Dive Brief:
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Bath & Body Works reported that Q1 net sales were essentially flat, edging down 0.9% year over year to $1.4 billion. Loyalty members, who number about 37 million, accounted for about 80% of U.S. sales.
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Gross margin expanded by 110 basis points to 43.8%. Net income grew 7.4% to $87 million, according to a company press release.
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The retailer continues to push away from the mall, opening 15 new off-mall stores and permanently closing 11, most of which were in malls, CFO Eva Boratto told analysts. More than half the North American fleet now operates outside of malls, she said.
Dive Insight:
In the first quarter, Bath & Body Works lost unit market share in candles, one of its signature items, with candle sales declining year over year, per its report. But the retailer is finding success with its entry into new categories.
Newness and new products helped boost sales in the period, with hair, men’s grooming and lip products driving year-over-year growth. Earlier this year the retailer brought hair care, introduced about a year ago, to all stores, and this fall will roll out its laundry supplies, also launched about a year ago, to all stores.
While overall sales declined slightly, the results beat expectations, executives said. Importantly, gross margin and the topline grew and debt levels improved, BMO Capital Markets Managing Director Simeon Siegel said in a Tuesday research note, calling the results “encouraging.”
But the sales dip was the third straight year that Q1 sales have fallen, according to GlobalData Managing Director Neil Saunders.
“Some of this deterioration could previously be chalked up to a normalization after a boom during the pandemic. However, we are now reaching the stage where this excuse is wearing a little thin,” he said in emailed comments. “This is especially so as Bath & Body Works has pushed up prices multiple times since the pandemic, which means that underlying volume sales are much worse than the headline sales numbers indicate.”
The retailer “has not yet fully addressed” the steeper competition it’s facing from Amazon and elsewhere, and more Bath & Body Works candle customers are shopping around and trying new brands, according to GlobalData research. The company has lost market share at a time when its product categories are projected to grow, Saunders said.
“The shame of all of this is that Bath & Body Works is not a bad retailer. Far from it. The company has sensibly invested in new categories, tries to keep store standards high, and has developed a good customer loyalty scheme,” he said. “However, our sense is that management needs to be more alert to external threats and needs to double down on trying to improve productivity. As part of this we wonder whether 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 is not entirely reflected at the top table.”
