Bath & Body Works Inc

Bath & Body Works Inc. (NYSE: BBWI) is a specialty shop that sells home fragrances, body care items, soaps, and hand sanitizers. Fine fragrance mist, body lotion and body cream, 3-wick candles, home fragrance diffusers, and liquid hand soap are among the company's goods. In the United States and Canada, the company has around 1,755 locations and e-commerce sites. It also operates more than 338 shops and 27 e-commerce sites via franchise, licensing, and wholesale agreements in around 35 additional countries. Bath & Body Works, White Barn, Aromatherapy, and other brand names are used to market the company's goods.

Latest News

• Dividend declaration: Bath & Body Works Inc. declared a normal quarterly dividend of USD 0.20 per share on May 13, 2022, which will be paid on June 17, 2022, to shareholders of record at the close of business on June 3, 2022.
• Results announcement: BBWI announced its first-quarter 2022 results on 18^th May 2022.

Q1 FY22 Financial result

• The firm recorded net sales of USD 1.450 billion for the first quarter ended April 30, 2022, a 1% decline from the first quarter ended May 1, 2021, which were USD 1.469 billion. The company's net sales in the first quarter of fiscal 2022 increased by 53 percent over the previous fiscal year's net sales. Net sales grew 2% in the first quarter of 2021, excluding a USD 50 million gain from government stimulus funds.
• For the first quarter ended April 30, 2022, the firm reported results from continuing operations per diluted share of USD 0.64, compared to USD 0.32 for the quarter ended May 1, 2021. Operating income was USD 280.0 million in the first quarter, down from USD 337.2 million the year before, while net income from continuing operations was USD 154.9 million, up from USD 90.3 million the year before. Operating income was 19.3 percent of net sales in the first quarter.
• The early extinguishment of debt resulted in a pre-tax loss of USD 105.5 million (USD 80.1 million net of tax, or USD 0.28 per diluted share) in continuing operations in 2021. On an adjusted basis, which excludes the above charge in 2021, earnings from continuing operations per diluted share increased 7% to USD 0.64 in the first quarter of 2022, compared to USD 0.60 the previous year, and net income from continuing operations was USD 154.9 million, compared to USD 170.4 million the previous year.

Key Risks

• Production risk: The recent spin-off of Victoria's Secret business and related activities, according to BBWI, might have a negative impact on the company. In addition, potential liabilities arising from the sale of such a firm might harm BBWI's financials and results of operations. This spin-off might affect BBWI's credit rating, decrease profits per share, divert management's attention, and have other financial and accounting consequences. Furthermore, BBWI may not be eligible for tax-free status under US federal tax law.

Outlook

• The organization is dedicated to cautious business management and forecasting. The company's decision to accelerate expenditures in information technology and its customer loyalty program, as well as predicted increases in inflationary pressures, are reflected in the amended fiscal 2022 projection.
• The business expects earnings from continuing operations per diluted share in the second quarter to range between USD 0.60 and USD 0.65, compared to USD 0.77 in the prior year.
• The business expects profits from continuing operations per diluted share to range between USD 3.80 and USD 4.15 in fiscal 2022, compared to USD 4.51 adjusted earnings from continuing operations per diluted share in fiscal 2021 and its previous guidance of USD 4.30 to USD 4.70.

Valuation Methodology: EV/Sales Multiple - based Relative Valuation

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation

Over the past six months, BBWI's share price has corrected by 51.83%. The stock is currently leaning towards the lower end of its 52-week range of USD 36.95 to USD 82.00. We have valued the stock using the EV/Sales multiple-based relative valuation method and arrived at a target price of USD 44.42. We believe that the company is trading at a premium from its peer's average considering strong fundamentals, competitive advantages in profitability margins, and a decent dividend yield that gives bullish estimates for the upcoming near future.

Considering the strong fundamentals, robust top-line results, associated risks, and current valuation, we give a "Buy" recommendation on the stock at the closing price of USD 36.78 down 8.12%, as of May 20, 2022, at 11:50 AM PDT.

One Year Technical Chart, as of May 20, 2022. Data Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary:

*Current Price as of May 20, 2022, at 11:50 AM PDT.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above. 

Note 3: The report publishing date is as per the Pacific Time Zone.