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The Ratings Game: Bath & Body Works cuts outlook to cover cost of investments, driving stock slide

Bath & Body Works Inc. shares slumped 8.5% in Friday trading after the personal care and fragrance company cut its outlook to cover the cost of investments in a new loyalty program and technology enhancements.

Bath & Body Works
BBWI,
-8.33%

reported first-quarter profit and sales that beat expectations, but lowered its full-year earnings-per-share forecast to between $3.80 a share and $4.15 a share, below the FactSet consensus for $4.17.

“We are accelerating investments in the business to drive our long-term growth,” said Sarah Nash, interim chief executive of the company, on the earnings call, according to FactSet.

“Long term, we continue to see exceptional opportunities to capitalize on Bath & Body Works’ existing strengths and extend the brand’s global potential.”

The stock slide brought down Victoria’s Secret & Co.
VSCO,
-6.47%
,
which fell 6.7% on Friday. Victoria’s Secret and Bath & Body Works were once under the L Brands umbrella before separating in August 2021.

Among the areas Bath & Body Works hopes to grow is its men’s business.

“[M]en’s is a big priority,” Nash said. “This business delivered close to $400 million in net sales in 2021, and we expect it can more than double its size over time.”

See: Etsy is setting its sights on male shoppers

And in a time when supply chain bottlenecks persist, Bath & Body Works says it has an advantage with a supply chain that is 85% based in North America.

Wells Fargo says it still has a “bullish” stance on Bath & Body Works.

“The rebased earnings plan is solely a function of costs, a combination of greater inflation, a pull-forward of investments to support being a stand-alone entity with improved tech and CEO transition costs are the culprit,” analysts led by Ike Boruchow wrote.

“We also point out that BBWI has an open CEO seat today, and the idea of a rebased fiscal year plan (with out-year investments moved up into 2022) likely makes the seat even more appealing.”

Wells Fargo rates Bath & Body Works stock overweight with a $70 price target.

“Our view is the stock is still worth owning,” wrote UBS analysts led by Jay Sole.

“While Bath & Body Works probably lacks a catalyst in the short-term […], we expect the price to rise over the next 12 months since Bath & Body Works’ double-digit percent EPS CAGR [compound annual growth rate] is still intact.”

UBS rates Bath & Body Works stock buy with a $102 price target.

“Our take is that top-line momentum remains intact, albeit promotional activities appear elevated year-over-year,” wrote Cowen analysts led by Jonna Kim.

 ”Further we believe management is doing a good job mitigating the impact by surgically increasing pricing on select products and infusing innovation and newness across categories.”

Cowen rates Bath & Body Works stock outperform with a $60 price target, down from $82.

Bath & Body Works shares have slumped 47.5% for the year-to-date.

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