Bath & Body Works Inc. surged 7.6% to $18.91 on Wednesday after reporting adjusted quarterly earnings that exceeded expectations by 158%, driven in part by an $80 million tariff refund that inflated margins by 530 basis points.
The Columbus, Ohio-based retailer posted adjusted earnings of $0.31 per share for the second quarter, excluding the tariff impact, while reported earnings reached $0.62 per share against a $0.24 consensus estimate. Gross margin expanded to 45.7% from 40.4% without the refund, reflecting a 530-basis-point boost. Full-year earnings guidance was raised to a range of $2.60 to $2.80 per share, up from the prior $2.40 to $2.65, though management flagged a projected sales decline of 2.5% to 5% in the current quarter.
International sales climbed 24.9% to $108 million, now accounting for 7% of total revenue, while the direct-to-consumer channel grew 3% to $275 million—the first increase since 2021. Domestic store sales, however, declined 5.4% to $1.1 billion, with mall traffic continuing to weigh on performance. The company closed 10 stores and opened 24, predominantly in off-mall locations, and reported that Amazon sales tripled sequentially, positioning Bath & Body Works as a leading candle brand on the platform.
Analysts remain divided on the stock, which trades at a 5.2x forward price-to-earnings ratio—well below its historical range of 12x to 15x—and offers a 4.6% dividend yield. Citi maintained a Buy rating with a $25 target, while JPMorgan kept its Neutral rating at $24. The average fair value estimate stands at $28.83, implying 52.4% upside per InvestingPro. Debt levels remain elevated at $4.71 billion, though the company has outlined a multi-year turnaround plan centered on digital growth and product innovation.
Management’s next critical test arrives in October with the release of third-quarter results, which will indicate whether the low-bar guidance holds amid ongoing channel shifts. The holiday season, including Black Friday and Christmas, will serve as a key performance period for initiatives such as the Reserve Collection home fragrances and the A Thousand Wishes refresh. CEO Daniel Heaf has identified 2027 as a potential inflection point, with revenue expected to stabilize around $7.10 billion and earnings per share projected to reach $2.85, assuming the transformation efforts gain traction.
