Bath & Body Works falls on weak 2026 sales outlook
Q4 earnings beat expectations masked by FY2026 guidance showing 4.5% sales decline and lower EPS
Bath & Body Works shares fell in pre-market trading on Wednesday after the specialty retailer reported fourth-quarter earnings that beat analyst expectations but issued fiscal 2026 guidance projecting a significant sales decline and lower earnings.
The Columbus, Ohio-based company reported adjusted earnings per share of $2.05 for the quarter ending January 31, 2025, exceeding Wall Street consensus estimates of $1.77. However, the stronger-than-expected quarterly performance was overshadowed by a bleak outlook for the coming year.
For fiscal 2026, Bath & Body Works forecast net sales to decline between 4.5% and 2.5% compared to $7.291 billion in fiscal 2025. The company projected adjusted earnings per share of $2.40 to $2.65, well below the $3.21 adjusted EPS reported for fiscal 2025.
Fourth-quarter net sales declined 2% to $2.724 billion, while U.S. and Canada store sales fell 2.6% to $2.054 billion. Operating income for the quarter reached $599 million.
"We are driving progress on our Consumer First Formula across innovation, brand elevation and marketplace expansion," the company said in its earnings release, outlining a $600 million free cash flow target for fiscal 2026.
The weak guidance reflects ongoing challenges in the retail environment as consumers remain cautious amid economic uncertainty. The company's struggles follow a disappointing third quarter, where revenue declined 1% year-over-year to $1.59 billion and net income dropped 26%.
Investor concerns have been mounting. Citigroup downgraded the stock to "Neutral" on February 17, citing a "weak" core business and projected sales declines. More dramatically, Cooper Creek Partners Management liquidated its entire $129 million stake in Bath & Body Works during the fourth quarter, according to regulatory filings.
Adding to the pressure, a securities class action lawsuit has been filed against the company, alleging that the company's growth strategy failed to deliver promised net sales growth and that management relied on collaborations to "carry quarters" and obscure weak underlying financial results.
The company has been implementing turnaround initiatives, including a $250 million cost savings program over the next two years, with more than half targeted for 2026. In February, Bath & Body Works officially launched an authorized storefront on Amazon as part of a strategy to expand its marketplace reach and attract new consumers.
Despite the challenges, some analysts see value at current levels. The stock trades at a price-to-earnings ratio of 7.05, significantly below market averages. Bath & Body Works has 11 hold ratings and 5 buy ratings from Wall Street analysts, with an average target price of $25.54, according to market data.
The muted pre-market reaction of just 1.8% suggests investors may be focusing more on the deteriorating forward outlook than the quarterly earnings beat. The company's shares have declined 36.3% over the past year, reflecting broader concerns about the retail sector and consumer spending patterns.
Bath & Body Works will host a conference call at 8:30 a.m. Eastern Time to discuss the results and provide more detail on its strategy for navigating the challenging retail environment in fiscal 2026.