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Bath & Body Works Inc BBWI

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Bath & Body Works Continues to Book Robust Demand and Solid Profitability; Shares Attractive

Jaime M. Katz, CFA Senior Equity Analyst

Analyst Note

| Jaime M. Katz, CFA |

While narrow-moat Bath & Body Works' second-quarter results offered a peek into the improving profitability of Victoria’s Secret prior to its Aug. 3 spin-off (it generated an 13% operating margin versus a loss in the year-ago period), we were more focused on the company's solid go-forward business performance. Efforts to pivot the BBW business strategically (shifting to more off-mall locations, White Barn remodels) have resulted in strong top- and bottom-line growth. In the second quarter, BBW reported sales that rose to $1.7 billion, an increase of 36% over the prior year and 54% over the same period in 2019, helped by solid demand in the home fragrance and body care lines. Both digital (31% of sales) and physical grew, up 128% and 39% respectively from their 2019 levels, as omnichannel efforts engaged consumers. More impressively, the brand reported a 49% gross margin despite the return of more promotional activity, which indicates to us that it has been able to take pricing, resulting in higher merchandise margins. This helped BBW maintain its topnotch operating margin, which clocked in at 23%--flat year over year and up 700 basis points from 2019 on a stand-alone basis.

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Company Profile

Business Description

Bath & Body Works is a specialty home fragrance and fragrant body care retailer operating under the Bath & Body Works, C.O. Bigelow, and White Barn brands. The company generates most of its business in North America, with about 5% of sales from international markets in fiscal 2020. For fiscal 2020, the home fragrance business accounted for 40% of sales, while body care and fragrance was around 35% of sales and soaps and sanitizers constituted 20% of sales (the other 5% was from accessories and gift sets). The firm’s sales come through two distribution channels--an online platform and a network of more than 1,700 brick-and-mortar retail stores--with future growth expected from digital and international channels as well as new category expansion.

Three Limited Parkway
Columbus, OH, 43230
T +1 614 415-7000
Sector Consumer Cyclical
Industry Specialty Retail
Most Recent Earnings Jul 31, 2021
Fiscal Year End Jan 29, 2022
Stock Type Cyclical
Employees 92,300