Raymond James cuts BBWI: ‘Long-term opportunity hit by near-term challenges’

Investing.com -- Raymond James downgraded Bath & Body Works (NYSE: BBWI) to Market Perform from Outperform in a note on Wednesday, saying the company faces near-term challenges that will likely pressure growth and margins despite longer-term opportunities.

“We believe there is low-hanging fruit to improve digital capabilities, product, and distribution,” analysts Olivia Tong and Lillian Moffett wrote, “[but] we expect this will take time to take form, and until then, growth will be below long-term potential.”

The firm notes that its recent channel checks indicated that “recent innovations have fallen short while discounting in stores and online has increased.”

It added that “risk/reward is balanced even with shares trading at 8x EV/EBITDA and 10x P/E on CY26 estimates.”

The analysts pointed to “an uneven hit rate on newness” and “consumers increasingly looking for value” as key risks, along with potential “store disruption as BBWI looks to expand to non-owned channels.”

Furthermore, they said that “recent stumbles on launches combined with rising macro pressure on lower-to-middle-income consumers increases near-term risk.”

While the company’s Disney Princesses collection was a first-quarter success, the note said that Villains, Halloween, and other recent launches “appear to have underperformed based on heavy discounting and online chatter.”

The analysts expect management to lower its sales outlook when it reports F3Q results on November 20, “creating deleverage and an unfavorable risk/reward.”

Raymond James also cautioned that new initiatives under CEO Gina Boswell will take time to build, saying that while the wholesale expansion could broaden reach, it represents a major organizational change and they “expect margins will decline over the next 12 months.”

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