Will Q4 Results Help Extend The 13% Gain In Bath & Body Works Stock Since Early 2023?

Bath & Body Works stock (NYSE: BBWI), the largest specialty home fragrance & body care product retailer in the U.S., formerly known as L Brands, is scheduled to report its fiscal fourth-quarter results on Thursday, February 29. We expect BBWI stock to likely trade lower with revenues and earnings missing expectations in its fourth-quarter results. The company saw declining foot traffic and uncertainties from a high inflationary environment in the first three quarters of FY 2023. Although the outlook is cloudy in the near term, the franchise quality and valuation should help the stock rise in the longer run. Management plans to open new off-mall stores, remodel selected stores, and invest in technology and the supply chain, with a $300 to $350 million capital expenditure budget for FY2023 (compared to $328 million CAPEX in FY2022, $270 million in FY2021 and $228 million in FY2020). The company offers a variety of products, including men’s deodorant and fragrance products, where management believes an $8 billion market exists. To add to this, BBWI also has an advantage with its loyalty program, which now has nearly 41 million members, and loyalty sales represent approximately two-thirds of its U.S. sales. This is valuable in the current environment to drive repeat sales. It should also be noted that BBWI’s all product categories continue to exhibit substantial growth compared to 2019 figures, which bodes well for the company’s long-term expansion.

BBWI expects fourth-quarter net sales to decline 1% to 5% compared to $2.9 billion in the fourth quarter of 2022. Its Q4 earnings per diluted share are expected to be between $1.70 and $1.90, compared to $1.86 in Q4 of 2022. For fiscal 2023, the company expects net sales to decline 2.5% to 4% compared to $7.6 billion in 2022. The company now expects full-year 2023 earnings per diluted share to be between $2.99 and $3.19, compared to $3.40 in 2022. In addition, its full-year 2023 adjusted EPS is estimated to be between $2.90 and $3.10.

BBWI stock has shown strong gains of 30% from levels of $35 in early January 2021 to $47 now, vs. an increase of about 35% for the S&P 500 over this roughly 3-year period. However, the increase in BBWI stock has been far from consistent. Returns for the stock were 88% in 2021, -40% in 2022, and 2% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that BBWI underperformed the S&P in 2022 and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Discretionary sector including AMZN, TSLA, and TM, and even for the megacap stars GOOG, MSFT, and AAPL. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could BBWI face a similar situation as it did in 2022 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

Our forecast indicates that BBWI’s valuation is $39 per share, which is almost 18% lower than the current market price. Look at our interactive dashboard analysis on BBWI Earnings Preview: What To Expect in Fiscal Q4? for more details.

(1) Revenues expected to come slightly ahead of consensus estimates

Trefis estimates BBWI’s Q4 2023 revenues to be around $2.8 Bil, slightly below the consensus estimate. In Q3, the company’s sales declined by 3% year-over-year (y-o-y) to $1.6 billion on sluggish demand in categories like home fragrance and personal care. However, the retailer adjusted to these issues with effective cost-cutting and merchandising initiatives. For the full-year 2023, we expect Bath & Body Works Revenues to fall marginally to $7.4 billion.

2) EPS is also likely to miss consensus estimates

BBWI’s Q4 2023 earnings per share (EPS) is expected to come in at $1.82 per Trefis analysis, 3% lower than the consensus estimate. The company’s diluted earnings per share were up 30% y-o-y to $0.52 in Q3 2023.

(3) Stock price estimate is lower than the current market price

Our Bath & Body Works Valuation expects an earnings per share (EPS) estimate of around $3.07 and a P/E multiple of 12.6x in fiscal 2023, translating into a price of $39, which is almost 18% lower than the current market price.

It is helpful to see how its peers stack up. BBWI Peers shows how Bath & Body Works’ stock compares against peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.