Quarterly sales augmentation at Bath & Body Works amidst decreased demand for candles during Q1.
A Fresh Spin:
Quick Take:
- Bath & Body Works' first-quarter net sales inched down 0.9%, dipping to a modest $1.4 billion. Around 80% of U.S. sales came from their loyal customers, who number nearly 37 million.
- Gross margin bumped up 110 basis points to 43.8%, while net income saw a 7.4% increase, reaching $87 million.
- The company has been moving away from shopping malls, opening 15 off-mall stores and closing 11, mostly mall-based stores. More than half of their North American stores now operate off-mall, according to their CFO, Eva Boratto.
Behind the Scenes:
In the initial quarter, Bath & Body Works lost a bit of market share in candles, one of their flagship items, with candles sales witnessing a decline year over year. However, the retailer is finding success in expanding into new categories.
Expansion and new product launches propelled sales growth, with hair, men's grooming, and lip products driving year-over-year growth. This year, the retailer brought hair care, introduced about a year ago, to all stores, and will extend their laundry supplies, also a year-old launch, to all stores this fall.
The sales dip marks the third straight year that Q1 sales have dropped, but the results surpassed expectations, executives stated. Importantly, both gross margin and the topline expanded, and debt levels improved, BMO Capital Markets Managing Director Simeon Siegel said in a Tuesday research note, deeming the results "encouraging."
Despite the encouraging signs, Neil Saunders of GlobalData pointed out that the sales decline is becoming a lingering concern, "especially as Bath & Body Works has raised prices multiple times since the pandemic, which means that underlying volume sales are much worse than the headline sales numbers suggest."
Saunders also suggested that Bath & Body Works has yet to fully address the escalating competition they face from Amazon and other competitors. Additionally, more Bath & Body Works candle customers are branching out to explore new brands. The company has lost market share at a time when their product categories are projected to grow, Saunders said.
"The company has sensibly invested in new categories, tries to keep store standards high, and has developed a good customer loyalty scheme," Saunders noted. "However, it seems that management needs to be more alert to external threats and needs to exert more effort to improve productivity. I wonder if there is a lack of retail experience on the current senior management team; within the business, there are a lot of people with great retail knowledge and skills, but this doesn't appear to be fully reflected at the top table."
- The pandemic has led Bath & Body Works to raise prices multiple times, a decision that Neil Saunders of GlobalData finds concerning, as it suggests underlying volume sales may be worse than the headline sales numbers imply.
- In a bid to expand and stay competitive, Bath & Body Works is investing in new product categories, such as hair care and laundry supplies.
- Despite encouraging signs, the sales decline for Bath & Body Works has become a lingering concern, as the retailer faces increased competition from Amazon and other competitors.
- The company's CFO, Eva Boratto, reported that more than half of their North American stores now operate off-mall, signaling a shift away from shopping malls.
- Bath & Body Works should exert more effort to improve productivity and address external threats more proactively, according to Neil Saunders of GlobalData, who also suggests a potential lack of retail experience on the current senior management team.
- AI and research may play a crucial role in helping Bath & Body Works better anticipate trends and adapt to competition in the global finance, retail, and business industries.
- With sales growth driven by new categories like hair, men's grooming, and lip products, Bath & Body Works is finding success in expanding beyond their flagship items and traditional product lines, potentially paving the way for further innovation and sales growth in the future.
