Positive Outlook for Bath & Body Works Despite Short-term Challenges: Citi Analyst Maintains Buy Rating with $40 Price Target

Bath & Body Works maintains a Buy rating from analyst Paul Lejuez despite a slight Q2 earnings miss due to higher expenses. The company's sales exceeded expectations, and management is confident in their product pipeline and marketing strategy for long-term growth. While concerns about weaker gross margins in Q3 are expected to abate by Q4, the company is expected to benefit from new product innovations and revenue streams, supporting a favorable risk/reward profile. Shares are trading at a low multiple of future earnings.

Bath & Body Works, Inc. (BBWI) reported its second quarter (Q2) 2025 earnings on Aug. 28, 2025, revealing a drop in earnings compared to the same period last year. The company's bottom line totaled $64 million, or $0.30 per share, compared to $152 million, or $0.68 per share, last year [1]. Despite this, analysts, including Paul Lejuez, maintain a Buy rating, citing the company's strong sales performance and long-term growth prospects.

The company's revenue for the period rose 1.5% to $1.549 billion from $1.526 billion last year [1]. This increase was driven by a 4.9% growth in U.S. and Canada store sales, which offset declines in digital and international sales [3]. Bath & Body Works also reported adjusted earnings of $78 million, or $0.37 per share, for the period, which matched last year's adjusted earnings [3].

However, the company faced higher expenses, including a 9% increase in general, administrative, and store operating expenses, and a one-time cost of $15 million tied to leadership changes [3]. These factors contributed to a 14% year-over-year decline in operating income and a 6.0% decrease in net income [3].

Despite the earnings miss, analysts remain optimistic about the company's long-term prospects. They point to Bath & Body Works' strong brand identity, rapid product innovation, and effective customer engagement through its loyalty program as key factors supporting growth. The company is also investing in digital experiences and expanding distribution channels to meet consumers' evolving preferences.

Looking ahead, Bath & Body Works expects its revenue to grow by 2% year-on-year in the next quarter and by 2.4% over the next 12 months, according to sell-side analysts [2]. The company's guidance for full-year adjusted earnings per share (EPS) ranges from $3.35 to $3.60 [1].

While concerns about weaker gross margins in Q3 are expected to abate by Q4, the company is expected to benefit from new product innovations and revenue streams. This favorable risk/reward profile supports the analyst's Buy rating.

Shares of Bath & Body Works are trading at a low multiple of future earnings, making it an attractive investment for those seeking long-term growth opportunities.

References:
[1] https://www.nasdaq.com/articles/bath-body-works-inc-profit-drops-q2
[2] https://finance.yahoo.com/news/bath-body-works-nyse-bbwi-110324054.html
[3] https://www.nasdaq.com/articles/bath-and-body-works-reports-15-q2-gain