Personal care and home fragrance retailer Bath & Body Works (NYSE: BBWI) met Wall Street’s revenue expectations in Q4 CY2024, but sales fell by 4.3% year on year to $2.79 billion. On the other hand, next quarter’s revenue guidance of $1.41 billion was less impressive, coming in 1% below analysts’ estimates. Its GAAP profit of $2.09 per share was 3.2% above analysts’ consensus estimates.

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Gina Boswell, CEO of Bath & Body Works, commented, “Our team delivered strong performance that exceeded expectations on both the top and bottom line in the critical fourth quarter. This success was driven by our product innovation, strong execution and the outstanding customer experience provided by our associates.”

Company Overview

Spun off from L Brands in 2020, Bath & Body Works (NYSE: BBWI) is a personal care and home fragrance retailer where consumers can find specialty shower gels, scented candles for the home, and lotions.

Beauty and Cosmetics Retailer

Beauty and cosmetics retailers understand that beauty is in the eye of the beholder, but a little lipstick, nail polish, and glowing skin also help the cause. These stores—which mostly cater to consumers but can also garner the attention of salon pros—aim to be a one-stop personal care and beauty products shop with many brands across many categories. E-commerce is changing how consumers buy cosmetics, so these retailers are constantly evolving to meet the customer where and how they want to shop.

Sales Growth

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.

With $7.31 billion in revenue over the past 12 months, Bath and Body Works is a mid-sized retailer, which sometimes brings disadvantages compared to larger competitors benefiting from better economies of scale.

As you can see below, Bath and Body Works’s sales grew at a tepid 6.2% compounded annual growth rate over the last five years (we compare to 2019 to normalize for COVID-19 impacts).

This quarter, Bath and Body Works reported a rather uninspiring 4.3% year-on-year revenue decline to $2.79 billion of revenue, in line with Wall Street’s estimates. Company management is currently guiding for a 2% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 3% over the next 12 months, a deceleration versus the last five years. This projection is underwhelming and indicates its products will see some demand headwinds.

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Store Performance

Number of Stores

The number of stores a retailer operates is a critical driver of how quickly company-level sales can grow.

Bath and Body Works sported 2,424 locations in the latest quarter. Over the last two years, it has opened new stores at a rapid clip by averaging 4.9% annual growth, among the fastest in the consumer retail sector. This gives it a chance to become a large, scaled business over time.

When a retailer opens new stores, it usually means it’s investing for growth because demand is greater than supply, especially in areas where consumers may not have a store within reasonable driving distance.

Same-Store Sales

A company's store base only paints one part of the picture. When demand is high, it makes sense to open more. But when demand is low, it’s prudent to close some locations and use the money in other ways. Same-store sales gives us insight into this topic because it measures organic growth for a retailer's e-commerce platform and brick-and-mortar shops that have existed for at least a year.

Bath and Body Works’s demand has been shrinking over the last two years as its same-store sales have averaged 3.9% annual declines. This performance is concerning - it shows Bath and Body Works artificially boosts its revenue by building new stores. We’d like to see a company’s same-store sales rise before it takes on the costly, capital-intensive endeavor of expanding its store base.

Note that Bath and Body Works reports its same-store sales intermittently, so some data points are missing in the chart below.

Key Takeaways from Bath and Body Works’s Q4 Results

It was encouraging to see Bath and Body Works beat analysts’ EBITDA expectations this quarter. We were also happy its gross margin narrowly outperformed Wall Street’s estimates. On the other hand, its full-year EPS guidance missed significantly and its EPS guidance for next quarter fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 2.6% to $40.06 immediately following the results.

Bath and Body Works underperformed this quarter, but does that create an opportunity to invest right now? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.