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Bath & Body Works Lowers Guidance; Street Still Says “Buy”
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Bath & Body Works Lowers Guidance; Street Still Says “Buy”

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Bath & Body Works cuts its sales and profit guidance. The Street, too, lowered its target prices on BBWI stock, yet remains bullish on its long-term trajectory.

Shares of Bath & Body Works (NYSE: BBWI) spiraled yesterday after the personal care and home fragrance retailer cut guidance for the second quarter of fiscal 2022. BBWI stock plunged 5.8% following the news but ended the day up 3.3% at $31.10 on July 20.

Investors showed mixed sentiments, both punishing the stock for lowering guidance and also welcoming the heads up ahead of the actual results. BBWI is set to release its Q2 earnings on August 17, with the consensus earnings pegged at $0.60 per share.

Sarah Nash, Executive Chair and Interim CEO, said, “Our business continues to perform at levels significantly above pre-pandemic, although we are navigating a challenging operating and macroeconomic environment with inflationary pressure affecting our customers and our business… We are focused on driving improved merchandise margins and pursuing aggressive options to control costs and combat inflationary pressures.”

BBWI Revises Guidance

BBWI now expects Q2 sales to fall by 6% to 7% over Q2FY21, down from its previous guidance of low single-digit percentage growth. Similarly, BBWI now expects earnings from continuing operations per diluted share to fall between $0.40 and $0.42, down from its earlier guidance of between $0.60 and $0.65.

Furthermore, for the full year fiscal 2022, sales are now projected to fall by mid-to-high single digits compared to last year, down from their previous guidance of low single-digit percentage growth. The company will provide further details on the upcoming earnings call.

The Street Revises Price Targets

Following Bath & Body Works’ announcement, analysts also revised their target prices on BBWI stock lower to incorporate the effect of lowered expectations.

Wells Fargo analyst Ike Boruchow cut the price target to $45 (44.7% upside potential) from $55 while maintaining a Buy rating. The analyst is not at all surprised by the guidance cut from a retailer but sure feels that BBWI’s revision is a bit different from the other announcements.

Boruchow noted that BBWI has extended its macro pressure effects far into the full year 2022 earnings cut, which is different from the others who have only adjusted the unreported quarter’s guidance. The analyst believes the company is being too conservative in its approach.

Similarly, BMO Capital analyst Simeon Siegel slashed the price target on BBWI to $45 from $65 and maintained a Buy rating. The analyst is confident in BBWI’s brand quality, the replenishment nature of its products, and ultra-low current valuations, which keeps him optimistic.

Despite the guidance cut and the unfavorable macroeconomic environment for retailers, BBWI stock commands a Strong Buy consensus rating based on 15 Buys and four Holds. The average Bath & Body Works price target of $50.32 implies 61.8% upside potential to current levels. Meanwhile, the stock has lost nearly 55% so far this year.

Concluding Notes

Retailers are facing the daunting task of coping with shifting consumer choices amid the inflationary environment. Plus, inventory management in a supply chain crunch scenario makes it even more difficult to maintain margins. Bath & Body Works has prudently lowered its sales and profit guide for Q2 and FY2022, which was welcomed cheerfully by both the Street and investors.

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