Why Beaten-Down Bath & Body Works Is Poised for a Comeback

In July, U.S. retail sales rose 1% from the previous month, exceeding economists’ forecasts of a 0.3% gain. However, Bath & Body Works, Inc. (BBWI) has lagged behind the overall specialty retail sector's growth. Despite the broader Consumer Discretionary Select Sector SPDR Fund (XLY) being up about 4% so far this year, BBWI has seen its shares fall more than 30% year-to-date. This decline is significant, especially compared to the sector’s modest growth.

In this article, we'll examine Bath & Body Works’ recent earnings to gauge its performance and discuss its turnaround efforts.

With more than 1,700 stores across the U.S. and a global presence in Canada and through international partners, the Ohio-based retailer of home fragrances, body care, and soaps still relies heavily on in-store sales. However, the company’s recent performance has disappointed investors and fell short of Wall Street's expectations.

In the second quarter ended August 3, 2024, BBWI’s net sales decreased 2.1% year-over-year to $1.53 billion, slightly below analysts’ expectations of $1.54 billion. Its adjusted earnings per share for the second quarter came in at $0.37, just above the consensus EPS estimate of 36 cents but down from $0.40 last year. Non-GAAP net income also fell from $92 million to $83 million year-over-year.

Additionally, the company adjusted its full-year outlook due to economic uncertainty and cautious consumer spending. For fiscal 2024, Bath & Body Works anticipates a net sales decline of 2% to 4%, compared to the previous forecast of a 2.5% decline to flat sales. The company also lowered its full-year adjusted EPS guidance, with the midpoint now at $3.16, falling short of analysts' forecast of $3.25.

CEO Gina Boswell acknowledged the need for adjustments, citing challenging macroeconomic conditions and slower-than-expected sales recovery. “While I’m dissatisfied with the pace of our return to sales growth, I remain confident in our strategy and the progress we are making,” Boswell stated during an analyst call. Further, President Julie Rosen noted that the semiannual sale underperformed, particularly affecting body care. She pointed out that issues with store presentation and marketing failed to resonate with customers, contributing to weaker performance.

Despite this, certain areas showed promise, including the men’s body care category, one of the fastest-growing segments. Additionally, the lip care line has gained traction, especially among younger customers, with year-to-date sales doubling in stores that feature popular items like scrubs, masks, and tints. In another move to diversify its product offerings, the company plans to introduce its laundry line across all U.S. stores by the end of September, supported by a national ad campaign to drive customer awareness and adoption.

One of BBWI’s most significant strengths is its growing loyalty program. With 37 million members, an 8% increase from year-over-year, the program now accounts for 80% of U.S. sales, which is quite impressive given that it was launched just two years ago. Additionally, 43% of enrollees are new customers, indicating untapped potential for increased sales.

To leverage this loyal customer base, Bath & Body Works could explore strategies like encouraging frequent purchases or introducing a subscription tier to boost engagement and revenues.

Moreover, the company continues its expansion efforts internationally, with new store openings in South Korea and London. CEO Gina Boswell emphasized that “international markets remain an attractive pillar” of the company’s growth strategy, noting that international retail sales grew by double digits in the second quarter, particularly in areas unaffected by conflicts in the Middle East. It underscores the brand’s potential to thrive as it taps into new markets and builds on its global footprint.

Bottom Line

As the U.S. economy shows resilience with stronger-than-expected GDP growth, largely driven by solid consumer spending, there’s a growing case for a soft landing. With inflationary pressures easing, evidenced by the lower second-quarter core PCE price index, the Fed will likely move forward with a rate cut in September. This creates a favorable environment for retail stocks like Bath & Body Works to rebound.

The potential rate cuts, coupled with improving consumer sentiment, could spur a resurgence in consumer spending, particularly as we approach the holiday season. BBWI is well-positioned to benefit from these tailwinds. Therefore, investors could consider buying this stock now, ahead of a potential recovery fueled by easing interest rates and a boost in holiday shopping.

Amazon's October Drop Hurting ETFs

Most recent data shows 246 different Exchange Traded Fund’s owned more than 24.7 million shares of Amazon.com (AMZN). But, the companies recent 20.9% decline in the month of October alone, (Amazon opened October trading at $2,021 per share and closed the month trading at $1,598 per share, or a 20.9% decline) has certainly had an effect on not only those 246 different ETFs and their investors, but also those investors whom may have directly purchased shares of the company. Furthermore, due to its market capitalization, it was a very heavily weighted stock in some large ETFs, which makes its recent decline even more painful.

Some of the hardest hit ETFs over the last month was the SPDR S&P 500 ETF Trust (SPY) because Amazon was its second, now third, largest holding and SPY was the single largest owner of Amazon stock. ProShares Online Retail ETF (ONLN) had 22% of its assets in Amazon as of late, while the Vanguard Consumer Discretionary ETF (VCR) and the Consumer Discretionary Select Sector SPDR Fund (XLY) both had more than 20% of their assets in Amazon.

Throughout the ETF world, there where eight different ETFs which had more than 10% of their assets in Amazon in recent weeks. Most were in the consumer discretionary sector, but a few internet focused ETFs such as the Invesco QQQ ETF (QQQ), and the First Trust Dow Jones Internet Index ETF (FDN) had more than 9% of their assets in Amazon. Continue reading "Amazon's October Drop Hurting ETFs"

The Debt Storm Is Coming

Matt Thalman - INO.com Contributor - ETFs


While we can debate until we are blue in the face the actual ins and outs of what causes recessions, most would agree that high debt loads play a significant role. If we look back at the 2008-2009 recession, this is very true. Or the dot.com bubble bursting, debt played a large role. Even go a little further back into history and look at the 1929 stock market crash and subsequent recession, mostly fueled by margin trading (investors trading with borrowed money, i.e., using debt to fuel larger trades).

At this point, not many people are talking about the United States current debt levels. Not only is the U.S. government's debt level out of control, but more importantly consumer debt levels are also out of control, and that is likely the more concerning issue.

When consumer debt gets out of hand, first we begin to see increased levels of defaults. That leads to reduced levels of credit as the institutions who lend credit begin to tighten their requirements to borrow. With less available credit, consumers begin spending less on discretionary purchases because they either can't get credit or have maxed out what credit they did possess. Lower spending leads to lower profitability for consumer facing companies, which then leads to a reduced number of jobs in those sectors. Continue reading "The Debt Storm Is Coming"