On Thursday, Baird adjusted its outlook on Bath & Body Works Inc. (NYSE:BBWI) shares, reducing the price target to $45 from $54, while keeping an Outperform rating on the stock.
The firm's decision followed the company's recent financial performance, which included a modest earnings per share (EPS) increase that surpassed expectations due to better margins, although it was countered by a shortfall in revenue.
The company's management has updated its fiscal year 2024 guidance, raising the lower end while lowering the higher end of projections. This revision was mainly attributed to a more cautious outlook for second-half demand following the second fiscal quarter's sales miss.
The anticipated revenue growth inflection has been delayed longer than initially expected, largely due to persistent macroeconomic pressures and a slower rate of acquiring new customers.
Baird's revised price target of $45 reflects a downward adjustment in forward-looking estimates, focusing on a reduced revenue forecast. The firm has also adopted a more conservative valuation framework in light of the company's recent performance and market conditions.
The analyst from Baird noted that while Bath & Body Works did manage to outperform on the EPS front, the path to achieving a revenue growth inflection is proving to be more challenging than anticipated. The current economic environment and the pace at which the company is attracting new customers are contributing factors to this extended timeline.
In summary, Baird's updated price target for Bath & Body Works takes into account the lower-than-expected top-line performance and incorporates a cautious approach to valuation, given the ongoing economic headwinds and the company's efforts to navigate through a competitive retail landscape.
In other recent news, Bath & Body Works has been the subject of revised outlooks by both BofA Securities and JPMorgan. BofA Securities reduced its price target for the company to $45.00 from $54.00, while maintaining a Buy rating.
This followed Bath & Body Works' Q2 earnings report, which revealed an earnings per share (EPS) of $0.37, slightly beating expectations. However, the company experienced a 2% sales decline, prompting a downward revision of its full-year sales guidance.
JPMorgan also revised its price target for Bath & Body Works, dropping it to $39.00 from $42.00, while maintaining a Neutral rating. The company reported a 2.1% year-over-year decline in sales, attributed to reduced consumer traffic and underperformance in semi-annual sales. Despite the sales drop, the company managed to report adjusted EPS of $0.37 for the second quarter of fiscal year 2024, slightly above the consensus estimate of $0.36.
In terms of future expectations, Bath & Body Works has raised its cost optimization savings target to $130 million from $100 million, which is expected to positively impact both gross profit margin and selling, general, and administrative expenses. The company is also set to repurchase $400 million in shares. These recent developments underline the company's efforts to navigate a challenging market while striving for operational efficiency and growth.
InvestingPro Insights
In light of Baird's recent price target adjustment for Bath & Body Works Inc. (NYSE:BBWI), a closer look at the company's financials through InvestingPro data reveals a mixed picture. The firm's market capitalization currently stands at $7.75 billion, with an attractive P/E ratio of 8.38, suggesting a potentially undervalued stock relative to its near-term earnings growth. This is further supported by an adjusted P/E ratio of 7.76 over the last twelve months as of Q2 2025.
On the operational front, Bath & Body Works has demonstrated a strong gross profit margin of 44.03% in the same period, alongside a robust operating income margin of 17.41%. These figures underscore the company's ability to maintain profitability despite revenue challenges. Furthermore, the company has upheld its commitment to shareholders with a dividend yield of 2.48% as of the last dividend date in August 2024.
InvestingPro Tips highlight that Bath & Body Works has been proactive in its capital return strategy, with management aggressively buying back shares, and maintaining dividend payments for 52 consecutive years. However, it's important to note that 10 analysts have revised their earnings downwards for the upcoming period, which may warrant investor caution. For those interested in a deeper analysis, there are additional InvestingPro Tips available at https://www.investing.com/pro/BBWI, which can provide further guidance on the stock's outlook.
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