Why is Bath & Body Works Stock so Cheap?

It’s candle and holiday hand soap season – so why is this stock around a 60% discount?

Andrew Willis 1 December, 2023 | 4:27AM
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Interested in other cheap stocks? Check out our recent episode on Rogers stock

Key Takeaways for Bath & Body Works Stock:

  • After a sales growth decline in 2023, Bath & Body Works (BBWI) is trading at a significant discount as shoppers pick up seasonal products.
  • Bath & Body Works is still the leader in its product categories, although there is still plenty of room to compete and expand.
  • The company is considering compelling opportunities to enter new categories by leveraging its brand awareness, with potential men’s products, hair care, shaving and even laundry products.

 

Andrew Willis: By now, most of the holiday hand soaps have been deployed and there may even be a few candles already purchased as gifts. This should make Bath & Body Works a stock in season, but even with a decent dividend, it’s selling for about half of our fair value estimate.

Investors may be missing out as senior analyst Jaime Katz says Bath & Body Works is not only number one in its product lines but looking to expand. Currently, the company leads the specialty home fragrance, body care and fragrance, and hand soap and sanitizer categories, with much upside potential remaining as the company ‘only’ made 7.6 billion dollars in industries that total around 86 billion dollars as of 2022. There’s also the opportunity for the company to leverage its success elsewhere.

Bath & Body Works -  and Beyond

With a whopping 80% brand awareness among women and 60% among men, Bath & Body Works is considering categories like hair care, shaving, and even laundry products for those who really want to smell like their favourite candle.

For Morningstar, I’m Andrew Willis.

bulls Bath & Body Works Bulls Say

  • BBW is set to renegotiate numerous leases over the next few years. Favorably updated rent agreements along with productivity gains from the White Barn format conversion could help boost profits.
  • The firm has rolled out a new customer loyalty app nationally; at last disclosure, it has attracted 38 million members that comprise two thirds of U.S. sales since launch. This should support repeat customer sales growth.
  • Growth opportunities exist in white-space categories including the clean, natural organic space, skincare, haircare, laundry, and men's products.

bears Bath & Body Works Bears Say

  • A secular shift in demand around mall retailing could slow footfall, tempering demand. Mall locations still represented about half of the fleet at year-end 2022 (versus 61% in 2016).
  • Consumer trends can change rapidly, leading to a mismatch in customer assortment and demand. This could take time to remedy and temporarily hinder profits if BBW has to discount to clear inventory.
  • As COVID-19 continues to subside, consumers could continue to shift discretionary spending from soaps and sanitizers to other categories, ceding further volume benefits to the operating margin.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Bath & Body Works Inc37.34 USD-0.21Rating

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar Canada. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

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