Dive Brief:

• Bath & Body Works CEO Andrew Meslow is stepping down from the post as well as the retailer's board, effective May 12, according to a press release.
• The company cited health reasons for Meslow's departure, which surprised analysts. Board Chair Sarah Nash has taken on the title of executive chair as part of the transition. She will become interim CEO once Meslow steps down and as the company searches for a permanent chief.  
• The announcement comes as Bath & Body Works reported record sales and earnings numbers for the fourth quarter and fiscal year, with sales for the year hitting $7.9 billion, up 22% from the prior year. 

Dive Insight:

Meslow has worked with Bath & Body Works for more than 15 years. He served as the brand's chief operating officer for eight of those years before becoming its chief executive in 2020. He was also promoted to the CEO slot for L Brands and led the company through its split, when the Victoria's Secret and Bath & Body Works brands went their separate ways. 

The Bath & Body Works banner led L Brands in growth for years, while lingerie giant Victoria's Secret struggled. The former built a loyal following and enjoyed social media stardom, while Victoria's Secret lost share to upstarts and was slow to adapt to changing consumer tastes and social mores.  

Nash, who spent much of her career as an investment banker with JPMorgan Chase, said that Meslow's "vision, guidance and commitment to building a positive culture has positioned Bath & Body Works as an industry leader."

Bath & Body Works built on its growth over the past year. Along with double digit top-line growth for Q4 and the year, the retailer's operating income increased for both the period and fiscal year even as the industry broadly struggled with supply chain challenges around the world and domestically. 

That said, the company sees continued difficulties ahead. Management expects margins to fall "significantly" in the first quarter to 45% compared to 50.5% a year ago, according to a company presentation.

On a conference call, executives said the retailer faces cost inflation pressure in materials for its products as well as transportation. While Bath & Body Works has capitalized on "pricing opportunities" and dialed back on discounts, executives said they expect more promotions and "de-inflation pressures" ahead. 

Roxanne Meyer, managing director with MKM Partners, said in a research note that the "extent of gross margin pressure" the company estimated for Q1 caught the analyst team off-guard. 

Meyer also described the unexpected departure of Meslow from Bath & Body Works as a "meaningful loss" but called the retailer a "well-oiled machine" poised to continue growing. 

"While CEO Andrew Meslow's unexpected departure (due to health reasons) is unfortunate and creates some degree of uncertainty and perceived risk, we believe [Bath & Body Works'] deep and experienced bench of leadership coupled with its track record of innovation and consistent comp gains over the last decade give us confidence in [Bath & Body Works'] ongoing ability to execute against its strategies," Meyer said.