Bath and body care closed more than 10% higher on Thursday after beating first-quarter earnings expectations and raising its forecast.
While sales and net income have fallen year over year, the retailer now expects full-year 2023 earnings per share to be between $2.70 and $3.10, compared to the range of $2.50 to $3.00 given in the previous quarter. He expects adjusted earnings per share to be between $2.68 and $3.08 for the year.
The longtime mall store, known for its lotions, hand sanitizers and soaps, attributed the more optimistic forecast to “better than expected” profits and the effect of early debt repayment. in the first trimester.
“We achieved first quarter sales in line with our expectations while our EPS was better than expected as we saw the benefits of our work to improve the merchandise margin as well as the early benefits of our cost optimization initiatives. “CEO Gina Boswell said in a statement.
The company’s 2023 fiscal year will include a 53rd week and its outlook includes that extra week, which it says will affect earnings by 7 cents per share, the company added.
Here’s how Bath & Body Works fared in its first fiscal quarter compared to what Wall Street expected, based on a Refinitiv analyst survey:
- Earnings per share: 33 cents adjusted vs. 26 cents expected
- Revenue: $1.40 billion vs $1.40 billion expected
The company’s net profit for the three months ended April 29 was $81 million, or 35 cents per share, about half of the reported $155 million, or 64 cents per share. in the quarter of the previous year.
Sales fell to $1.40 billion, down 4% from $1.45 billion a year earlier.
The retailer expects earnings per share of 27 cents to 32 cents in the next quarter, against an estimate of 32 cents per share. He expects sales to fall in the lower to mid-digits, against an estimate down 3%.
It reaffirmed its full-year sales guidance of flat net sales at a mid-single-digit decline.
Bath & Body Works is emerging from a pandemic-fueled sales surge and grappling with value-conscious consumers who are more attentive to discretionary purchases.
Neil Saunders, chief executive of GlobalData, said the quarter’s declines came up against “pretty weak numbers from the previous year”, so the company has some work to do to stabilize sales if it is not to give up. to its pandemic-era gains.
“This deterioration is not only impacting revenue, but also making the business less efficient, particularly at a time when costs are rising – which is seen in the 35.4% drop in profit from operating this quarter,” Saunders said.
“Looking forward, we expect this year to be relatively weak for sales. At best, revenue will be flat and realistically down a low to mid-digit,” he added. . “However, the bottom line should improve as cost reduction initiatives begin to bear fruit. Longer term, Bath & Body Works remains well positioned for growth once economic conditions and consumer confidence improve. consumers will begin to improve.”
As consumers become more cautious and retail discounts and promotions increase in a difficult macroeconomic environment, Bath & Body Works margins have fallen. They fell about three and a half percentage points to 42.7% from 46.1% in the year-ago quarter.
While the company reversed a sales slump in mid-March with promotions in April, it made up for those losses by raising prices, chief financial officer Wendy Arlin said on a call with analysts. The company added a 95-cent end to products instead of a 50-cent end and changed its daily deals from five for $25 to five for $27, Arlin said.
It attributed the decline in gross margin to purchasing and occupancy expenses which were reduced due to lower sales, costs associated with its new direct-to-consumer distribution center and increased spending on occupancy of new stores.
Margins were also put under pressure by a decline in the margin rate on commodities, which was driven by raw material price inflation and the investments the company made in product formulation and packaging, Arlin said.
Inflationary pressure totaled $13 million in the quarter, with the largest amount coming from commodities, she said.
Margins were 41.2% better than analysts had expected, according to a research note from Simeon Siegel, retail analyst for BMO Capital Markets. Margins also exceeded pre-Covid levels, Siegel noted.