Bath and Body Works shares dive as management struggles to increase productivity

Supplied: Bath & Body Works. (Source: Big Stock)

While Bath and Body Works exceeded Wall Street’s expectations with its first-quarter results, the beauty and skincare company’s second-quarter profits are expected to be below estimates.

Bath and Body Works reported earnings of  $1.38 billion in the quarter ended May 4, compared to expected earnings of $1.37 billion – generating 38 cents per share which exceeded the expectations of 33 cents by 15 per cent.

However, the Ohio-based brand’s shares fell 8.8 per cent in premarket trading after it announced that annual sales are expected to drop due to ongoing inflation and increased competition.

“While both store and online sales are impacted by financial pressures on consumers, which damages volumes and frequency of purchase, some is also a consequence of greater competition,” said GlobalData MD, Neil Saunders.

“Our data shows that more Bath & Body Works customers are now shopping around and trying new candle brands, including those from niche players on Amazon.”

Bath and Body Works expects 2024 net sales to drop 2.5 per cent to flat, compared with its previous forecast of a decline of 3 per cent to flat. 

Full-year 2024 earnings per diluted share is now expected to be between $3.05 and $3.35.

Bath and Body Works’ international business in the Middle East has been under pressure with the ongoing Gaza conflict.

“This is directly affected by the war in the Middle East. If you remove the regions affected by the war, it’s quite a healthy growing business with system-wide retail sales in the teens in the first quarter,” said CEO Gina Boswell.

Since 2021, the number of stores operated by Bath & Body Works has increased by 114, a 6.6 per cent uplift, but sales over the same period have only risen by 1.4 per cent. 

“The company has sensibly invested in new categories, tries to keep store standards high, and has developed a good customer loyalty scheme,” concluded Saunders.

“However, our sense is that management needs to be more alert to external threats and needs to double down on trying to improve productivity.”

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