Bath & Body Works, Inc. Company
VALUATION HIGHLIGHTS
- Bath & Body Works Stores constitute 78% of the Trefis price estimate for Bath & Body Works, Inc.'s stock.
- Bath & Body Works Direct constitutes 18% of the Trefis price estimate for Bath & Body Works, Inc.'s stock.
WHAT HAS CHANGED?
- Bath & Body Works Q4 2024 Snapshot
Bath & Body Works (BBWI) reported Q4 2024 net sales of $2.8 billion and earnings per diluted share of $2.09, both exceeding guidance. Q4 net sales decreased 4.3% compared to 2023, impacted by a 500 basis points headwind due to the shifted fiscal calendar. The company reported earnings per diluted share of $2.09 for the fourth quarter of 2024, compared to $2.55 the previous year.
Note: BBWI's FY'24 ended on February 1, 2025.
- Outlook
- The company expects first quarter 2025 net sales to grow between 1% to 3% compared to $1,384 million in the first quarter of 2024. First quarter 2025 earnings per diluted share is expected to be between $0.36 and $0.43, compared to $0.38 in the first quarter of 2024.
- For 2025, the company’s guidance of 1-3% sales growth and an EPS range of $3.25-$3.60 reflects a stance of cautious optimism, with the midpoint indicating modest growth compared to the adjusted results of 2024. The forecast free cash flow of $750-850 million offers significant flexibility, supporting not only the planned $300 million in share repurchases but also potential for additional shareholder returns or strategic investments.
While BBWI has factored in the known impacts of China tariffs, its predominantly U.S.-based supply chain provides a buffer against international trade disruptions, positioning the company more favorably than competitors with greater reliance on global sourcing. This focus on domestic manufacturing could become an increasingly strategic advantage if trade tensions intensify.
POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE
Below are key drivers of BBWI's value that present opportunities for upside or downside to the current Trefis price estimate for BBWI:
Bath & Body Works Stores
- Bath & Body Works' Revenue per Square Foot:
Bath & Body Works’ revenue per square foot decreased from $1130 in 2022 to $1062 in 2024, as U.S. buyers did not show much affinity toward the company's products due to the difficult macroeconomic environment. Going forward, we expect revenue per square foot to increase modestly and reach close to $1,114 by the end of the Trefis forecast period.
If revenue per square foot crosses $1,200 instead, driven by Bath & Body Works’ continued dominion in the beauty space, there could be a 7% upside to the Trefis estimate. On the other hand, if it falls below $900 due to cautious consumer spending and potential merchandising issues, there can be a 10% downside to the Trefis estimate.
- Bath & Body Works' Stores EBITDA Margin:
Bath & Body Works U.S. stores’ EBITDA margin has increased slightly from 21.6% in 2022 to 21.7% in 2023, driven by increase in the merchandise margin rate, driven by cost saving initiatives,
distribution productivity and international mix, partially offset by strategically planned promotional activities and continued investment in product formulations and packaging innovation.
Going forward, we expect the figure to increase in the near term and then stabilize at around 24% over the forecast period.
If margins increase to 26% by the end of the Trefis forecast period, there could be over 10% upside to the Trefis estimate. On the other hand, if it decreases to 20%, there can be a 25% downside to the Trefis estimate.
BUSINESS SUMMARY
SOURCES OF VALUE
We believe Bath & Body Works U.S. stores are the largest sources of value for the company.
KEY TRENDS
Effective Merchandising and Marketing Key to Growth in Personal Care & Beauty Market
In the developed U.S. personal care market, price competition is fierce, brand loyalty is low, and private label is a real threat to manufacturers. The challenge for manufacturers in this category is to offer added benefits that will drive consumers away from budget product lines. With few non-users to convert and limited population growth, the burden of further expansion comes down to marketing efforts and product innovation.
International Business Shows Promise
The company operates around 529 (as of 2024) Bath & Body Works stores outside North America. It must be noted that all of BBWI formats are performing very well outside North America, and the company is expanding them gradually. Although they may not be strong enough to drive the retailer’s results at present, their continued expansion holds tremendous promise in the long run.
