Retail Credit Research: Bath & Body Works (BBWI) Is Freshening Up in 1Q26

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Retail Credit Research: Bath & Body Works (BBWI) Is Freshening Up in 1Q26

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May 27, 2026 04:42 PM GMT

Morgan Stanley & Co. LLCMRetail Credit Research | North America Jenna L Giannelli

Credit analyst

Bath & Body Works (BBWI) Is Jenna.Giannelli@morganstanley.comRoopi Bhangu +1 212 761-4340

Credit Analyst

Roopi.Bhangu@morganstanley.com +1 212 761-1912

Freshening Up in 1Q26

Exhibit 1 : Bath & Body Works (BBWI)

BBWI delivered a solid 1Q26 beat and maintained disciplined Fundamental & Valuation View

FY26 guidance reflective of continued demand pressure, tariffs, CreditBBWI FundamentalNeutral ValuationCheapView ActionBuy '33s-'37s/ Trade

and elevated investment spending. While FY26 remains a Source: Morgan Stanley Research

transitional year, improving traction across innovation and digital

initiatives alongside strong FCF generation and conservative

capital allocation continue to support the credit story and

relative value in the bonds. The equity was +11% this afternoon,

bonds up ~1.5pt

Key Takeaways

BBWI delivered a clean beat on both sales ($1.378bn) and adj. EBIT ($151mn),

while management prudently maintained its FY26 outlook given still-soft

underlying trends.

We continue to see FY26 as a transition year operationally, with pressure from

tariffs (with potential for refund upside), sales deleverage, and elevated

investment spending likely to persist over the next several quarters.

We came away encouraged by early evidence that management’s transformation

efforts are gaining traction, particularly across Amazon, soaps/sanitizers, White

Barn, and digital conversion trends.

We continue to appreciate BBWI’s strong FCF generation (~$600mn guided for

FY26) and disciplined capital allocation.

Spreads of ~300bp+ for the 2033-2037s screen as attractive relative to both BB-