Bath & Body Works Inc (NYSE:BBWI) stock fell 6.76% (As on August 24, 11:50:27 AM UTC-4, Source: Google Finance) after the company warned of a steeper decline in annual sales as Americans deferred purchasing its pricier home fragrances and personal care products amid still-high inflation pinching household budgets. A rise in costs of living and credit repayments at higher borrowing costs in the U.S. have prompted consumers to cut down on purchasing non-essential items. This has led to a slowdown in demand for products such as home fragrances and beauty and skincare. To fend off a hit on margins from surging labor and production costs, the retailer resorted to price hikes on its products that further discouraged demand from inflation-weary Americans. Further, the second quarter operating income was $188 million compared to $242 million last year, and net income was $99 million compared to $120 million last year. Bath & Body Works held $790 million in cash and equivalents as of July 29, 2023. At the end of Q2, inventories declined 15.7% Y/Y to $818 million. As of July 29, the company had 1,823 stores compared to 1,802 stores in January.

BBWI in the second quarter of FY 23 has reported the adjusted earnings per share of 40 cents, beating the analysts’ estimates for the adjusted earnings per share of 33 cents, according to Refinitiv IBES data. The early benefits of the cost optimization and merchandise margin improvement initiatives helped drive earnings which outperformed the expectations.  The company had reported 3.6 percent fall in the adjusted revenue to $1.56 billion in the second quarter of FY 23, which is largely inline with the analysts’ estimates for revenue of $1.56 billion. Gross profit decreased 5.8% Y/Y to $622 million with a margin of 39.8%. The operating margin was 12.1%.

Bath & Body Works now expects annual net sales to decline between 1.5% and 3.5%, compared with its previous forecast of flat net sales to a mid-single-digit percentage decline. It also raised its annual profit forecast to adjusted earnings per share now expected to range between $2.80 and $3.10, compared with $2.68 and $3.08 previously expected.

The company expects third quarter net sales to decline 2.5% to 4.0% compared to $1.604 billion in the third quarter of 2022. Third quarter earnings per diluted share are expected to be between $0.30 and $0.40, compared to $0.40 earnings per diluted share in the third quarter of 2022.