Is A 60% Drop Ahead For Bath & Body Works Stock?
Question: How would you react if you held Bath & Body Works stock (NYSE: BBWI) and its value fell by 60% or more in the coming months? Although this might seem extreme, such an occurrence has happened before and could very well repeat itself. The personal care and home fragrance retailer’s stock is already down 27% year-to-date, significantly underperforming the S&P 500’s 10% drop. In Q4 2024, the company reported a 4% decline in net sales and an 18% drop in earnings per diluted share, citing a shifted fiscal calendar and weakening consumer demand. Looking ahead, BBWI faces mounting pressure from new U.S. tariffs on Chinese imports, alongside soft discretionary spending and growing competition from lower-cost private-label alternatives. Persistently high interest rates and economic uncertainty continue to erode consumer appetite for non-essential products like fragrances and candles, posing risks to the company’s outlook.
Here’s the point: The key takeaway is that during a downturn, BBWI stock might incur meaningful losses. Data from 2020 indicates that BBWI stock lost about 63% of its value in only a few quarters while also seeing a peak-to-trough decline of about 64% during the 2022 inflation shock, faring much worse than the S&P 500. This raises the question: if similar headwinds were to materialize, could the stock face a significant sell-off and potentially drop to $11 from its current level of $28? Naturally, individual stocks are generally more volatile than diversified portfolios. Therefore, if you are looking for growth with reduced volatility, you might consider the High-Quality portfolio, which has outperformed the S&P 500 and generated returns of over 91% since its inception.
The new U.S. tariffs could impact BBWI’s supply chain costs and profit margins. These include a 25% tax on imports from Canada and Mexico, and a steep 145% tax on Chinese imports, together affecting roughly 17% of the company’s supply chain. The resulting cost increases present a risk to earnings growth, raising investor concerns and contributing to recent stock volatility.
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However, BBWI’s largely U.S.-based supply chain offers a buffer against global trade disruptions. This domestic focus may prove to be a strategic advantage, especially if trade tensions continue to escalate, setting BBWI apart from competitors with heavier reliance on international sourcing.
How resilient is BBWI stock during a downturn?
BBWI stock has fared worse than the benchmark S&P 500 index during some of the recent downturns. While investors have their fingers crossed for a soft landing by the U.S. economy, how bad can things get if there is another recession? Our dashboard How Low Can Stocks Go During A Market Crash captures how key stocks fared during and after the last six market crashes.
Inflation Shock (2022)
• BBWI stock fell 63.9% from a high of $76.47 on 10 December 2021 to $27.62 on 1 July 2022, vs. a peak-to-trough decline of 25.4% for the S&P 500
• The stock is yet to recover to its pre-Crisis high
• The highest the stock has reached since then is $51.94 on 2 June 2024 and currently trades at around $28
Covid Pandemic (2020)
• BBWI stock fell 62.9% from a high of $19.77 on 12 February 2020 to $7.33 on 23 March 2020, vs. a peak-to-trough decline of 33.9% for the S&P 500
• The stock fully recovered to its pre-Crisis peak by 29 July 2020
Valuation
At its current price of approximately $28 per share, BBWI is trading at roughly 8x the consensus 2025 earnings estimate—an attractive valuation relative to its three-year average multiple of 12x. The average analyst price target of $44 implies approximately 57% upside, signaling potential for meaningful growth. However, the company has adopted a cautious stance for 2025. Management is guiding for 1–3% sales growth and expects EPS in the range of $3.25 to $3.60, with the midpoint representing a modest decline from 2024 results. Consensus anticipates revenue growth of approximately 2% in FY’25 and 3% in FY’26, reflecting measured expectations in light of ongoing macroeconomic and operational challenges..
Given this potential slowdown in growth and the broader economic uncertainties, ask yourself the question: Do you intend to hold on to your BBWI stock now, or will you panic and sell if it begins dropping to $25, $20, or even lower? Holding onto a declining stock is never easy. Trefis collaborates with Empirical Asset Management—a Boston area wealth manager—whose asset allocation strategies yielded positive returns during the 2008-09 period when the S&P lost more than 40%. Empirical has incorporated the Trefis HQ Portfolio into its asset allocation framework to provide clients with better returns and less risk compared to the benchmark index—a less turbulent ride, as shown in HQ Portfolio performance metrics.
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