Dive Brief:

• Bath & Body Works is cutting its guidance for the second quarter and fiscal year as inflation eats into demand, the company announced Wednesday.
• The retailer now expects 2022 sales to fall by mid to high single digits after a record year for sales in 2021. Bath & Body Works had previously forecast a low single digit percent increase in sales.  
• The retailer also estimated a 6% to 7% drop in sales for Q2 — compared to previous expectations of low single digit growth — and cut back its earnings forecast by roughly 20 cents per share.

Dive Insight:

Bath & Body Works is the latest in a string of retailers to pare back their expectations multiple times as the consumer spending environment rapidly shifts. 

Households have faced punishing gas and food spikes this year, driven by ongoing supply chain constraints and war in Ukraine. After absorbing price hikes on discretionary goods last year, consumers have shifted spending in response to both inflation on essentials as well as more experiential spending.

Against that backdrop, Bath & Body Works is bracing for lower demand for its candles, soaps and other goods. Bath & Body Works’ cut to guidance was “worse than feared” by the market, according to Credit Suisse analyst Michael Binetti, who noted uncertainty around the second half of the year given expectations for higher promotions.  

In commentary accompanying its announced guidance cut, the company said it has seen traffic declines in Q2 so far compared to Q1.

And while the company said customers are responding to Bath & Body Works’ products and experiences, it also noted “our data indicates that customers, particularly lower income customers, have become more cost conscious and are limiting purchases and/or seeking out lower-priced sale merchandise as they are being impacted by the overall inflationary environment.”

Responding to changing trends, the retailer ratcheted up its discounts and promotions, hurting its margins on items. “Importantly, however, we anticipate that we will be able to end the season with a clean and balanced inventory position that we believe sets us up solidly heading into the back half of the year,” the company added.

Interim CEO Sarah Nash said in a press release that the company “continues to perform at levels significantly above pre-pandemic, although we are navigating a challenging operating and macroeconomic environment with inflationary pressure affecting our customers and our business.”

Nash — who took over earlier this year after former CEO Andrew Meslow stepped down for health reasons — added that Bath & Body Works will continue to “chase winners” through its supply chain. 

The company is also pursuing “aggressive” cost-cutting through operational efficiencies and reducing expenses, though it didn’t specify those cuts. It’s also “revisiting promotions and pricing as well as product costing to improve merchandise margin,” Bath & Body Works said. 

Also during the quarter, the retailer tightened up its return policy, which had been widely known for customers' ability to return products that were mostly or completely used. 

Meanwhile it’s also launching new products and fragrances — at a pace of one new product every four to six weeks — and prepping for the Halloween season and the launch of a new loyalty program.