- Bath & Body Works cuts its forecast for the second quarter and full year as inflation eats away at demand, the company said on Wednesday.
- The retailer now expects 2022 sales to fall by mid to high digits after a record year for sales in 2021. Bath & Body Works previously forecast a low single digit increase in sales.
- The retailer also estimated a 6% to 7% drop in sales for the second quarter – compared to previous expectations of low single-digit growth – and cut its earnings forecast by about 20 cents per share.
Overview of the dive:
Bath & Body Works is the latest in a series of retailers to repeatedly lower expectations as the consumer spending environment rapidly changes.
Households have faced gas and food spikes this year, due to ongoing supply chain constraints and the war in Ukraine. After absorbing price increases in discretionary goods last year, consumers shifted their spending in response to both inflation on essential goods and more experiential spending.
In this context, Bath & Body Works is preparing for a drop in demand for its candles, soaps and other products. Bath & Body Works’ forecast cut was ‘worse than the market feared’, says Credit Suisse analyst Michael Binettiwho noted the uncertainty around the second half of the year given higher promotion expectations.
In a commentary accompanying its announced forecast reduction, the company said it has seen a drop in traffic so far in the second quarter compared to the first quarter.
And while the company said customers respond to Bath & Body Works products and experiences, it also noted that “our data indicates that customers, particularly low-income customers, have become more cost-conscious and limit purchases and/or seek out low-priced goods on sale as they are affected by the overall inflationary environment.
In response to changing trends, the retailer increased its discounts and promotions, which hurt its margins on items. “Most importantly, we anticipate that we will be able to end the season with a clean and balanced inventory position which we believe sets us up solidly heading into the second half of the year,” the company added. .
Interim CEO Sarah Nash said in a press release that the company “continues to operate at significantly higher levels than before the pandemic, although we navigate a challenging operating and macroeconomic environment with inflationary pressure. affecting our customers and our business”.
Nash – who took over earlier this year after former CEO Andrew Meslow stepped down due to health reasons – added that Bath & Body Works will continue to “chase winners” across its supply chain.
The company is also pursuing “aggressive” cost reductions through operational efficiencies and expense reductions, though it did not specify those reductions. It also involves “revisiting promotions and pricing as well as product cost to improve margin on merchandise,” Bath & Body Works said.
Also during the quarter, the retailer tightened its return policy, which was widely known for the ability for customers to return products that were largely or completely used.
Meanwhile, it is also launching new products and fragrances – at the rate of a new product every four to six weeks – and preparing for the Halloween season and the launch of a new loyalty program.