Bath & Body Works' disappointing guidance overshadows earnings beat

By Ciara Linnane

Soap and perfume retailer is expecting a decline in earnings in 2024

Bath & Body Works Inc.'s stock fell 6% on Thursday after the soap and perfume retailer said it expects earnings to fall in fiscal 2024, overshadowing better-than-expected fourth-quarter numbers.

Columbus, Ohio-based Bath & Body Works, which was spun out of Victoria's Secret & Co. (VSCO) in August 2021, posted net income of $579 million, or $2.55 a share, for the quarter - up from $434 million, or $1.89 a share, in the year-earlier period.

The profit number included a $112 million tax benefit stemming from the partial release of a valuation allowance on a foreign deferred tax asset, an $8 million pretax impairment charge and a $6 million pretax gain on the early extinguishment of debt.

Excluding those items, adjusted EPS came to $2.06, ahead of the $1.88 FactSet analyst consensus.

Sales climbed to $2.912 billion from $2.889 billion a year ago, also ahead of the FactSet consensus of $2.840 billion.

Chief Executive Gina Boswell said sales and earnings were above the high end of the company's expectations and were boosted by strong holiday season performance.

On a call with analysts, Boswell said Black Friday week and Candle Day weekend - the latter an annual event when it offers discounts on its three-wick candles - were highlights.

Read also: Victoria's Secret's stock having best day in 2 years as sales keep improving

But the company is now expecting fiscal 2024 sales to range from flat to down 3%. Adjusted EPS is expected to range from $3.00 to $3.35. The FactSet consensus implies sales growth of about 8%, while EPS is forecast at $3.36.

The 53rd week in 2023, which will not be repeated in 2024, presents a roughly 100-basis-point headwind to sales growth, said the company. The extra week added about $80 million to 2023 sales and 5 cents to EPS.

For the first quarter, the company is expecting sales to fall 2.0% to 4.5% and for EPS to range from 28 cents to 33 cents, down from 35 cents a year ago. The FactSet consensus implies a sales decline of just 1.1% and EPS is forecast at 39 cents.

Executives on the call said January was weak and that persisted into February, after its product assortment failed to resonate with customers.

"Our initial floor set that we had in the year didn't perform as we wanted it to, and we quickly pivoted and adjusted our approach and brought some newness and our Tropidelic new fragrance to the front of the store," Chief Financial Officer Eva Boratto told analysts, according to a FactSet transcript.

The company's board approved a new share-buyback program of up to $500 million.

Bath and Body Works' stock has gained 11% in the last 12 months, while the S&P 500 has gained 27.9%.

-Ciara Linnane

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02-29-24 1313ET

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