Bath & Body Works Q1 Earnings Beat Estimates, Sales Rise Y/Y

Bath & Body Works BBWI posted first-quarter fiscal 2025 results, wherein the top line met the Zacks Consensus Estimate and the bottom line surpassed the same. Also, both net sales and earnings improved year over year.

The company began fiscal 2025 with a strong performance, supported by positive customer response to product innovation and effective use of its predominantly U.S.-based supply chain amid evolving trade dynamics. The business is well-positioned to deliver fragrance innovation and high-quality products at compelling price points.

Leadership transitions are expected to support BBWI’s strategy to strengthen its foundation and drive global growth in the home fragrance and beauty categories.

BBWI’s Quarterly Performance: Key Metrics & Insights

The company reported adjusted earnings of 49 cents per share in the fiscal first quarter and beat the Zacks Consensus Estimate of 47 cents. Also, the figure increased 28.9% from adjusted earnings of 38 cents in the year-ago quarter. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)

Net sales increased 2.9% year over year to $1,424 million due to compelling innovation. This marks the strongest underlying sales performance since fiscal 2021, driven by the successful collaboration with Disney.

Net sales for Stores - U.S. and Canada increased 4.3% year over year to $1.11 billion, which surpassed the Zacks Consensus Estimate of $1.09 billion. Direct - U.S. and Canada net sales tumbled 4.3% to $250 million, missing the consensus estimate of $265.5 million. International operations’ net sales increased 10.1% to $64 million, lagging the Zacks Consensus Estimate of $65.3 million.

Sneak Peek Into BBWI’s Margins

The gross profit increased 6.6% year over year to $646 million. Also, the gross margin expanded 160 basis points to 45.4% in the quarter under review. This expansion was primarily driven by a 100-basis-point improvement in the merchandise margin, largely attributable to a low-single-digit mix-adjusted average unit retail increase. Additionally, favorable buying and occupancy leverage contributed to the improvement, as buying and occupancy (B&O) expenses were flat amid net sales growth.

General, administrative and store operating expenses increased 4.3% year over year to $437 million. As a percentage of net sales, this metric deleveraged 40 basis points year over year to 30.7% in the quarter under review due to incremental investments in marketing and store associate training.

Bath & Body Works reported an operating income of $209 million in the fiscal first quarter, up 11.8% from the year-ago quarter. BBWI’s operating margin increased 120 basis points to 14.7% in the quarter.

Net income was $105 million, up 20.7% from $87 million in the year-ago quarter.

Bath & Body Works’ Store Update

The company ended the quarter with 1,900 stores, wherein it operated 1,787 stores in the United States and 113 in Canada. In the first quarter of fiscal 2025, it opened 13 stores in total and closed eight stores.

Internationally, partners opened 14 stores and closed 19, ending the quarter with 524 stores. The net closures were planned and primarily involved underperforming locations in the Middle East. International expansion plans for fiscal 2025 remain on track, with at least 30 net new store openings planned.

BBWI’s Financial Health Snapshot

Bath & Body Works ended the quarter with cash and cash equivalents of $636 million, long-term debt of $3.89 billion, and long-term operating lease liabilities of $895 million. Total inventory at the end of the fiscal first quarter increased 7% from the previous year, slightly above initial plans. The increase was attributed to tariffs on purchases and strategic inventory pull forwards to help offset the tariff impacts. 

In the fiscal first quarter, the company provided $188 million in net cash for operating activities.

Bath & Body Works’ Q2 Outlook

For the second quarter of fiscal 2025, Bath & Body Works expects net sales to be flat to up 2% from the prior year. This outlook reflects current business trends and the impacts of accounting items in the prior year, primarily related to the loyalty program.

System-wide international retail sales are projected to increase in the high-single digits. However, reported net sales are anticipated to decline in the mid-single digits due to the timing of ship sales, which occurred in the first quarter of fiscal 2025.

The company expects a fiscal second-quarter gross margin of 41%, which suggests no change from the prior year’s actual and includes the impacts of tariffs. The SG&A rate is projected to be 30%, driven by wage rate inflation and continued investments in technology. Non-operating expenses are expected to be $65 million.

Based on these assumptions, fiscal second-quarter earnings per share are forecast to be 33-38 cents.

BBWI Stock Past Three-Month Performance

BBWI’s FY25 Outlook

For fiscal 2025, the company is maintaining its net sales growth projection of 1-3%. This outlook includes the expected impacts of all currently enacted tariffs imposed by the United States and other governments but excludes the anticipated financial implications of the CEO transition.

The gross margin is projected at 44%, supported by cost discipline, while SG&A is expected to be 27.5%. Net non-operating expenses are forecast at $255 million, reflecting lower interest expenses due to debt reduction in 2024.

Full-year earnings per share are projected to be $3.25-$3.60, whereas it reported $3.61 in fiscal 2024. In terms of capital allocation, the company plans to invest $250-$270 million in capital expenditure, primarily in real estate and technology, with some supply-chain projects shifting from 2024 to 2025.

The free cash flow is projected between $750 million and $850 million, including working capital improvements from the Fuel for Growth initiatives. The annual dividend is expected to be 80 cents per share, with $300 million in share repurchases planned for the year.

Shares of this Zacks Rank #3 (Hold) company have lost 19.1% in the past three months against the industry’s growth of 6.3%.

Key Picks

Some better-ranked stocks are Urban Outfitters Inc. URBN, Canada Goose GOOS and Allbirds Inc. BIRD.

Urban Outfitters is a lifestyle specialty retailer that offers fashion apparel and accessories, footwear, home decor and gift products. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for URBN’s fiscal 2025 earnings and sales implies growth of 20.9% and 8%, respectively, from the year-ago actuals. URBN delivered a trailing four-quarter average earnings surprise of 29%.

Canada Goose is a global outerwear brand. GOOS is a designer, manufacturer, distributor and retailer of premium outerwear for men, women and children. It carries a Zacks Rank of 2 (Buy) at present.

The Zacks Consensus Estimate for Canada Goose’s current fiscal year’s earnings and sales suggests growth of 10% and 2.9%, respectively, from the year-ago actuals. Canada Goose delivered a trailing four-quarter average earnings surprise of 57.2%.

Allbirds is a lifestyle brand that uses naturally derived materials to make footwear and apparel products. It carries a Zacks Rank of 2 at present.

The Zacks Consensus Estimate for BIRD’s current financial year’s earnings indicates growth of 16.1% from the year-ago actual. The company delivered a trailing four-quarter average earnings surprise of 21.3%.

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

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