Why Bath & Body Works stock fell 13% on Tuesday

Soap and sundries inventory Bath & Body Works (BBWI -12.66%) It was down 13% as of 12:30 PM on Tuesday, despite the company beating both sales and earnings in its Q1 2024 earnings report this morning.

Analysts had expected Bath & Body Works to earn $0.33 per share on revenue of just under $1.4 billion. In fact, the company earned $0.38 per share and had revenue of $1.4 billion.

Bath & Body Works 1st quarter performance

Bath & Body Works suggested on its earnings call that analysts weren’t entirely wrong in forecasting revenue of less than $1.4 billion. That number was actually higher than the company itself had expected (although it was still down about 1% per year). Meanwhile, gross profit, operating profit, and net profit all increased, resulting in significant profit growth of 9% year-on-year.

Management raised its guidance for both sales and earnings through the end of the year to mark a “better-than-expected start to the year.” According to Bath & Body Works, sales may still decline, but not by more than 2.5% and may even remain flat from year to year. However, earnings were only $3.05 to $3.35 per share, representing at least a 13% year-over-year decline.

Is Bath & Body Works for sale?

So that’s not good news. But is this bad enough to justify today’s 13% selloff?

maybe. But I don’t expect these retail stocks to go much lower at this point. Even in the worst-case scenario, earning just $3.05 per share would mean that Bath & Body Works stock has a P/E ratio of less than 15x. That’s next to nothing for a company that most analysts expect to grow earnings at 12% over the next five years and offer shareholders a 1.5% dividend yield. And if Bath & Body Works maxes out this year’s guidance and earns $3.35 per share, the P/E will drop to 13.5 and the stock’s total return will be exactly 1.

For value investors, it might be cheap enough to buy.