Bath & Body Works: Strong FY2024 Performance Faces FY2025 Tariff Headwinds

• BBWI had a strong FY2024 performance, with Q4 results surpassing expectations despite a shorter holiday calendar.

• FY2025 guidance is weaker due to new tariffs, which could impact supply chain costs and profit margins.

• Tariffs include a 25% tax on imports from Canada and Mexico and a 10% tax on Chinese imports, affecting 17% of BBWI’s supply chain.

• The report analyzes BBWI’s financial position, tariff impact, and mitigation strategies, highlighting the company’s strong fundamentals and investment potential.

Bath & Body Works (BBWI) delivered a strong financial performance in FY2024, particularly in Q4, despite challenges such as a shorter holiday season. The company successfully leveraged promotions and cost efficiencies to sustain revenue growth and expand operating margins, demonstrating its ability to navigate a competitive retail landscape. Wall Street expectations were exceeded, with EPS and revenue outperforming cautious forecasts.

However, BBWI faces new headwinds in FY2025, with weaker-than-expected guidance largely due to the impact of newly imposed tariffs. These tariffs include a 25% tax on imports from Canada and Mexico and a 10% tax on Chinese imports, directly affecting 17% of BBWI’s supply chain—10% from China and 7% from Canada and Mexico combined. The increased costs from these tariffs pose a potential risk to profit margins and overall earnings growth, causing investor concern. As a result, BBWI's stock has seen volatility, reflecting market apprehension about the company’s ability to offset rising costs.

The objective of this report is to assess BBWI’s financial performance, evaluate the impact of tariffs, and analyze the company’s strategies to manage these challenges. While the tariff-related cost pressures are a concern, BBWI remains fundamentally strong and undervalued. By examining FY2024 results, FY2025 projections, and broader market conditions, this report highlights BBWI’s ability to adapt to new challenges while maintaining profitability. The company’s proactive supply chain adjustments, pricing strategies, and brand strength position it to navigate current economic uncertainties effectively. As a result, despite near-term concerns, BBWI remains an attractive investment opportunity with significant growth potential.

TL;DR: BBWI had a strong FY2024 but faces challenges in FY2025 due to tariffs increasing costs. While this could pressure margins, the company’s strong fundamentals, cost-saving strategies, and market positioning make it an attractive investment.