Bath & Body Works to open 90 off-mall stores; activist investor eyes chain

Bath & Body Works reported better-than-expected fourth-quarter sales and earnings  but issued weak guidance as it faces a board challenge from an activist investor.

The specialty retailer also said it plans to undertake about 115 total real estate projects in 2023, consisting of about 90 new off-mall stores and 25 remodels to the White Barn store design. The openings will be offset by about 50 mall closures.  Bath & Body Works closed 48 mall locations last year, the company said during its earnings call, while opening 95 off-mall outposts.

Daniel Loeb’s Third Point hedge fund plans to launch a proxy fight against Bath & Body Works  to address his concerns regarding the board’s oversight of issues that include executive compensation, succession planning, capital allocation, investor communication and strategy for longterm value creation. Third Point, which has an approximate 6% stake in the specialty retailer, plans to nominate candidates — including a shareholder representative — to the board.

“As fiduciaries, we have no choice but to put forth qualified director candidates and give our fellow shareholders the opportunity to elect directors who can hold the stewards of their capital responsible for the decisions they make," Third Point founder and CEO Loeb wrote in a letter to the company's board. “We believe that our slate will bring a breadth of talent to support long-term growth and sustained share price appreciation at Bath & Body Works.” 

Among his complaints, Loeb criticized the “eye-popping,” nearly $18 million  sum that Sarah E. Nash received for taking on a new role as executive chair and interim CEO in May 2022, noting  the payment came on top of the $700,000 she was already receiving annually to serve as board chair. (In December, Gina Boswell was appointed permanent CEO.)

“Ms. Nash’s exorbitant compensation is even more remarkable when compared to her counterpart at the company’s closest and much larger competitor, Ulta Beauty, which paid its chief executive officer approximately $8.9 million in 2022,” Loeb stated. “Ms. Nash’s outsized pay package is a red flag for shareholders and signals a massive governance failure.”

Loeb said that new CEO Boswell seems to have ‘hit the ground running’ and is focused on addressing certain issues that were ignored by prior executive leadership.”

In a statement, Bath & Body Works disputed Third Point’s accusations, and said that it was committed to refreshing the composition of its board.

“The board will review and consider Third Point’s proposed nominations in due course once they are received,” the company stated.

Bath & Body Works, which was spun off from L Brands in 2021,  reported net income of $428.2 million, or earnings per share of $1.86, for the quarter ended Jan. 29, compared to $592.6 million, or $2.27 per share, in the year-ago period. Adjusted per-share earnings came to $2.30, well ahead of  $1.62 analysts had been expecting.

Net sales fell 5% to $2.889, topping forecasts for $2.807 billion.

“The team delivered better-than-expected earnings results despite a challenging macroeconomic environment, which is a testament to the strengths of this organization,” said Gina Boswell, who became CEO of Bath & Body Works in December, replacing interim chief Sarah Nash. “Our customer base responded well to our holiday season, in part powered by our loyalty program, which now exceeds 33 million members. In addition, we continued to be disciplined in our expense and inventory management.”

Bath & Body Works is launching a company-wide initiative to reduce expenses and improve operating efficiency in the business. It is targeting $200 million of annual cost savings, with over half of those savings contemplated in its 2023 outlook, primarily impacting the second half of the year.

In August, Bath & Body Works  said it had eliminated about 130 roles, the majority of which were leadership positions, as part of recent efforts to simplify and realign its operating structure

[Read More: Bath & Body Works cuts 130 jobs, COO exits as sales, profits fall]

The company said it expects first quarter net sales to decline by low- to mid- single digits. Earnings per share are expected to be between $0.17  and $0.27, below analysts’ forecasts for $0.44. For the full year, it expects flat sales to a mid-single digit decline, with earnings per share of $2.50 to $3.00.

“The company’s forecast takes into consideration ongoing macroeconomic uncertainty and assumes a continuation of fourth quarter 2022 sales trends for the first half of fiscal 2023,” the retailer stated. 

Bath & Body Works operates more 1,800 stores n the U.S. and Canada and more than 425 international franchised locations.