Why Bath & Body Works Stock Tumbled 13% on Tuesday

Soaps and sundries stock Bath & Body Works (BBWI -12.82%) fell 13% through 12:30 p.m. ET Tuesday despite the company beating on both sales and earnings in its first-quarter 2024 earnings report this morning.

Heading into earnings, analysts forecast Bath & Body Works would earn $0.33 per share on sales of just under $1.4 billion. In fact, the company earned $0.38 per share, and its sales hit $1.4 billion on the nose.

Bath & Body Works’ Q1 earnings

In its earnings release, Bath & Body Works suggested analysts weren’t entirely wrong to predict less than $1.4 billion in revenue. That figure was actually more than the company itself thought it would make (albeit it was still about a 1% decline year over year). Gross, operating, and net profits, meanwhile, all increased, resulting in respectable 9% profit growth year over year.

Off to a “better-than-expected start to the year,” management also raised its guidance for both sales and earnings through the end of this year. Sales may still decline, but no more than 2.5%, said Bath & Body Works — and may even hold flat year over year. Earnings, however, will range from only $3.05 to $3.35 per share, implying at least a 13% decline year over year.

Is Bath & Body Works a sell?

So that’s not great news. But is it bad enough to justify today’s 13% sell-off?

Perhaps. But I wouldn’t expect this retail stock to drop much lower from this point. Consider that even in the worst-case scenario, if it earns only $3.05 per share, this would imply less than a 15x P/E ratio for Bath & Body Works stock. That’s hardly expensive for a company that most analysts expect will grow earnings at 12% over the next five years, and that pays its shareholders a 1.5% dividend yield. And if Bath & Body Works maxes out its guidance and earns $3.35 per share this year, its P/E will fall to 13.5, yielding a total return ratio of exactly 1 on the shares.

For value investors, that might even be cheap enough to buy.