I Expect Self-Care And Gen Z Trends To Reshape Retail

Key Takeaways

• Expanding into new self-care categories, omni-channel enhancements, and pop culture collaborations are boosting brand relevance, customer engagement, and driving robust long-term revenue growth.
  
• Rigorous cost discipline, innovation, and strategic supply chain improvements are optimizing margins and supporting consistent earnings growth with steady shareholder returns.
  
• Vulnerability to shifting consumer preferences, e-commerce competition, and heavy discounting threatens brand equity, profitability, and long-term growth amid limited product diversification.

Catalysts

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

• Bath & Body Works is poised to accelerate growth by capitalizing on the growing consumer focus on self-care and wellness, with broadening demand in categories such as Body Care, Home Fragrance, and new adjacencies like Men's, Hair, Lip, and Laundry. This expansion is fueling both market share gains and top-line revenue increases.
  
• The company continues to deepen its brand relevance with Gen Z and Millennial shoppers through collaborations with major pop culture icons and launches of trend-driven, sensorial products like the Everyday Luxuries line. This is strengthening brand loyalty, driving higher purchase frequency, and supporting robust long-term revenue growth projections.
  
• The ongoing expansion and enhancement of e-commerce, omni-channel capabilities, and the loyalty program are boosting customer retention and engagement. Investments in technology—including growing online personalization and BOPIS (buy online, pick up in store)—are driving incremental sales and higher customer lifetime value, contributing directly to revenue and margins.
  
• A strong culture of product innovation and cost discipline, highlighted by the Fuel for Growth program which delivered $300 million in savings over two years, is allowing the company to both invest in high-margin new product launches and maintain steady earnings growth by supporting healthy gross and net margins.
  
• Enhanced supply chain efficiencies, a shift to off-mall locations, and a disciplined approach to capital deployment are optimizing Bath & Body Works’ cost structure, driving higher net margins, and enabling continued shareholder returns through dividends and share buybacks, setting the stage for long-term increases in earnings per share.

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 4.1% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 11.1% today to 10.2% in 3 years time.
• The bullish analysts expect earnings to reach $843.5 million (and earnings per share of $4.32) by about August 2028, up from $816.0 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 17.2x on those 2028 earnings, up from 7.4x today. This future PE is lower than the current PE for the US Specialty Retail industry at 18.8x.
• Analysts expect the number of shares outstanding to decline by 3.42% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.24%, as per the Simply Wall St company report.

Bath & Body Works Future Earnings Per Share Growth

Risks

• A growing consumer shift toward sustainability and environmental consciousness could negatively impact demand for Bath & Body Works’ core products, which rely heavily on single-use packaging and synthetic fragrances, ultimately pressuring long-term revenue growth.
  
• The rise of e-commerce and digital-native brands erodes traffic to traditional mall and off-mall stores, potentially weakening Bath & Body Works’ brand relevance and reducing in-store sales, which may limit future revenue and earnings growth.
  
• Demographic shifts toward younger consumers who prioritize experiences over physical goods may lead to declining demand for discretionary personal care and fragrance purchases, risking slower organic revenue growth for the company over time.
  
• Bath & Body Works’ ongoing reliance on promotions and discounting to drive sales, as noted by volume-led sales, semiannual sales events, and high reward redemption rates, could further erode brand equity and compress gross margins, thereby reducing net margins and long-term profitability.
  
• The company’s high concentration of revenue from candles, body care, and a few adjacent product categories exposes it to category-specific demand shocks and limits its ability to diversify organically, restricting revenue growth and increasing sensitivity to shifts in consumer preferences or broader category declines.

Valuation

• The assumed bullish price target for Bath & Body Works is $56.83, which represents two standard deviations above the consensus price target of $41.73. 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 $61.0, and the most bearish reporting a price target of just $30.0.
• 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 $843.5 million, and it would be trading on a PE ratio of 17.2x, assuming you use a discount rate of 10.2%.
• Given the current share price of $28.71, the bullish analyst price target of $56.83 is 49.5% 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.