Bath & Body Works Earnings: Brand Efforts Render Shares Attractive Despite Recently Weak Results

Key Morningstar Metrics for Bath & Body Works

• Fair Value Estimate: $62.00
• Morningstar Rating: ★★★★★
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: High

What We Thought of Bath & Body Works’ Earnings

Bath & Body Works’ BBWI third-quarter sales fell 1% and adjusted earnings per share came in at $0.35. The firm announced a transformation plan, Consumer First Formula, to restore top-line and profit growth, focusing on product newness, brand elevation, elevated reach, and cost improvement.

Why it matters: BBW has been unable to capture consistent top-line growth since 2021, when it came off robust pandemic-related demand. An updated 2025 outlook for sales to fall at a low-single-digit rate (versus up 1.5%-2.7% prior) and EPS of $2.83 ($3.35-$3.60 prior) implies no near-term relief.

• The guidance indicates a high-single-digit sales decline and EPS down 18% in the fourth quarter, signaling accelerating demand weakness during the holiday season, which generally represents around 40% of annual sales. This includes a 21% operating margin aggravated by promotions.
• The firm attributed the tepid sales to the lack of evolution in its offerings. While the rotation of products continued frequently, the inclusion of more relevant ingredients, updated packaging, and improved accessibility lagged consumer trends.

The bottom line: We plan to lower our $62 fair value estimate for narrow-moat BBW by around $6, but still view the shares as severely undervalued. The shares fell more than 20% in Nov. 20 trading as concern about the duration of weak consumer demand is outweighing upside from long-term opportunities.

• CEO Daniel Heaf is moving swiftly to remedy the malaise, with a turnaround plan that is focused on reinvigorating the brand while pursuing operating efficiencies. The $250 million savings target (over two years) is less than 5% of the firm’s cost structure, which appears easily achievable.
• If executed properly, such efforts should allow BBW to restore profitability. We stand by our midcycle operating margin forecast of 18%, which is well below the 23% the firm averaged in the decade ending 2021, as we expect elevated competition to persist across the retail landscape.