Rating Action: Moody's changes Bath & Body Works' outlook to stable; affirms Ba2 CFRGlobal Credit Research - 24 Aug 2022New York, August 24, 2022 -- Moody's Investors Service ("Moody's") today changed the outlook of Bath & Body Works, Inc. ("BBW") to stable from positive and affirmed all other ratings including its Ba2 corporate family rating ("CFR"), its Ba2-PD probability of default rating ("PDR"), the Ba2 rating of its senior unsecured guaranteed notes and the B1 rating of its senior unsecured unguaranteed notes. The speculative grade liquidity rating remains unchanged at SGL-1."The challenging operating and macroeconomic environment with inflationary pressure causing consumers to pull back on discretionary purchases will negatively impact BBW's sales and profitability resulting in weaker than expected credit metrics for the 2022 fiscal year, hence the change in outlook to stable from positive" Moody's Vice President Mickey Chadha stated. "However, we expect BBW's liquidity to remain strong with positive free cash flow generation and metrics will gradually improve in 2023 as topline and profits stabilize" Chadha further stated.Affirmations:..Issuer: Bath & Body Works, Inc..... Corporate Family Rating, Affirmed Ba2.... Probability of Default Rating, Affirmed Ba2-PD.... Senior Unsecured Unguaranteed Regular Bond/Debenture, Affirmed B1 (LGD6).... Senior Unsecured Guaranteed Regular Bond/Debenture, Affirmed Ba2 to (LGD4) from (LGD3)Outlook Actions:..Issuer: Bath & Body Works, Inc.....Outlook, Changed To Stable From PositiveRATINGS RATIONALEBath & Body Works, Inc.'s Ba2 CFR reflects its very good liquidity and balanced financial strategies. Inflationary pressure is resulting in shrinking disposable income which is causing consumers to pull back on discretionary purchases while input costs and operating expenses remain elevated. It is increasingly difficult to pass on price increases in this environment thereby causing profit margins to shrink. Therefore, we expect debt/EBITDA and EBIT/interest to weaken to about 3.6x and 2.9x respectively in 2022 compared to our previous expectation of 2.6x and 4.0x respectively. We expect credit metrics to gradually improve in 2023 as inflationary and cost pressures ease and the company streamlines its inventory. The company plans to maintain an adjusted debt/EBITDAR target of around 2.5x and payout a dividend of approximately $185 million in 2022. We expect the company to pare back share repurchases if needed to maintain strong liquidity. BBW has had a history of solid demand for its products and very strong operating margins which have been supported by tight inventory management. Nonetheless, the company remains at risk as demand for its products remains discretionary. The seasonal nature of its operations are also a key risk factor. The stable outlook reflects our expectation that operating performance and credit metrics will improve in 2023, liquidity will remain strong and financial strategies will remain balanced. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe ratings could be upgraded if the company demonstrates a consistent track record of operating income performance. A rating upgrade would also require BBW maintains very good liquidity and a clearly articulated and balanced financial strategy. Quantitatively ratings could be upgraded if debt/EBITDA is sustained below 2.5 times and EBIT/interest expense is sustained above 4.0 times.The ratings could be downgraded if the company demonstrates an inconsistent track record of operating income performance or operating performance does not improve. Ratings could also be downgraded if liquidity weakens or the company adopts a more aggressive financial policy. Quantitatively ratings could be downgraded if debt/EBITDA is sustained above 3.5 times and EBIT/interest expense below 3.0 times.Headquartered in Columbus, Ohio, Bath and Body Works, Inc. operates in excess of 1,770 company-owned specialty stores in the United States and Canada. Its brand is also sold in more than 360 franchised locations worldwide and on bathandbodyworks.com. Revenue was about $7.9 billion for fiscal year 2021. The principal methodology used in these ratings was Retail published in November 2021 and available at https://ratings.moodys.com/api/rmc-documents/356421. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. 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Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating. Manoj Chadha VP - Senior Credit Officer Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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