Bath and body works closed more than 10% higher on Thursday after beating fiscal first-quarter profit expectations and raising expectations.
While sales and net income declined year over year, the retailer now expects full-year 2023 earnings per share to be between $2.70 and $3.10, compared to the $2.50 to $3 range .00 given during the previous quarter. It expects adjusted earnings per share for the year to be between $2.68 and $3.08.
The longtime mall store, known for its lotions, hand sanitizers and soaps, attributed the brighter outlook to “better-than-expected” earnings and the effect of an early debt service in the first quarter.
“We delivered revenue in the first quarter in line with our expectations, while our earnings per share were better than expected as we saw benefits from our work to improve trading margin, as well as early benefits from our cost optimization initiatives,” CEO said. Gina Boswell in a statement.
The company’s fiscal year 2023 will include a 53rd week, and the outlook includes that additional week, which is estimated to impact earnings by 7 cents per share, the company added.
Here’s how Bath & Body Works performed in the first fiscal quarter compared to what Wall Street expected, based on an analyst survey by Refinitiv:
- Earnings per share: 33 cents adjusted versus 26 cents expected
- Revenue: $1.40 billion versus $1.40 billion expected
The company’s net income for the three-month period ended April 29 was $81 million, or 35 cents per share, about half of the $155 million, or 64 cents per share it reported in the same quarter. year ago.
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, compared to an estimate of 32 cents per share. It expects sales to fall by low to mid-single digits, compared to an estimate of a 3% decline.
It reaffirmed its full-year sales forecast of flat net sales to a single-digit decline.
Bath & Body Works is emerging from a pandemic-fuelled sales boom, struggling with value-conscious consumers thinking more about discretionary purchases.
GlobalData chief executive Neil Saunders said the quarter’s declines run counter to “quite weak numbers from previous years,” so the company has work to do to stabilize sales if it doesn’t want to give up its pandemic-era profits .
“This deterioration not only impacts sales, but also makes the company less efficient, especially at a time when costs are rising – as evidenced by the 35.4% drop in operating income this quarter,” said Saunders. .
“Looking forward, we expect this year to be a relatively weak year for sales. At best, sales will remain flat and, realistically, will decline by low to mid-single digits,” he added. “However, the bottom line should show some improvement as cost-cutting initiatives begin to pay off. Longer term, Bath & Body Works remains well positioned for growth once economic conditions and consumer confidence begin to improve.”
As consumers become more cautious and retail discounts and promotions rise against a difficult macroeconomic backdrop, Bath & Body Works’ margins have fallen. They fell by about three and a half percentage points to 42.7%, compared to 46.1% in the same quarter last year.
While the company reversed a revenue decline from mid-March with promotions in April, it offset those losses by raising prices, Chief Financial Officer Wendy Arlin said during an analyst call. 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.
She attributed the gross margin decline to purchasing and occupancy costs being reduced as a result of lower sales, costs related to the new direct-to-consumer fulfillment center and higher occupancy costs for new stores.
Margins were also squeezed by a drop in trade margin, which was caused by high raw material prices and investments the company has made in product formulations and packaging, Arlin said.
Inflationary pressures totaled $13 million in the quarter, most of which came from commodities, she said.
Margins 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 were also above pre-Covid levels, Siegel noted.