Digital Transformation And Global Expansion Will Build A Robust Future

Key Takeaways

• Investments in digital, omnichannel, product innovation, and loyalty initiatives are strengthening brand equity, driving customer retention, and supporting sustainable long-term growth.
  
• Strategic expansion into new channels and international markets is diversifying revenue sources and reducing reliance on traditional store traffic.
  
• Difficulty attracting new and younger customers, digital underperformance, tariff and cost pressures, and reliance on promotions threaten sustained growth, margins, and long-term brand loyalty.

Catalysts

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

• Bath & Body Works is accelerating investments in its digital platform and omnichannel experience, including a new app launch, improved mobile web, and integrated marketing/storytelling across touchpoints, which should drive higher sales conversion, stronger brand equity, and increased online and in-store traffic, ultimately boosting revenue growth and average order value.
  
• The company is strategically expanding alternative distribution channels (e.g., college campus bookstores), aimed at reaching younger and new consumer segments outside of legacy locations; this broader presence is likely to drive new customer acquisition and increase top-line sales growth while helping to reduce reliance on traditional store traffic.
  
• Enhanced product innovation, with a focus on wellness, efficacy, and "clean" ingredients (e.g., modernized packaging and amplified claims in aromatherapy and body care), positions the brand to capitalize on rising consumer demand for self-care, ingredient transparency, and sustainable solutions, supporting higher pricing power and margin expansion.
  
• Continued international store expansion, with 30+ planned net new stores for 2025, and ongoing system-wide sales growth in these geographies, will provide increased geographic revenue diversification and a new long-term growth lever, mitigating earnings volatility.
  
• The successful scaling of loyalty programs (reaching 39 million active members) and advanced use of customer analytics are driving higher retention, trip frequency, and cross-channel purchases, which should lead to increased customer lifetime value and sustainable long-term earnings growth.

Bath & Body Works Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Bath & Body Works's revenue will grow by 3.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.9% today to 10.6% in 3 years time.
• Analysts expect earnings to reach $860.7 million (and earnings per share of $4.42) by about September 2028, up from $728.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.9x on those 2028 earnings, up from 8.7x 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 10.34%, as per the Simply Wall St company report.

Bath & Body Works Future Earnings Per Share Growth

Risks

• Despite store traffic growth, Bath & Body Works is struggling to attract new and younger consumers-management admitted they have not achieved the new customer growth they aspire to, potentially limiting future revenue expansion and hurting long-term earnings if the brand fails to broaden its customer base amid demographic shifts.
  
• The company's digital platform underperformed, with Q2 direct net sales declining 10%, and management admitting their digital business is not up to standard-if investments in digital transformation and omnichannel do not keep pace with consumer expectations and e-commerce competitors, market share losses and revenue shortfalls may result.
  
• Gross profit and earnings are threatened by persistent tariff headwinds, with $85 million of tariff impact forecast for 2025-especially from China imports and (until recently) Canadian imports-introducing continued margin compression risk due to global trade volatility and rising compliance costs.
  
• Operating expenses, particularly SG&A, are rising (up 110 basis points year-on-year in Q2) due to higher healthcare, technology, and new store costs; without significant sales acceleration or highly effective cost containment, net margins and earnings could face ongoing pressure.
  
• The brand's heavy reliance on trend-driven collections, promotions, and seasonal events (like semiannual sales and themed collaborations) risks fostering inconsistent revenue streams and margin volatility, while the overwhelming assortment and promotional focus may hinder the company's ability to build sustained pricing power and loyalty in the evolving specialty retail landscape.

Valuation

• The analysts have a consensus price target of $40.733 for Bath & Body Works based on their expectations of its future earnings growth, profit margins and other risk factors. 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 analyst's consensus, you'd need to believe that by 2028, revenues will be $8.1 billion, earnings will come to $860.7 million, and it would be trading on a PE ratio of 10.9x, assuming you use a discount rate of 10.3%.
  
• Given the current share price of $30.56, the analyst price target of $40.73 is 25.0% 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.