Why Bath & Body Works Stock Rallied Today
Key Points
Bath & Body Works continues to crank out cash.
The stock is trending towards value territory.
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Shares of Bath & Body Works (NYSE: BBWI) rebounded on Wednesday after the purveyor of personal care and home fragrance products reported higher-than-expected profits.
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Strengthening the foundation
Bath & Body Works' net sales declined 3% year over year to $1.4 billion in its fiscal first quarter, which ended on May 2.
The specialty retailer closed 17 underperforming company-operated stores in the U.S. during the quarter and opened 13 new locations. That brought its total company-operated store count to 1,923.
During the same time, Bath & Body Works opened eight partner-operated stores in international markets and closed two, bringing its total to 579.
All told, Bath & Body Works generated $195 million in free cash flow, up from $151 million in the year-ago period.
"We are simplifying the business, removing unnecessary complexity, and reallocating resources toward the areas that most directly impact the consumer," CEO Daniel Heaf said during a conference call with analysts. "These efforts are helping fund investment in product innovation, brand relevance, and digital acceleration while maintaining a strong financial foundation."
Value territory
Looking ahead, management reaffirmed its full-year free cash flow target of about $600 million in fiscal 2026.
"We believe that the foundation we are building will drive improved performance over time, with the impact expected to build through the balance of 2026 and more meaningfully into 2027, as we position the company to return to sustainable, durable growth," Heaf said.
Even after today's gains, if Bath & Body Works can return to growth, its current price to forecasted free cash flow of roughly 6.5 could prove to be a bargain.
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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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