Bath & Body Works’ (BBWI) Reduced Outlook Not Very Soothing As Inflation Takes A Toll On Sales
2:45 pm Wednesday, July 20th, 2022
Bath & Body Works (BBWI) had been showing some signs of life recently, rallying by 16% since last Thursday, but some of those gains are going down the drain today after the company sharply cut its Q2 and FY23 guidance. BBWI’s downgraded Q2 EPS outlook of $0.40-$0.42 (prior was $0.60-$0.65) and its revised sales forecast for a decline of 6-7% (prior was low-single digit percent increase) both fall well below expectations. Likewise, its FY23 sales guidance for a mid-to-high single digit decline is also considerably lower than analysts’ estimates.
Those inflationary headwinds are the primary culprit behind today’s guidance cut as Nash noted that the company is “navigating a challenging operating and macroeconomic environment with inflationary pressure affecting our customers and our business.” There are a few other key points as it relates to this issue.
BBWI joins a growing list of retailers that have recently experienced a slowdown in consumer spending, especially for discretionary products. Although Bed Bath & Beyond (BBBY) and Kohl’s (KSS) aren’t perfect comparisons, the well-documented struggles for those two companies provide solid evidence that consumers are reining in spending on non-essential home-related goods.
In contrast, Ulta Beauty (ULTA) posted an impressive beat-and-raise Q1 earnings report in late May, illustrating that makeup and haircare products are more resilient during difficult economic conditions. ULTA is currently scheduled to report Q2 results on August 25.
On the positive side, approximately 85% of the company’s supply chain is based in North America. This factor has allowed BBWI to stock its stores with a full line of product assortments.
BBWI has a solid and enduring business that has withstood tough economic conditions in the past, but demand for its specialty products is bound to soften if consumers tighten their budgets. The company is about to rollout a new loyalty program in August, so perhaps the launch will spark an upswing in sales. However, unless consumers start feeling better about their financial situations, BBWI is unlikely to see a meaningful and lasting improvement.
