Brett_Hondow Hey there, Seeking Alpha readers! In this article, I examine an undervalued company with a narrow economic moat in the retail space. I think it at least deserves a look - or perhaps I should say a sniff! That company is Bath & Body Works, Inc. (NYSE:BBWI). About Bath & Body Works Bath & Body Works is more than a retailer; it's a brand that has woven itself into the fabric of our lives and is known by almost anyone in North America. But what truly sets Bath & Body Works apart is its product port ...

Brett_Hondow Summary I am neutral on Bath & Body Works Inc. (NYSE:BBWI). My summarized thesis is that the near-term outlook is bleak with no positive catalysts that I foresee will drive a strong growth recovery. The reason I am not assigning a sell rating to the stock is because valuation has already suffered greatly, dropping from 14x to 8x forward PE in just two months. At 8x, it is at the low end of BBWI 10-year trading history, suggesting little room for further decline. Company overview BBWI is a s ...

Bath & Body Works, Inc. BBWI reported worse-than-expected second-quarter sales results and issued FY24 adjusted EPS guidance with its midpoint below estimates. Also, the company issued third-quarter EPS guidance below estimates.The company reported the second quarter adjusted earnings per share of 37 cents, beating the analyst consensus of 36 cents. Quarterly sales of $1.526 billion (down 2.1%) missed the street view of $1.543 billion."We are leveraging our agile business model to navigate the dynamic retai ...

Core Viewpoint - Bath & Body Works has experienced a significant decline in stock performance, with shares falling approximately 24% in 2024, contrasting with a 4% increase in the consumer discretionary sector [1][2]. Financial Performance - The company reported that 77% of net sales in fiscal Q1 2025 came from physical stores in the U.S. and Canada, while online sales accounted for 19% and international sales for 4% [3]. - Sales have declined for six consecutive quarters, with revenues around 40% below pre-pandemic peak levels, although net income and free cash flow remain stable due to increased margins [4]. - Following Q2 2024 earnings, the company lowered its full-year adjusted EPS guidance to a midpoint of $3.16, below analysts' expectations of $3.25 [6]. Market Position and Analyst Ratings - Analysts have downgraded Bath & Body Works, with Citigroup and Barclays reducing price targets by nearly 30%, now viewing the stock as fairly valued [2]. - Despite the downgrades, Deutsche Bank maintains a bullish outlook with a price target of $54, suggesting over 50% upside potential [2]. Strategic Initiatives - The company is revamping its strategy by enhancing digital experiences through a partnership with Accenture, including the introduction of a "fragrance finder" to improve customer engagement [7]. - Bath & Body Works is transitioning to off-mall locations, with plans to increase the percentage of off-mall stores from 50% to two-thirds, aiming to reduce costs associated with declining mall foot traffic [7][8]. Customer Engagement and Growth Opportunities - The loyalty program has grown to 37 million members, representing 80% of U.S. sales, with new customers making up 43% of enrollees [9]. - There are opportunities to boost sales by promoting frequent purchases, introducing a subscription tier, and expanding offerings for male customers, where the company has shown strength [10].

Financial Performance - Consolidated Net Sales for Q2 2024 were $1.526 billion, a decrease of $33 million or 2.1% compared to Q2 2023[69] - Operating Income for Q2 2024 was $183 million, down $5 million or 3% from Q2 2023, with an Operating Income rate of 12.0%[69] - Adjusted Net Income for Q2 2024 was $83 million, with Adjusted Net Income Per Diluted Share at $0.37[75] - For year-to-date 2024, total Net Sales decreased by $45 million, or 1.5%, to $2.910 billion compared to year-to-date 2023[86] - Year-to-date 2024 net sales reached $2,767 million, with a gross profit of $1,140 million[113] - Operating income for the year-to-date 2024 was $333 million, while net income stood at $164 million, including a net loss of $5 million from non-Guarantor subsidiaries[113] Cost Management - The company is targeting $280 million in planned annual cost savings, an increase of $30 million from previous expectations, with $130 million expected in fiscal 2024[70] - Total General, Administrative and Store Operating Expenses increased by $9 million to $443 million, with a rate of 29.1% of Net Sales, up from 27.8% in Q2 2023[82] - General, Administrative and Store Operating Expenses increased by $14 million to $863 million, with the rate increasing to 29.6% from 28.7%[88] Sales Performance - Direct Net Sales decreased by $32 million or 9.7% in Q2 2024, primarily due to a decline in fulfilled orders[81] - International Net Sales increased by $3 million or 2.2% in Q2 2024, driven by increased product shipments[81] - Direct Net Sales decreased by $51 million, or 8.4%, primarily due to a decline in fulfilled orders and website traffic[86] Store Operations - The company opened 40 new stores and closed 18, resulting in a total of 1,872 stores as of August 3, 2024[77] Debt and Financing - As of August 3, 2024, the total senior debt with subsidiary guarantee was $3.711 billion, a decrease from $4.115 billion in July 2023[105] - The company repurchased $200 million principal amount of senior notes year-to-date 2024, resulting in a pre-tax loss of $3 million[106] - Net cash used for financing activities for year-to-date 2024 was $560 million, compared to $343 million in year-to-date 2023[99] - The company authorized a new $500 million share repurchase program in January 2024, repurchasing 4,921 thousand shares for $210 million at an average price of $42.72[102] Cash Flow and Liquidity - Net cash provided by operating activities for year-to-date 2024 was $30 million, down from $77 million in year-to-date 2023[96] - Current assets as of August 3, 2024, were $2.013 billion, down from $2.545 billion as of February 3, 2024[112] - Current liabilities decreased to $2.712 billion as of August 3, 2024, from $2.935 billion as of February 3, 2024[112] - The company had $651 million available under the ABL Facility after accounting for $10 million in outstanding letters of credit[108] Tax and Other Income - Interest Expense for year-to-date 2024 was $159 million, down from $175 million in year-to-date 2023[90] - Other Income increased to $61 million for year-to-date 2024, compared to $45 million in year-to-date 2023[91] - The effective tax rate for year-to-date 2024 was 12.1%, compared to 24.7% for year-to-date 2023[92] Accounting and Risk Management - The company is evaluating the impact of recently issued accounting standards on its disclosures, including ASU 2023-07 and ASU 2023-09[114] - The company utilizes derivative financial instruments to manage exposure to market risks, including foreign currency and interest rate risks[116] - The investment portfolio primarily consists of U.S. government obligations and AAA-rated money market funds, with no material risk to principal from interest rate changes[118] - The company maintains cash and cash equivalents with various major financial institutions, monitoring credit exposure to mitigate concentration of credit risk[120] Credit Ratings - The corporate credit ratings as of August 3, 2024, were Ba2 from Moody's and BB from S&P, with a stable outlook[109]

Key TakeawaysBath & Body Works expects net sales to fall between 2% and 4% this year, worse than its previously offered guidance.CEO Gina Boswell called the lower range "prudent" amid challenging consumer spending trends.The retailer also missed expectations with its second-quarter net sales. Bath & Body Works (BBWI) shares sank after the company slashed its 2024 guidance and missed expectations with its second-quarter sales. The body and fragrance product retailer on Wednesday said it expects net sales to ...

Financial Data and Key Metrics Changes - For Q2 2024, net sales were $1.5 billion, down 2% year-over-year, aligning with guidance [9][25] - Adjusted earnings per diluted share were $0.37, exceeding guidance by $1.00, driven by improvements in merchandise margin [9][25] - Gross profit rate increased to 41%, up 110 basis points year-over-year, marking the fourth consecutive quarter of gross profit rate expansion [27] - Total operating income was $183 million, a decrease of 2.7% year-over-year, maintaining 12% of net sales [28] Business Line Data and Key Metrics Changes - Home Fragrance sales maintained unit market share, while Body Care and Soaps and Sanitizers saw declines [20] - Men's category continues to grow rapidly, particularly during Father's Day promotions [21] - Lip category sales doubled in stores where the new fixture was introduced [21] - Laundry products are set to roll out to all U.S. stores by the end of September [21] Market Data and Key Metrics Changes - International net sales grew 2.2% year-over-year, with significant improvements compared to Q1 [26] - System-wide retail sales in international markets grew double digits, excluding areas affected by geopolitical tensions [14] Company Strategy and Development Direction - The company is focused on five key strategies: elevating the brand, extending reach, engaging customers, enabling a seamless omni-channel experience, and enhancing operational excellence [10] - Plans to increase share repurchase guidance to $400 million from $300 million to return value to shareholders [19][34] - The company aims to adapt to a dynamic environment while optimizing costs and expanding margins [8][10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strategy despite a challenging economic backdrop and consumer focus on value [9][19] - Adjustments to full-year revenue and earnings expectations were made due to first-half sales trends and macroeconomic conditions [19][30] - The company is optimistic about the second half of the year, driven by new product launches and marketing campaigns [63] Other Important Information - The company is increasing its 2024 cost savings guidance to $130 million from $100 million, with a two-year program expected to deliver $280 million in run rate savings [18][31] - The loyalty program has over 37 million active members, accounting for over 80% of U.S. sales [16] Q&A Session Summary Question: Thoughts on new category revenues and customer spend - Management noted that new categories are meeting sales expectations and bringing in new customers, with positive repeat usage behavior [38] Question: Guidance for fourth quarter sales - Management indicated that the reduction in sales guidance is due to a more value-seeking customer and a shorter holiday season [42][43] Question: Sales cadence in Q2 and confidence in Q3 - Management acknowledged cautious consumer behavior in Q2 but noted improved traffic and sales trends as they exited the quarter [45] Question: Semiannual sale performance and execution - Management recognized that the semiannual sale did not resonate as expected and plans to adjust marketing and timing for future sales [47][48] Question: AUR trends and demand across categories - Management reported that AURs were flat on a mix-adjusted basis and emphasized the importance of balancing revenue and margin expectations [62] Question: Marketing spend and effectiveness - Management highlighted the effectiveness of full-funnel marketing in driving awareness and conversion, with plans to continue optimizing marketing expenditures [68]

For the quarter ended July 2024, Bath & Body Works (BBWI) reported revenue of $1.53 billion, down 2.1% over the same period last year. EPS came in at $0.37, compared to $0.40 in the year-ago quarter.The reported revenue compares to the Zacks Consensus Estimate of $1.54 billion, representing a surprise of -1.15%. The company delivered an EPS surprise of +5.71%, with the consensus EPS estimate being $0.35.While investors scrutinize revenue and earnings changes year-over-year and how they compare with Wall Str ...

1 Q2 2024 RESULTS& 2024 GUIDANCE August 28, 2024 Q2 EARNINGS CALL PARTICIPANTS 2 GINA BOSWELL Chief Executive Officer & Director JULIE ROSEN President, Retail EVA BORATTO Chief Financial Officer LUKE LONG VP Investor Relations Batl Forward-Looking Statements Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 We caution that any forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) contained in this presentation or made by o ...

Financial Performance - Net sales for Q2 2024 were $1.526 billion, a decrease of 2.1% compared to $1.559 billion in Q2 2023[2] - Earnings per diluted share for Q2 2024 were $0.68, up from $0.43 in the same period last year[2] - Adjusted earnings per diluted share for Q2 2024 were $0.37, compared to $0.40 in Q2 2023[2] - The company reported a net income of $152 million for Q2 2024, compared to $99 million in Q2 2023[2] - Operating income for Q2 2024 was $183 million, slightly down from $188 million in the prior year[2] - Net income for year-to-date 2024 increased to $239 million from $180 million in 2023, representing a 32.8% increase[15] - Total sales for the second quarter of 2024 were $1,526 million, a decrease of 2.1% compared to $1,559 million in the second quarter of 2023[25] - The adjusted net income per diluted share for year-to-date 2024 was $0.76, compared to $0.73 in 2023[19] Guidance and Forecast - The company updated its fiscal year 2024 guidance, expecting net sales to decline between 4% to 2% relative to $7.429 billion in fiscal 2023[3] - Full-year 2024 earnings per diluted share is now expected to be between $3.37 and $3.57, down from $3.84 in 2023[3] - Q3 2024 net sales are expected to range from flat to an increase of 2.5% compared to $1.562 billion in Q3 2023[4] - Q3 2024 earnings per diluted share is projected to be between $0.41 and $0.47, compared to $0.52 in Q3 2023[4] - The forecasted adjusted net income per diluted share for full-year 2024 is projected to be between $3.06 and $3.26[21] Share Repurchase and Capital Expenditures - The company plans to increase share repurchases to $400 million from the previous expectation of $300 million[4] - The company repurchased $248 million of common stock in year-to-date 2024, compared to $48 million in the same period of 2023[16] - Capital expenditures for year-to-date 2024 were $101 million, down from $178 million in 2023[16] Sales and Store Expansion - Direct sales in the U.S. and Canada decreased by 9.7% to $297 million in Q2 2024 from $329 million in Q2 2023[25] - The company opened 40 new stores in the U.S. and Canada, bringing the total to 1,761 stores as of August 3, 2024[27] - International partner-operated stores increased by 25 to a total of 497 stores as of August 3, 2024[28] Cash Flow - The company reported a net cash provided by operating activities of $30 million for year-to-date 2024, down from $77 million in 2023[15]