© Reuters. Citi Downgrades Bath & Body Works (BBWI) Ahead of Q4 Release; investors focus will be on the new CEO
by Michael Elkins
Citi downgraded Bath & Body Works (NYSE:) to Neutral (from buy) and cut its retail price target to $48.00 (from $50.00) ahead of the company’s Q4 earnings release. Analysts anticipate a modest Q4 print for BBWI, but believe investors’ focus will be on where new CEO Gina Boswell sets the bar for F23, as well as longer-term margin targets.
The analysts wrote in a note: “BBWI faces significant margin hurdles (commodity inflation, AUR pressure, wage pressure, technology investments) that we expect to continue through 2023 and potentially beyond. We think Boswell will focus on cost reduction/efficiencies to offset margin pressures, but that may take time. As a result, we see mgmt taking a conservative approach to F23 guidance (our estimate of $3.44 vs. $3.65 cons) and potentially boosting its long-term target of a low to mid 20% EBIT margin (vs. F22E ~ 17.5%). With shares trading at an F23E EV/EBITDA multiple of 9.0x, we believe the risk/reward is more balanced at current levels.”
Citi raised Q4 EPS estimates to $1.62 (from $1.55), $0.02 above the consensus estimate based on slightly stronger vs. consensus GM/comparisons. Citi FY22 estimates go to $3.13 (from $3.06). FY23 estimates have been lowered from $3.80 to $3.44 based on more conservative GM/sales assumptions. Analysts note that Citi’s 1Q23 estimate of $0.33 is below the consensus estimate of $0.46, as Citi expects GM to come under particular pressure in Q1.
BBWI shares fell 3.48% in early trading on Wednesday.
