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Earnings Results: Bath & Body Works rockets higher on elevated profit forecast

Shares of Bath & Body Works Inc. surged after hours on Wednesday, after the retail chain hiked its full-year profit outlook and reported third-quarter results that beat expectations.

The retailer — which sells personal-care items, beauty products and home fragrances — reported net income of $91.03 million, or 40 cents a share, compared with $87.8 million, or 66 cents a share, in the same quarter last year. Revenue fell 5% to $1.6 billion, compared with $1.68 billion in the prior-year quarter.

Analysts polled by FactSet expected Bath & Body Works

to report adjusted earnings per share of 20 cents, on sales of $1.56 billion.

For the fourth quarter, which includes the key holiday shopping season, management forecast earnings per share of $1.45 to $1.65. FactSet forecast $1.54.

For the full year, executives said they expected earnings of between $3.00 a share and $3.20 a share, up from a prior forecast of $2.70 to $3.00. For the full year, FactSet expects Bath & Body Works to earn $2.89 a share, on revenue of $7.39 billion.

“Looking forward through the remainder of the year and beyond, we are pleased with our assortment — a great mix of returning holiday favorites and new giftable offerings,” interim Chief Executive Sarah Nash said in a statement. “We are continuing to stay close to our customer, and we remain disciplined in our expense and inventory management.”

Shares jumped 16% higher on in after-hours trading Wednesday.

Prior to the results, Raymond James analysts said they saw “some early signs of softening” in beauty-product demand. But as basic necessities get more expensive, they said customer demand had stood up to price increases more than usual.

During a conference in September, Bath & Body Works Chief Financial Officer Wendy Arlin said lower-income customers were “disproportionately impacted in terms of willingness to spend than our other customers.” And she said that in the back half of 2022, “we are anticipating being slightly more promotional than we were last year,” or likelier to cut prices. However, she said the backdrop would be “still substantially less promotional than we would have been 2019 or pre-pandemic.”

Still, Bath & Body Works — formerly known as L Brands, the former parent of Victoria’s Secret & Co.

— has tried to cut costs and simplify the way it operates. This month, following a long search, the company named Gina Boswell as its chief executive, a move that takes effect Dec. 1. Management in August said it cut around 130 jobs, largely in leadership positions, and offered up third-quarter profit forecast that came in below Wall Street’s expectations.

The retail industry has tried to clear its warehouses of unwanted and off-season goods, after inflation stretched consumer budgets and forced them to prioritize necessities like groceries. But a recent survey from Raymond James found that 65% of consumers planned to “at least maintain” their level of spending levels on beauty products in the year ahead. And it found customers were least likely to cut back on skincare and hair-product purchases.

Still, Ulta Beauty Inc.

Chief Financial Officer Scott Settersten, during a conference in September, also said he expected greater markdowns this holiday season than in prior years.

“During the holiday period, we compete not only with our beauty competitors, but with all of retail for gift giving dollars,” he said. “And so especially with the overhang here, we’re seeing it get across the retail category, I’d say we do expect the fourth quarter to be more promotional than it has been the last couple of years.”

Shares of Bath & Body Works have fallen 55% year to date. The S&P 500 Index

is down 17% over that time.

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