Bath & Body Works: A Fragrant Opportunity in Strategic Growth

Bath & Body Works (NASDAQ: BBWI) is often overlooked in the retail sector, yet its recent strategic moves—bolstered by a loyalty program driving 80% of U.S. sales, an omnichannel playbook that's 29% more efficient in-store, and a 10% leap in international sales—position it as a compelling undervalued opportunity. Despite near-term headwinds, the company's execution in these areas signals a path to sustainable growth, making it a stock to buy now.

The Loyalty Program: A Growth Machine with 39 Million Members

The crown jewel of Bath & Body Works' strategy is its loyalty program, now boasting 39 million active members, up 4% year-over-year. What makes this program unique? It's not just about discounts—it's about engagement. In Q1 2025, 80% of U.S. sales originated from loyalty members, a 3-percentage-point increase from the prior year. This isn't just retention; it's a revenue engine.

The Disney Princesses collaboration exemplifies how the program drives sales. This partnership, which exceeded management expectations, combined storytelling with exclusive product launches, rewarding loyalty members first. The result? A surge in repeat purchases and a 2.9% revenue beat in Q1.

Omnichannel Mastery: Balancing Stores and Digital

While e-commerce sales dipped 4.3% in Q1, Bath & Body Works' omnichannel strategy is still a winner. Its 1,895 U.S. and Canadian stores are its crown jewels, contributing 78% of total sales with a 4.3% YoY growth. The Buy Online, Pickup In Store (BOPIS) service is a key driver, surging 29% year-over-year and accounting for 30% of direct demand. This hybrid model ensures customers can engage where they're most comfortable—without sacrificing margins.

The company's U.S.-based supply chain further fuels this success, enabling quick inventory turns and cost discipline. Gross margins expanded to 45.4%, a 160-basis-point improvement, proving operational efficiency isn't a casualty of growth.

International Expansion: A $64M Headstart with 524 Stores

Bath & Body Works' global footprint is still underpenetrated. With 524 international franchised stores (including 35 travel retail locations), it's just scratching the surface of its potential. Q1 international sales jumped 10.1% to $64 million, and CEO Daniel Heaf's vision to “lead the home fragrance category globally” is already in motion.

The math is clear: International sales represent only 5% of total revenue, leaving room for exponential growth. Franchising minimizes upfront costs while leveraging local partners' expertise. As Heaf noted, the company is “well positioned” to scale, with plans to visit key markets and refine partnerships.

Valuation: A Stock Trading at 8x Earnings with 30% Upside

Despite its progress, Bath & Body Works is undervalued. At a P/E of 8.19, it trades at a discount to peers like Ulta Beauty (ULTA) and Sally Beauty (SBH). Its P/S ratio of 0.89 is well below its 52-week average of 1.02, and its EV/EBITDA of 6.93 is a fraction of its historical averages.

Analysts are bullish: A Buy consensus with a $45.59 price target implies a 30% upside from current levels. Institutions agree, with Vanguard and T. Rowe Price boosting stakes. The company's $750–$850M free cash flow guidance supports share buybacks and dividends, further rewarding shareholders.

Navigating Near-Term Challenges

No growth story is without speedbumps. Tariffs on Chinese imports and e-commerce softness are headwinds, but management is countering with cost discipline. SG&A expenses remain capped at ~30%, and the supply chain's agility ensures margins stay intact.

The dip in direct sales? A temporary stumble, not a trend. The focus on BOPIS and store optimization is a smarter play in an era where customers crave convenience without sacrificing the tactile experience of browsing shelves.

Conclusion: A Scent of Profits Ahead

Bath & Body Works' trifecta of loyalty-driven sales, omnichannel execution, and global expansion is a recipe for sustained growth. At a valuation that ignores its 80% loyalty-driven sales and 10% international growth, this is a stock primed to rebound.

Historically, short-term trading strategies tied to earnings announcements have underperformed. A backtest from 2020–2025 showed a -17.43% total return for a strategy buying BBWI on earnings release dates and holding for 20 days, with a peak drawdown of -55.73%. This underscores the importance of a patient, long-term perspective—aligning with the company's multiyear growth trajectory rather than chasing volatile short-term moves.

For investors seeking a retail gem with $45+ upside, now is the time to act. The scent of opportunity is in the air—don't miss the fragrance of profit.