Bath&Body Works stock dips as Barclays downgrades amid demand and inventory woes

Investing.com -- Bath&Body Works Inc. (NYSE:BBWI) shares slipped over 3% in pre-market trading on Friday, following a downgrade from Barclays (LON:BARC), revising its rating on the stock to “underweight” from “equal weight.” 

This reflects concerns about the retailer’s 2025 outlook, citing risks tied to both waning consumer demand and rising inventory levels, which Barclays analysts believe could pressure sales and margins in the coming year.

Barclays analysts outlined three primary issues impacting Bath&Body Works’ trajectory. First, a potential slowdown in U.S. consumer spending is seen as a key driver of weaker demand for the retailer’s personal care products. 

With the U.S. economy facing uncertainty and rising household costs, Barclays noted a “spending normalization” among beauty and personal care shoppers. 

This trend is particularly concerning in a high-discretionary sector like specialty retail, where customer spending tends to be vulnerable to economic shifts. 

Additionally, Barclays mentioned that other major beauty brands, such as Estée Lauder and Coty (NYSE:COTY), have similarly reported declines, indicating broader challenges within the sector.

Second, Barclays flagged rising inventory levels as a serious concern. The firm’s analysis found that Bath&Body Works’ stockpiles are growing faster than its sales, creating a gap that could necessitate deeper discounting. 

As per the note, Bath&Body Works’ inventory issues became apparent in early 2024, and while promotions have been intensified to move products, the excess inventory could weigh heavily on margins through 2025. 

Barclays also cautioned that the company’s promotional strategy may be training customers to wait for sales, a behavior that could diminish long-term profitability.

Finally, the analysts flagged that the company’s approach to discounts this holiday season could further challenge its recovery. By launching major holiday promotions earlier than usual, Bath&Body Works aims to compete for limited consumer dollars in a tight economy. 

However, Barclays analysts expressed concern that these early and aggressive promotions might indicate trouble with customer conversion. 

Although such strategies might temporarily lift sales, the brokerage believes they could create an uphill battle for sustainable growth and put further strain on Bath&Body Works’ profit margins into 2025.

Due to this Barclays lowered its 12-month price target for Bath&Body Works to $28 from $31, which implies a near-term downside as the company navigates these headwinds.