The largest specialty home fragrance & fragrant body care company in the U.S., Bath & Body Works Inc. (BBWI)’s stock is sharing the fate of the wider sell-off in the stock market as it is down by 41% from its November peak.
With investors feeling shaky over rising inflation and interest rates amid the geopolitical and economic turmoil, the stock has lost roughly 38.5% in 2022. Adding more to investors’ worries has been the target price cut down of the stock from most analysts and its CEO transition, however, BBWI still maintains a “BUY” rating from the majority of Analysts. Also, Andrew Meslow stepped down from the company last week due to health concerns after being with BBWI for over two decades.
The latest hit to the stock came from the company’s Q1 2022 upbeat report that revealed an outlook slash down. Owing to the rising inflation and the company’s investment plans, management cut down its 2022 outlook to below expectations. Hence, the stock plunged down after the earnings release and has continued the fall in today’s premarket, May 19, 2022. At the time of writing, BBWI was down by 6.85% in the premarket and was trading at a price of $40.00 a share, marking a new 52-week low.
BBWI’s Upbeat Q1 Earnings
For the first quarter of fiscal 2022, the company posted revenue of $1.45 billion which came above its own expectations with a decline of a mere 1% YOY. The revenue also beat the consensus estimate of $1.38 billion for the quarter.
Adjusted earnings per share also topped the estimates of 50 cents while standing at 64 cents for the quarter with YOY growth of 7%. Thus, the net income was $154.9 million in the quarter against the comparable $90.3 million last year.
For the remainder of the year, BBWI slashed its outlook below analysts’ expectations and its previous guidance as the company plans to accelerate investments in information technology and its customer loyalty program.
According to the revised outlook for the remainder of 2022, the company expects:
|Revised Adjusted Earnings/share||Previous Earnings/share||Analysts’ Prediction|
For a better idea, the Q2 fiscal 2021 adjusted earnings per share were 77 cents.
Furthermore, the updated outlook also accounts for the impacts of the rising inflation amid the broader economic downfall and instability. While the earnings cut down for Q2 and full fiscal 2022 disappointed investors vastly, this slash down is very justifiable amid the tumulus situation in the border market. These are very difficult times with the equities markets taking a continuous hit from the wider geopolitical and economic instability, rising inflation, peaking interest rates, Covid lockdowns, and global supply chain disruptions.
Company Overview & the Loyalty Program
Last March, the retailer underwent some major restructuring when the parent company L-brands spun off its subsidiary, Victoria’s Secret. Following the completion of the split, the company changed its name to Bath & Body Works with the ticker BBWI. The company now has over 2,000 U.S. and international stores, a meaningful online presence, and serves more than 50 million consumers.
The customer loyalty program is an essential aspect of its offerings which gives points to customers for every dollar spent. The program was introduced in select markets last year and is now set to expand to the full chain later this year. This program was one of the main aspects of the company’s previous price target upgrade from Goldman Sachs as it brings about the key metric of customer retention and increased spending.
BBWI Stock Ratings
Many analysts have been cutting down BBWI’s price target as the economic situation unfolds further into the dark. Recently, JPMorgan Chase & Co. cut down its price target from $81 to $67 which still is much above its current price level at an upside of 31.35%. Barclays brought the target down to $53 from $59, Well Fargo & Company from $85 to $70, and Telsey Advisory Group from $91 to $70. On the other hand, Cowen raised the price target to $82 and upgraded it to “outperform”.
Despite these target price cuts, BBWI still maintains a buy rating from sixteen analysts while only three gave it a hold rating. Therefore, the consensus rating for the stock is a “strong-buy”.
The wider geopolitical and economic instability has been impacting BBWI throughout 2022, and the recent price cut downs and slashed outlook from the company have investors concerned further. However, despite the further impacts of inflation and somewhat decreased growth in the near term, the stock still maintains a string buy rating as it is poised for much growth in the future with its strong fundamentals. The beaten-down price of the company’s stock shares only means better entry points with lower price than value as it is expected to potentially offer plenty of rewards in the longer run.