Digital Revamp And Disney Deals Will Ignite Secular Growth

Key Takeaways

• Expansion into new channels, global partnerships, and innovative digital strategies are expected to accelerate growth among younger consumers and increase margins.
  
• Leveraging classic fragrances, aggressive international expansion, and supply chain innovation supports reliable recurring revenue and improves operating leverage.
  
• Heavy dependence on underperforming digital channels and mall-based stores, coupled with limited innovation and rising operational costs, threatens future growth and profit sustainability.

Catalysts

Operates as a specialty retailer of home fragrance, personal and body care, soaps, and sanitizer products.

• Analyst consensus believes product innovation and expanded distribution can drive long-term revenue growth, but this likely understates the scale: the shift into college bookstores and plans for multi-year, global collaborations (like Disney) position Bath & Body Works to accelerate penetration with Gen Z and Millennials, potentially unlocking a new wave of sustained comp growth and higher customer lifetime value, directly boosting revenues and customer acquisition.
  
• Analysts broadly agree that international sales will pick up, but ongoing store openings, local partnerships in high-potential markets like Dubai and Malaysia, and decoupling from troubled geographies could lead to a much faster international revenue mix shift-with faster volume leverage and reduced geographic risk-supporting earnings growth and higher net margins through operating leverage in new regions.
  
• The company's underutilized classic fragrance portfolio (e.g., Mahogany Teakwood, Into The Stars) can be remarketed as "iconic staples" to new audiences, similar to annuity products, enabling repeat purchases across demographics and supporting reliable, high-margin recurring revenue.
  
• The aggressive overhaul of Bath & Body Works' digital and omnichannel experience-including rapid app and mobile web upgrades, new social commerce strategies, and seamless integration between physical and digital stores-is poised to significantly increase conversion rates and basket sizes, driving both sales productivity and higher digital and omni-channel operating margins.
  
• The company's vertically integrated U.S.-centric supply chain and deep investments in innovation (Beauty Park partnerships, proprietary formulations) provide an unmatched ability to respond to self-care and wellness trends, enabling premiumization, rapid newness, and AUR increases; together, these are likely to drive both top-line expansion and long-term gross margin accretion well above market expectations.

Bath & Body Works Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Bath & Body Works compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Bath & Body Works's revenue will grow by 4.0% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 9.9% today to 10.4% in 3 years time.
• The bullish analysts expect earnings to reach $861.1 million (and earnings per share of $4.37) by about September 2028, up from $728.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 14.8x on those 2028 earnings, up from 9.0x today. This future PE is lower than the current PE for the US Specialty Retail industry at 19.2x.
• Analysts expect the number of shares outstanding to decline by 5.9% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.26%, as per the Simply Wall St company report.

Bath & Body Works Future Earnings Per Share Growth

Risks

• The company's digital business continues to underperform, with direct net sales down year-on-year and management openly stating that digital platforms are not meeting consumer expectations, which risks ongoing lost revenue opportunities as shoppers increasingly shift to e-commerce.
  
• A heavy reliance on physical stores, including a significant mall-based footprint (despite efforts to move off-mall), exposes Bath & Body Works to structural declines in retail foot traffic and higher fixed costs, putting sustained pressure on both revenue growth and net margins.
  
• The product portfolio's dependence on seasonal collections and core fragrance lines, without robust evidence of significant innovation or deeper connection to younger and more environmentally conscious consumers, increases the risk of brand fatigue and limits long-term revenue expansion.
  
• Persistent and intensive promotional activity, highlighted by semiannual sales and ongoing price-led marketing, can erode brand equity and compress gross margins over time, threatening the sustainability of earnings growth even as management seeks to shift toward a value proposition and emotional storytelling.
  
• Rising input costs from tariffs, supply chain disruptions, and regulatory requirements related to sustainability and health, including the need for packaging modernization and ingredient transparency, are increasing operational expenses and may further challenge net profit margin as consumer scrutiny and environmental standards intensify.

Valuation

• The assumed bullish price target for Bath & Body Works is $55.69, which represents two standard deviations above the consensus price target of $40.73. This valuation is based on what can be assumed as the expectations of Bath & Body Works's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $62.0, and the most bearish reporting a price target of just $32.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $8.3 billion, earnings will come to $861.1 million, and it would be trading on a PE ratio of 14.8x, assuming you use a discount rate of 10.3%.
  
• Given the current share price of $31.87, the bullish analyst price target of $55.69 is 42.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.