What happened
Shares of Bath & Body Works (BBWI 0.04%) were up 24% as of 1:18 p.m. EST on Thursday after the company announced better-than-expected earnings results.
Weak sales growth amid a weak economic backdrop has sent the stock down 44% year to date, but the company is still not out of the woods.
So what
Management attributed the quarter's performance to "innovation and newness," but it's still a rough environment for retailers as the company's sales declined by 5% year over year. This translated to a 40% drop in earnings per share from continuing operations to $0.40.
However, investors were more focused on inventory management, which is helping keep profits from spiraling out of control. Total inventories were up 10% year over year, which was better than expected. That's probably been the greatest fear for retail stocks this year, especially after Target's missteps earlier this year.
Now what
Management raised full-year guidance and now expects earnings per share to come in between $3.00 to $3.20. The company has an advantage with its loyalty program, which now has over 21 million members, comprising more than a third of the customer base. This is valuable in this environment to drive repeat sales.
Most importantly, investors are encouraged that management is able to make investments in new products to support customer demand while keeping costs under control to deliver profits. The stock offers decent value, with a forward price-to-earnings ratio of 13.6, which is much cheaper than the average stock in the S&P 500 index.
