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Bath & Body Works Inc BBWI

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Morningstar’s Analysis

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Bath & Body Works' Post-Holiday Commentary Spooks Investors; We View Shares as Attractive

Jaime M. Katz, CFA Senior Equity Analyst

Analyst Note

| Jaime M. Katz, CFA |

While we expect to alter our long-term tax rate for narrow-moat Bath & Body Works when the company offers full fourth-quarter results, we don’t plan any change to our $85 fair value estimate in response to the firm’s holiday update. The company nudged up its outlook for its fourth quarter to sales that increase at a high-single-digit rate (above the mid- to high-single-digit pace it pointed to prior) and now expects EPS at the high end of its prior $2.00-$2.25 guidance. Given that our fourth-quarter prognosis implied 8% sales growth and $2.11 in EPS, we don’t see any reason to adjust our 2021 outlook ($7.8 billion in sales and $4.40 in EPS). We view shares as attractive, representing one of the most consistent financial performers in the consumer cyclical space. The brand delivered average sales growth of 13% over the last five years, and we forecast 8% growth over the next decade driven by ongoing product innovation, category expansion, and international growth.

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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 Oct 31, 2021
Fiscal Year End Jan 29, 2022
Stock Type Cyclical
Employees 92,300