Bath & Body Works (BBWI Quick QuoteBBWI - Free Report) posted soft third-quarter fiscal 2025 results, wherein the top and bottom lines lagged the Zacks Consensus Estimate and decreased year over year. Results were hurt by the persistent macro consumer pressures and tariff headwinds. Consequently, management has trimmed the outlook for the rest of 2025.

A dull quarter and lowered guidance for 2025 have compelled the stock to plunge nearly 25% yesterday. Shares of this Zacks Rank #3 (Hold) company have lost 52% in the past three months compared with the industry’s drop of 10.8%.

Nevertheless, the company has unveiled a comprehensive transformation strategy designed to rejuvenate Bath & Body Works across its brands, product lineup and marketplace presence. Anchored in its Consumer First Formula, the plan revolves around investment in its four key growth drivers: delivering disruptive, innovative products; reigniting brand energy; strengthening BBWI’s marketplace position; and enhancing speed and operational efficiency. Such initiatives are crafted to attract a new generation of young consumers and propel the brand into its next phase of growth.

BBWI’s Quarterly Performance: Key Metrics & Insights

The company reported adjusted earnings of 35 cents per share in the fiscal third quarter, lagging the Zacks Consensus Estimate of 40 cents and down from 49 cents recorded in the year-ago quarter. Net sales fell 1% year over year to $1,594 million and lagged the Zacks consensus estimate of $1,627 million.

Net sales for Stores - U.S. and Canada inched up 0.2% year over year to $1.22 billion, which lagged the Zacks Consensus Estimate of $1.26 billion. Direct - U.S. and Canada net sales tumbled 7% to $299 million, missing the consensus estimate of $309 million. International operations’ net sales increased 6.1% to $73 million, matching the Zacks Consensus Estimate. Digital sales remain an area of focus for improvement. With almost 40 million active loyalty members and strategic collaborations like Disney Villains, BBWI is enhancing consumer engagement and brand storytelling.

Sneak Peek Into BBWI’s Margins

The gross profit dipped 6.4% year over year to $658 million. Also, the gross margin fell 220 basis points (bps) to 41.3% in the quarter under review, due to a 260-bps decline in merch margin. The merch margin was hurt by nearly $35 million or approximately 200 bps from tariffs. The company has increased its promotional activity to clear seasonal products as it ended the quarter with clean inventory.

General, administrative and store operating expenses increased 3.1% year over year to $497 million. As a percentage of net sales, this metric deleveraged 120 basis points year over year to 31.2% in the quarter under review.

Bath & Body Works reported an operating income of $161 million in the fiscal third quarter, down 26.1% from the year-ago quarter. BBWI’s operating margin decreased 340 basis points to 10.1% in the quarter.

Net income was $77 million, down 27.4% from $106 million in the year-ago quarter.

Bath & Body Works’ Store Update

The company ended the quarter with 1,934 stores, wherein it operated 1,821 stores in the United States and 113 in Canada. In the fiscal third quarter, it opened 40 North American stores, mainly in off-mall locations and permanently shut down 10 stores, primarily in malls. Its portfolio is healthy with 59% of its fleet in off-mall locations.

Internationally, partners opened 10 stores while closing three during the quarter, ending the quarter with 544 stores. BBWI reiterated that international expansion plans for fiscal 2025 remain on track, with at least 30 net new store openings planned.

BBWI’s Financial Health Snapshot

Bath & Body Works ended the quarter with cash and cash equivalents of $236 million, long-term debt of $3.89 billion and long-term operating lease liabilities of $897 million. Total inventory at the end of the fiscal third quarter increased 6.2% from the previous-year period.

In the fiscal third quarter, the company provided $225 million in net cash for operating activities. It returned $41 million to shareholders via dividends and bought back 3 million shares of the stock for $87 million at an average price of $29.25 per share. Year-to-date, it has returned $126 million to shareholders through dividends and repurchased 11.5 million shares of common stock for $343 million.

BBWI’s Q4 Outlook

For the fourth quarter of fiscal 2025, management projects net sales to decline high-single digits compared with $2,788 million in the fourth quarter of fiscal 2024. Fourth-quarter earnings are likely to be at least $1.70 per share, lower than $2.09 earned in the fourth quarter of fiscal 2024. The fourth-quarter guidance shows the persistent negative macro consumer sentiment largely weighing on its consumers’ purchase intent. The outlook also reflects the expected impact of the entire tariff rates presently in effect, levied by the U.S. government and other countries.

Beginning in late Q3, the company expects quite a competitive and challenging start to holiday season, as macro consumer sentiment is hurting consumers' purchase intent. It assumes trends witnessed to date to continue through the season and modest impacts of changes to online purchase limits. Systemwide international retail sales are likely to be up high-single digits and reported net sales to be up mid-single digits.

For the same quarter, it projects gross margin of 44.5%, thanks to tariff impacts and increased promotion levels. It expects tariffs to hurt gross margin by 100 bps, net of mitigation efforts. Selling, general and administrative (SG&A) expenses, as a percentage of sales, are forecast at 24%, reflecting weak sales trends, offset by disciplined cost management. Bath & Body Works forecasts fiscal fourth-quarter interest expenses and other to be $60 million and tax rate of 25%.

BBWI’s FY25 Outlook

The company is revising and trimming its 2025 net sales and earnings per share guidance. Net sales are now projected to decrease low single digits compared with $7,307 million in fiscal 2024. Earlier, management had predicted a net sales growth outlook of 1.5-2.7%. 

It expects gross margin to be nearly 43.3%, with tariffs hurting the metric by 100 bps, net of mitigation efforts. Adjusted SG&A rate is now forecast to be approximately 28.3% on soft top-line expectations.

Full-year 2025 earnings per share are now expected to be at least $2.83 compared with $3.61 in fiscal 2024. Adjusted earnings per share are now expected to be at least $2.87 compared with $3.29 in fiscal 2024. The guidance includes the anticipated impact of all the discussed tariff rates. The guidance includes the planned impact of $400 million of cash deployed toward share repurchases. It forecasts generating free cash flow of roughly $650 million for 2025. 

Management had earlier guided fiscal 2025 earnings per share between $3.28 and $3.53, whereas it reported earnings of $3.61 in fiscal 2024. The adjusted earnings per share guidance was earlier guided at $3.35-$3.60. It reported adjusted earnings per share of $3.29 in fiscal 2024.

Capital expenditure for the year is planned to be $240 million, down from the earlier guided range of $250-$270 million, focused primarily on real estate and technology. The free cash flow is expected to be $650 million compared with $750-$850 million expected earlier, supported by working capital improvements through its “fuel for growth” initiatives.

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