The rising popularity of fragrance plug-ins and the introduction of men’s grooming were not enough to prevent Bath & Body Works’ sales from sliding in its second quarter, although earnings performed better than expected.
Despite it looking increasingly likely that the U.S. will avoid a recession in the near term, Gina Boswell, the retailer’s newly minted chief executive officer, told analysts that consumers tightened their purse strings during the quarter amid economic uncertainty. The observation mirrored that of other leading retail CEOs in recent days, from Macy’s Inc. to Kohl’s Inc.
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“As expected, we continue to see some pressure on basket size during the quarter,” Boswell said. “To be clear, we aren’t seeing any trade down in our business, but we’ve observed that the customer is carefully managing their spending against the backdrop of a challenging macroeconomic environment.”
The company reported net sales of $1.56 billion for the second quarter ended July 29, down 3.6 percent compared to the same period a year earlier, but in line with Wall Street forecasts. Shares rose by 3.8 percent to $36.25 on Wednesday.
As a result, for fiscal 2023, the company expects net sales to decline 1.5 to 3.5 percent, after previously forecasting that sales would see flat to a midsingle-digit growth.
Bath & Body Works’ sentiments chimed in with industry data showing that customers in the mass market have been cautious amid high inflation, rising interest rates and uncertainty over the cancellation of student debt.
Weakness was reported in Bath & Body Works’ home fragrance and soaps and sanitizers categories, which both declined versus last year. Sales for the home fragrance and soaps and sanitizers categories represent just over half of the business.
In particular, it faced pressure in candles as the category continues to normalize post-pandemic.
Instead, wallflower fragrances once again outperformed candles as customers are spending less time at home.
Other bright spots were men’s grooming, which launched at the beginning of the quarter and exceeded Bath & Body Works’ expectations. After launching beard care, it will debut men’s hair and shave next month.
It will also launch laundry this month across a limited number of stores and online.
Adjusted second-quarter earnings per diluted share were 40 cents and adjusted net income was $92 million. Analysts had penciled in 33 cents.
For fiscal 2023, the company is anticipating that adjusted earnings per diluted share will come in at between $2.80 and $3.10. It previously forecast a range of $2.68 to $3.08.
The company was formed in August 2021 when the former L Brands split into two entities: Victoria’s Secret and Bath & Body Works. Each company trades individually on the New York Stock Exchange. Bath & Body Works was number 11 on WWD Beauty Inc’s most recent Top 100 Beauty Manufacturers list, with $4.6 billion in sales for calendar 2022.
Most recently, it faced a proxy challenge from activist investor Third Point, but the two parties quickly reached an agreement.
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