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Bear of the Day: Bath & Body Works (BBWI)

Bath & Body Works, Inc. BBWI expects sales to slow this year. Following weak 2023 guidance, this Zacks Rank #5 (Strong Sell) has seen its earnings estimates cut.

Bath & Body Works is a leader in personal care and home fragrance, including fine fragrance mist, body lotion and body cream, 3-wick candles, home fragrance diffusers and liquid hand soap.

It operates 1,800 company-operated Bath & Body Works locations in the U.S. and Canada and more than 425 international franchised locations along with online sales at

Another Beat in the Fourth Quarter

On Feb 23, 2023, Bath & Body Works reported fiscal fourth quarter 2022 results and beat on the Zacks Consensus Estimate for the 11th quarter in a row. It has only missed once in the last 5 years. That's impressive.

Earnings were $1.86 compared to the Zacks Consensus of $1.63.

Revenue fell 5% to $2.889 billion in the fourth quarter from $3.027 billion a year ago.

Cost cutting is expected to pick up this year. Bath & Body Works announced an enterprise-wide effort to reduce expenses and improve operating efficiency. It's targeting $200 million of annual cost savings with over half of those savings contemplated in its 2023 outlook, primarily impacting the second half of 2023.

2023 Guidance Was Below Consensus

On Feb 23, 2023, Bath & Body Works gave first quarter 2023 net sales and full year earnings guidance. The first quarter was expected to continue to see weakness with net sales declining in the low - to mid-single digits year-over-year.

For the full year, earnings were expected to be in the range of $2.50 to $3.00. This was below the Zacks Consensus so analysts have been cutting estimates since the earnings report.

9 estimates were cut in the last 60 days for fiscal 2023. The Zacks Consensus Estimate has fallen to $2.97 from $3.72 in that time period. That's a decline of 12.7% from last year, where the company made $3.40. This is at the high end of the company's guidance range, however.

Bath & Body Works is expected to report first quarter earnings in May.

Shake-Up in Management

On Apr 6, Bath & Body Works announced some changes to its management team.

The key announcement was that Wendy Arlin, the CFO, would step down effective July 29, 2023, or earlier, if a successor was named. The company has initiated a search for a successor with the assistance of an executive search firm.

Shares Slide in 2023

Given the company's caution, it's not surprising that investors feel the same. Shares of Bath & Body Works have slid 16% year-to-date.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

It's cheap, with a forward P/E of 11.9 and a PEG ratio of just 0.96. A PEG under 1.0 usually indicates a company has both value and growth.

Bath & Body Works is also shareholder friendly. It pays a dividend which is currently yielding 2.3%.

However, with the economy still slowing, investors looking at Bath & Body Works might want to wait on the sidelines until the earnings estimates and Zacks Rank turn around.

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