TLDR
- Bath & Body Works shares dropped 24% after cutting full-year sales and profit forecasts for 2025
- Fourth quarter sales expected to decline in high single digits versus analyst expectations of 1.5% growth
- Third quarter adjusted earnings came in at 35 cents per share, missing estimates of 39 cents
- Company launched transformation plan targeting $250 million in cost savings over two years
- CEO Daniel Heaf cited weak consumer sentiment and shoppers waiting for deeper discounts as key factors
Bath & Body Works shares tumbled Thursday after the retailer cut its annual outlook and warned of disappointing holiday sales. The Ohio-based company now expects fourth quarter net sales to decline in the high single digits from the $2.79 billion reported last year.
The forecast shocked Wall Street. Analysts had expected sales to rise 1.5% during the crucial holiday period.
Third quarter results also missed expectations. Adjusted earnings came in at 35 cents per share versus estimates of 39 cents. Net sales fell 1% to $1.59 billion, below the $1.63 billion analysts projected.
The company now expects fiscal 2025 net sales to decline by low single digits. This marks a sharp reversal from its prior forecast of 1.5% to 2.7% growth.
CEO Daniel Heaf, who joined six months ago, pointed to weak consumer sentiment as a primary driver. He told Barron’s that customers are worried about job stability and income disruption.
“Our customers have told us that they are waiting for bigger discounts and that they’re not as likely to spend on themselves,” Heaf said.
Cost Pressures Mount
Cash-strapped shoppers are choosing cheaper alternatives over Bath & Body Works’ higher-priced candles and fragrances. The company has been forced to increase marketing and promotional spending to attract customers.
While Bath & Body Works sources domestically and avoids direct tariff impacts, promotional costs continue to squeeze margins. The retailer is working to rightsize its product offerings while investing in innovation.
The company slashed its fiscal 2025 earnings per share forecast to at least $2.87. The previous range was $3.35 to $3.60.
Transformation Plan Launched
Bath & Body Works unveiled a turnaround strategy Thursday targeting $250 million in cost savings over two years. More than half of those savings will arrive in 2026.
Heaf said the company lost focus on its three core categories: body care, home fragrance, and soaps and sanitizers. The transformation plan rests on four pillars.
First, the company will create new products with modern packaging and scents that better match customer preferences. Second, it will invest more in marketing to reignite the brand.
Third, Bath & Body Works plans to expand distribution through new wholesale partners and channels. Fourth, the company aims to improve operational efficiency.
Dana Telsey of Telsey Advisory Group noted that Bath & Body Works was viewed as a recovery story after strong pandemic performance. The company previously targeted $10 billion in sales and a 20% EBIT margin.
“With new management coming in earlier this year and a surprisingly weak Q4 outlook, the recovery appears to be entering a more prolonged phase than originally anticipated,” Telsey wrote.
The stock has lost 46% of its value so far this year. Thursday’s 24% drop added to those losses as investors digested the weaker outlook and missed quarterly results.
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