Bath & Body Works Earnings: Near-Term Operating Margin Expansion Stalls Without Sales Leverage

We don’t plan any material change to our $73 per share fair value estimate for narrow-moat Bath & Body Works, or BBW, after considering its first-quarter results and a modest upward nudge to its full-year outlook. We view shares as undervalued after a post-print double-digit drop and believe the market is focusing on near-term profit pressure, with higher marketing costs in the second quarter expected to lead to year-over-year operating margin contraction. Moreover, with the full-year outlook largely unchanged, we think investors are concerned that second-half operating margins could be flat versus last year (around 20.5%), indicating stalled progress back to the 20%-plus full-year metrics the firm historically achieved. BBW lifted the low end of its prior 2024 outlook, now calling for a sales decline of 2.5% to flat and EPS of $3.05-$3.35 (up a nickel), in line with our preprint forecast that included a sales decline of 1.9% and EPS of $3.16. As such, we don’t surmise much change to our near-term outlook.