Gaining 20% This Year, Will Bath & Body Works Rally Further After Q1 Results?

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 first-quarter results on Tuesday, June 4. We expect BBWI stock to likely trade lower with revenues and earnings missing expectations in its first-quarter results. BBWI stock has increased 20% from around $43 to $53 since the beginning of this year, outperforming the broader indices, with the S&P growing 11% over the same period. In contrast, BBWI’s peer American Eagle Outfitters (NYSE: AEO) has seen its stock rise only 4% over the same period.

The company saw declining foot traffic and uncertainties from a high inflationary environment in 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 $325 million capital expenditure budget for FY2024 (compared to $298 million in FY 2023, 328 million CAPEX in FY2022, and $270 million in FY2021). 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 45 million enrolled 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 all BBWI’s product categories continue to exhibit substantial growth compared to 2019 figures, which bodes well for the company’s long-term expansion.

For Q1, Bath & Body Works expects sales to decline by 4.5% to 2.0% year-over-year (y-o-y) and earnings to be within the range of $0.28 and $0.33 per share. The company earned 35 cents in adjusted earnings on $1.4 billion in revenues in the first quarter of 2023. For 2024, the company expects to earn a profit between $3.00 and $3.35 per share on sales that will likely be down 3% to flat y-o-y. This includes the anticipated impact of approximately $300 million cash for share repurchases.

BBWI stock has seen extremely strong gains of 45% from levels of $35 in early January 2021 to around $52 now, vs. an increase of about 40% 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 $46 per share, which is almost 11% lower than the current market price. Look at our interactive dashboard analysis on BBWI Earnings Preview: What To Expect in Fiscal Q1? for more details.

(1) Revenues expected to come in below the consensus estimates

Trefis estimates BBWI’s Q1 2024 revenues to be around $1.3 Bil, below the consensus estimate. For the year 2023, net sales were down 1.7% year-over-year (y-o-y) to $7.43 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 2024, we expect Bath & Body Works Revenues to fall marginally to $7.4 billion.

2) EPS is also likely to miss consensus estimates

BBWI’s Q1 2024 earnings per share (EPS) is expected to come in at 30 cents per Trefis analysis,  lower than the consensus estimate. The company’s adjusted income fell to $3.27 per share from $3.40 the year prior.

(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 $3.30 and a P/E multiple of 14.1x in fiscal 2024, translating into a price of $46, which is almost 11% 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.