美國(guó)零售商-專業(yè)難題- BBWI數(shù)字檢查顯示應(yīng)用程序下載量大幅上升可能是新的忠誠(chéng)度計(jì)劃推動(dòng)的

__+1(212)902-6740|kate.mcshane@GoldmanSachs&Co.LLC+1(212)902-6740|kate.mcshane@GoldmanSachs&Co.LLC+1(713)658-2691|leah.jordan@GoldmanSachs&Co.LLC+1(617)772-7951|mark.jordan@GoldmanSachs&Co.LLC+1(713)658-2632|emily.kech@GoldmanSachs&Co.LLC+1(917)343-6555|patrick.hollander@GoldmanSachs&Co.LLC+1(212)902-4726|dan.duggan@GoldmanSachs&Co.LLCselectpeers,includingTGT,ULTA,andSephora,whichshowedasigni?cantuptickstartinginlateAugust.WealsointroduceourBBWIpromotionaltracker,whichincludes3-wickcandlepricingandfreeshippingoffers.WealsodiscussgrowthdriversandFY22companyguidance,detailtheupsidepotentialinnewcategories(i.e.,haircareandskincare),andprovidetakeawaysfromour9/27/22channelcheck.Additionally,werefreshourULTAestimatesaheadof3Qearningsbasedonaslightlyhighercompassumptionasourcheckspointtosustainedmomentuminthebeautycategory.WecontinuetorecommendBBWI(Buy,onCLwitha$49targetprice)intotheendoftheyearaswethinkthe2HforBBWIcouldsetupfavorablygivenahigherlevelofnewnessinstores,increaseddigitalinterestlikelyduetotheloyaltyprogram,andsomeeasingin?ationaryheadwinds.Newnesscontinuestobetheprimarysalesdriver,withmanagementnotingstrongengagementwithnewfragrantlaunchesthisyear(e.g.,Butter?y,Poppy),aswellasearlydropsforfall/Halloween.In2H,BBWIisplanningfornewdropseveryweek,withnewthemes/fragrancesoccurringevery4-6weeks,whichisincrementaltowhatthecompanydidinthe1Hoftheyearand2H21.OurdigitalchecksunderscorethattheloyaltyprogramwhichBBWIlaunchedinlateAugustislikelydrivingtraf?cgiventripledigitincreasesinappdownloadsoverthelastfewweeksaswellasasigni?canttickuponwebtraf?c.Wenotethatanyloyaltyprogramcompliftisnotbeingcontemplatedin2Hguidance.Additionally,attheGSRetailConference,whichtookplaceon9/7and9/8,BBWImanagementnotedithasstartedtoseesomeinputcostpressuresmoderate,suchaswax,andmanagementnotedthattransportationpressurescouldeaseasfreightcostsandgaspricescomedown.WethinkthesethreefactorscoulddrivebetterthanexpectedtopandbottomlinegrowthwhenthecompanyreportsQ3andQ4results.ManagementhasguidedGoldmanSachsdoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,investorsshouldbeawarethatthe?rmmayhaveacon?ictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.ForRegACcerti?cationandotherimportantdisclosures,seetheDisclosureAppendix,orgo/research/hedge.html.Analystsemployedbynon-USaf?liatesarenotregistered/quali?edasresearchanalystswithFINRAintheU.S._Sep-19Jan-20Mar-20May-20Jul-20Sep-_Sep-19Jan-20Mar-20May-20Jul-20Sep-20Nov-20Jan-21Mar-21May-21Jul-21Sep-21Nov-21Jan-22Mar-22May-22Jul-22Sep-22-MSDto-HSDsalesgrowthforQ3(FactSetconsensusisdownHSD)andfortheyearwhichimplies-HSDto-LDDforQ4(consensusisdownLDD).Currently,theEPSguideis$2.70-$3.00forFY22(versusconsensusat$2.89).Weviewthecurrentvaluationashighlyattractivewiththestocktradingat11.2xonFY23EPS.LookingatappdownloadsforBBWIcomparedtoTGT,ULTA,andSephora,9/19/22weeklydownloadsforBBWIcameinat320,434,~41%aheadofTGTat226,953andnotablyaheadofULTAat65,269andSephoraat50,987,asshowninExhibit1.WewouldalsonotethatappdownloadsforBBWIarecurrentlyup+530%vs.pre-pandemic(Sept’19)levels,vs.Sephoraup+62%,ULTAup+44%,andTGTup+16%.Asmentionedabove,on8/22/22,BBWIlauncheditsloyaltyprogramacrosstheUS.ForBBWI,8/15/22weeklydownloadscameinat340,563,increasing+680%y/yand+380%sequentially,while8/22/22weeklydownloadscameinat709,642,increasingover+1,500%y/yand+108%sequentially.Inourview,thisunderscoresthenotionthatBBWI’sloyaltyprogramisresonatingwithcustomerssofar.Bath&BodyWorksTargetUltaSephora800,000700,000600,000500,000400,000300,000200,000100,0000Onitswebsite,BBWIhad26.3mnmonthlyvisitsinAug’22,+59%higherthanSephoraat16.5mnand+30%higherthanULTAat20.2mn,while-81%lowerthanTGTat139.7mn.Thatsaid,BBWIsawa+18%y/yincreaseinmonthlyvisitsinAug’22,asillustratedinExhibit2,comparedtoTGTat-10%y/y,ULTAat-19%y/y,andSephoraat-29%y/y.BBWIhasconsistentlyexperienceday/yincreaseinmonthlyvisitsfollowingahighof66.1mnvisitsinDec’21,exceedingpre-pandemiclevels.ComparedtoAug’19,October2_Aug2019Oct2019Dec2019Feb2020Apr2020Jun2020Aug2020Oct2020Dec2020Feb2021Apr2021Jun2021Aug2021Oct_Aug2019Oct2019Dec2019Feb2020Apr2020Jun2020Aug2020Oct2020Dec2020Feb2021Apr2021Jun2021Aug2021Oct2021Dec2021Feb2022Apr2022Jun2022Aug2022Aug2019Oct2019Dec2019Feb2020Apr2020Jun2020Aug2020Oct2020Dec2020Feb2021Apr2021Jun2021Aug2021Oct2021Dec2021Feb2022Apr2022Jun2022Aug2022monthlyvisitsforBBWIincreased+55%,comparedtoTGT+10%,ULTA+2%,andSephora-6%.Intermsofmonthlyuniquevisitors,asshowninExhibit3,BBWIsawthehighesty/yincreaseinAug’22at+23%,followedbySephoraat+10%,whileTGTremainedrelatively?atandULTAexperienceda-26%decline.TargetaSephoraBath&BodyWorksTTargetaSephoraBath&BodyWorksTargetSephora60%60%40%20%00%80%60%40%20% 0%-20%-40%-60%50%40%30%20%%0%-10%-20%-30%-40%WeutilizedGSDataWorksforthewebtraf?candappdownloaddata.GSDataWorksleveragesalternativedatasourcesandadvancedanalysistechniquestocreateuniquedata-driveninsightsacrossequity,creditandmacroresearch.GSDataWorksanalysisprovidedbyDanDuggan,Ph.D.andParagAgrawal.WeperformedastudylookingatBBWI’s3-wickcandlepricingandfreeshippingoffersfrommid-May2022throughSeptember2022,takingdiscountsintoaccountasstatedinpromotionalemails.AsfurtherdetailedinourJul’22note,BBWI’ssemi-annualsalebeganinmid-Juneandlasted30days,aslightincreasefrom28dayslastyear,potentiallyrevealinganincrementallymorechallengingenvironmenttoworkthroughtheinventory,althoughsomewhatmodestcomparedto43daysin2020.The3-wickcandlewasdiscountedfor26daysduringthesaleforanaveragereducedpriceof$12.53($9.56-$15.50range),vs.thestandardfullpriceof$24.50-26.50.Onaverage,3-wickcandlesweresoldfor$14.20inJun’22,asillustratedinExhibit5.Followingthesemi-annualsale,average3-wickcandlepriceshaveremainedhigher,pricedatanaverageof$18.92inSeptember.Additionally,accordingtoourstudy,BBWIofferedfreeshippingon11daysinSept’22,upfrom4daysinAug’22and9/4daysinJul’22/Jun’22,respectively.Permanagement,BBWIisplanningforslightlymorepromotionsy/yin2H,whileremainingbelow2019(pre-pandemic)levels,withasimilarcadenceaslastyear.October3__$25$20Average:$19.34$15$10Semi-annualsale5/15/20226/15/20227/15/20228/15/20229/15/2022$30$25$20$15$10$5Jun-22Jul-22Aug-22Sep-22NewnesscontinuestobetheprimarysalesdriveratBBWI,asnotedatourSeptember2022retailconference.Uponintroducingnewness(i.e.,Halloween)inJuly,thecompanynotedre-engagementatallincomelevels,includingthesuccessfulsaleofhigher-priceditems.Asaresult,BBWIplanstointroducenewitemsalmosteveryweekin2Hbyimplementingaphased?oorsetapproach,whilepreviouslythestoremayhaveundergoneonelargechangeatacertaintimeintheseason.Wewouldalsonotethatdespitethelapofdif?cultcompsinsoaps&sanitizers,soapsaleshavebeenaidedbynewness,speci?callywiththeintroductionofanewgelformulain1H.BBWIcontinuestomigrateitsstorebasetooff-malllocations,workingtowardstwo-thirdsoff-mall/one-thirdon-mall,fromabout50/50today.Speci?cally,managementislookingtoreplacestoresinlower-tiermalls,openingreplacementstoresinadvance.BBWIalsocontinuestoconductWhiteBarnremodels,whichelevatecustomerfocusonhomefragrance.Managementnotesthateveryremodelisaccretiveandimmediatelypro?tablewithpaybackin1-2years,andresultsinanoverallcompuplift.Thecompanyhasconductedabout75%ofitsplannedWhiteBarnremodelsasofnow.On8/22/22,BBWIlauncheditsloyaltyprogramacrosstheUS.Managementiscurrentlyfocusedonenrollmentandanticipatesanuptickin4Qduetothecyclicalnatureofthebusiness.Intestmarkets,BBWIfoundthatloyaltymembersbothspendmoreandvisitmorefrequently.Permanagement,whileitremainsearly,theprogramappearstoberesonatingwithcustomers.Moreover,theloyaltyprogramisexpectedtobemarginaccretive,withprogramcostsoffsetbyanincreaseincustomerspending.Thisfall,BBWIplanstoexpandintonewcategories(i.e.,haircareandskincare),withaninitialtestinselectstoresandonline.Thenewbrandwilltargetyoungercustomerswithabright,light,andcleanbrandpresentationthatisbene?ts-focused,asopposedtofragrance-focused.Thelaunchwillbesupportedbymarketingefforts(in?uencersandproductplacementadsonlineandinmagazines),strongstoreplacement,andemployeetrainingonthenewproducts.Alsoofnote,themajorityofproductswillbesoldataOctober4__lowerpricepointvs.manypeersinthespace,whileAURswillgenerallybehigherthantheremainderofthecompany’sassortment.OnBBWI’s2Qearningscall,thecompanyreportedsolidsalestrendsforthequarter,supportedbyengagementwithnewness,andreiterateditstop-lineoutlookto-MSDto-HSDsalesgrowth.Ourcurrentestimateat-5.8%y/yisaboveRe?nitivEikonconsensusat-7.9%.WenotethatFY22toplineguidancecouldbeconservativegiventheloyaltyprogramrollout(noupliftassumed)andthecadencerampofnewness.BBWIguidedtoaFY22EPSof$2.70-3.00,withcurrentGS/consensusestimatesattheupperendoftherangeat$2.93/$2.91,respectively.Wenotethatgrossmargincontinuestobepressuredbyhigherpromotions(stillbelow2019levels),in?ationarycostpressures,andsalesdeleverage.Thatsaid,giventhecustomerseemstoberespondingtonewnessmorethanpromotions,therecouldbesomeconservatismontheoutlookforpromotionsinlightofthemacrouncertaintyontheconsumer.Additionally,in?ationarycostpressureisthebiggervariable,noting$230-240mnofincrementalcostpressureplannedforFY22,ontopof~$200mninFY21.WhileanimprovementinthesecostswouldlikelybemorelimitedinFY22giventhetiminglag,wenotethepotentialfor2023,highlightingarecentimprovementforoneofBBWI’skeyrawmaterialexpenses,wax,alongwithtransportation/fuelsurcharges.Inanefforttounderstandthepotentialimpactofafullloyaltyprogram,weevaluatevariousscenariosofloyaltypenetrationofsalesandbasketupliftsbymemberson2023ESSS.Ourprior1/19/22analysiscanbefoundhere.Insummary,evenmodestloyaltypenetrationandbasketupliftscouldleadtomeaningfulupsideinSSS(Exhibit6).Atthemidpointofthescenarioanalysis(30%loyaltypenetrationwith15%basketuplift),SSSandEPSof+7.5%and$4.06comparetoconsensus(Re?nitivEikon)of+4.0%and$3.71,respectively.However,theprogram’simpactismorelikelytoscaleovertimeversustheconsistentfull-yearimpactdisplayedintheanalysis,recognizingthecompanyrecentlylauncheditsprograminAug’22,so2023shouldbeginwithsomecustomertraction.Keyassumptions:nWeapplythescenariosto70%oftotalsalesasaproxyfortheremainingimpactpotential,noting~20%ofstoresarealreadyassociatedwiththeloyaltyprogramandexcluding~10%ofsalesrelatedtoCanadaandotherinternational.Thatsaid,weacknowledgethepotentialforanetworkingeffectintheexistingbaseasmorestoresareaddedandBBWIincreasesmarketingandpromotionstiedtotheprogram.nTheloyaltypenetrationre?ectsthepercentofsales(onthe70%oftotalsales)thatwouldgetthecorrespondingbasketuplift.Theupperbandofourbasketupliftrangetiestothe25-30%liftseenbythecompanyduringthepilot,whiletheupperendoftheloyaltypenetrationcorrespondstoBBWI’shistoricalcustomerretentionrate(mid-to-high50%in2018-2020).__nWeassumeSG&Aleveragesasourmodelalreadyincludes+2.0%/+4.0%y/ygrowthinSG&AexpensesforFY22/FY23,incorporatingincreasedlabor,advertisingandothercostsrelatedtotheexpectedloyaltyprogramrollout.nThe2023baselinereferencesourpriorestimates.Basketuplift2023Basketuplift0%4.2%4.2%0%4.2%4.2%4.2%4.2%4.2%4.2%4.2%5%4.2%4.5%4.9%5.3%5.6%6.0%6.4%4.2%4.9%5.6%6.4%7.8%8.5%20%4.2%5.6%8.5%10.0%11.5%12.9%25%4.2%6.0%7.8%9.6%11.5%13.3%30%4.2%6.4%8.5%10.7%12.9%17.3%4.2%0%10%20%30%40%50%60%LoyaltyPLoyaltyPenetration5.3%6.4%7.5%8.5%9.6%10.7%2023TotalSSS$mmBasketuplift$7,7360%5%10%15%20%25%30%0%$7,736$7,736$7,736$7,736$7,736$7,736$7,73610%$7,736$7,763$7,790$7,817$7,844$7,871$7,898Loyalty20%$7,736$7,790$7,844$7,898$7,952$8,006$8,061Penetration30%$7,736$7,817$7,898$7,979$8,061$8,142$8,22340%$7,736$7,844$7,952$8,061$8,169$8,277$8,38550%$7,736$7,871$8,006$8,142$8,277$8,413$8,54860%$7,736$7,898$8,061$8,223$8,385$8,548$8,7102023EPSBasket2023EPS0%$3.71$3.71$0%$3.71$3.71$3.71$3.71$3.71$3.71$3.715%$3.71$3.75$3.79$3.83$3.86$3.90$3.94$3.71$3.79$3.86$3.94$4.02$3.71$3.83$3.94$4.06$4.29$4.4120%$3.71$3.86$4.02$4.33$4.49$4.6530%25%$3.71$3.90$4.29$4.49$4.68$4.880%10%20%30%40%50%60%LoyaltyPenetration$3.71$0%10%20%30%40%50%60%LoyaltyPenetrationPerEuromonitor,theUShaircaremarketwassizedat$15.5bnin2021,whichhasgrownata10-yearCAGRof+2.9%(Exhibit7),whiletheUSskincaremarketwassizedat$23.4bnin2021andhasgrownata10-yearCAGRof+4.4%(Exhibit8).UsingEuromonitordata,weestimatebeautyspecialistretailermarketsharewas15%in2021withBBWIre?ecting22%sharewithinthatchannel.Assumingsimilarpenetrationforthehaircareandskincaremarkets,weestimateacombinedrevenueandEPSupliftpotentialof+15.5%and+19.6%,respectively,onour2024estimates,althoughwethinktheopportunityislongertermandlikelytoscaleovertime,notingSG&AleveragecouldprovideincrementalEPSupside(weconservativelyassumenoleveragegivenincrementalassociatedcosts,suchaslaborandmarketing).ApplyingaP/Emultipleinlinewithourbasecasevaluationof11.9x,weestimatetheopportunityre?ectsatotalOctober6__futurefuturepersharevalueof~$10.50(Exhibit9).SkinCareYoYGrowth$26,000$24,000$22,0008%$20,000$13,000$18,000$12,000$16,000$11,000$14,000$10,000$9,000$8,000201620172018201920202021Haircare22%5176.2%0.357.8%4.17TAM,2021($mm)Beautyspecialistmarketshareofbeautysales,2021BBWImarketshareamongbeautyspecialists,2021Estimatedrevenueuplift($mm)IncreasevsGS2024estimateEstimatedEPSupliftIncreasevsGS2024estimateAssumedP/Emultiple,inlinewithGSbasecasevaluationEstimatedfuturevalue,pershareSkincare23,42122%819.3%0.536.309%8%7%6%5%4%3%2%1%0%$16,000$15,000$14,0006%4%2%0%-2%$12,000$10,000$8,0002016201720182019202020212011201220132014201520112012201320142015HairCareYoYGrowthSkinCare(in$mn)HairCare(in$mn)12%10%WevisitedaBBWIstoreinHouston,TXon9/27/22.nFrontdisplaysconsistedofseasonalitems(TheBestofFall),including3-wickcandles,singlewickcandles,andwall?owers.Therewasalargeseasonaldisplay(Let’sGetSpooky)inthemiddleofthestorewithawideselectionofHalloween-themedproductsacrosscategories,includingseveralcandleholdersandaccessories.nNewnesswasondisplaythroughoutthestoreandmarkedwithsignage;wenotedanewcross-categoryfragrance(FallinBloom)andseveralothersin3-wickcandlesandsoaps.Traf?cwasmoderateduringourvisit,andin-stockswerehealthy.nWeobservedseveralpromotionsonproductsincludingbodycare,soaps&sanitizers,wall?owers,andminimusthaveslocatedneartheregister.Takingintoaccounttheaveragepriceperproduct(ex.4productsonabuy3,get1freedeal),the7ongoingpromotionsaveragedata~30%discount.October7__WeareBuyrated(onCL)forBBWIwitha12-monthpricetargetof$49,basedonourrisk-rewardframeworkwithrelativeP/Emultiplesof55%/65%/75%.Downsiderisks:1)lower-than-expectedsalesrelatedtoaslowdownineconomicactivity,greateruseofpromotions,lowerlevelsofinnovation,increasedcompetition,shiftsinconsumerpreferences,and/orlowerdemandtrendsafteroutsizedgrowthduringthepandemic;2)lowermarginsduetoincreasedpromotionsaswellasin?ationarypressurerelatedtoproductcostsand/orwages;and3)transportationcongestionextendinglongerthanexpected,whichcouldlimitinventoryavailability,whilealsoincreasingfreightcostsandreducingmargins.$32.60DownsideCase$7,7071.6%17.7%25.0%$773$3.5312%Valuation$3625%9%$4950%18.4xRelativeP/EMultipleAbsoluteP/EImpliedPriceProbabilityReturnAverageReturnMarketMultipleStockPrice(9/30/22)Qtr5to8SalesTotalSalesGrowthOperatingMarginTaxRateNetIncomeEPSBaseCase$8,0866.6%18.7%25.0%$884$4.0329%65%$4850%48%UpsideCase$8,2388.6%20.7%25.0%$1,029$4.6950%75%13.8x$6525%98%YoYGrowth55%EstimateChangesWeareincreasingourFY22EPSestimateto$21.36,remainingaboveguidancegivenmanagement’strackrecordforbeingconservativealongwiththeviewthatmoreoccasionsin2Hcoulddrivetraf?c.WearealsoincreasingourFY23/FY24EPSestimatesto$22.99/$24.06.October8__2024ENew$12024ENew$11,279 4.0%$4,36638.7%$2,76824.5% $10$1,58814.1% 49.9$24.062022ENew$9,77810.9%$3,78738.7%$2,30823.6% $15$1,46415.0% 51.8$21.362023ENew$10,769 4.0%38.6%$2,60524.2% $12$1,54314.3% 50.7$22.99Old$10,754 4.0%Old$10,754 4.0%38.4%$2,58524.0% $12$1,53614.3% 50.7$22.88Old$11,264 4.0%$4,33738.5%$2,74724.4% $10$1,58114.0% 49.9$23.94Old$2,201 9.0% $838 $56525.7% $5 $26812.2% $202 51.5$3.92Chg.0.0%0.7%0.2%0.8%0.2%0.0%0.5%0.0%0.5%0.0%0.5%Chg.0.0%0.7%0.2%0.8%0.2%0.0%0.5%0.0%0.5%0.0%0.5%Chg.0.4%0.5%2.7%0.9%1.9%0.4%0.0%4.6%0.5%4.6%0.0%4.6%Old$9,76510.8%$3,76238.5%$2,29123.5% $15$1,45714.9% 51.8$21.25Chg.0.2%0.7%0.2%0.8%0.0%0.5%0.5%0.0%0.5%SalesSameSalesSame-storesalesGrossprofitGrossmarginSG&A$SG&AratioPreopeningexpenseEBITEBITmarginNetincomeSharecountEPS9.5%$86139.0%$57526.0%$5$28012.7%$21151.5$4.10Valuation&RisksWeareBuyratedonULTAwitha12-monthpricetargetof$491,basedonourrisk-rewardframeworkwithrelativeP/Emultiplesof105%/125%/145%.CurrentStockPriceCurrentStockPriceQtr5to8SalesTotalSalesGrowthOperatingMarginOperatingIncomeTaxRateNetIncomeEPSBaseCase$10,890BaseCase$10,8907.5%14.5%$1,57425.0%$23.508%UpsideCase$10,9408.0%14.5%$1,59125.0%$23.769%1800.5%11.7%25.0%$892$17.74YoYGrowthYoYGrowthValuation105%18.4x$3272105%18.4x$32725%$49123%17.7x125%22.0x$51650%29%145%25.5x$60625%51%AbsoluteP/EImpliedPriceProbabilityReturnAverageReturnMarketMultipleDownsiderisksincludemarketsharedeterioration,higherpromotionstoboosttraf?c,anystructuralissuesinthebusinessincludingmoderatinglevelsofgrowthinloyaltymembers,impacttosupplychainfromfreight/portissues,andindustryweaknessrelatedtoslowerthanexpectedreopeningtrends.October9__WeKateMcShaneCFALeahJordanCFAMarkJordanCFAEmilyKechandPatrickHollander,herebycertifythatalloftheviewsexpressedinthisreportaccuratelyre?ectourpersonalviewsaboutthesubjectcompanyorcompaniesanditsortheirsecurities.Wealsocertifythatnopartofourcompensationwas,isorwillbe,directlyorindirectly,relatedtothespeci?crecommendationsorviewsexpressedinthisreport.I,DanDuggan,Ph.D.,herebycertifythatalloftheviewsexpressedinthisreportaccuratelyre?ectmypersonalviews,whichhavenotbeenin?uencedbyconsiderationsofthe?rm’sbusinessorclientrelationships.Unlessotherwisestated,theindividualslistedonthecoverpageofthisreportareanalystsinGoldmanSachs’GlobalInvestmentResearchdivision.TheGoldmanSachsFactorPro?leprovidesinvestmentcontextforastockbycomparingkeyattributestothemarket(i.e.ourcoverageuniverse)anditssectorpeers.Thefourkeyattributesdepictedare:Growth,FinancialReturns,Multiple(e.g.valuation)andIntegrated(acompositeofGrowth,FinancialReturnsandMultiple).Growth,FinancialReturnsandMultiplearecalculatedbyusingnormalizedranksforspeci?cmetricsforeachstock.Thenormalizedranksforthemetricsarethenaveragedandconvertedintopercentilesfortherelevantattribute.Theprecisecalculationofeachmetricmayvarydependingonthe?scalyear,industryandregion,butthestandardapproachisasfollows:Growthisbasedonastock’sforward-lookingsalesgrowth,EBITDAgrowthandEPSgrowth(for?nancialstocks,onlyEPSandsalesgrowth),withahigherpercentileindicatingahighergrowthcompanyFinancialReturnsisbasedonastock’sforward-lookingROE,ROCEandCROCI(for?nancialstocks,onlyROE),withahigherpercentileindicatingacompanywithhigher?nancialreturns.Multipleisbasedonastock’sforward-lookingP/E,P/B,nancialstocksonlyPEPBandPDwithahigherpercentileindicatingastocktradingatahighermultiple.TheIntegratedpercentileiscalculatedastheaverageoftheGrowthpercentile,FinancialReturnspercentileand(100%-Multiplepercentile).FinancialReturnsandMultipleusetheGoldmanSachsanalystforecastsatthe?scalyear-endatleastthreequartersinthefuture.Growthusesinputsforthe?scalyearatleastsevenquartersinthefuturecomparedwiththeyearatleastthreequartersinthefuture(onaper-sharebasisforallmetrics).ForamoredetaileddescriptionofhowwecalculatetheGSFactorPro?le,pleasecontactyourGSrepresentative.Acrossourglobalcoverage,weexaminestocksusinganM&Aframework,consideringbothqualitativefactorsandquantitativefactors(whichmayvaryacrosssectorsandregions)toincorporatethepotentialthatcertaincompaniescouldbeacquired.WethenassignaM&Arankasameansofscoringcompaniesunderourratedcoveragefrom1to3,with1representinghigh(30%-50%)probabilityofthecompanybecominganacquisitiontarget,2representingmedium(15%-30%)probabilityand3representinglow(0%-15%)probability.Forcompaniesranked1or2,inlinewithourstandarddepartmentalguidelinesweincorporateanM&Acomponentintoourtargetprice.M&Arankof3isconsideredimmaterialandthereforedoesnotfactorintoourpricetarget,andmayormaynotbediscussedinresearch.QuantumisGoldmanSachs’proprietarydatabaseprovidingaccesstodetailed?nancialstatementhistories,forecastsandratios.Itcanbeusedforin-depthanalysisofasinglecompany,ortomakecomparisonsbetweencompaniesindifferentsectorsandmarkets.Therating(s)forBath&BodyWorksInc.andUltaBeautyInc.is/arerelativetotheothercompaniesinits/theircoverageuniverse:AcademySports&OutdoorsInc.,AdvanceAutoPartsInc.,AlbertsonsCos.,AutoZoneInc.,BJ’sWholesaleClubHoldings,Bath&BodyWorksInc.,BedBath&BeyondInc.,BestBuyCo.,BigLotsInc.,BoydGroup,ContainerStoreGroup,CostcoWholesale,Dick’sSportingGoods,DollarGeneralCorp.,DollarTreeStoresIncDrivenBrandsHoldingsFTrainingHoldingsFiveBelowIncFloorDecorHoldings,FootLockerInc.,GenuinePartsCo.,GroceryOutletHolding,HomeDepotInc.,KrogerCo.,Leslie’sInc.,LifeTimeGroupHoldings,LithiaMotorsInc.,Lowe’sCos.,MisterCarWashInc.,NationalVisionHoldings,NikeInc.,O’ReillyAutomotiveInc.,Ollie’sBargainOutletInc.,PetcoHealthandWellnessCo.,RH,SproutsFarmersMarketInc.,TargetTractorSupplyCoUltaBeautyIncWalmartIncWeberIncWilliamsSonomaIncThefollowingdisclosuresrelatetorelationshipsbetweenTheGol