Bath and Body Works’ stock surges after it raises guidance, beats on earnings

Bath and Body Works‘ stock jumped more than 10% in premarket trading Thursday after it beat fiscal first quarter earnings expectations and raised its guidance. 

While sales and net income fell year over year, the retailer is now expecting 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 during the previous quarter. It expects adjusted earnings per share to be between $2.68 and $3.08 for the year.

The longtime mall shop, known for its lotions, hand sanitizers and soaps, attributed the rosier guidance to “better-than-expected” earnings and the impact of an early debt pay off in the first quarter.

“We delivered first quarter sales in line with our expectations while our EPS was better than anticipated as we saw benefits from our work to improve merchandise margin as well as early benefits from our cost optimization initiatives,” CEO Gina Boswell said in a statement. 

The company’s fiscal 2023 will include a 53rd week and the its outlook includes that additional week, which it estimates will impact earnings by 7 cents per share, the company added.

Here’s how Bath and Body Works did in its first fiscal quarter compared with what Wall Street was anticipating, based on a survey of analysts by Refinitiv:

• Earnings per share: 33 cents adjusted vs. 26 cents expected
• Revenue: $1.40 billion vs. $1.40 billion expected

The company’s net income for the three-month period that ended April 29 was $81 million, or 35 cents a share, roughly half of the $155 million, or 64 cents a share, it reported in the year-ago quarter.

Sales dropped to $1.40 billion, down 4% from $1.45 billion a year earlier.

The retailer expects earnings per share of 27 to 32 cents in the next quarter, compared to an estimate of 32 cents a share. It expects sales to decline in the low to mid single digits, compared to an estimate of down 3%.

It reaffirmed its full year sales forecast of flat net sales to a mid-single digit decline.

As consumers become more cautious and retail discounts and promotions tick up against a tough macroeconomic backdrop, Bath and Body Works margins dropped. They fell by about three and half percentage points to 42.7%, compared to 46.1% in the year ago quarter.

It’s not clear why margins dropped, but they were better than the 41.2% analysts had expected, according to a research note from Simeon Siegel, a retail analyst for BMO Capital Markets. Margins also topped above pre-Covid levels, Siegel noted.