Bath and Body Works (BBWI)

Personal care and home fragrance retailer Bath & Body Works (NYSE:BBWI) met Wall Street’s revenue expectations in Q1 CY2025, with sales up 2.9% year on year to $1.42 billion. On the other hand, next quarter’s revenue guidance of $1.54 billion was less impressive, coming in 1.6% below analysts’ estimates. Its GAAP profit of $0.49 per share was in line with analysts’ consensus estimates.

Company Overview

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.

Retailers offering specialized personal care products include Ulta Beauty (NASDAQ:ULTA) and Victoria’s Secret (NYSE:VSCO) as well as department stores such as Macy’s (NYSE:M) and Kohl’s (NYSE:KSS).

A company’s long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years.

With $7.35 billion in revenue over the past 12 months, Bath and Body Works is a mid-sized retailer, which sometimes brings disadvantages compared to larger competitors benefiting from better economies of scale.

As you can see below, Bath and Body Works grew its sales at a tepid 6.7% compounded annual growth rate over the last six years (we compare to 2019 to normalize for COVID-19 impacts).

This quarter, Bath and Body Works grew its revenue by 2.9% year on year, and its $1.42 billion of revenue was in line with Wall Street’s estimates. Company management is currently guiding for a 1% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 2.3% over the next 12 months, a deceleration versus the last six years. This projection is underwhelming and indicates its products will face some demand challenges.

Number of Stores

A retailer’s store count often determines how much revenue it can generate.

Bath and Body Works operated 2,424 locations in the latest quarter. It has opened new stores at a rapid clip over the last two years, averaging 4.5% annual growth, much faster than the broader consumer retail sector. This gives it a chance to become a large, scaled business over time.

When a retailer opens new stores, it usually means it’s investing for growth because demand is greater than supply, especially in areas where consumers may not have a store within reasonable driving distance.

Same-Store Sales

A company's store base only paints one part of the picture. When demand is high, it makes sense to open more. But when demand is low, it’s prudent to close some locations and use the money in other ways. Same-store sales provides a deeper understanding of this issue because it measures organic growth at brick-and-mortar shops for at least a year.

Bath and Body Works’s demand has been shrinking over the last two years as its same-store sales have averaged 3.3% annual declines. This performance is concerning - it shows Bath and Body Works artificially boosts its revenue by building new stores. We’d like to see a company’s same-store sales rise before it takes on the costly, capital-intensive endeavor of expanding its store base.

Note that Bath and Body Works reports its same-store sales intermittently, so some data points are missing in the chart below.

Bath and Body Works has great unit economics for a retailer, giving it ample room to invest in areas such as marketing and talent to grow its brand. As you can see below, it averaged an excellent 44.2% gross margin over the last two years. That means Bath and Body Works only paid its suppliers $55.83 for every $100 in revenue.

In Q1, Bath and Body Works produced a 45.4% gross profit margin, up 1.6 percentage points year on year and exceeding analysts’ estimates by 2.7%. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting it strives to keep prices low for customers and has stable input costs (such as labor and freight expenses to transport goods).

Operating margin is an important measure of profitability for retailers as it accounts for all expenses necessary to run a store, including wages, inventory, rent, advertising, and other administrative costs.

Bath and Body Works has been a well-oiled machine over the last two years. It demonstrated elite profitability for a consumer retail business, boasting an average operating margin of 17.5%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Bath and Body Works’s operating margin might fluctuated slightly but has generally stayed the same over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, Bath and Body Works generated an operating profit margin of 14.7%, up 1.2 percentage points year on year. Since its gross margin expanded more than its operating margin, we can infer that leverage on its cost of sales was the primary driver behind the recently higher efficiency.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Bath and Body Works has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition. The company’s free cash flow margin was among the best in the consumer retail sector, averaging 10.3% over the last two years.

Taking a step back, we can see that Bath and Body Works’s margin was unchanged over the last year, showing it recently had a stable free cash flow profile.

Bath and Body Works’s free cash flow clocked in at $151 million in Q1, equivalent to a 10.6% margin. This result was good as its margin was 8.4 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends trump fluctuations.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Bath and Body Works hasn’t been the highest-quality company lately, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 50.1%, splendid for a consumer retail business.

Bath and Body Works reported $636 million of cash and $4.98 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.57 billion of EBITDA over the last 12 months, we view Bath and Body Works’s 2.8× net-debt-to-EBITDA ratio as safe. We also see its $114 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing Bath and Body Works beat analysts’ gross margin and EBITDA expectations this quarter. On the other hand, its revenue guidance for next quarter missed and its full-year EPS guidance fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock remained flat at $30.56 immediately after reporting.

Updated: June 14, 2025 at 10:27 PM EDT

Are you wondering whether to buy Bath and Body Works or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

There are some bright spots in Bath and Body Works’s fundamentals, but its business quality ultimately falls short. Although its revenue growth was a little slower over the last six years and analysts expect growth to slow over the next 12 months, its new store openings have increased its brand equity. Tread carefully with this one, however, as its shrinking same-store sales tell us it will need to change its strategy to succeed.

Bath and Body Works’s P/E ratio based on the next 12 months is 6.9x. This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're fairly confident there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $42.22 on the company (compared to the current share price of $25.48).