On Tuesday, Citi reaffirmed its Neutral stance on shares of Bath & Body Works Inc. (NYSE: BBWI), maintaining a $35.00 price target. The financial firm anticipates a third-quarter earnings per share (EPS) of $0.50, which is slightly above the consensus estimate of $0.47. This expectation is based on a forecast of marginally higher gross margins and lower selling, general, and administrative (SG&A) expenses than the consensus, while sales are predicted to align with consensus estimates showing a 1% decline.
Bath & Body Works is expected to have faced challenges in increasing sales during the third quarter due to consumers' sensitivity to prices and the absence of significant promotional events to attract customers. Nevertheless, Citi believes that the management's conservative guidance for the second half of the fiscal year may allow the company to reiterate its full-year 2024 guidance.
With the holiday season approaching, the fourth quarter presents the most favorable opportunity for the company to surpass its sales guidance. This optimism is fueled by the anticipated increase in holiday traffic, promotional events such as candle day and Black Friday, and the rollout of new product categories across all store locations.
Citi's analysis suggests that the potential for a positive shift in Bath & Body Works' performance is heightened as the stock is currently trading at approximately 9.3 times Citi's below-consensus fiscal year 2025 earnings estimate of $3.37 per share, which is lower than the consensus estimate of $3.62. The firm concludes that this valuation presents a skewed risk/reward balance leaning towards the positive as the company enters its third-quarter earnings report.
In other recent news, Bath & Body Works has been the subject of several key developments. The company reported a departure of its President of Retail, Julie Rosen, as part of a larger restructuring strategy.
Despite this significant shift, the company's financial guidance for the third quarter and the full year of 2024 remains unchanged. Notably, Bath & Body Works reported an increase in earnings per share for the second quarter of 2024, surpassing expectations despite weaker-than-anticipated sales. However, the company revised its full-year 2024 sales guidance downward, now projecting a decrease of 4% to 2%.
In response to these developments, several analyst firms, including BMO Capital, Baird, Morgan Stanley (NYSE:MS), and BofA Securities, have maintained their ratings on Bath & Body Works but adjusted their price targets. These adjustments reflect the company's recent performance and future expectations. Furthermore, Bath & Body Works raised its cost optimization savings target to $130 million from $100 million and announced plans to repurchase $400 million in shares.
InvestingPro Insights
Bath & Body Works Inc. (NYSE: BBWI) presents an intriguing investment case, as highlighted by recent InvestingPro data and tips. The company's stock is currently trading at a P/E ratio of 7.43, which aligns with Citi's observation of a relatively low valuation. This low earnings multiple is further emphasized by an InvestingPro Tip indicating that BBWI is "Trading at a low P/E ratio relative to near-term earnings growth."
Despite the challenges in increasing sales noted by Citi, BBWI has demonstrated financial resilience. The company's revenue for the last twelve months stands at $7.384 billion, with a robust gross profit margin of 44.03%. This financial stability is complemented by an InvestingPro Tip highlighting that BBWI has "maintained dividend payments for 52 consecutive years," suggesting a commitment to shareholder returns even in challenging market conditions.
Looking ahead, the InvestingPro Fair Value for BBWI is estimated at $42.26, which is notably higher than the current trading price and close to Citi's price target of $35.00. This potential upside is supported by another InvestingPro Tip indicating that "Analysts predict the company will be profitable this year," which could provide a catalyst for stock price appreciation as the company enters the crucial holiday season.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Bath & Body Works, providing a deeper understanding of the company's financial health and market position.
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