After a strong rally of over 70% since November, Bath & Body Works (BBWI, Financial) faced high expectations for its Q1 results. Despite beating top and bottom-line estimates, BBWI's Q2 earnings guidance fell short, casting doubt on its FY25 outlook.
BBWI slightly raised its worst-case FY25 revenue scenario but kept its best-case scenario of flat growth unchanged. This cautious guidance reflects uncertainty about discretionary spending, leading to profit-taking today.
- Q1 Highlights:
- Adjusted EPS of $0.38, a 15% year-over-year improvement, exceeding the $0.28-0.33 projection.
- Revenue declined by 0.9% year-over-year to $1.38 billion, better than the forecasted 2.0-4.5% decline.
- Increased overall transactions and brand newness supported Q1 performance.
- Challenges:
- Customers managed spending carefully, pressuring average basket size.
- Average unit retails fell by 1% year-over-year, below the flat prediction.
- Promotions were launched to drive traffic due to lackluster product resonance.
- International sales were impacted by ongoing softness and the war in the Middle East, though long-term prospects remain attractive.
- Q2 Guidance:
- Projected EPS of $0.31-0.36, a slight sequential decline.
- Anticipated return to positive sales growth in the second half of the year, with Q2 forecasted at negative 2% to flat growth year-over-year.
- Full-Year Outlook:
- Raised low-end earnings forecast to $3.05-3.35 from $3.00-3.35.
- Revenue growth forecast adjusted to negative 2.5% to flat from negative 3.0% to flat.
BBWI's Q1 report was solid but revealed underlying issues that tempered investor enthusiasm. To achieve its FY25 outlook, BBWI must leverage its brand and loyalty. The company's banner resonates with customers, and its marketing efforts are enhancing brand awareness. The loyalty program grew by 18% year-over-year in Q1. Despite short-term pressures, BBWI's focus on brand prominence and membership growth positions it for long-term success.
