Bath & Body Works, Inc. (BBWI) is a specialty retailer of home fragrance, body care, and soap and sanitizer products. It currently operates around 1,755 company-operated retail stores and 338 international partner-operated stores.

On August 17, 2022, Sarah Nash, Executive Chair and Interim CEO, said, “Looking to the back half of the year, we believe that our planned Fall and Holiday assortments are well-positioned to resonate with our customers and our inventories are clean and forward facing.”

For its 2022 second quarter, BBWI’s international sales came in at $90.20 million, up 34.6% year-over-year. Moreover, on August 5, 2022, BBWI declared a regular quarterly dividend of $0.20/ share. Its current dividend translates to a 2.14% yield, while its four-year average yield is 4.23%.

BBWI has lost 46.5% year-to-date and 44.7% over the past year. However, the stock has gained 5% over the past month to close the last trading session at $37.33.

Here is what could shape BBWI’s performance in the near term:

Mixed Valuations

BBWI’s forward EV/EBIT of 11.35x is 5.6% lower than the industry average of 12.02x. Its forward P/Cash Flow of 10.19x is 3.8% lower than the industry average of 10.59x. Moreover, its forward P/E of 12.99x is 4.1% lower than the industry average of 13.54x.

However, its forward EV/S of 1.88x is 68.8% higher than the industry average of 1.12x, while its forward P/S of 1.16x is 32.2% higher than the industry average of 0.87x.

Favorable Analyst Expectations

Analysts expect BBWI’s revenue to increase marginally year-over-year in the quarter ended January 2023 and 4.2% year-over-year in 2024. Its EPS is estimated to grow 10% per annum for the next five years and 25% year-over-year in 2024. Also, it surpassed consensus EPS estimates in each of the trailing four quarters.

Of the 17 Wall Street analysts that have rated BBWI, 13 have rated it Buy, while four have rated it Hold. Moreover, Wall Street analysts expect the stock to hit $47.35 in the near term, indicating a potential upside of 26.8%.

Robust Profitability Margins

BBWI’s trailing-12-month gross profit margin of 46.46% is 27.6% higher than the industry average of 36.42%. Its trailing-12-month EBIT and EBITDA margins of 23.27% and 25.98% are higher than the industry averages of 8.46% and 11.37%, respectively. Also, its trailing-12-month net income margin of 12.31% is 105.4% higher than the industry average of 5.99%.

In addition, its trailing-12-month ROTC and ROTA of 20.40% and 19.69% compare with the industry averages of 6.91% and 5.23%, respectively.

POWR Ratings Reflect Promising Outlook

BBWI has an overall rating of B, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

It has an A grade for Quality, consistent with its higher-than-industry profitability margins.

The stock has a C grade for Value, in sync with its mixed valuation multiples.

In the 62-stock Home Improvement & Goods industry, BBWI is ranked #17.

Click here for the additional POWR Ratings for BBWI (Growth, Momentum, Stability, and Sentiment).

View all the top stocks in the Home Improvement & Goods industry here.

Bottom Line

BBWI possesses solid upside potential and robust profitability margins. Moreover, the company witnessed significant revenue growth in its last reported quarter despite lingering macro headwinds. Thus, I think the dividend-paying stock could be a wise buy for investors.

How Does Bath & Body Works, Inc. (BBWI) Stack Up Against its Peers?

While BBWI has an overall POWR Rating of B, one might consider looking at its industry peers, Bassett Furniture Industries, Incorporated (BSET), Acuity Brands, Inc. (AYI), and Masonite International Corporation (DOOR), which have an overall A (Strong Buy) rating.

BBWI shares were trading at $36.99 per share on Thursday morning, down $0.34 (-0.91%). Year-to-date, BBWI has declined -46.27%, versus a -17.22% rise in the benchmark S&P 500 index during the same period.

About the Author: Riddhima Chakraborty

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...

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