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Bath & Body Works (NYSE:BBWI) Misses Q2 Revenue Estimates, Stock Drops


Kayode Omotosho /
2023/08/23 6:37 am EDT

Personal care and home fragrance retailer Bath & Body Works (NYSE:BBWI) fell short of analysts' expectations in Q2 FY2023, with revenue down 3.65% year on year to $1.56 billion. Bath & Body Works made a GAAP profit of $99 million, down from its profit of $120 million in the same quarter last year.

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Bath & Body Works (BBWI) Q2 FY2023 Highlights:

  • Revenue: $1.56 billion vs analyst estimates of $1.57 billion (0.89% miss)
  • EPS: $0.43 vs analyst estimates of $0.32 (34.9% beat)
  • Free Cash Flow was -$52 million compared to -$58 million in the same quarter last year
  • Gross Margin (GAAP): 39.9%, down from 40.8% in the same quarter last year
  • Store Locations: 2,267 at quarter end, increasing by 125 over the last 12 months

Gina Boswell, CEO of Bath & Body Works, commented, “In the second quarter, we delivered net sales in line with our expectations, and the early benefits of our cost optimization and merchandise margin improvement initiatives helped drive earnings which outperformed our expectations. Our team remained agile in response to the dynamic macroeconomic environment, with a focus on delivering innovation and building capabilities to position our company for topline growth and margin expansion. We are executing well against a diverse set of opportunities within our key areas of focus, which will enable us to better serve our customers, drive profitable growth and create long-term value for our stakeholders.”

Spun off from L Brands in 2020, Bath & Body Works (NYSE:BBWI) is a personal care and home fragrance retailer where consumers can find specialty shower gels, scented candles for the home, and lotions.

Beauty and cosmetics retailers understand that beauty is in the eye of the beholder, but a little lipstick, nail polish, and glowing skin also help the cause. These stores—which mostly cater to consumers but can also garner the attention of salon pros—aim to be a one-stop personal care and beauty products shop with many brands across many categories. E-commerce is changing how consumers buy cosmetics, so these retailers are constantly evolving to meet the customer where and how they want to shop.

Sales Growth

Bath & Body Works is larger than most consumer retail companies and benefits from economies of scale, giving it an edge over its competitors.

As you can see below, the company's revenue has declined over the last four years, dropping 13.3% annually despite opening new stores and expanding its reach.

Bath & Body Works Total Revenue

This quarter, Bath & Body Works reported a rather uninspiring 3.65% year-on-year revenue decline, missing analysts' expectations. Looking ahead, the analysts covering the company expect sales to grow 2.43% over the next 12 months.

The pandemic fundamentally changed several consumer habits. There is a founder-led company that is massively benefiting from this shift. The business has grown astonishingly fast, with 40%+ free cash flow margins. Its fundamentals are undoubtedly best-in-class. Still, the total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.

EPS

Earnings growth is a critical metric to track, but for long-term shareholders, earnings per share (EPS) is more telling because it accounts for dilution and share repurchases.

In Q2, Bath & Body Works reported EPS at $0.43, down from $0.52 in the same quarter a year ago. This print beat Wall Street's estimates by 34.9%, a welcome development that should delight shareholders.

Bath & Body Works EPS (GAAP)

Between 2020 and 2023, Bath & Body Works's adjusted diluted EPS flipped from negative to positive. These results show that the company is headed in the right direction as profitability is vital for success in the challenged consumer retail sector.

Key Takeaways from Bath & Body Works's Q2 Results

Sporting a market capitalization of $8 billion, Bath & Body Works is among smaller companies, but its more than $790 million in cash on hand and positive free cash flow over the last 12 months puts it in an attractive position to invest in growth.

We were impressed by how significantly Bath & Body Works blew past analysts' EPS expectations this quarter. We were also glad that next quarter's earnings guidance exceeded Wall Street's estimates. On the other hand, its revenue missed analysts' expectations and it reconfirmed its full-year sales outlook, calling for a 2.5% annual revenue decline. Overall, this was a mediocre quarter for Bath & Body Works and buy-side participants were likely expecting revenue to be much higher. The company is down 8.47% on the results and currently trades at $32 per share.

So should you invest in Bath & Body Works right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

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The author has no position in any of the stocks mentioned in this report.