BBWI Beats on Q4 Earnings, Unveils Growth Strategy Amid Soft Demand

Bath & Body Works BBWI posted fourth-quarter fiscal 2025 results, wherein the top and bottom lines surpassed the Zacks Consensus Estimate and decreased year over year, reflecting soft consumer demand amid a challenging macroeconomic environment and tariff-related cost pressures. Performance was also impacted by weaker results in certain seasonal product collections and continued pressure on discretionary spending.

Nevertheless, the company highlighted progress on its Consumer First Formula, a multi-year transformation strategy aimed at restoring sustainable growth. The plan focuses on driving disruptive product innovation, revitalizing brand positioning, expanding marketplace reach and improving operational efficiency. Management is also enhancing product benefits, modernizing packaging and strengthening digital and influencer-driven marketing, while expanding distribution channels, including the launch on Amazon, to attract younger consumers and support long-term brand growth.

BBWI’s Quarterly Performance: Key Metrics & Insights

The company reported adjusted earnings of $2.05 per share in the fiscal fourth quarter, surpassing the Zacks Consensus Estimate of adjusted earnings of $1.77 per share and down 1.9% from $2.09 in the year-ago quarter. Net sales fell 2.3% year over year to $2,724 million and beat the Zacks consensus estimate of $2,613 million.

Net sales for Stores - U.S. and Canada edged down 2.6% year over year to $2.05 billion, which beat the Zacks Consensus Estimate of $2.02 billion. Direct - U.S. and Canada net sales tumbled 2.5% to $579 million, surpassing the consensus estimate of $534.3 million. International operations’ net sales increased 8.6% to $91 million, beating the Zacks Consensus Estimate of $88.6 million.

Sneak Peek Into BBWI’s Margins

The gross profit declined 4.4% year over year to $1.24 billion from $1.30 billion in the year-ago quarter. Also, the gross margin contracted 100 basis points (bps) to 45.7% in the quarter under review from 46.7% in the prior-year quarter. The decline was mainly due to tariff impacts, though it was partially offset by B&O leverage, which improved following the first quarter fiscal 2025 closure of a third-party fulfillment center. 

General, administrative and store operating expenses increased 3.5% year over year to $645 million from $623 million in the prior-year period. As a percentage of net sales, this metric deleveraged 130 basis points year over year to 23.7% in the quarter under review. 

Bath & Body Works reported an operating income of $599 million in the fiscal fourth quarter, down 11.7% from $678 million in the year-ago quarter. BBWI’s operating margin decreased 230 basis points to 22% in the quarter. 

Net income was $403 million, down 11% from $453 million in the year-ago quarter.

Bath & Body Works’ Store Update

The company ended the quarter with 1,927 company-operated stores, including 1,814 stores in the United States and 113 in Canada. In fiscal 2025, Bath & Body Works opened 94 stores and closed 62 stores across the United States. 

Internationally, partners operated 573 stores at the end of the period, including 536 international stores and 37 travel retail locations. In the year, partners opened 74 stores while closing 30, reflecting continued expansion in global markets.

BBWI’s Financial Health Snapshot

Bath & Body Works ended the fiscal fourth quarter with cash and cash equivalents of $953 million, long-term debt of $3.61 billion, and long-term operating lease liabilities of $867 million. Total inventory at the end of the fiscal fourth quarter declined 4.8% year over year to $699 million. 

In fiscal 2025, the company generated $1.10 billion in net cash from operating activities. It returned $167 million to shareholders via dividends and repurchased 15.1 million shares of common stock for $400 million during the year.

BBWI’s Q1 Guidance

For the first quarter of fiscal 2026, the company expects net sales to decrease between 6% and 4% from $1,424 million in the first quarter of fiscal 2025. The fiscal first-quarter gross profit rate is projected to be 42.5%, indicating a 150-basis-point tariff headwind, as there were no tariff impacts in the first quarter of fiscal 2025, along with B&O deleverage due to the sales decline. B&O dollars are expected to remain relatively flat.

The fiscal first-quarter adjusted SG&A rate is expected to be 32.3%, reflecting net sales deleverage and the timing of investments relative to Fuel for Growth savings.

Fiscal first-quarter EPS is projected between 84 cents and 90 cents, compared with 49 cents in the prior-year period. Adjusted EPS is expected to be 24 cents to 30 cents for the quarter, whereas it reported 49 cents in the year-ago quarter.

What Lies Ahead for BBWI?

Turning to the 2026 guidance, the company expects the year to reflect disciplined investment behind the Consumer First Formula, balancing rigorous cost control with targeted reinvestment to support sustainable long-term growth.

For fiscal 2026, the company expects net sales to decline between 4.5% and 2.5%, whereas it reported $7,291 million in fiscal 2025. This is based on the assumption of a macro environment similar to 2025, with consumers continuing to demonstrate value-oriented purchasing behavior. The company’s innovation pipeline, improved marketing execution and new touchpoints, such as marketplace and wholesale, are expected to contribute more meaningfully over time, with a greater impact anticipated in the back half of 2026 and into 2027.

Promotional activity is expected to be at levels comparable to 2025 and will continue to serve as an important tool to drive traffic and customer engagement. International net sales are projected to increase in the mid to high-single-digit range.

The company expects a full-year gross profit rate of 42.4%, reflecting B&O deleverage primarily due to sales declines and merchandise margin pressure from product investments, partially offset by Fuel for Growth initiatives. Tariff levels, including product cost inflation pressures, are assumed to remain roughly neutral to year-over-year earnings.

The full-year adjusted SG&A rate is expected to be 29.2%, reflecting normal wage inflation, Consumer First Formula investments and sales deleverage, partially offset by Fuel for Growth initiatives. The Fuel for Growth program targets $250 million in cost savings over two years, with $175 million expected in 2026. These savings are intended to accelerate investments in innovation, digital capabilities, marketplace expansion and high-impact brand initiatives.

BBWI Stock Past 3-Month Performance

Earnings per share are projected to be $3.00 to $3.25, whereas it reported $3.11 in fiscal 2025. Adjusted earnings per share for fiscal 2026 are forecast between $2.40 and $2.65, whereas it registered an adjusted EPS of $3.21 in fiscal 2025. 

In 2026, the company expects to invest $270 million in capital expenditure, focused on high-return real estate, Consumer First Formula initiatives largely related to product assortment, and logistics and fulfillment upgrades. The company also expects to reduce the number of store openings, resulting in square footage growth of approximately 1%. The company does not anticipate any share repurchases in its current outlook and expects to generate approximately $600 million in free cash flow in fiscal 2026.

Over time, the company remains committed to returning to its 2.5X gross leverage target while maintaining a balanced approach between investing for long-term growth and returning excess cash to shareholders.

Shares of this Zacks Rank #3 (Hold) company have gained 18.1% in the past three months compared with the industry’s growth of 4.2%.

Eye These Solid Picks in Retail

We have highlighted three better-ranked stocks, namely, Deckers Outdoor Corporation DECK, Zumiez Inc. ZUMZ and Boot Barn Holdings, Inc. BOOT.

Deckers is a leading designer, producer and brand manager of innovative, niche footwear and accessories. It flaunts a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Deckers’ current fiscal-year earnings and sales indicates growth of 8.5% and 8.9%, respectively, from the year-ago actuals. DECK delivered a trailing four-quarter average earnings surprise of 36.9%.

Zumiez is one of the leading global lifestyle retailers. It currently sports a Zacks Rank of 1.

The Zacks Consensus Estimate for Zumiez’s current fiscal-year earnings and sales implies growth of 955.6% and 4.4%, respectively, from the year-ago actuals. ZUMZ delivered a trailing four-quarter average earnings surprise of 28%.

Boot Barn operates as a lifestyle retail chain devoted to western and work-related footwear, apparel and accessories. It currently carries a Zacks Rank of 2 (Buy).

The Zacks Consensus Estimate for Boot Barn’s fiscal 2026 earnings and sales implies growth of 26% and 17.7%, respectively, from the year-ago actuals. BOOT delivered a trailing four-quarter average earnings surprise of 4.9%.

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

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