Bath & Body Works on Thursday reported Q4 net sales fell 4.6% to $2.9 billion, with net income down 26.9% to $434 million. Excluding a $9.4 million write-off of tornado-damaged inventory, adjusted net income from continuing operations reached $599.7 million.
The retailer is reorienting its footprint away from malls, with plans this year to close about 50 mall-based stores and open 90 off the mall. Last year, most of the 48 stores that the retailer permanently closed were in malls, while 95 new off-mall stores opened in North America, executives said during a conference call Thursday.
On Wednesday, the company defended its board after activist investor Third Point — citing excessive compensation, “more than a year of stagnation” and other issues — said it will nominate new members during Bath & Body Works’ upcoming shareholders meeting.
Bath & Body Works CEO Gina Boswell took over about three months ago, and is now prioritizing a plan that targets $200 million of annual cost savings across the company.
Half of that will be achieved this year, and “a substantial portion of the remaining savings” next year, with the help of external advisers that have been hired to assist in “a top to bottom review of the business,” Boswell told analysts during the call.
“While we're focused in the near term on optimizing the core business, we'll continue to explore longer term opportunities, such as adding new adjacent categories,” she also said, noting that expansions of men’s offerings and international operations provide growth opportunities.
The retailer probably needs to expand into more categories in order to keep up with increased competition from the likes of Target and others, according to GlobalData Managing Director Neil Saunders.
“[E]specially outside of traditional malls,” he noted in emailed comments. “The direct-to-consumer part of the market is a bit less developed in body care, but several brands are making good progress. All this nibbles at Bath & Body Works rather than taking big chunks of share away from them – but in this more constrained environment even small movements are very unhelpful.”
The retailer on Thursday issued muted guidance for margins and sales this year. That only adds fuel to the fire being stoked by Third Point, which is providing an unhelpful distraction, Saunders also said.
“While we have some sympathy with Third Point’s views, we believe them to be something of an overreaction and to ignore the fact that, from a retail perspective, Bath & Body Works is a very well-run business that gets most of the fundamentals of retailing right,” he said.