Bath and Body Works (BBWI)

Personal care and home fragrance retailer Bath & Body Works (NYSE:BBWI) met Wall Street’s revenue expectations in Q2 CY2025, with sales up 1.5% year on year to $1.55 billion. The company expects next quarter’s revenue to be around $1.64 billion, close to analysts’ estimates. Its GAAP profit of $0.30 per share was 19.3% below 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).

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.

With $7.37 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’s 6.5% annualized revenue growth over the last six years (we compare to 2019 to normalize for COVID-19 impacts) was tepid.

This quarter, Bath and Body Works grew its revenue by 1.5% year on year, and its $1.55 billion of revenue was in line with Wall Street’s estimates. Company management is currently guiding for a 2% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 2.4% over the next 12 months, a deceleration versus the last six years. This projection doesn't excite us and suggests its products will see some demand headwinds.

Number of Stores

Bath and Body Works operated 2,441 locations in the latest quarter. It has opened new stores at a rapid clip over the last two years, averaging 4.2% 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 2.4% 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.

Gross profit margins are an important measure of a retailer’s pricing power, product differentiation, and negotiating leverage.

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 44.3% gross margin over the last two years. That means Bath and Body Works only paid its suppliers $55.68 for every $100 in revenue.

Bath and Body Works produced a 41.3% gross profit margin in Q2, in line with the same quarter last year and analysts’ estimates. 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 a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Bath and Body Works’s operating margin might fluctuated slightly over the last 12 months but has remained more or less the same, averaging 17.3% over the last two years. This profitability was elite for a consumer retail business thanks to its efficient cost structure and economies of scale. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at 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.

In Q2, Bath and Body Works generated an operating margin profit margin of 10.1%, down 1.9 percentage points year on year. Since Bath and Body Works’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, and administrative overhead increased.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Bath and Body Works’s unimpressive 8.5% annual EPS growth over the last six years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.

In Q2, Bath and Body Works reported EPS of $0.30, down from $0.68 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects Bath and Body Works’s full-year EPS of $3.37 to grow 6.8%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

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 11.9% over the last two years.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative 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 49.9%, splendid for a consumer retail business.

Bath and Body Works reported $364 million of cash and $4.99 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 $1.54 billion of EBITDA over the last 12 months, we view Bath and Body Works’s 3.0× net-debt-to-EBITDA ratio as safe. We also see its $247 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 struggled to find many positives in these results. Its EPS guidance for next quarter missed and its EPS fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock remained flat at $31.37 immediately following the results.

Updated: November 14, 2025 at 9:43 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Bath and Body Works.

Bath and Body Works has some positive attributes, but it isn’t one of our picks. 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. Be wary, however, as Bath and Body Works’s 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 6.3x. 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 $37.46 on the company (compared to the current share price of $22).