Leading specialty home fragrance & body care product retailer Bath & Body Works, Inc. (BBWI) in Columbus, Ohio, which was formerly known as L Brands, launched BBWI as a standalone public company, spinning off its Victoria’s Secret brand into a separate publicly traded company and began trading under the ticker ‘BBWI’ on August 3, 2021. However, BBWI’s momentum has been sluggish.

BBWI shares have slumped 1.7% in price over the past six months and 23.6% over the past month. Over the past five days, the stock has declined 12.3% to close yesterday’s trading session at $58.42. Furthermore, the stock is trading below its 50-day and 200-day moving average, indicating a downtrend.

The company posted its third-quarter earnings report in November without including Victoria’s Secret business’ results. BBWI’s net sales declined 1.2% year-over-year to $1.68 billion in the quarter ended Oct.30. Furthermore, analysts expect a 37.7% year-over-year decline in its revenue in the current quarter, a 49.7% decline in the next quarter, and a 32.7% decline in its current fiscal year. The company’s top-line growth could be hindered due to a loss of synergies from separating the businesses, and the global pandemic’s negative impact on its business and operational results. However, the company’s sales have increased significantly from the pre-pandemic period of 2019.

Here is what could shape BBWI’s performance in the near term:

Mixed Valuation

In terms of forward P/E, BBWI is currently trading at 14.61x, which is 9.2% lower than the 16.08x industry average. Also, the 0.75x non-GAAP forward PEG is 19% lower than the 0.93 industry average.

However, BBWI’s forward EV/Sales is 83.1% higher than the 1.40x industry average, and its 66.2% forward Price/Sales higher than the 1.16x industry average.

Mixed Financials

BBWI’s gross profit came in at $838.76 million, down 2.8% from its year-ago value. Its operating income declined 6.3% year-over-year to $408.50 million, while its net income from continuing operations decreased 9.7% year-over-year to $177.05 million. The company’s EPS from continuing operations declined 4.3% year-over-year to $0.66. However, its adjusted net income from continuing operations stood at $244.78 million, up 3.6% from the same period in the prior year, and its adjusted earnings from continuing operations per share increased 10.8% year-over-year to $0.92.

Higher-Than-Industry Profit Margins

BBWI’s 48.73% gross profit margin is 35.7% higher than the 35.91% industry average. Also, its 12.31% net income margin is 87.7% higher than the 6.56% industry average.

Furthermore, BBWI’s 26.51% and 23.62% respective ROA and ROTC are 346.3% and 213.2% higher than the industry averages.

POWR Ratings Reflect Uncertainty

BBWI has an overall C rating which translates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a grade of C for Value, consistent with its mixed valuation.

BBWI has a D grade for Stability, which is in sync with its 1.70 beta.

Of the 61 stocks in the Home Improvement & Goods industry, BBWI is ranked #26.

Beyond what I have stated above, one can also view BBWI’s grades for Quality, Growth, Momentum, and Sentiment here.

View the top-rated stocks in the Home Improvement & Goods industry here.

Bottom Line

BBWI expects its fourth-quarter earnings per share to be at the high end of its previous guidance of $2.10 to $2.25, compared to earnings per share from continuing operations of $1.96 in 2020. However, the company anticipates the pandemic will impact its business adversely. Moreover, given its stretched valuation and high volatility, we think it could be wise to wait for a better entry point in the stock.

How Does Bath & Body Works, Inc. (BBWI) Stack Up Against its Peers?

While BBWI has an overall POWR Rating of C, one might want to consider looking at its industry peers, Duluth Holdings Inc. (DLTH), Masonite International Corporation (DOOR), and Acuity Brands, Inc. (AYI), which have an A (Strong Buy) rating.

BBWI shares were trading at $58.59 per share on Tuesday afternoon, up $0.17 (+0.29%). Year-to-date, BBWI has declined -16.05%, versus a -1.42% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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