Bear of the Day: Bath & Body Works (BBWI)

Bath & Body Works Company Overview

Zacks Rank #5 (Strong Sell) company Bath & Body Works, Inc. (BBWI), was founded in 1990 and has grown into a leading global retailer specializing in personal care and home fragrance products. The Columbus, Ohio-based company operates under the ‘Bath & Body Works’ and White Barn brand names. BBWI offers a wide range of products, including soaps, lotions, fragrances, candles, and other personal care items. Bath & Body Works sells its products through its website and brick-and-mortar locations.

Originally part of L Brands, Inc., the company underwent a significant transformation in 2021 when it spun off Victoria’s Secret and rebranded itself. The company has an international presence, but its primary markets are the United States and Canada.

Consumer Weakness and Brand Weakness

In a troubling trend for BBWI, North American consumers are spending less on non-essential home products. Meanwhile, Bath & Body Works’ core demand engine is weakening, signaling erosion in brand relevance and consumer engagement. During the third quarter, total net sales declined 1% to $1.6 billion, and management indicated that the performance would have been worse had it not been for an extended fall sale.

BBWI: Larger Competitors are Taking Market Share

BBWI faces intense, direct competition from industry peers such as Sephora and Ulta Beauty (ULTA). To make matters worse, big box retailers such as Target (TGT) and Walmart (WMT) have expanded their fragrance and body care departments, poaching market share from BBWI. As a result, Zacks Consensus Analyst Estimates suggest negative earnings growth over the next two years.

Challenging Start to Holiday Season

BBWI reported that Q4 sales were down in the high single digits, signaling a weak start to the most crucial retail season. With sales slowing and competition rising, the company will be forced to offer markdowns and deal with higher inventory and uncertainty.

Bottom Line

Bath & Body Works faces a challenging landscape with softening consumer demand, heightened competition, and declining sales momentum heading into its most crucial quarter.

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This article originally published on Zacks Investment Research (zacks.com).

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