________

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2021

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission file number 1-8344

 _________________________________

BATH & BODY WORKS, INC.

(Exact name of registrant as specified in its charter)

 _______________________________

Delaware		31-1029810
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)
Three Limited Parkway
Columbus,	Ohio	43230
(Address of principal executive offices)		(Zip Code)
(614)	415-7000
(Registrant's Telephone Number, Including Area Code)
L BRANDS, INC.
(Former name, former address and former fiscal year, if changed since last report)

    Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   ☒   No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒   No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐  (Do not check if a smaller reporting company)	Smaller reporting company	☐
		Emerging growth company	☐

    If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):    Yes  ☐    No  ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.50 Par Value	BBWI	The New York Stock Exchange

As of August 27, 2021, the number of outstanding shares of the Registrant’s common stock, was 264,372,947 shares.

BATH & BODY WORKS, INC.

TABLE OF CONTENTS

	Page No.
Part I. Financial Information
Item 1. Financial Statements *
Consolidated Statements of Income (Loss) for the Thirteen-Weeks and Twenty-Six-Weeks Ended July 31, 2021 and August 1, 2020 (Unaudited)	3
Consolidated Statements of Comprehensive Income (Loss) for the Thirteen-Weeks and Twenty-Six-Weeks Ended July 31, 2021 and August 1, 2020 (Unaudited)	3
Consolidated Balance Sheets as of July 31, 2021 (Unaudited), January 30, 2021 and August 1, 2020 (Unaudited)	4
Consolidated Statements of Total Equity (Deficit) for the Thirteen-Weeks and Twenty-Six-Weeks Ended July 31, 2021 and August 1, 2020 (Unaudited)	5
Consolidated Statements of Cash Flows for the Twenty-Six-Weeks Ended July 31, 2021 and August 1, 2020 (Unaudited)	7
Notes to Consolidated Financial Statements (Unaudited)	8
Report of Independent Registered Public Accounting Firm	20
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995	21
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3. Quantitative and Qualitative Disclosures About Market Risk	40
Item 4. Controls and Procedures	41
Part II. Other Information	42
Item 1. Legal Proceedings	42
Item 1A. Risk Factors	42
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3. Defaults Upon Senior Securities	43
Item 4. Mine Safety Disclosures	43
Item 5. Other Information	43
Item 6. Exhibits	44
Signature	45

* The Company's fiscal year ends on the Saturday nearest to January 31. As used herein, “second quarter of 2021” and “second quarter of 2020” refer to the thirteen-week periods ended July 31, 2021 and August 1, 2020, respectively. “Year-to-date 2021” and “year-to-date 2020” refer to the twenty-six-week periods ending July 31, 2021 and August 1, 2020, respectively.

2

PART I—FINANCIAL INFORMATION

Item 1.    FINANCIAL STATEMENTS

BATH & BODY WORKS, INC.

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(in millions except per share amounts)

(Unaudited)

	Second Quarter				Year-to-Date
	2021		2020		2021		2020
Net Sales	$	3,318	$	2,319	$	6,341	$	3,974
Costs of Goods Sold, Buying and Occupancy	(1,820)		(1,608)		(3,429)		(2,974)
Gross Profit	1,498		711		2,912		1,000
General, Administrative and Store Operating Expenses	(899)		(667)		(1,741)		(1,274)
Operating Income (Loss)	599		44		1,171		(274)
Interest Expense	(99)		(104)		(212)		(201)
Other Income (Loss)	(1)		—		(106)		3
Income (Loss) Before Income Taxes	499		(60)		853		(472)
Provision (Benefit) for Income Taxes	125		(11)		202		(126)
Net Income (Loss)	$	374	$	(49)	$	651	$	(346)
Net Income (Loss) Per Basic Share	$	1.36	$	(0.18)	$	2.35	$	(1.25)
Net Income (Loss) Per Dilutive Share	$	1.34	$	(0.18)	$	2.31	$	(1.25)
Dividends Per Share	$	0.15	$	—	$	0.15	$	0.30

BATH & BODY WORKS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in millions)

(Unaudited)

	Second Quarter				Year-to-Date
	2021		2020		2021		2020
Net Income (Loss)	$	374	$	(49)	$	651	$	(346)
Other Comprehensive Income (Loss), Net of Tax:
Foreign Currency Translation	(2)		2		4		(4)
Unrealized Gain (Loss) on Cash Flow Hedges	2		(3)		(1)		2
Reclassification of Cash Flow Hedges to Earnings	1		(1)		1		(1)
Total Other Comprehensive Income (Loss), Net of Tax	1		(2)		4		(3)
Total Comprehensive Income (Loss)	$	375	$	(51)	$	655	$	(349)

The accompanying Notes are an integral part of these Consolidated Financial Statements.

3

BATH & BODY WORKS, INC.

CONSOLIDATED BALANCE SHEETS

(in millions except par value amounts)

 

	July 31, 2021		January 30, 2021		August 1, 2020
	(Unaudited)				(Unaudited)
ASSETS
Current Assets:
Cash and Cash Equivalents	$	1,988	$	3,903	$	2,611
Cash in Escrow related to Victoria's Secret & Co. Spin-Off	600		—		—
Accounts Receivable, Net	230		269		268
Inventories	1,473		1,273		1,476
Other	223		134		150
Total Current Assets	4,514		5,579		4,505
Property and Equipment, Net	2,001		2,095		2,292
Operating Lease Assets	2,564		2,558		2,635
Goodwill	628		628		628
Trade Names	411		411		411
Deferred Income Taxes	70		69		74
Other Assets	204		231		335
Total Assets	$	10,392	$	11,571	$	10,880
LIABILITIES AND EQUITY (DEFICIT)
Current Liabilities:
Accounts Payable	$	838	$	683	$	957
Accrued Expenses and Other	1,305		1,457		1,340
Current Debt	—		—		460
Current Operating Lease Liabilities	480		594		624
Income Taxes	2		92		52
Total Current Liabilities	2,625		2,826		3,433
Deferred Income Taxes	250		234		191
Long-term Debt	5,938		6,366		6,269
Long-term Operating Lease Liabilities	2,476		2,495		2,698
Other Long-term Liabilities	291		311		193
Shareholders’ Equity (Deficit):
Preferred Stock - $1.00 par value; 10 shares authorized; none issued	—		—		—
Common Stock - $0.50 par value; 1,000 shares authorized; 280, 286 and 286 shares issued; 265, 278 and 278 shares outstanding, respectively	140		143		143
Paid-in Capital	911		891		869
Accumulated Other Comprehensive Income	87		83		49
Retained Earnings (Accumulated Deficit)	(1,505)		(1,421)		(2,611)
Less: Treasury Stock, at Average Cost; 15, 8 and 8 shares, respectively	(822)		(358)		(358)
Total Shareholders’ Equity (Deficit)	(1,189)		(662)		(1,908)
Noncontrolling Interest	1		1		4
Total Equity (Deficit)	(1,188)		(661)		(1,904)
Total Liabilities and Equity (Deficit)	$	10,392	$	11,571	$	10,880

The accompanying Notes are an integral part of these Consolidated Financial Statements.

4

BATH & BODY WORKS, INC.

CONSOLIDATED STATEMENTS OF TOTAL EQUITY (DEFICIT)

(in millions except per share amounts)

(Unaudited)

Second Quarter 2021

	Common Stock			Paid-In Capital		Accumulated Other Comprehensive Income		Retained Earnings (Accumulated Deficit)		Treasury Stock, at Average Cost		Noncontrolling Interest		Total Equity (Deficit)
	Shares Outstanding	Par Value
Balance, May 1, 2021	277	$	144	$	903	$	86	$	(1,144)	$	(523)	$	1	$	(533)
Net Income	—	—		—		—		374		—		—		374
Other Comprehensive Income	—	—		—		1		—		—		—		1
Total Comprehensive Income	—	—		—		1		374		—		—		375
Cash Dividends ($0.15 per share)	—	—		—		—		(42)		—		—		(42)
Repurchases of Common Stock	(14)	—		—		—		—		(1,029)		—		(1,029)
Treasury Share Retirement	—	(5)		(32)		—		(693)		730		—		—
Share-based Compensation and Other	2	1		40		—		—		—		—		41
Balance, July 31, 2021	265	$	140	$	911	$	87	$	(1,505)	$	(822)	$	1	$	(1,188)

Second Quarter 2020

	Common Stock			Paid-In Capital		Accumulated Other Comprehensive Income		Retained Earnings (Accumulated Deficit)		Treasury Stock, at Average Cost		Noncontrolling Interest		Total Equity (Deficit)
	Shares Outstanding	Par Value
Balance, May 2, 2020	278	$	143	$	865	$	51	$	(2,562)	$	(358)	$	3	$	(1,858)
Net Loss	—	—		—		—		(49)		—		—		(49)
Other Comprehensive Loss	—	—		—		(2)		—		—		—		(2)
Total Comprehensive Loss	—	—		—		(2)		(49)		—		—		(51)
Share-based Compensation and Other	—	—		4		—		—		—		1		5
Balance, August 1, 2020	278	$	143	$	869	$	49	$	(2,611)	$	(358)	$	4	$	(1,904)

The accompanying Notes are an integral part of these Consolidated Financial Statements.

5

BATH & BODY WORKS, INC.

CONSOLIDATED STATEMENTS OF TOTAL EQUITY (DEFICIT)

(in millions except per share amounts)

(Unaudited)

Year-to-Date 2021

	Common Stock			Paid-In Capital		Accumulated Other Comprehensive Income		Retained Earnings (Accumulated Deficit)		Treasury Stock, at Average Cost		Noncontrolling Interest		Total Equity (Deficit)
	Shares Outstanding	Par Value
Balance, January 30, 2021	278	$	143	$	891	$	83	$	(1,421)	$	(358)	$	1	$	(661)
Net Loss	—	—		—		—		651		—		—		651
Other Comprehensive Income	—	—		—		4		—		—		—		4
Total Comprehensive Income	—	—		—		4		651		—		—		655
Cash Dividends ($0.15 per share)	—	—		—		—		(42)		—		—		(42)
Repurchases of Common Stock	(17)	—		—		—		—		(1,194)		—		(1,194)
Treasury Share Retirement	—	(5)		(32)		—		(693)		730		—		—
Share-based Compensation and Other	4	2		52		—		—		—		—		54
Balance, July 31, 2021	265	$	140	$	911	$	87	$	(1,505)	$	(822)	$	1	$	(1,188)

Year-to-Date 2020

	Common Stock			Paid-In Capital		Accumulated Other Comprehensive Income		Retained Earnings (Accumulated Deficit)		Treasury Stock, at Average Cost		Noncontrolling Interest		Total Equity (Deficit)
	Shares Outstanding	Par Value
Balance, February 1, 2020	277	$	142	$	847	$	52	$	(2,182)	$	(358)	$	4	$	(1,495)
Net Loss	—	—		—		—		(346)		—		—		(346)
Other Comprehensive Loss	—	—		—		(3)		—		—		—		(3)
Total Comprehensive Loss	—	—		—		(3)		(346)		—		—		(349)
Cash Dividends ($0.30 per share)	—	—		—		—		(83)		—		—		(83)
Share-based Compensation and Other	1	1		22		—		—		—		—		23
Balance, August 1, 2020	278	$	143	$	869	$	49	$	(2,611)	$	(358)	$	4	$	(1,904)

The accompanying Notes are an integral part of these Consolidated Financial Statements.

6

BATH & BODY WORKS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(Unaudited)

	Year-to-Date
	2021		2020
Operating Activities:
Net Income (Loss)	$	651	$	(346)
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities:
Depreciation of Long-lived Assets	258		266
Loss on Extinguishment of Debt	105		—
Victoria's Secret Asset Impairment Charges	—		214
Share-based Compensation Expense	30		28
Deferred Income Taxes	16		(19)
Gain from Hong Kong Store Closure and Lease Termination	—		(39)
Changes in Assets and Liabilities:
Accounts Receivable	39		37
Inventories	(200)		(191)
Accounts Payable, Accrued Expenses and Other	(42)		304
Income Taxes Payable	(144)		(92)
Other Assets and Liabilities	(140)		124
Net Cash Provided by Operating Activities	573		286
Investing Activities:
Capital Expenditures	(178)		(124)
Other Investing Activities	10		8
Net Cash Used for Investing Activities	(168)		(116)
Financing Activities:
Proceeds from Issuance of Long-Term Debt, Net of Issuance Costs	—		1,231
Proceeds from Victoria's Secret & Co. Notes	600		—
Payments of Long-term Debt	(1,130)		—
Borrowing from Credit Agreement	—		950
Repayment of Credit Agreement	—		(950)
Borrowings from Foreign Facilities	—		33
Repayments of Foreign Facilities	—		(85)
Repurchases of Common Stock	(1,194)		—
Dividends Paid	(42)		(83)
Tax Payments related to Share-based Awards	(56)		(6)
Proceeds from Stock Option Exercises	76		—
Other Financing Activities	(6)		(19)
Net Cash Provided by (Used for) Financing Activities	(1,752)		1,071
Effects of Exchange Rate Changes on Cash and Cash Equivalents and Restricted Cash	2		(1)
Net Increase (Decrease) in Cash and Cash Equivalents and Restricted Cash	(1,345)		1,240
Cash and Cash Equivalents and Restricted Cash, Beginning of Period	3,933		1,499
Cash and Cash Equivalents and Restricted Cash, End of Period	$	2,588	$	2,739

The accompanying Notes are an integral part of these Consolidated Financial Statements.

7

BATH & BODY WORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Description of Business and Basis of Presentation

Description of Business

As of July 31, 2021, L Brands, Inc. ("L Brands" or the "Company") was a specialty retailer of home fragrance products, body care, soaps and sanitizers, women’s intimate and other apparel, and personal and beauty care products. Through the Bath & Body Works, Victoria's Secret and PINK retail brands, the Company sold merchandise through company-operated specialty retail stores in the U.S., Canada and Greater China, and through its websites and other channels. The Company's international operations are primarily through franchise, license, wholesale and joint venture partners.

On August 2, 2021, in connection with the separation of the Victoria's Secret business discussed below, the Company changed its name from L Brands, Inc. to Bath & Body Works, Inc. Additionally, starting August 3, 2021, the Company's common stock began trading under the stock symbol "BBWI."

Victoria's Secret & Co. Spin-Off

On July 9, 2021, the Company announced that its Board of Directors approved the previously announced separation of the Victoria’s Secret business, including PINK (the "Separation"), into an independent, publicly traded company ("Victoria's Secret & Co."). On August 2, 2021 (the “Distribution Date”), after the New York Stock Exchange ("NYSE") market closing, the Separation was completed and the Company transferred certain assets and liabilities associated with its Victoria's Secret business to Victoria's Secret & Co. The Separation was achieved through the Company's distribution (the "Distribution") of 100% of the shares of Victoria's Secret & Co. common stock to holders of L Brands' common stock as of the close of business on the record date of July 22, 2021. The Company's stockholders of record received one share of Victoria’s Secret & Co. common stock for every three shares of the Company's common stock. On August 3, 2021, Victoria’s Secret & Co. became an independent, publicly-traded company trading on the NYSE under the stock symbol "VSCO." The Company retained no ownership interest in Victoria’s Secret & Co. following the Separation. Beginning in the third quarter of fiscal 2021, the historical financial results of the Victoria's Secret business for periods prior to the Distribution Date will be reflected in the Company’s consolidated financial statements as discontinued operations. On August 2, 2021, Victoria's Secret & Co. made cash payments of approximately $976 million to the Company in connection with the Separation.

Impacts of COVID-19

The coronavirus pandemic ("COVID-19") has created significant public health concerns as well as economic disruption, uncertainty and volatility. The Company's operations and financial performance have been materially impacted by the COVID-19 pandemic. In the first quarter of 2020, all the Company's stores in North America were closed on March 17, 2020, but the Company was able to re-open the majority of its stores as of the end of the second quarter of 2020. Additionally, operations for Victoria’s Secret Direct were temporarily suspended for approximately one week in late March 2020, while Bath & Body Works Direct remained open for the duration of 2020.

During 2020, the Company took prudent actions to manage expenses and to maintain its cash position and financial flexibility. The Company also has adopted new operating models focused on providing a safe store environment for its customers and associates, while also delivering an engaging shopping experience. The Company remains focused on the safe operations of its distribution, fulfillment and call centers while maximizing its direct businesses. There remains the potential for COVID-related risks of closure or operating restrictions, which could materially impact the Company's operations and financial performance in future periods.

Fiscal Year

The Company’s fiscal year ends on the Saturday nearest to January 31. As used herein, “second quarter of 2021” and “second quarter of 2020” refer to the thirteen-week periods ended July 31, 2021 and August 1, 2020, respectively. “Year-to-Date 2021” and “year-to-date 2020” refer to the twenty-six-week periods ending July 31, 2021 and August 1, 2020, respectively.

Basis of Consolidation

The Consolidated Financial Statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

The Company accounts for investments in unconsolidated entities where it exercises significant influence, but does not have control, using the equity method. Under the equity method of accounting, the Company recognizes its share of the investee's net income or loss. Losses are only recognized to the extent the Company has positive carrying value related to the investee. Carrying values are only reduced below zero if the Company has an obligation to provide funding to the investee. The Company’s share of net income or loss of unconsolidated entities from which the Company purchases merchandise or

8

merchandise components is included in Costs of Goods Sold, Buying and Occupancy in the Consolidated Statements of Income (Loss). The Company’s share of net income or loss from its investment in the Victoria's Secret U.K. joint venture with Next PLC is included in General, Administrative and Store Operating Expenses in the Consolidated Statements of Income (Loss). The Company’s share of net income or loss of all other unconsolidated entities is included in Other Income (Loss) in the Consolidated Statements of Income (Loss). The Company’s equity method investments are required to be reviewed for impairment when it is determined there may be an other-than-temporary loss in value.

Interim Financial Statements

The Consolidated Financial Statements as of and for the periods ended July 31, 2021 and August 1, 2020 are unaudited and are presented pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto contained in the Company’s 2020 Annual Report on Form 10-K.

In the opinion of management, the accompanying Consolidated Financial Statements reflect all adjustments, which are of a normal recurring nature and necessary for a fair presentation of the results for the interim periods.

Seasonality of Business

Due to the seasonal variations in the retail industry, the results of operations for the interim period is not necessarily indicative of the results expected for the full fiscal year.

Restricted Cash

In July 2021, Victoria’s Secret & Co., prior to the Separation and while a subsidiary of the Company, issued $600 million of 4.625% notes due in July 2029 (the "Victoria's Secret & Co. Notes"). As of July 31, 2021, the initial proceeds were held in escrow for release to Victoria's Secret & Co. upon satisfaction of certain conditions, including completion of the Separation. If the conditions for the release from escrow of the proceeds were not satisfied, the Victoria's Secret & Co. Notes would have been subject to mandatory redemption. The $600 million initial proceeds are included in Cash in Escrow related to Victoria's Secret & Co. Spin-Off on the July 31, 2021 Consolidated Balance Sheet. For additional information, see Note 9, “Long-term Debt and Borrowing Facilities.”

During 2020, the Company placed cash on deposit with certain financial institutions as collateral for their lending commitments. These deposits totaled $30 million and $128 million as of January 30, 2021 and August 1, 2020, respectively, and were recorded in Other Assets on the Consolidated Balance Sheets. During the second quarter of 2021, the Company terminated these lending commitments which released the restrictions on this cash. Accordingly, the balance was reclassified to Cash and Cash Equivalents during the second quarter of 2021.

As of July 31, 2021, the Company's total Cash and Cash Equivalents and restricted cash totaled $2.588 billion.

Derivative Financial Instruments

The Company uses derivative financial instruments to manage exposure to foreign currency exchange rates. The Company does not use derivative instruments for trading purposes. All derivative instruments are recorded on the Consolidated Balance Sheets at fair value.

The earnings of the Company's wholly owned foreign operations are subject to exchange rate risk as substantially all the merchandise is sourced through U.S. dollar transactions. The Company uses foreign currency forward contracts designated as cash flow hedges to mitigate this foreign currency exposure for its Canadian operations. Amounts are reclassified from accumulated other comprehensive income (loss) upon sale of the hedged merchandise to the customer. These gains and losses are recognized in Costs of Goods Sold, Buying and Occupancy in the Consolidated Statements of Income (Loss). The fair value of designated cash flow hedges is not significant for any period presented.

Concentration of Credit Risk

The Company maintains cash and cash equivalents, restricted cash and derivative contracts with various major financial institutions. The Company monitors the relative credit standing of financial institutions with whom the Company transacts and limits the amount of credit exposure with any one entity. The Company’s investment portfolio is primarily comprised of U.S. government obligations, U.S. Treasury and AAA-rated money market funds, commercial paper and bank deposits.

The Company also periodically reviews the relative credit standing of franchise, license and wholesale partners and other entities to which the Company grants credit terms in the normal course of business. The Company determines the required allowance for expected credit losses using information such as customer credit history and financial condition. Amounts are recorded to the allowance when it is determined that expected credit losses may occur.

9

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make 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. Actual results may differ from those estimates, and the Company revises its estimates and assumptions as new information becomes available.

Recently Issued Accounting Pronouncements

The Company did not adopt any new accounting standards during the second quarter of 2021 that had a material impact on the Company's consolidated results of operations, financial position or cash flows. In addition, there are no new accounting standards not yet adopted that are expected to have a material impact on the Company's consolidated results of operations, financial position or cash flows.

2. Revenue Recognition

Accounts receivable, net from revenue-generating activities were $129 million as of July 31, 2021, $125 million as of January 30, 2021 and $186 million as of August 1, 2020. Accounts receivable primarily relate to amounts due from the Company's franchise, license and wholesale partners. Under these arrangements, payment terms are typically 60 to 90 days.

The Company records deferred revenue when cash payments are received in advance of transfer of control of goods or services. Deferred revenue primarily relates to gift cards, loyalty and private label credit card programs and direct channel shipments, which are all impacted by seasonal and holiday-related sales patterns. Deferred revenue was $325 million as of July 31, 2021, $371 million as of January 30, 2021 and $316 million as of August 1, 2020. The Company recognized $167 million as revenue year-to-date 2021 from amounts recorded as deferred revenue at the beginning of the year. As of July 31, 2021, the Company recorded deferred revenue of $316 million within Accrued Expenses and Other, and $9 million within Other Long-term Liabilities on the Consolidated Balance Sheet.

The following table provides a disaggregation of Net Sales for the second quarter and year-to-date 2021 and 2020:

	Second Quarter				Year-to-Date
	2021		2020		2021		2020
	(in millions)
Bath & Body Works Stores - U.S. and Canada	$	1,230	$	678	$	2,280	$	1,102
Bath & Body Works Direct	407		519		756		807
Bath & Body Works International (a)	67		56		137		105
Total Bath & Body Works	1,704		1,253		3,173		2,014
Victoria’s Secret Stores - U.S. and Canada	1,037		364		1,970		877
Victoria’s Secret Direct	469		614		990		922
Victoria’s Secret International (b)	108		88		208		161
Total Victoria’s Secret	1,614		1,066		3,168		1,960
Total Net Sales	$	3,318	$	2,319	$	6,341	$	3,974

 _______________

(a)Results include royalties associated with franchised store and wholesale sales.

(b)Results include company-operated stores in the U.K. (pre-joint venture) and Greater China, and royalties associated with franchised stores and wholesale sales.

3. Restructuring Activities

During the second quarter of 2020, the Company completed a comprehensive review of its home office organizations in order to achieve meaningful reductions in overhead expenses and decentralize significant shared functions and services to support the separation of the Bath & Body Works and Victoria's Secret businesses. This resulted in a reduction of the home office headcount by approximately 15%, or about 850 associates. Pre-tax severance and related costs associated with these reductions, totaling $81 million, are included in General, Administrative and Store Operating Expenses in the 2020 Consolidated Statements of Loss. Costs of $51 million and $12 million are recorded within the Victoria's Secret and Bath & Body Works segments, respectively, while the remaining $18 million is recorded within Other.

During year-to-date 2021, the Company made payments of $22 million related to severance and related costs associated with these reductions. As of July 31, 2021, a liability of $14 million related to these reductions is included in Accrued Expenses and Other on the Consolidated Balance Sheet.

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Victoria's Secret U.K.

Due to challenging business results for Victoria's Secret in the U.K., the Company entered into Administration in June 2020 to restructure store lease agreements and reduce operating losses in the Victoria's Secret U.K. business. In October 2020, the Company entered into a joint venture with Next PLC for the Victoria’s Secret business in the United Kingdom and Ireland. Under this agreement, the Company owns 49% of the joint venture, and Next owns 51% and is responsible for operations. The Company accounts for its investment in the joint venture under the equity method of accounting.

4. Earnings (Loss) Per Share and Shareholders’ Equity (Deficit)

Earnings (Loss) Per Share

Earnings (loss) per basic share is computed based on the weighted-average number of common shares. Earnings (loss) per diluted share include the weighted-average effect of dilutive restricted stock and options on the weighted-average shares outstanding.

The following table provides the weighted-average shares utilized for the calculation of basic and diluted earnings (loss) per share for the second quarter and year-to-date 2021 and 2020:

	Second Quarter		Year-to-Date
	2021	2020	2021	2020
	(in millions)
Common Shares	288	286	288	285
Treasury Shares	(13)	(8)	(11)	(8)
Basic Shares	275	278	277	277
Effect of Dilutive Restricted Stock and Options	5	—	5	—
Diluted Shares	280	278	282	277
Anti-dilutive Options and Awards (a)	1	11	1	12

 _______________

(a)These options and awards were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive. For 2020, the dilutive impact of all outstanding options and awards were excluded from dilutive shares as a result of the Company's net loss for the period.

Shareholders’ Equity (Deficit)

Common Stock Share Repurchases

In March 2021, the Company's Board of Directors authorized a new $500 million share repurchase plan, which replaced the $79 million remaining under the March 2018 repurchase program. Pursuant to the Board's authorization, the Company entered into a Rule 10b5-1 purchase plan to effectuate share repurchases for the first $250 million. In May 2021, the Company initiated a second $250 million Rule 10b5-1 purchase plan to effectuate the remaining share repurchases under the March 2021 repurchase plan.

In July 2021, the Company's Board of Directors authorized a new $1.5 billion share repurchase program, which replaced the $36 million remaining under the March 2021 repurchase program. Under the authorization of this program, the Company entered into a stock repurchase agreement with its former Chief Executive Officer and certain of his affiliated entities pursuant to which the Company repurchased 10 million shares of its common stock for an aggregate purchase price of $730 million in July 2021.

The Company repurchased the following shares of its common stock during year-to-date 2021:

Repurchase Program	Amount Authorized		Shares Repurchased	Amount Repurchased		Average Stock Price
	(in millions)		(in thousands)	(in millions)
March 2021	$	500	6,996	$	464	$	66.30
July 2021	$	1,500	10,000	$	730	$	73.01

The July 2021 Program had $770 million remaining as of July 31, 2021.

Subsequent to July 31, 2021, the Company repurchased an additional 1.0 million shares of its common stock for $65 million under the July 2021 Program.

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Common Stock Retirement

In accordance with the Company's Board of Directors' resolution, shares of common stock repurchased under the July 2021 Program will be automatically retired and cancelled upon repurchase. As a result, the Company retired the 10 million shares repurchased under the July 2021 Program in the second quarter of 2021, which resulted in a reduction of $5 million in the par value of Common Stock, $32 million in Paid-in Capital and $693 million in Retained Earnings.

Dividends

Under the authority and declaration of the Board of Directors, the Company paid the following dividends during year-to-date 2021 and 2020:

	Ordinary Dividends		Total Paid
	(per share)		(in millions)
2021
Second Quarter	$	0.15	$	42
First Quarter	—		—
Total	$	0.15	$	42
2020
Second Quarter	$	—	$	—
First Quarter	0.30		83
Total	$	0.30	$	83

The Board of Directors suspended the quarterly cash dividend beginning in the second quarter of 2020 as a proactive measure to strengthen the Company's financial flexibility and manage through the COVID-19 pandemic. In March 2021, the Company's Board of Directors reinstated the annual dividend at $0.60 per share, beginning with the quarterly dividend paid in June 2021. In August 2021, the Company's Board of Directors declared the third quarter of 2021 ordinary dividend of $0.15 per share.

5. Inventories

The following table provides details of inventories as of July 31, 2021, January 30, 2021 and August 1, 2020:

	July 31, 2021		January 30, 2021		August 1, 2020
	(in millions)
Finished Goods Merchandise	$	1,245	$	1,073	$	1,259
Raw Materials and Merchandise Components	228		200		217
Total Inventories	$	1,473	$	1,273	$	1,476

Inventories are principally valued at the lower of cost or net realizable value, on an average cost basis.

6. Long-Lived Assets

The following table provides details of property and equipment, net as of July 31, 2021, January 30, 2021 and August 1, 2020:

	July 31, 2021		January 30, 2021		August 1, 2020
	(in millions)
Property and Equipment, at Cost	$	6,274	$	6,204	$	6,276
Accumulated Depreciation and Amortization	(4,273)		(4,109)		(3,984)
Property and Equipment, Net	$	2,001	$	2,095	$	2,292

Depreciation expense was $129 million and $127 million for the second quarter of 2021 and 2020, respectively. Depreciation expense was $258 million and $266 million for year-to-date 2021 and 2020, respectively.

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, the Company recognizes a loss equal to the difference between the carrying value and the estimated fair value, determined by the estimated

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discounted future cash flows of the asset group. For operating lease assets, the Company determines 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.

As a result of the Victoria's Secret fleet rationalization executed during 2020 and the negative operating results of certain Victoria's Secret stores, the Company determined that the estimated undiscounted future cash flows were less than the carrying values for certain Victoria's Secret asset groups and, as a result, determined the estimated fair values of the store asset groups using estimated discounted future cash flows and estimated market rental rates. Long-lived store asset impairment charges are included within the Victoria's Secret segment, in Costs of Goods Sold, Buying and Occupancy in the 2020 Consolidated Statements of Loss.

The following table provides pre-tax long-lived store asset impairment charges included in the 2020 Consolidated Statements of Loss:

	2020
	Second Quarter		Year-to-Date
	(in millions)
Store Asset Impairment	$	14	$	111
Operating Lease Asset Impairment	103		103
Total Impairment	$	117	$	214

Victoria's Secret Hong Kong

During the second quarter of 2020, the Company closed its unprofitable Victoria's Secret flagship store in Hong Kong. As a result of the store closure, the Company recognized a non-cash pre-tax gain of $39 million, primarily due to terminating the store lease and the related write-off of the operating lease liability in excess of the operating lease asset, which was partially impaired in fiscal 2019. This gain is included in Costs of Goods Sold, Buying and Occupancy in the 2020 Consolidated Statements of Loss. The Company also recorded $3 million of severance and related costs, included in General, Administrative and Store Operating Expenses in the 2020 Consolidated Statements of Loss.

7. Equity Investments

Easton

The Company has land and other investments in Easton, a planned community in Columbus, Ohio, that integrates office, hotel, retail, residential and recreational space. These investments, totaling $119 million as of July 31, 2021, $119 million as of January 30, 2021 and $124 million as of August 1, 2020, are recorded in Other Assets on the Consolidated Balance Sheets.

Included in the Company’s Easton investments are equity interests in Easton Town Center, LLC (“ETC”) and Easton Gateway, LLC (“EG”), entities that own and develop commercial entertainment and shopping centers. The Company’s investments in ETC and EG are accounted for using the equity method of accounting. The Company has a majority financial interest in ETC and EG, but another unaffiliated member manages them, and certain significant decisions regarding ETC and EG require the consent of unaffiliated members in addition to the Company.

8. Income Taxes

For the second quarter of 2021, the Company calculated the provision for income taxes on the current estimate of the annual effective tax rate and adjusted as necessary for quarterly events. Due to the impacts of the COVID-19 pandemic, the income tax expense for the second quarter of 2020 was computed on a year-to-date effective tax rate.

For the second quarter of 2021, the Company’s effective tax rate was 25.1% compared to 17.7% in the second quarter of 2020. The second quarter of 2021 rate was lower than the Company's combined estimated federal and state statutory rate primarily due to the recognition of excess tax benefits recorded through the Consolidated Statements of Income on share-based awards that vested in the quarter. In the second quarter of 2020, the Company recognized a benefit for income taxes of $11 million on a loss before income taxes of $60 million. The second quarter of 2020 rate was lower than the Company's combined federal and state statutory rate primarily due to losses related to certain foreign subsidiaries, which generated no tax benefit, offset by changes in tax legislation included in the CARES Act, which resulted in a $21 million tax benefit.

For year-to-date 2021, the Company's effective tax rate was 23.6% compared to 26.7% year-to-date 2020. The year-to-date 2021 rate was lower than the Company's combined estimated federal and state statutory rate primarily due to the recognition of excess tax benefits recorded through the Consolidated Statements of Income on share-based awards that vested year-to-date. The year-to-date 2020 rate was generally consistent with the Company's combined estimated federal and state statutory rate due

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to the resolution of certain tax matters, which resulted in a $50 million tax benefit and changes in tax legislation included in the CARES Act, which resulted in a $21 million tax benefit, offset by losses related to certain foreign subsidiaries, which generate no tax benefit.

Income taxes paid were $320 million and $13 million for the second quarter of 2021 and 2020, respectively. Income taxes paid were $330 million and $22 million for year-to-date 2021 and 2020, respectively.

9. Long-term Debt and Borrowing Facilities

The following table provides the Company’s outstanding debt balance, net of unamortized debt issuance costs and discounts, as of July 31, 2021, January 30, 2021 and August 1, 2020:

	July 31, 2021		January 30, 2021		August 1, 2020
	(in millions)
Senior Secured Debt with Subsidiary Guarantee
$750 million, 6.875% Fixed Interest Rate Secured Notes due July 2025 ("2025 Secured Notes")	$	—	$	740	$	739
Foreign Facilities	—		—		101
Total Senior Secured Debt with Subsidiary Guarantee	$	—	$	740	$	840
Senior Debt with Subsidiary Guarantee
$1 billion, 6.625% Fixed Interest Rate Notes due April 2021 (“2021 Notes”)	$	—	$	—	$	450
$1 billion, 5.625% Fixed Interest Rate Notes due February 2022 (“2022 Notes”)	—		284		858
$320 million, 5.625% Fixed Interest Rate Notes due October 2023 (“2023 Notes”)	319		319		498
$500 million, 9.375% Fixed Interest Rate Notes due July 2025 ("2025 Notes")	494		493		492
$297 million, 6.694% Fixed Interest Rate Notes due January 2027 (“2027 Notes”)	279		278		277
$500 million, 5.250% Fixed Interest Rate Notes due February 2028 (“2028 Notes”)	497		497		496
$500 million, 7.500% Fixed Interest Rate Notes due June 2029 ("2029 Notes")	489		488		488
$1 billion, 6.625% Fixed Interest Rate Notes due October 2030 ("2030 Notes")	989		988		—
$1 billion, 6.875% Fixed Interest Rate Notes due November 2035 (“2035 Notes”)	991		991		991
$700 million, 6.750% Fixed Interest Rate Notes due July 2036 (“2036 Notes”)	694		694		693
Total Senior Debt with Subsidiary Guarantee	$	4,752	$	5,032	$	5,243
Senior Debt
$350 million, 6.950% Fixed Interest Rate Debentures due March 2033 (“2033 Notes”)	$	348	$	348	$	348
$247 million, 7.600% Fixed Interest Rate Notes due July 2037 (“2037 Notes”)	246		246		298
Total Senior Debt	$	594	$	594	$	646
Victoria's Secret & Co. Notes
Victoria's Secret & Co. $600 million, 4.625% Fixed Interest Rate Notes due July 2029 ("Victoria's Secret & Co. Notes")	592		—		—
Total	$	5,938	$	6,366	$	6,729
Current Debt	—		—		(460)
Total Long-term Debt, Net of Current Portion	$	5,938	$	6,366	$	6,269

Repurchases of Notes

In April 2021, the Company completed a make-whole call to repurchase the remaining $285 million of outstanding 2022 Notes and the $750 million of outstanding 2025 Secured Notes. The Company recognized a pre-tax loss related to this extinguishment of debt of $105 million (after-tax loss of $80 million), which includes the write-offs of unamortized issuance costs. This loss is included in Other Income (Loss) in the year-to-date 2021 Consolidated Statement of Income.

Subsequent to July 31, 2021, the Company announced that it had commenced tender offers to purchase for cash its outstanding 2023 Notes, 2025 Notes and 2027 Notes up to a maximum aggregate principal amount of $500 million. The maximum aggregate amount to be purchased by the Company for the 2025 Notes and 2027 Notes is limited to $180 million. On September 2, 2021, the Company announced that it had accepted for early settlement tender offers to purchase $270 million of outstanding 2023 Notes and $180 million of outstanding 2025 Notes for an aggregate purchase price of $532 million. The

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Company intends to make payment for these accepted notes on September 3, 2021, and expects to recognize a pre-tax loss of approximately $