Bath & Body Works' Consumer First Formula Shows Early Evidence of Progress

Under new leadership, Bath & Body Works is pursuing an extensive turnaround plan to restore customer engagement and raise brand awareness. Despite weak recent demand trends, BBW has carved out solid share in the sizable addressable markets in which it operates, evidenced by its leading position in bath and shower and candle air freshener industries, facilitated by its evolving response to consumer trends. However, these categories remain competitive and have low switching costs, underpinning our no-moat rating. While the firm is set to deliver a 35% average return on invested capital including goodwill over the next decade, we think this is a function of a largely asset-light model rather than a competitive edge.