Brett_Hondow

Funding Thesis

Whereas Bathtub & Physique Works has the potential to see gross sales development over the long term as the corporate expands into the material care class, inflationary issues might weigh on client demand within the brief to medium time period.

Bathtub & Physique Works, Inc. (NYSE:BBWI) is a number one firm within the private care and residential perfume trade. When wanting on the inventory’s longer-term value trajectory, we are able to see that the inventory noticed a big excessive above the $80 degree in the direction of the top of 2021 – earlier than in the end reverting to a value of $38.23 on the time of writing.

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The aim of this text is to evaluate whether or not Bathtub & Physique Works has the potential to rebound to prior highs going ahead.

Efficiency

For the newest quarter, we are able to see that Bathtub & Physique Works noticed a slight decline in gross sales throughout U.S. and Canada shops:

Bathtub & Physique Works: First Quarter 2023 Earnings Outcomes

That stated, when quarterly gross sales efficiency in a wider context, we are able to see that gross sales for Bathtub & Physique Works are typically fairly seasonal.

Figures sourced from historic Bathtub & Physique Works quarterly reviews. Heatmap generated by writer utilizing Python’s Seaborn library.

We will see that This autumn exhibits considerably increased gross sales than that of different quarters all year long. As a pacesetter within the private care and residential perfume trade – gross sales for the corporate are likely to see a big spike over the Christmas months.

With that being stated, we are able to see that excluding Q1 – efficiency throughout quarters in 2021 was nonetheless above that of 2022. It’s notable that gross sales development throughout the peak of the COVID-19 emergency in 2020 was notably sturdy – owing to increased demand for family merchandise, as shoppers spent extra time at house throughout this era.

Moreover, Bathtub & Physique Works reportedly had carried 30% extra stock main as much as the vacation purchasing season in 2021 as in comparison with 2020 – which had allowed the corporate to proceed bolstering gross sales. Nevertheless, gross sales development began to average in 2022, and we started to see a powerful moderating of value at that time.

From a monetary standpoint, Bathtub & Physique Works has continued to indicate spectacular outcomes over the previous yr.

When wanting on the firm’s fast ratio (calculated as whole present belongings much less inventories throughout whole present liabilities), we are able to see that the fast ratio is up considerably from 0.75 to 1.03.

Apr 2022 Apr 2023 Whole present belongings 1752 2080 Inventories 820 771 Whole present liabilities 1240 1277 Fast ratio 0.75 1.03 Click on to enlarge

Supply: Figures sourced from Bathtub & Physique Works, Inc First Quarter 2023 Earnings Outcomes and offered in USD tens of millions (besides the fast ratio). Fast ratio calculated by writer.

A fast ratio above 1 signifies that the corporate has greater than adequate liquid belongings to cowl its present liabilities. On this regard, the truth that Bathtub & Physique Works has seen a rise on this ratio is encouraging.

Moreover, the corporate’s long-term debt to whole belongings ratio can be down considerably on that of final yr:

Apr 2022 Apr 2023 Lengthy-term debt 4856 4781 Whole belongings 4860 5363 Lengthy-term debt to whole belongings ratio 1.00 0.89 Click on to enlarge

Supply: Figures sourced from Bathtub & Physique Works, Inc First Quarter 2023 Earnings Outcomes and offered in USD tens of millions (besides the long-term debt to whole belongings ratio). Lengthy-term debt to whole belongings ratio calculated by writer.

From this standpoint – whereas gross sales development has moderated – the corporate’s stability sheet nonetheless appears sturdy.

Dangers and Wanting Ahead

Going ahead, I take the view that the primary future development prospects for the inventory would be the extent to which it might probably bolster gross sales and earnings in a post-COVID surroundings.

When wanting on the 10-year earnings trajectory for Bathtub & Physique Works, we are able to see that whereas earnings per share is down from highs seen in 2021 – it nonetheless stays throughout the vary seen pre-2018, whereas the corporate’s P/E ratio nonetheless stays on the decrease finish of the vary.

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On this regard, I take the view that the inventory may have additional room for upside on an earnings foundation. Nevertheless, I additionally take the view that the corporate might want to reveal vital gross sales development on 2022 figures earlier than we see a big upside.

Moreover, with the corporate having reported vital dips in footfall throughout its shops in 2022 owing to inflation – there’s the chance that low client confidence attributable to broader macroeconomic issues may proceed to position stress on gross sales. Longer-term, I take the view that the corporate’s entry into the material care class is an efficient strategic transfer and has the potential to bolster gross sales, owing to vital buyer enthusiasm for the corporate to introduce its fragrances to the laundry class. This has vital potential to bolster retailer gross sales over the long term. Nevertheless, inflationary pressures might hold demand beneath potential within the brief to medium time period.

Conclusion

To conclude, I take the view that Bathtub & Physique Works continues to be a powerful participant in its market and the corporate’s entry into material care may have the potential to bolster gross sales over the long term. Nevertheless, I take the view that inflationary issues might proceed to position stress on the inventory within the brief to medium time period, and traders are prone to search for additional proof of development earlier than we see a significant upside within the inventory.