$7.21
$52.59
bear $7.21
base $30.01
bull $52.59
margin of safety $12.00
market price* $20.14
Bath & Body Works sells body care, soaps, home fragrance and candles through about 1,937 company stores (1,823 in the U.S., 114 in Canada), online, and through partner-run stores in more than 45 countries (596 locations). Victoria's Secret was spun off in August 2021, so only fiscal 2022 onward describes the business as it is today. Sales have fallen four years in a row, from $7.88 billion in fiscal 2021 to $7.29 billion in fiscal 2025. What the business earns. Counting cash from operations less working-capital swings, stock compensation and the capital spending needed just to stay in business, the owners' cash was $710M, $695M, $713M and $721M in fiscal 2022 to 2025. Fiscal 2025 was helped by a $113M working-capital inflow that we removed. Add back the interest paid to lenders ($339M, $346M, $289M, $263M) and the business produced about $1,049M, $1,041M, $1,002M and $984M before paying its lenders, a slow slide. We value the business first and then subtract what it owes. The reference level from fiscal 2023 to 2025 is about $1,002M. Fiscal 2025 grew owners' cash 1% after interest but business cash fell 2%; our first-year assumption is a sharp drop, and the reason is dated and in the reports: first-half 2026 adjusted earnings per share were $0.32 in the first quarter (versus $0.49) and $0.31 in the second quarter once an $80M tariff refund is removed. First-half cash flow was also boosted by an $88M one-time interchange-fee settlement. Management's full-year free-cash-flow outlook of about $650M includes both items; taking out roughly $125M of after-tax benefit leaves about $525M, against about $750M last year once the working-capital windfall is removed. Management also named about $30M of tariff cost, $30M of input-cost inflation and $35M of added investment ahead. Store sales in the U.S. and Canada fell 5.4% in the second quarter. Adding back about $235M of interest and deducting about $20M of stock compensation puts underlying business cash near $740M, so we start all cases from a lower level, about $750M in year one. The company's $250 million cost-savings plan is not counted, because the annual report says the savings will be used to reinvest in the business. Base case. Business cash starts at $750M and erodes about 2% a year, matching the 1.9% a year that sales have fallen since fiscal 2021, reaching about $625M in year ten and continuing to fade at 2% after that. We credit no growth: international and other sales are growing fast (+24.9% in the second quarter) but are too small to offset store declines on evidence so far, and a turnaround is not something we can point to yet. The business is worth about $9.4 billion; it owes about $3.3 billion; that leaves about $6.1 billion, or $30.01 a share on about 202 million shares. The debt is about $3.6 billion of fixed-rate notes (average coupon near 6.7%, so we add about $130M for the extra cost) with, per the January 2026 schedule, $444M due February 2028, $482M due June 2029, $844M due October 2030 and about $1.9 billion due 2033 to 2037, less about $444M of cash we consider surplus (cash was $794M on August 1, 2026, but fell to $364M a year earlier before the holiday build). The company has repaid $289M of debt this year and has stopped buybacks. Bear case. Sales fall 4% to 5% a year with the cost pressures above (business cash $640M, then $570M), and in year three the retail downturn we model is the 2008 recession: Bath & Body Works' operating income then fell from $302M to $215M (down 29%) on sales down 5%, with store sales down 9%. Applying a similar drop takes business cash to $410M, bottoming near $370M in year five, then fading 3% a year. The 2028, 2029 and 2030 maturities ($1.77 billion) would be refinanced at around 9%, which we price at about $250M more owed, and the dividend would likely be cut. Business cash still covers interest (roughly $240M to $280M a year) but not by much. The business is worth about $5.0 billion; it owes about $3.6 billion; that leaves about $1.5 billion, or $7.21 a share. Bull case. The cost program offsets the tariff and inflation headwinds, sales stabilize, and international partner growth lifts business cash from $800M by 2% a year for ten years, then eroding 1% a year. The business is worth about $13.9 billion; it owes about $3.3 billion; that leaves about $10.6 billion, or $52.59 a share. Testing the base case. If the starting level is $650M instead of $750M and decline is 4% a year, the share value is about $15.78; at $750M with 4% decline it is about $20.73. This is why the margin-of-safety price sits well below the base value. The tariff refund is not repeatable (the Supreme Court struck down the emergency-powers tariffs on February 20, 2026, but new tariffs were imposed under other authority), so we did not let it lift the level. Margin-of-safety price of $12.00. We are fairly, not highly, sure of the earnings level: four years of reported cash flows are tightly bunched, but the next twelve months are lower and rely on management's outlook for the holiday quarter. The worst plausible outcome is a consumer recession on top of continuing store declines; the structure is thin, with negative shareholder equity (-$1.06 billion), $3.6 billion of debt and store leases, though the notes mature between 2028 and 2037. If we are wrong about the starting level and the pace of decline together, the shares are worth about $16; if the brand also meets a recession, about $7. The price assumes a holding period of three years or more, with the dividend (about $0.80 a share a year) paid while the debt is paid down. From $12 the mildly-wrong case still implies roughly 20% a year, the base case far more, and the bear case implies a value close to $12 after dividends and debt paydown. The margin-of-safety price is not higher because the debt makes each further decline in cash very costly to shareholders. What changed since the last analysis: the spring and summer reports confirmed the earlier warning of lower sales and earnings, brought one-time cash gains (a settlement and tariff refund), and the company cut debt and kept buybacks suspended. Our earlier figures were built on a different basis and are not comparable. First-half details come from the company's earnings releases and call; the dollar figures tie to its filings. Not reconcilable from the filings: the quarterly balance sheet shows $248M of current debt that we could not tie to a specific note, so we used total debt.