This Is How Far Bath & Body Works Stock Could Still Fall

Bath & Body Works stock (NYSE: BBWI) is down 33% year to date, compared to a 13% gain in the S&P 500. Why the steep decline? A mix of slowing consumer demand, margin pressure, and investor fatigue. The company may appear attractively valued, but that doesn’t mean it won’t be volatile.

At first glance, the stock looks cheap. BBWI trades at just 7.7 times earnings, 0.7 times sales, and 6.9 times free cash flow—a deep discount to the S&P 500’s averages of 23.6x earnings, 3.2x sales, and 20.6x free cash flow. On paper, it screams value. But that doesn’t mean it won’t be immune when the market is weak.

With markets near all-time highs, many investors are tempted to see BBWI’s pullback as an opportunity. But let’s take a step back—history suggests the downside risk could be far worse than it appears. We discuss more below.

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The Fundamental Problem

BBWI may look cheap, but price alone doesn’t make it safe. Revenue has stalled, declining 1.8% on average over three years and just 0.2% in the past twelve months on $7.4 billion in sales — hardly the momentum you want. Margins are decent but under pressure: 17.1% operating margin, 9.9% net, and 13.6% cash-flow, meaning even small revenue dips can hit earnings hard. And the balance sheet? Thin. $5 billion in debt versus a $5.4 billion market cap, with only $364 million in cash. One slowdown in spending, and flexibility disappears.

Historical Precedent: The Pattern of Sharp Declines

During the 2022 inflation shock, BBWI stock fell nearly 67% from its peak while the S&P 500 dropped only 25%. Even after a partial recovery, it has never regained its prior highs. During the 2020 pandemic, BBWI declined 63%, though it rebounded quickly once stimulus lifted consumer spending. And in the 2008 financial crisis, the stock collapsed 79%, far worse than the market average, taking over two years to recover.

This pattern isn’t coincidental. Bath & Body Works consistently suffers disproportionate losses in every major downturn. It’s a textbook case of a cyclical retailer that thrives in boom times but collapses when spending tightens.

The Risk Factors That Could Hurt BBWI

• Growth Challenges: With revenues largely stagnant, the company lacks top-line momentum to absorb shocks or sustain expansion.

• High Leverage: Debt levels are nearly equal to market cap, with limited cash on hand, leaving little room to maneuver in a slowdown.

• Margin Pressure: Operating and net margins are adequate but not robust. Inflation, discounting, or weak demand could erode profitability quickly.

• Consumer Sensitivity: BBWI relies heavily on discretionary spending. Any reduction in consumer confidence hits the business directly.

• Market Sentiment: Retail stocks are often the first to fall when optimism fades, amplifying downside risk.

What’s the Real Downside Risk?

At around $26 per share, BBWI might seem priced for weakness—but history says otherwise. In prior downturns, the stock’s losses exceeded 60%. A similar drawdown would put shares closer to $10, underscoring how vulnerable the stock remains to shifts in spending or sentiment.

This isn’t fearmongering; it’s realism. The stock has shown again and again how sensitive it is to macro pressures. When growth slows or rates rise, BBWI doesn’t just decline—it tumbles.

The Alternative

The goal of this analysis is not to scare you out of BBWI. It is to highlight the genuine downside risk. It may or may not happen, but the probability isn’t trivial.  You’re not buying a defensive business with recurring cash flows; you’re betting on a consumer rebound strong enough to offset soft growth and high leverage.

If this level of risk makes you uneasy, you might want to consider the Trefis Reinforced Value (RV) Portfolio, which has surpassed its all-cap benchmark (a mix of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to deliver solid returns for investors. What accounts for this? The rebalanced mix of large-, mid-, and small-cap RV Portfolio stocks offers a flexible strategy to capitalize on favorable market conditions while managing losses when markets decline, as explained in RV Portfolio performance metrics.

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