Bath & Body Works Wards Off Activist Investor Despite Tough Year Ahead

Specialty retailer Bath & Body WorksBBWI
has managed to head off a potential proxy battle by appointing an additional board member.

The company this week moved to appoint lawyer and financial executive Thomas Kuhn as the board’s new independent member, effective March 10, in a decision that has seen activist investor Third Point stand down from a possible showdown.

Well that’s for now, at least.

Despite warning of a tough year ahead, Bath & Body Works appears to have weathered an impending attack by its minority stakeholder, but the battle to prove its execs are worth the big bucks continues.

Bath & Body Works said Kuhn’s appointment culminated from the board’s “continued engagement” with hedge fund Third Point, which had recently recommended him as an extra board member.

And the appointment is a clear salve for Third Point and comes a little over a week after news broke that it was plotting a proxy battle against Bath & Body Works to address concerns regarding oversight of executive compensation, succession planning, capital spend, investor communication and long-term value creation.

Third Point has a circa 6% stake and had been planning to nominate candidates to the board but CEO Daniel Loeb said in a concillatory statement: “Tom is a trusted strategic advisor whose practical financial and governance insights will be highly additive to the board.”

Third Point has also informed Bath & Body Works that it is no longer intending to nominate board candidates at the company’s 2023 annual stockholder meeting.

Bath & Body Works Beats Forecasts

Amid the furore, Bath & Body Works last month had actually reported better-than-expected fourth-quarter sales and earnings but warned of weak forecasts.

Operating more 1,800 stores in the U.S. and Canada and over 425 international franchised locations, this year it plans to add 90 new off-mall stores and 25 remodels of its White Barn format, offset by about 50 mall store closures on top of 48 mall locations shuttered last year, while opening 95 off-mall shops.

Loeb’s Third Point had responded to those results and in particular Loeb had criticized the “eye-popping,” near $18 million remuneration that Sarah E. Nash received for taking on an additional role as interim CEO in May 2022, replacing Andrew Meslow who resigned for health reasons and also left the board.

Nash’s payment came on top of the $700,000 she already received annually to serve as board chair.

In December UnileverUL
exec. and beauty sector veteran Gina Boswell replaced her as CEO but Loeb said that Nash’s “exorbitant” compensation is “even more remarkable” when compared with competitor Ulta Beauty, which paid its CEO around $8.9 million in 2022.

Loeb described this as a “red flag” for investors but has been impressed with Boswell who he said had “hit the ground running” and he praised her for focusing on “addressing certain issues that were ignored by prior executive leadership.”

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

L Brands Split Up

Bath & Body Works, which was separated from Victoria’s Secret under the L Brands umbrella in August 2021, reported net income of $428.2 million for the quarter ended Jan. 29, compared to $592.6 million for the same period the previous year. Net sales fell 5% to $2.9 billion, beating forecasts of $2.81 billion.

The company said it expects first quarter net sales in the low- to mid- single digits. For the full year, it expects flat sales to a mid-single digit decline.

“Our customer base responded well to our holiday season, in part powered by our loyalty program, which now exceeds 33 million members,” said Boswell.

Bath & Body Works has launched a drive to reduce expenses and improve operating efficiency, targeting $200 million of annual cost savings and said it had already removed about 130 roles, predominantly in leadership positions.