Bath & Body Works, Inc. (BBWI Quick QuoteBBWI - Free Report) posted first-quarter fiscal 2022 results. The bottom line improved year over year and surpassed the Zacks Consensus Estimate.

Bath & Body Works and Victoria’s Secret were formerly parts of L Brands Inc., which split itself into two separate publicly-traded companies to thrive better on an evolving retail landscape. The spin-off was completed on Aug 3, subsequent to the completion of the second quarter of fiscal 2021.

This currently Zacks Rank #3 (Hold) player’s shares have dipped 1.5% in the past three months compared with the industry’s fall of 14.5%.

Quarterly Discussion

For first-quarter fiscal 2022, adjusted earnings per share amounted to 64 cents, which surpassed the Zacks Consensus Estimate of 51 cents. Earnings grew 7% year over year. On a reported basis, earnings from continuing operations came in at 64 cents per share compared with 32 cents recorded in the year-earlier quarter.

Net sales of $1,449.9 million were down 1.3% on a year-over-year basis. Excluding the anticipated first-quarter 2021 gain of $50 million related to government stimulus payments, the metric grew 2%. In the United States and Canada stores, sales were $1.059 billion, up 1% year over year. BBWI witnessed positive store traffic trends in the reported quarter. First-quarter direct net sales came in at $317.5 million, which dropped 9% year over year.

Moreover, International net sales grew 5% to $73.2 million, boosted by royalties and other partner revenues that rose in the upper teens. This was partly offset by a shift of wholesale sales from the first to the second quarter.

Gross profit amounted to $668.6 million during the quarter, down from $741.7 million in the year-ago period. Gross margin came in at 46.1%, down 440 basis points (bps) year over year. Lower merchandise margin rate coupled with deleveraged buying and occupancy expenses induced this downside.

SG&A expenses were down 4% year over year to $388.6 million and as a rate of sales , fell 70 bps. However, operating income amounted to $280 million, down 17% from the year-ago quarter’s level. Operating margin also contracted 360 bps to 19.3%.

Key Financial Metrics

Bath & Body Works ended the first quarter with cash and cash equivalents of $650.7 million, inventories of $820.2 million, long-term debt of $4,855.6 million and a shareholder deficit of $2,657.7 million.

In February, BBWI’s board authorized a new $1.5-billion share repurchase program, of which $1 billion was deployed in the reported quarter apart from increasing the annual dividend by 33%. Bath & Body Works retired 13.6 million shares in the quarter. Management also repurchased and retired 4.7 million shares for $235.2 million under the remaining $500-million share buyback authorization.

As of Apr 30, 2022, BBWI operated 1,759 stores.

For fiscal 2022, Bath & Body Works expects capital expenditures of $400 million. Free cash flow is projected between $700 and $800 million.

Outlook

For fiscal 2022, management forecast sales to increase in low-single digits from $7.9 billion recorded in fiscal 2021. It projected the gross margin rate to be nearly 44% and the SG&A rate to grow about 100 bps. Earnings per share from continuing operations are estimated between $3.80 and $4.15, implying a fall from $4.51 earned in fiscal 2021.

Bath & Body Works expects second-quarter fiscal 2022 sales to rise in the low-single digit range from $1.704 billion achieved in fiscal 2021. BBWI projects the gross-margin rate to fall significantly to 43% on increased inflationary costs. Management anticipates SG&A dollars to increase in the low-single digit range from the year-ago reported figure for the fiscal second quarter. Earnings from continuing operations for the fiscal second quarter are predicted between 60 cents and 65 cents, indicating a decline from 77 cents a share earned in fiscal 2021.

Internationally, Bath & Body Works expects its franchise partners to inaugurate about 70-95 gross new stores for store count growth of 20-30%.

Key Picks in Retail

A few better-ranked stocks in the Retail  sector that investors can consider are Boot Barn (BOOT Quick QuoteBOOT - Free Report) , Costco (COST Quick QuoteCOST - Free Report) and Kohl's (KSS Quick QuoteKSS - Free Report) .

Boot Barn, a lifestyle retail chain devoted to western and work-related footwear, apparel and accessories, currently flaunts a Zacks Rank #1 (Strong Buy). BOOT has a trailing four-quarter earnings surprise of 25.2%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Boot Barn’s current financial-year sales and earnings per share suggests growth of 17% and 4.4%, respectively, from the corresponding year-ago period’s reported figures. BOOT has an expected EPS growth rate of 20% for three-five years.

Costco, which operates membership warehouses, carries a Zacks Rank #2 (Buy) at present. COST has a trailing four-quarter earnings surprise of 13.3%, on average.

The Zacks Consensus Estimate for Costco’s current financial-year sales and EPS suggests growth of 14% and 18%, respectively, from the corresponding year-ago period’s actuals. COST has an expected EPS growth rate of 9.1% for three-five years.

Kohl's, an omnichannel retailer, currently carries a Zacks Rank of 2. KSS’s bottom line outperformed the Zacks Consensus Estimate by 4.8% in the last reported quarter.

The Zacks Consensus Estimate for Kohl's current financial-year sales suggests growth of 0.8% from the year-ago period’s reading. KSS has an expected EPS growth rate of 8% for three-five years.