Last update on 2024-06-06

Bath & Body Works (BBWI) - Piotroski F-Score Analysis for Year 2023 (Final Score: 5/9)

Bath & Body Works (BBWI) scores 5/9 in the Piotroski F-Score for 2023. Comprehensive analysis of profitability, liquidity, and operations included.

Short Analysis - Piotroski Score: 5

We're running Bath & Body Works (BBWI) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

The Piotroski F-Score for Bath & Body Works (BBWI) is 5 out of 9, reflecting a mixed financial position. The company shows strong profitability with positive net income and cash flow from operations, but its return on assets has decreased. The operating cash flow is higher than net income, indicating efficient earnings quality. However, liquidity concerns arise due to a declining current ratio and increased leverage. The company has reduced its outstanding shares, which is beneficial for investors. Gross margin has decreased, but the asset turnover ratio has improved, showing better utilization of assets. Overall, BBWI's financial health is mixed, with some strong points and some areas of concern.

Insights for Value Investors Seeking Stable Income

Based on the Piotroski F-Score analysis, Bath & Body Works (BBWI) shows a moderate financial position with a score of 5 out of 9. This indicates that there are both strengths and weaknesses in its financial health. The positive factors include strong net income, positive cash flow, and a reduction in outstanding shares. However, concerns such as declining return on assets, increased leverage, and a decreasing current ratio should not be overlooked. If you are considering investing, it might be worth delving deeper into these areas of concern and monitoring future financial statements for improvement. BBWI could be a reasonable investment option if you believe the company can address and improve its weaker areas.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of Bath & Body Works (BBWI)

Company has a positive net income?

Net income refers to the company's total earnings or profit. A positive net income indicates profitability, adding 1 point in the Piotroski score.

In 2023, Bath & Body Works (BBWI) reported a net income of $800 million, marking a positive net income. This is a good trend and adds 1 point to the Piotroski score. Over the last 20 years, the company has had fluctuations, including notable dips in 2009 and 2020. Despite these setbacks, the recent positive net income demonstrates the company's ability to rebound and maintain profitability, signaling financial health.

Company has a positive cash flow?

Cash Flow from Operations (CFO) reflects the amount of cash a company generates from its regular operating activities.

For Bath & Body Works (BBWI), the CFO in 2023 stands at $1,144,000,000, which is positive. This indicates strong cash generation from its core business operations. Over the last 20 years, the CFO has shown a general upward trend with some fluctuations, such as peaks in 2020 and 2021 due likely to pandemic-related sales booms, and then a reduction in 2022 and 2023. A positive CFO this year nonetheless contributes 1 point to the Piotroski score, indicating good financial health and operational efficiency.

Return on Assets (ROA) are growing?

Change in ROA, or Return on Assets, measures a company's efficiency in generating profits from its assets from one period to another. It is pivotal in understanding asset productivity.

Bath & Body Works (BBWI) witnessed a decrease in ROA from 0.1515 in 2022 to 0.1389 in 2023. This decline suggests a reduction in the company’s ability to generate profit from its assets, reflecting potentially lesser operational efficiency or increased asset base without a proportional rise in earnings. Historically, over the last 20 years, BBWI’s ROA has exhibited variability, contrasting the more stable, higher industry median ROA values. In addition, their Cash Flow trends suggest operational fluidity, yet the declining ROA may warrant scrutiny over asset management strategies.

Operating Cashflow are higher than Netincome?

Criterion of Operating Cash Flow higher than Net Income for Bath & Body Works (BBWI)

In 2023, Bath & Body Works reported an operating cash flow of $1,144 million and a net income of $800 million. This results in an operating cash flow-to-net income ratio of approximately 1.43. According to Piotroski’s F-Score, if the operating cash flow exceeds net income, it suggests efficient earnings quality. Hence, for this particular criterion, BBWI scores 1 point. Looking at historical data, the trend suggests a consistent pattern of higher operating cash flow compared to net income, strengthening the quality of earnings argument. Thus, BBWI exhibits a positive trend regarding the Piotroski criterion of operating cash flow exceeding net income.

Liquidity of Bath & Body Works (BBWI)

Leverage is declining?

Change in leverage criteria assesses if a company has reduced its financial leverage. Lowering leverage is typically seen as reducing financial risk.

For Bath & Body Works (BBWI), the leverage increased from 0.9696 in 2022 to 1.0695 in 2023. This indicates a rise in financial leverage, signaling an augmented financial risk. Analyzing historical leverage data reveals a notable trend as the leverage in 2020 was 0.6316, showing a gradual upward trajectory since then. Hence, the Piotroski score for leverage in this instance would be 0.

Current Ratio is growing?

Explain the criterion for Bath & Body Works (BBWI) and why it is important to consider

Analyzing the Current Ratio, which compares a company's current assets to its current liabilities, is crucial in assessing the short-term liquidity and financial health. For 2023, BBWI's Current Ratio is 1.6432, which marks a decrease from 2.3326 in 2022. The trend of a decreasing Current Ratio is worth noting because it can indicate potential liquidity issues. A higher Current Ratio in the past years, compared to both its historical values and industry median, underscores this concern.

Number of shares not diluted?

Change in shares outstanding is a critical measure that indicates the dilution of the existing shareholders' equity. A decrease in the number of outstanding shares points to share buybacks, a shareholder-friendly move, which generally indicates strong financial health.

In 2022, Bath & Body Works had 269,000,000 shares outstanding, which decreased to 232,000,000 shares in 2023. Given this decrease, it indicates that the company executed a share buyback, thus reducing the total number of shares by 37,000,000. Consequently, according to the Piotroski Score calculation, Bath & Body Works earns 1 point for this criterion, as the decrease in outstanding shares is favorable. Reviewing the annual outstanding share data over the last 20 years, it reveals a significant and consistent reduction, underscoring the company’s sustained commitment to enhancing shareholder value. This is a positive trend denoting financial robustness and shareholder-friendly management policies.

Operating of Bath & Body Works (BBWI)

Cross Margin is growing?

Gross Margin measures the percentage of total sales revenue that the company retains after incurring the direct costs associated with producing the goods. An increasing Gross Margin is a sign of operational efficiency and pricing power.

In 2023, Bath & Body Works (BBWI) reported a Gross Margin of 0.4306, a decline from the 0.4891 observed in 2022. This indicates a negative trend in operational efficiency or higher production costs. Over the last 20 years, the Gross Margin has displayed fluctuations, and the recent decrease contrasts with the significant growth observed from 2019 to 2022. Comparing this figure to the Industry Median Gross Margin of 0.3785 in 2023, BBWI still performs better than its industry peers, though the reduction remains a concerning factor. Thus, it would not receive the point for this Piotroski criterion.

Asset Turnover Ratio is growing?

Asset Turnover measures the efficiency of a company's use of its assets in generating sales or revenue. An increasing ratio indicates improved efficiency.

In 2023, Bath & Body Works (BBWI) reported an Asset Turnover ratio of 1.3125, compared to 0.8958 in 2022. This reflects an increase, indicating better efficiency in asset utilization to generate revenue. This improvement adds 1 point to the Piotroski F-Score. Analyzing a 20-year trend, the ratio peaked at 2.3309 in 2003 but faced a downturn post-2013. Recent recovery from 0.5931 in 2021 displays significant improvements.