What happened
Bath & Body Works (BBWI 1.55%) shareholders had a good week. Their stock rose 14% through Thursday trading compared to a 1.8% boost in the S&P 500. Yet this rally only erased a small portion of recent losses as the stock is down 11% in 2023, according to data provided by S&P Global Market Intelligence, compared to the wider market's 9% increase.
The rally was sparked by good news on the earnings front that was tempered by weak growth results through late April.
So what
Bath & Body Works said on Thursday that first-quarter sales trends met management's conservative targets. Revenue fell 4% through April on sluggish demand in categories like home fragrance and personal care. Executives said the selling environment wasn't ideal as consumers became more cautious and inflation pushed supply chain costs higher.
But the retailer adjusted to these issues with effective cost-cutting and merchandising initiatives. "We maintained our intense focus on efficiency and navigated the ongoing challenging macroeconomic environment," CEO Gina Boswell said in a press release. Success here allowed Bath & Body Works to beat earnings expectations, although operating income still fell to $181 million from $280 million a year ago.
Now what
Management now sees 2023 earnings falling by less than previously expected, which Wall Street took as good news. The company affirmed its sales outlook calling for a modest sales decline, too.
This update implies that the retailer is seeing no impending signs of the type of slumping customer traffic that would point to a recession on the way. Still, it may be several quarters before Bath & Body Works is on a clear path toward sustainably growing sales and earnings. That's why investors might want to simply watch this potential rebound story from the sidelines for now.
