Bath & Body Works Inc.’s stock soared 9% Thursday, after the retailer posted better-than-expected fiscal first-quarter earnings and raised its bottom-line guidance.
The move put the stock on track for its biggest one-day percentage gain since Jan. 4, when it rose 10.5%. It’s now up for five of the past six days.
The volume of 6.1 million shares traded by early afternoon was above the daily average of 3.5 million over the last 65 days.
The numbers exceeded negative expectations from some analysts, who were anticipating weakness as consumers hit by high inflation become more cautious about discretionary items. Bath & Body Works
which was spun out of L Brands in August of 2021, makes fragrances for the body and home, as well as soaps and sanitizers.
UBS, for example, downgraded the stock to neutral from buy in March and wrote in early May that it expected a negative catalyst in first-quarter numbers. Among the 14 banks that cover the stock on FactSet, eight rated it a buy and six a hold.
The Columbus, Ohio-based company posted net income of $81 million, or 35 cents a share, for the quarter to April 29, down from $155 million, or 64 cents a share, in the year-earlier period.
Excluding a one-time pretax gain of $7 million related to the early extinguishment of debt, adjusted EPS came to 33 cents, ahead of the FactSet consensus of 26 cents.
Sales fell to $1.396 billion from $1.450 billion a year ago, edging ahead of the $1.393 billion FactSet consensus. Sales were up 46% from the first quarter of 2019, before the pandemic took hold.
“We delivered first quarter sales in line with our expectations while our EPS was better than anticipated as we saw benefits from our work to improve merchandise margin as well as early benefits from our cost optimization initiatives,” Chief Executive Gina Boswell said in a statement.
On a call with analysts, Boswell said the company is benefiting from a loyal customer base that’s receptive to innovations, such as its new soap formulation made without paraben, sulfate or dyes, and its “surprise and delight” product launches.
“An example of this is our recent ice cream candle drop, which sold out in near hours online and same day in store,” she said, according to a FactSet transcript.
“We expect to increasingly leverage these types of events to drive traffic and generate brand excitement.”
A loyalty program launched last August was another highlight, she said, and has enrolled 37 million members to date. Loyalty sales now account for about two-thirds of U.S. sales and those shoppers tend to spend more and shop more frequently.
In the men’s business, the company saw strong demand for fragrances and is now planning to expand the portfolio to include grooming products.
“The first stage of our expansion focuses on face and beard care, just launched in advance the Father’s Day,” Julie Rosen, company president told analysts. “We’ll follow with the expansion into men’s hair and shaving later in the year.”
Still, the company said sales softened in mid-March, a trend seen at other retailers, including Target Corp.
and Home Depot
against a weak macro background. But they picked up again in late April due to “traffic-driving events,” said Chief Financial Officer Wendy C. Arlin on the call.
See: ‘Cleaner’ Target enjoying margin recovery, analysts say
Also: Home Depot’s 2023 outlook downgraded to ‘transitional period’ with sales falling for first time in 14 years
The company is still expecting fiscal 2023 sales to be flat to down in the mid-single digits, but expects adjusted EPS to range from $2.68 to $3.08. The FactSet consensus implied a sales decline of 1.1% and EPS of $2.94.
For the second quarter, it expects sales to fall by low to mid-single digits and for EPS to range from 27 cents to 32 cents. The FactSet consensus was for a sales decline of 3.3% and EPS of 32 cents.
The company’s on track to meet cost savings targets of more than $100 million, driven by savings on freight and store selling costs.
The stock has fallen 19% in the year to date, while the S&P 500
has gained 8.3%.
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