Bath & Body Works Sales Fall After Two Years of Rapid Growth

  • Nov 17, 2022
  • Scott Peters
  • Third quarter sales declined and net income plunged after two years of rapid growth. The cash flow turned negative as the company continued its capital expenditure and store renovation program intact.

    Bath & Body Works Inc soared 21% to  $37.80 after the retailer of personal products including candles and fragrances lifted its annual estimate. 

     

    Sales 

    Third quarter sales declined 5% to $1.60 billion from $1.68 billion a year ago, but an increase of 46% from the quarter in 2019. 

    Total U.S. and Canada store sales declined 4.8% to $1.17 billion from $1.23 billion a year ago. 

    Direct U.S. and Canada sales, which includes online sales, fell 6.4% to $345.5 million from $369.3 million a year ago. 

    International sales increased 9.6% to $80.8 million from $73.7 million a year ago. 

     

    Margins 

    Third quarter gross profit fell to $677.6 million from $838.7 million a year ago and gross margin declined  to 42.2% from 49.9% a year ago. 

    Third quarter operating income decreased to $118.7 million from $226.9 million a year ago.  

    Third quarter of 2021 included expense of $89.1 million pre-tax loss for the early extinguishment of outstanding notes. 

    Operating margin fell to 12.6% from 24.3% from a year ago. 

    Net income margin fell to 5.7% from 14.6% from a year ago. 

     

    Earnings 

    Third quarter operating income was $201.8 million compared to $408.5 million in the similar quarter in 2021. 

    Net income from  continuing operations was $91.0 million compared to $177.1 million in the similar quarter in 2021 

    Third quarter earnings per share were 40 cents, ahead of the guidance range between 10 cents and 20 cents, but lower than 66 cents a year ago.

    In the third quarter, weighted diluted outstanding shares declined to 229.1 million from 267.0 million a year ago. 

     

    Inventories 

    Total net inventories at the end of the third quarter increased to $1.27 billion from $1.15 billion a year ago. 

     

    Long Term Debt 

    At the end of the third quarter, long-term debt was unchanged at $4.86 billion. 

     

    Cash Flow 

    In the third quarter, net operating cash flow plunged to $66.3 million from $448.0 million in the corresponding period in 2021. 

    Capital expenditure increased to $252.2 million from $240.9 million a year ago. 

    Free cash turned negative to 185.9 million from positive cash flow of 207.1 million. 

     

    Outlook 

    The company lifted its outlook for the full-year on continued strength in its operations. 

    Fourth quarter sales are expected to decline in mid-single to low-double digits compared to $3.027 billion sales in 2021. 

    Gross margin rate in the fourth quarter is estimated between 41% and 42% and for the full-year 2022 rate is estimated between 42% and 43%. 

    The retailer estimated fourth quarter earnings from continuing  operations per diluted share between $1.45 and $1.65. 

    For fiscal 2022, earnings from continuing operations per diluted  share are estimated between $3.00 and $3.20, revised higher from its previous estimate of $2.70 to $3.00.

     

    Dividend and Stock Repurchase 

    On November 4, the company declared a regular quarterly dividend of 20 cents a share payable on Dec. 2, 2022 to shareholders of record on Nov. 18, 2022.

     

    Management Changes 

    Gina Boswell will assume the role of chief executive officer, replacing interim-CEO Sarah Nash as of December. 

     

    Store Network 

    The company opened 66 new stores and closed 34 in the nine-months to October. 

    The store network increased to 1,787 at the end of October 2022 from 1,755 at the end of January 2022.  

    Selling square feet space in the U.S. and Canada is expected to increase to 5.02 million at the end of 2022 from 4.75 million in the beginning of 2022.   


Annual Returns

Company Ticker 2022 2021 2020
Bath & Body Works Inc BBWI -24% 0% 0%

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