Bath & Body Works Stock Sinks 25%. Why the Home Fragrance Maker Is Suffering.

Bath & Body Works posted weaker-than-expected adjusted earnings and sales in its third quarter. (Courtesy of Bath & Body Works)

Key Points

• Bath & Body Works reports third-quarter adjusted earnings of 35 cents a share, missing analysts’ consensus.
• Net sales for the quarter decline 1% to $1.59 billion, falling short of the anticipated $1.63 billion.
• The retailer cuts its fiscal-year adjusted earnings guidance to at least $2.87 per share and expects a low single-digit net sales drop.

Bath & Body Works stock tanked Thursday morning after the company missed earnings projections and cut its financial forecasts for the fiscal year, saying consumers concerned about the economy are now less likely to buy.

The fragrance and candle company reported adjusted third-quarter earnings of 35 cents a share, below analysts’ projections for 39 cents a share. Revenue of $1.59 billion fell 1% from the year-ago quarter, narrowly missing consensus estimates calling for $1.63 billion.

The company expects fourth-quarter sales to fall by a percentage in the high single digits. Fiscal-year net sales will now decline by low single digits, a shift from an earlier call for growth of 1.5 % to 2.7%.

On a call with Barron’s on Thursday, new CEO Daniel Heaf said that while the company’s underperformance is partly because of strategic missteps, economic concerns played a big part in the downbeat fourth-quarter sales forecast. With consumer sentiment hovering near record lows, many of Bath & Body Works’ customers are putting off discretionary purchases.

“It’s driven by heightened concern around job stability, income disruption for government workers—and our customers have told us that they are waiting for bigger discounts and that they’re not as likely to spend on themselves,” Heaf said.

Shares of Bath & Body Works were down 25% in early trading.

“The company had been viewed as a recovery story following its strong pandemic-related performance, with prior targets for $10B in sales and a 20% EBIT margin,” wrote Dana Telsey, CEO of Telsey Advisory Group. “However, with new management coming in earlier this year and a surprisingly weak Q4 outlook (when BBWI is typically a holiday destination for gift giving), the recovery appears to be entering a more prolonged phase than originally anticipated.”

Profit will also be affected by the weaker sales. Adjusted earnings per share will be at least $2.87, well below the company’s previous forecast for $3.35 to $3.60.

Heaf joined the company six months ago. In his view, Bath & Body Works’ weak performance stems from a lack of focus on the company’s three core categories—body care, home fragrance, and soaps and sanitizers.

He unveiled a plan to get things back on track Thursday. It rests on four pillars: creating new products with modern packaging and new scents that better align with what people want; reigniting the brand by investing in marketing; expanding its distribution strategy to include new wholesale partners and channels; and making the company more efficient.

Write to Sabrina Escobar at sabrina.escobar@barrons.com