Bath & Body Works, Inc. (NYSE:BBWI) stock tumbled Thursday after the retailer missed third-quarter expectations and slashed its full-year outlook, a sharp warning that discretionary spending is weakening just as the holiday season begins.
The company reported third-quarter adjusted earnings per share of 35 cents, missing the Street view of 40 cents.
Following the results, Telsey Advisory Group analyst Dana Telsey maintained an Outperform rating on the stock, with a price forecast of $38.
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Key Metrics
Quarterly sales of $1.594 billion (down 1% year over year) missed the analyst consensus estimate of $1.634 billion.
Management said the Disney Villains collection fell short of expectations and the late-October holiday kickoff was “very challenging,” signaling softer-than-hoped consumer demand.
The company’s third-quarter 2025 results included a pre-tax gain of $8 million, or $6 million after tax, from selling a non-core asset.
Gross profit in the quarter under review totaled $658 million, down from $700 million a year ago. Gross profit margin slumped 220 basis points year over year to 41.3%.
The decline was primarily driven by a roughly 260-basis-point drop in merchandise margin, including a ~$35 million tariff hit (~200 bps). Management also cited higher promotional activity to clear seasonal inventory, while B&O leverage improved by 40 basis points thanks to exiting a third-party fulfillment center in the first quarter.
Operating Income was $161 million, lower than $218 million a year ago. Operating margin fell 340 basis points to 10.1%.
“Our third quarter results were below expectations, and we are lowering our outlook for the remainder of the year reflecting current business trends and continuation of recent macro consumer pressures,” said Daniel Heaf, chief executive officer of Bath & Body Works.
Fourth Quarter Outlook
The company expects fourth-quarter sales to decline in the high-single-digit range, citing a very challenging start to the holiday season and weakening macro consumer sentiment.
Early signs point to an intensely competitive holiday environment, and guidance assumes current trends persist, with only a modest impact from new online purchase limits.
International retail sales are expected to rise high-single digits systemwide, with reported net sales up mid-single digits.
Gross profit rate is projected at ~44.5%, pressured by tariffs and elevated promotions. Tariffs alone are expected to hit gross margin by roughly 100 basis points after mitigation efforts.
SG&A rate should be about 24%, reflecting deleverage from softer sales but supported by tight cost controls.
EPS is expected to be at least $1.70, well below the $2.17 consensus estimate, as the company pushes aggressive actions to stabilize performance.
Fiscal 2025 Outlook
The company lowered its full-year outlook following its third-quarter results and softer expectations for the fourth quarter.
The company now expects low-single-digit sales declines and has lowered its adjusted EPS outlook to at least $2.87, well below the earlier $3.35–$3.60 range and the $3.44 consensus estimate.
The company now expects a gross profit rate of roughly 43.3%, including a ~100-basis-point tariff drag after mitigation.
Adjusted SG&A is projected at about 28.3% due to weaker sales, and free cash flow is now estimated at approximately $650 million, reflecting reduced operating performance.
Price Action: BBWI shares were trading lower by 23.62% to $16.15 at last check Thursday.
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