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BBWI topped Q1 earnings and sales estimates despite year-over-year declines in both metrics.
BBWI said that Consumer First Formula efforts are beginning to resonate with shoppers.
BBWI reaffirmed its FY26 view and expects stronger benefits from investments into fiscal 2027.
Bath & Body Works (BBWI - Free Report) posted first-quarter fiscal 2026 results, wherein the top and bottom lines surpassed the Zacks Consensus Estimate. However, sales and adjusted earnings declined year over year, reflecting persistent pressure from cautious consumer spending, category mix challenges and tariff-related cost inflation. Management noted that underlying business trends remained consistent with the softness seen in recent quarters.
Despite the pressured environment, the company highlighted encouraging progress from its Consumer First Formula strategy, which is designed to drive sustainable long-term growth. The initiative focuses on strengthening hero categories, accelerating disruptive product innovation, modernizing the brand, improving digital and marketplace capabilities, and operating with greater speed and efficiency.
Management stated that early proof points from these efforts are beginning to resonate with consumers and expects momentum to build through the remainder of 2026 and into 2027. As a result, BBWI shares gained 9.7% yesterday.
Bath & Body Works, Inc. Price, Consensus and EPS Surprise
Bath & Body Works reported adjusted earnings of 32 cents per share in the fiscal first quarter, surpassing the Zacks Consensus Estimate of 29 cents. However, adjusted earnings declined 34.7% from 49 cents in the year-ago quarter.
Net sales declined 3.2% year over year to $1,378 million but exceeded the Zacks Consensus Estimate of $1,370 million. Performance reflected softer demand trends across several categories, partially offset by growth in soaps, sanitizers and international markets.
Net sales for Stores - U.S. and Canada declined 4.3% year over year to $1.06 billion, which met the Zacks Consensus Estimate.
Direct - U.S. and Canada net sales slipped 1.5% year over year to $246 million, surpassing the consensus estimate of $228.3 million. Management noted that normalized for the free shipping threshold change, stores and digital performed comparably during the first quarter. Buy Online, Pickup In Store represented approximately 20% of the total direct demand.
International and Other net sales increased 9% year over year to $70 million, which includes domestic third-party wholesale revenues. This surpassed the Zacks Consensus Estimate of $68.1 million. International net sales increased 5%, while system-wide retail sales rose 11% during the quarter.
Within North America, Body Care sales declined in the mid-teens, Home Fragrance sales decreased in the low-single digits, and Soaps & Sanitizers sales increased in the low-single digits.
Sneak Peek Into BBWI’s Margins
Adjusted gross profit declined 9.1% year over year to $588 million. Moreover, the adjusted gross margin contracted 270 basis points to 42.7% from the prior-year period.
The adjusted merchandise margin rate declined 210 basis points year over year due to tariffs, inflation, crude oil impacts of approximately 130 basis points and category mix. However, adjusted average unit retail remained flat year over year.
Adjusted SG&A expenses remained flat year over year at $436 million. However, as a percentage of sales, adjusted SG&A deleveraged 100 basis points to 31.7% due to sales deleverage, investments associated with the Consumer First Formula and inflationary wage pressures. These pressures were partially offset by Fuel for Growth savings initiatives and incremental cost reductions.
Adjusted operating income declined 27.6% year over year to $151 million, while the adjusted operating margin contracted 370 basis points to 11%.
Bath & Body Works’ Store Update
The company ended the quarter with 1,923 company-operated stores, including 1,810 stores in the United States and 113 stores in Canada.
During the fiscal first quarter, Bath & Body Works opened 13 stores and closed 17 stores across North America. Selling square footage totaled 5.48 million square feet at the quarter-end.
Internationally, partners operated 579 stores, including 542 international stores and 37 travel retail locations. International partners opened eight stores and closed two during the quarter, reflecting continued expansion outside North America.
BBWI’s Financial Health Snapshot
Bath & Body Works ended the fiscal first quarter with cash and cash equivalents of $820 million compared with $636 million in the prior-year period. Long-term debt stood at $3.61 billion versus $3.89 billion last year.
Inventories declined to $782 million from $869 million in the prior-year quarter, reflecting disciplined inventory management.
In the fiscal first quarter, the company generated $244 million in operating cash flow and invested $49 million in capital expenditure. BBWI also redeemed $284 million of January 2027 notes during the quarter and paid out $40 million in dividends.
BBWI’s Q2 Guidance
For the second quarter of fiscal 2026, the company expects net sales to decline 5-3% from $1.55 billion in the second quarter of fiscal 2025. Management expects the underlying business trend to decline in the low-single-digit percentage. Promotional activity is anticipated to be the same as that reported last year.
International net sales are projected to increase in the low to mid-single-digit range during the quarter. However, management highlighted that the ongoing geopolitical conflict in the Middle East is expected to weigh on international performance.
The gross profit margin for the fiscal second quarter is expected to be 40%. The anticipated margin pressure reflects higher store occupancy costs, deleverage associated with lower sales volumes and continued investments in product transformation initiatives.
The SG&A expense rate is expected to be 31.8%, reflecting sales deleverage, wage inflation, merit increases and continued investments in the Consumer First Formula. These headwinds are expected to be partially offset by savings generated through the company’s Fuel for Growth initiative.
Bath & Body Works expects fiscal second-quarter earnings per share of 20-25 cents, whereas it reported earnings of 30 cents and adjusted earnings of 37 cents in the prior-year quarter.
BBWI Reaffirms FY26 Outlook
Bath & Body Works reaffirmed all elements of its fiscal 2026 guidance despite continued macroeconomic uncertainty and value-focused consumer behavior. For fiscal 2026, the company expects net sales to decline 4.5-2.5% year over year from the fiscal 2025 reported sales of $7.291 billion. Management noted that the outlook assumes a macroeconomic backdrop similar to fiscal 2025, with consumers continuing to exhibit cautious, value-seeking spending behavior and promotional activity remaining at levels comparable to the prior year.
Underlying business trends are expected to fall 3% for the year. However, management believes that investments in innovation, improved marketing execution and expanded customer touchpoints will begin contributing more meaningfully over time, with stronger benefits anticipated during the back half of fiscal 2026 and into fiscal 2027.
Bath & Body Works expects its fiscal 2026 adjusted gross profit margin to be 42.4%. The company expects buying and occupancy deleverage tied to lower sales volumes, along with merchandise margin pressure from product investments, to weigh on profitability. These pressures are expected to be partially offset by Fuel for Growth initiatives.
Management noted that tariff-related costs, including product cost inflation, are expected to remain roughly neutral to year-over-year earnings for fiscal 2026. The outlook also assumes elevated energy prices throughout the remainder of the year.
The adjusted SG&A expense rate is expected to be 29.2%, reflecting wage inflation, Consumer First Formula investments and sales deleverage, partially offset by savings from the Fuel for Growth initiative. Bath & Body Works continues to target $250 million in cumulative savings over two years under its Fuel for Growth program, with $175 million expected to be realized in fiscal 2026. The savings are expected to be split roughly evenly between gross margin and SG&A benefits.
BBWI Stock Past 3-Month Performance
Image Source: Zacks Investment Research
Bath & Body Works expects fiscal 2026 adjusted earnings per share of $2.40-$2.65, whereas it reported adjusted earnings of $3.21 in fiscal 2025. Earnings are projected between $3.00 and $3.25, whereas it reported EPS of $3.11 in fiscal 2025. The company emphasized that its guidance does not assume any share repurchases or potential tariff refunds during fiscal 2026.
Bath & Body Works expects $270 million in capital expenditure in fiscal 2026, primarily focused on strategic investments tied to product transformation, digital capabilities and operational initiatives.
The company also expects to maintain its annual dividend of 80 cents per share during fiscal 2026 while continuing to prioritize disciplined capital allocation and balance-sheet strength. The free cash flow for fiscal 2026 is projected to be $600 million, providing flexibility to support investments, dividends and debt management initiatives.
Management stated that fiscal 2026 will serve as a foundational investment year as the company works to reposition the business for sustainable, durable long-term growth. The company believes its leadership position in home fragrance, soaps & sanitizers and body care categories, combined with disciplined cost management and consistent free cash flow generation, provides a strong foundation to execute its long-term transformation strategy successfully.
Shares of this Zacks Rank #4 (Sell) company have lost 11.7% in the past three months compared with the industry’s decline of 18.6%.
Eye These Solid Picks in Retail
We have highlighted three better-ranked stocks, namely, Tapestry, Inc. (TPR - Free Report) , Victoria's Secret & Co. (VSCO - Free Report) and Levi Strauss & Co. (LEVI - Free Report) .
The Zacks Consensus Estimate for Tapestry’s current fiscal-year earnings and sales indicates growth of 36.3% and a decline of 13.2%, respectively, from the year-ago actuals. TPR delivered a trailing four-quarter average earnings surprise of 15.6%.
Victoria's Secret is a specialty retailer of women's intimates, sleepwear, apparel, sport and swimwear, and prestige fragrances and body care. It currently has a Zacks Rank of 2. The company delivered a trailing four-quarter earnings surprise of 55.1%, on average.
The Zacks Consensus Estimate for VSCO’s current fiscal-year sales and earnings indicates growth of 6.2% and 16.3%, respectively, from the year-ago reported numbers.
Levi Strauss designs and markets jeans, casual wear and related accessories for men, women and children. It currently carries a Zacks Rank of 2.
The Zacks Consensus Estimate for Levi Strauss’ current fiscal-year earnings and sales suggests growth of 11.9% and 5.2%, respectively, from the year-ago actuals. LEVI delivered a trailing four-quarter average earnings surprise of 21.4%.
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BBWI Stock Jumps 10% on Q1 Earnings Beat & Growth Strategy Optimism
Key Takeaways
Bath & Body Works (BBWI - Free Report) posted first-quarter fiscal 2026 results, wherein the top and bottom lines surpassed the Zacks Consensus Estimate. However, sales and adjusted earnings declined year over year, reflecting persistent pressure from cautious consumer spending, category mix challenges and tariff-related cost inflation. Management noted that underlying business trends remained consistent with the softness seen in recent quarters.
Despite the pressured environment, the company highlighted encouraging progress from its Consumer First Formula strategy, which is designed to drive sustainable long-term growth. The initiative focuses on strengthening hero categories, accelerating disruptive product innovation, modernizing the brand, improving digital and marketplace capabilities, and operating with greater speed and efficiency.
Management stated that early proof points from these efforts are beginning to resonate with consumers and expects momentum to build through the remainder of 2026 and into 2027. As a result, BBWI shares gained 9.7% yesterday.
Bath & Body Works, Inc. Price, Consensus and EPS Surprise
Bath & Body Works, Inc. price-consensus-eps-surprise-chart | Bath & Body Works, Inc. Quote
BBWI’s Quarterly Performance: Key Metrics & Insights
Bath & Body Works reported adjusted earnings of 32 cents per share in the fiscal first quarter, surpassing the Zacks Consensus Estimate of 29 cents. However, adjusted earnings declined 34.7% from 49 cents in the year-ago quarter.
Net sales declined 3.2% year over year to $1,378 million but exceeded the Zacks Consensus Estimate of $1,370 million. Performance reflected softer demand trends across several categories, partially offset by growth in soaps, sanitizers and international markets.
Net sales for Stores - U.S. and Canada declined 4.3% year over year to $1.06 billion, which met the Zacks Consensus Estimate.
Direct - U.S. and Canada net sales slipped 1.5% year over year to $246 million, surpassing the consensus estimate of $228.3 million. Management noted that normalized for the free shipping threshold change, stores and digital performed comparably during the first quarter. Buy Online, Pickup In Store represented approximately 20% of the total direct demand.
International and Other net sales increased 9% year over year to $70 million, which includes domestic third-party wholesale revenues. This surpassed the Zacks Consensus Estimate of $68.1 million. International net sales increased 5%, while system-wide retail sales rose 11% during the quarter.
Within North America, Body Care sales declined in the mid-teens, Home Fragrance sales decreased in the low-single digits, and Soaps & Sanitizers sales increased in the low-single digits.
Sneak Peek Into BBWI’s Margins
Adjusted gross profit declined 9.1% year over year to $588 million. Moreover, the adjusted gross margin contracted 270 basis points to 42.7% from the prior-year period.
The adjusted merchandise margin rate declined 210 basis points year over year due to tariffs, inflation, crude oil impacts of approximately 130 basis points and category mix. However, adjusted average unit retail remained flat year over year.
Adjusted SG&A expenses remained flat year over year at $436 million. However, as a percentage of sales, adjusted SG&A deleveraged 100 basis points to 31.7% due to sales deleverage, investments associated with the Consumer First Formula and inflationary wage pressures. These pressures were partially offset by Fuel for Growth savings initiatives and incremental cost reductions.
Adjusted operating income declined 27.6% year over year to $151 million, while the adjusted operating margin contracted 370 basis points to 11%.
Bath & Body Works’ Store Update
The company ended the quarter with 1,923 company-operated stores, including 1,810 stores in the United States and 113 stores in Canada.
During the fiscal first quarter, Bath & Body Works opened 13 stores and closed 17 stores across North America. Selling square footage totaled 5.48 million square feet at the quarter-end.
Internationally, partners operated 579 stores, including 542 international stores and 37 travel retail locations. International partners opened eight stores and closed two during the quarter, reflecting continued expansion outside North America.
BBWI’s Financial Health Snapshot
Bath & Body Works ended the fiscal first quarter with cash and cash equivalents of $820 million compared with $636 million in the prior-year period. Long-term debt stood at $3.61 billion versus $3.89 billion last year.
Inventories declined to $782 million from $869 million in the prior-year quarter, reflecting disciplined inventory management.
In the fiscal first quarter, the company generated $244 million in operating cash flow and invested $49 million in capital expenditure. BBWI also redeemed $284 million of January 2027 notes during the quarter and paid out $40 million in dividends.
BBWI’s Q2 Guidance
For the second quarter of fiscal 2026, the company expects net sales to decline 5-3% from $1.55 billion in the second quarter of fiscal 2025. Management expects the underlying business trend to decline in the low-single-digit percentage. Promotional activity is anticipated to be the same as that reported last year.
International net sales are projected to increase in the low to mid-single-digit range during the quarter. However, management highlighted that the ongoing geopolitical conflict in the Middle East is expected to weigh on international performance.
The gross profit margin for the fiscal second quarter is expected to be 40%. The anticipated margin pressure reflects higher store occupancy costs, deleverage associated with lower sales volumes and continued investments in product transformation initiatives.
The SG&A expense rate is expected to be 31.8%, reflecting sales deleverage, wage inflation, merit increases and continued investments in the Consumer First Formula. These headwinds are expected to be partially offset by savings generated through the company’s Fuel for Growth initiative.
Bath & Body Works expects fiscal second-quarter earnings per share of 20-25 cents, whereas it reported earnings of 30 cents and adjusted earnings of 37 cents in the prior-year quarter.
BBWI Reaffirms FY26 Outlook
Bath & Body Works reaffirmed all elements of its fiscal 2026 guidance despite continued macroeconomic uncertainty and value-focused consumer behavior. For fiscal 2026, the company expects net sales to decline 4.5-2.5% year over year from the fiscal 2025 reported sales of $7.291 billion. Management noted that the outlook assumes a macroeconomic backdrop similar to fiscal 2025, with consumers continuing to exhibit cautious, value-seeking spending behavior and promotional activity remaining at levels comparable to the prior year.
Underlying business trends are expected to fall 3% for the year. However, management believes that investments in innovation, improved marketing execution and expanded customer touchpoints will begin contributing more meaningfully over time, with stronger benefits anticipated during the back half of fiscal 2026 and into fiscal 2027.
Bath & Body Works expects its fiscal 2026 adjusted gross profit margin to be 42.4%. The company expects buying and occupancy deleverage tied to lower sales volumes, along with merchandise margin pressure from product investments, to weigh on profitability. These pressures are expected to be partially offset by Fuel for Growth initiatives.
Management noted that tariff-related costs, including product cost inflation, are expected to remain roughly neutral to year-over-year earnings for fiscal 2026. The outlook also assumes elevated energy prices throughout the remainder of the year.
The adjusted SG&A expense rate is expected to be 29.2%, reflecting wage inflation, Consumer First Formula investments and sales deleverage, partially offset by savings from the Fuel for Growth initiative. Bath & Body Works continues to target $250 million in cumulative savings over two years under its Fuel for Growth program, with $175 million expected to be realized in fiscal 2026. The savings are expected to be split roughly evenly between gross margin and SG&A benefits.
BBWI Stock Past 3-Month Performance
Image Source: Zacks Investment Research
Bath & Body Works expects fiscal 2026 adjusted earnings per share of $2.40-$2.65, whereas it reported adjusted earnings of $3.21 in fiscal 2025. Earnings are projected between $3.00 and $3.25, whereas it reported EPS of $3.11 in fiscal 2025. The company emphasized that its guidance does not assume any share repurchases or potential tariff refunds during fiscal 2026.
Bath & Body Works expects $270 million in capital expenditure in fiscal 2026, primarily focused on strategic investments tied to product transformation, digital capabilities and operational initiatives.
The company also expects to maintain its annual dividend of 80 cents per share during fiscal 2026 while continuing to prioritize disciplined capital allocation and balance-sheet strength. The free cash flow for fiscal 2026 is projected to be $600 million, providing flexibility to support investments, dividends and debt management initiatives.
Management stated that fiscal 2026 will serve as a foundational investment year as the company works to reposition the business for sustainable, durable long-term growth. The company believes its leadership position in home fragrance, soaps & sanitizers and body care categories, combined with disciplined cost management and consistent free cash flow generation, provides a strong foundation to execute its long-term transformation strategy successfully.
Shares of this Zacks Rank #4 (Sell) company have lost 11.7% in the past three months compared with the industry’s decline of 18.6%.
Eye These Solid Picks in Retail
We have highlighted three better-ranked stocks, namely, Tapestry, Inc. (TPR - Free Report) , Victoria's Secret & Co. (VSCO - Free Report) and Levi Strauss & Co. (LEVI - Free Report) .
Tapestry is the designer and marketer of fine accessories and gifts for women and men in the United States and internationally. It carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Tapestry’s current fiscal-year earnings and sales indicates growth of 36.3% and a decline of 13.2%, respectively, from the year-ago actuals. TPR delivered a trailing four-quarter average earnings surprise of 15.6%.
Victoria's Secret is a specialty retailer of women's intimates, sleepwear, apparel, sport and swimwear, and prestige fragrances and body care. It currently has a Zacks Rank of 2. The company delivered a trailing four-quarter earnings surprise of 55.1%, on average.
The Zacks Consensus Estimate for VSCO’s current fiscal-year sales and earnings indicates growth of 6.2% and 16.3%, respectively, from the year-ago reported numbers.
Levi Strauss designs and markets jeans, casual wear and related accessories for men, women and children. It currently carries a Zacks Rank of 2.
The Zacks Consensus Estimate for Levi Strauss’ current fiscal-year earnings and sales suggests growth of 11.9% and 5.2%, respectively, from the year-ago actuals. LEVI delivered a trailing four-quarter average earnings surprise of 21.4%.