Bath & Body Works cuts outlook to cover cost of investments, driving stock slide

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Bath & Body Works Inc. Slumped 8.5% in Friday trading after the personal care and shares fragrance company cut its outlook to cover the cost of investments in a new loyalty program and technology enhancements.

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Bath & Body Works BBWI,
reported first-quarter profit and sales that beat expectations, but lowered its full-year earnings-per-share forecast to between $3.80 a share and $4.15 a share, below the FactSet consensus for $4.17.

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“We are accelerating investments in the business to drive our long-term growth,” said Sarah Nash, interim chief executive of the company, on the earnings call, according to FactSet.

“Long term, we continue to see exceptional opportunities to capitalize on Bath & Body Works’ existing strengths and extend the brand’s global potential.”

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The stock slide brought down Victoria’s Secret & Co. VSCO,
which fell 6.7% on Friday. Victoria’s Secret and Bath & Body Works were once under the L Brands umbrella before separating in August 2021.

Among the areas Bath & Body Works hopes to grow is its men’s business.

,[M]en’s is a big priority,” Nash said. “This business delivered close to $400 million in net sales in 2021, and we expect it can more than double its size over time.”

Etsy is setting its sights on male shoppers

And in a time when supply chain bottlenecks persist, Bath & Body Works says it has an advantage with a supply chain that is 85% based in North America.

Wells Fargo says it still has a “bullish” stance on Bath & Body Works.

“The rebased earnings plan is solely a function of costs, a combination of greater inflation, a pull-forward of investments to support being a stand-alone entity with improved tech and CEO transition costs are the culprit,” analysts led by Ike Boruchow wrote .

“We also point out that BBWI has an open CEO seat today, and the idea of ​​a rebased fiscal year plan (with out-year investments moved up into 2022) likely makes the seat even more appealing.”

Wells Fargo rates Bath & Body Works stock overweight with a $70 price target.

“Our view is the stock is still worth owning,” wrote UBS analysts led by Jay Sole.

“While Bath & Body Works probably lacks a catalyst in the short-term […]we expect the price to rise over the next 12 months since Bath & Body Works’ double-digit percent EPS CAGR [compound annual growth rate] is still intact.”

UBS rates Bath & Body Works stock buy with a $102 price target.

“Our take is that top-line momentum remains intact, albeit promotional activities appear elevated year-over-year,” wrote Cowen analysts led by Jonna Kim.

“Further we believe management is doing a good job mitigating the impact by surgically increasing pricing on select products and infusing innovation and newness across categories.”

Cowen rates Bath & Body Works stock outperform with a $60 price target, down from $82.

Bath & Body Works shares have slumped 47.5% for the year-to-date.


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