By Michael Elkins
Citi downgraded Bath & Body Works (NYSE:BBWI) to Neutral (From Buy) and cut their price target on the retailer to $48.00 (From $50.00) ahead of the company’s 4Q earnings release. Analysts are anticipating a modest 4Q print from BBWI, but believe that investor focus will be on where new CEO Gina Boswell sets the bar for F23 as well as longer-term margin targets.
Analysts wrote in a note, “BBWI is facing significant margin headwinds (raw materials inflation, AUR pressure, wage pressure, tech investments) which we expect to continue into 2023 and potentially beyond. We believe Boswell will focus on cost cutting/efficiencies to offset margin pressures, but that may take time. As a result, we see mgmt taking a conservative approach to F23 guidance (our est $3.44 vs cons $3.65) and potentially pushing out their long-term goal of low to mid-20% EBIT margin (vs F22E ~17.5%). With shares trading at an F23E EV/EBITDA multiple of 9.0x, we believe the risk/reward is more balanced at current levels.”
Citi raised 4Q EPS estimates to $1.62 (From $1.55), $0.02 ahead of the consensus estimate based on slightly stronger comps/GM vs consensus. Citi’s FY22 estimates go to $3.13 (From $3.06). FY23 estimates were lowered from $3.80 to $3.44 based on more conservative sales/GM assumptions. Analysts note that Citi’s 1Q23 estimate of $0.33 is below the consensus estimate of $0.46, as Citi expects GM to be particularly pressured in 1Q.
Shares of BBWI are down 3.48% in early trading on Wednesday.