Bath & Body Works Earnings: Pressed Customer Washes Out Near-Term Growth, but Brand Relevance Holds

As consumers experience higher prices and global macroeconomic and geopolitical concerns, most discretionary companies are reporting drag from the recent uncertainty. Narrow-moat Bath & Body Works was no exception, nudging its full-year sales outlook to include a 2%-4% decline from flat to down 2.5%, while refining its EPS forecast to $3.06-$3.26 (from $3.05-$3.35). These metrics are still in line with our forecast for a 2% decline in sales and earnings per share of $3.16. Unfortunately, this implies a back half that fails to return to sales growth, with the fourth quarter facing a 500-basis-point headwind lapping last year’s inclusion of a 53rd week. Although the near term could prove spotty for consumer demand, we don’t think current trends are indicative of long-term fundamentals for this business. As such, we don’t expect any material change to our $70 fair value estimate, rendering shares very undervalued.