Bath & Body Works (NYSE: BBWI) reported its third-quarter earnings on Monday, and investors found them to be quite refreshing indeed.
BBWI stock shot up 18% on the earnings beat, changing the narrative for a company that’s struggled for most of this year. In fact, even with this latest surge in share price, BBWI is still down 18% on the year and roughly 33% from a high of $52 in June.
As we talked about with Walmart (NYSE: WMT), that slide coincided with a noticeable dip in consumer sentiment and spending. We’ve seen a sharp reversal in that trend across a variety of third-quarter earnings reports, including Home Depot (NYSE: HD), Disney (NYSE: DIS), and now Bath & Body Works.
The company reported net sales of $1.61 billion, which was higher than the $1.56 billion reported a year ago and ahead of analyst estimates.
On an adjusted basis, third-quarter earnings per share increased to $0.49 from $0.48 a year ago, which was ahead of Wall Street’s consensus prediction of $0.47.
And third-quarter sales rose 3%, to $1.61 billion, beating the consensus estimate of $1.58 billion.
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That’s all well and good. However, BBWI also reported an 11% drop in net income including special items, which slipped from $119 million to $106 million. On a per-share basis, that’s $0.49 compared with $0.52 a year ago.
And while the company improved its outlook for the fourth quarter, it still expects both revenue and earnings to decline. BBWI projects a net sales decline of 4.5%–6.5% for the final three months and 1.7%–2.5% for the full year. And Q4 earnings are expected to fall from $2.55 per share last year to somewhere between $1.97 and $2.07.
So sales and earnings are both heading in the wrong direction, despite the positive spin and improved forecast.
Now, Bath & Body Works may still have a strong holiday season and outdo itself again for the current quarter. But this isn’t a growth story we’re talking about. And truly, when it comes to retail, it’s more vulnerable than most should consumers start to pull back again.
That really is the fear. In a difficult environment, a company like Walmart can hold its own as a value retailer and grocer. I’m not sure fragrances like Winter Candy Apple and Frosted Coconut Snowball would prove to be as resilient.
That’s what makes me wary. And it’s why I’m looking at the proverbial tub as half empty rather than half full for BBWI stock. We’ll just have to see in 2025.
Fight on,
Jason Simpkins
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