Bath & Body Works’ bond risks surge as retailer cuts outlook

The cost of protecting Bath & Body Works Inc.’s debt against default jumped to a seven-month high on Thursday, after the retailer cut its fiscal-year outlook and announced a turnaround plan to refocus on its core offerings.

The company saw the spread on its five-year credit default swaps surged as much as 47.9 basis points to 237.9 basis points. Credit default swap prices usually rise as investor confidence in a firm’s credit quality falls. 

Bath & Body Works’ previous strategy was aligned to drive incremental growth but led to brand weakness as the company moved beyond its core business, chief executive officer Daniel Heaf told Bloomberg. That prompted a raft of promotions which eroded returns for the company.

“We sort of became a business that talked about price more than we talked about product,” said Heaf, who took over at the helm in May. “We’re going back to focusing on our core, what we’re famous for.”

The plan projects $250 million of cost savings over the next two years, Bath & Body Works said in a Thursday statement. But the effort lacks specifics, Bloomberg Intelligence analyst Lindsay Dutch wrote in a note, adding that quick execution is required to prove its potential for a return to growth and new customer acquisition.