Bath & Body Works Inc. (NYSE:BBWI) Shares Drop

Bath & Body Works Inc. shares slipped over 3% in pre-market trading on Friday, following a downgrade from Barclays, revising its rating from “equal weight” to “underweight.”

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

Key Issues Impacting Bath & Body Works

Barclays analysts outlined three primary issues impacting Bath & Body Works’ trajectory:

1. Slowdown in U.S. Consumer Spending:
   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, other major beauty brands, such as Estée Lauder and Coty, have reported declines, indicating broader challenges within the sector.

2. Rising Inventory Levels:
   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. 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. The company’s promotional strategy may also train customers to wait for sales, diminishing long-term profitability.

3. Holiday Promotions Strategy:
   Barclays expressed concern 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, the analysts believe that these early and aggressive promotions might indicate trouble with customer conversion. Although such strategies might temporarily lift sales, they could create an uphill battle for sustainable growth and strain profit margins into 2025.

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