Bath & Body Works (BBWI) Stock Falls on Slashed Profit Guidance, Analysts Bullish After This 'Clearing Event'

May 19, 2022 8:05 AM EDT
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Price: $30.95 +4.77%

Rating Summary:
    9 Buy, 0 Hold, 0 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 8 | Down: 12 | New: 20
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Shares of Bath & Body Works (NYSE: BBWI) are down more than 6% in premarket trading after the company slashed its FY 2023 EPS forecast.

BBWI reported Q1 adjusted EPS from continuing operations of 64c. Net sales came in at $1.45 billion, just above the estimated $1.44 billion.

BBWI direct sales stood at $317.5 million, down 9.1% YoY and below the consensus estimates of $347.8 million. Interest expense stood at $89.4 million, compared to the analyst expectations of $88.7 million. The company reported an ending store count of 1,759, below the expected 1,772.

Looking ahead to Q2, BBWI expects EPS from continuing operations in the range of 60c to 65c, missing the estimated 67c per share. BBWI expects FY23 EPS from continuing operations to range between $3.80 and $4.15, down from its previous forecast of $4.30 to $4.70, and below the consensus projection of $4.83 per share.

“The updated fiscal 2022 outlook reflects the company’s decision to accelerate investments in information technology and its customer loyalty program, as well as projected increases in inflationary pressures,” the company said.

Wells Fargo analyst Ike Boruchow reiterated an Overweight rating and a $70.00 per share price target after the results.

“The space remains challenged, but solid core fundamentals and prudent rebase on costs sets BBWI up well as a Top Pick for 2022. Our bullish stance on BBWI has not changed, and we view this as a clearing event. The fundamental story is not changing (1Q was strong, GM beat, top-line guidance not changing), valuation has become extremely compelling (< 10x P/E on 2023E), there remains excess cash for shareholder returns (material buyback optionality still exists) and the “guidance overhang” has been removed (we view today's rebase as the last negative revision),” Boruchow told clients.

Bank of America analyst Lorraine Hutchinson also reiterated a Buy rating.

“The supply chain costs are mostly transitory, the IT investments are a timing shift and the CEO transition costs are one-time in nature. As a result, we see only a minimal change to the earnings power of the business in 2023 and beyond,” the analyst said.

By Senad Karaahmetovic

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