Argus cuts Bath and Body Works to hold, citing online pressure, economy

By Liz Moyer

Investing.com -- Argus downgraded Bath&Body Works Inc. (NYSE:BBWI) shares to Hold from Buy, citing increased pressure from online retailers and economic uncertainty.

Shares of the home fragrance, body care and soap retailer fell 2.9% on Friday and are down 18.8% so far this year.

The analysts said in a research note on Friday that Bath&Body's shares have underperformed the S&P 500 over the past quarter, falling 16% compared to a 0.1% decline for the index. 

“The mall-based segment of retail — in which BBWI competes — has been under increasing pressure from online retailers, who are rapidly gaining share,” Argus said in the note. “Economic uncertainty is also substantially impacting sales, as consumers remain cautious with their purchases.”

The analysts noted that fiscal year 2023 sales were down 4% from the prior year, and management projects fiscal year 2024 sales to be flat or down in mid-single digits. 

Argus did outline some positive developments. Bath&Body introduced a loyalty program last August and now has over 33 million members. “Management noted loyalty sales already represent about two thirds of total U.S. sales since launch. The Men’s business continues to grow rapidly as the company tests new forms and merchandising ideas.”

Based on management guidance and recent revenue trends, Argus said it is lowering its fiscal year 2024 adjusted earnings per share estimate to $2.75 from $3.85, which is at the midpoint of management’s guidance and implies a decline of 19% from fiscal year 2023, the analysts said. The analysts see growth in fiscal year 2025, with an estimated adjusted EPS of $3.20. 

“We would look to return this stock to the BUY list as the economy stabilizes and if management can overcome competition from online retailers,” the analysts wrote.

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