Shares of Sally Beauty Holdings, Inc. SBH increased 11.3% yesterday, owing to its better-than-expected earnings in third-quarter fiscal 2019. Also, management stated that it is well on track with its Transformation Plan.
However, sales disappointed due to reduced store count and currency headwinds. Notably, this Zacks Rank #4 (Sell) company recorded its fourth straight sales miss in the reported quarter. Shares of this Denton, TX-based company have lost 19.4% year to date against the industry’s growth of 11%.
Q3 in Detail
Sally Beauty reported adjusted earnings of 60 cents per share, which beat the Zacks Consensus Estimate of 58 cents and remained flat year over year. Including one-time items, earnings increased 22.9% to 59 cents per share, courtesy of lower SG&A costs and reduced restructuring charges.
Sally Beauty Holdings, Inc. Price, Consensus and EPS Surprise
Sally Beauty Holdings, Inc. price-consensus-eps-surprise-chart | Sally Beauty Holdings, Inc. Quote
Consolidated net sales dipped 2.1% to $975.2 million and fell short of the Zacks Consensus Estimate of $984 million. The top line was majorly affected by reduced store count compared to the year-ago period. Also, unfavorable foreign-currency translation negatively impacted sales by roughly 80 basis points (bps) in the reported quarter.
Consolidated same-store sales improved marginally by 0.1%. Nevertheless, e-commerce sales increased 25.9% from the figure reported in the year-ago quarter.
The gross margin remained nearly flat at 49.5% as improvements in the North American business of Sally Beauty Supply segment was negated by continued difficulties in Beauty System Group’s European business.
Adjusted SG&A expenses declined $10.5 million in the quarter. Adjusted operating earnings declined 0.6% to $122 million, while adjusted operating margin expanded 20 bps to 12.5%.
Segment Details
Sally Beauty Supply (“SBS”): Net sales of the SBS segment dipped 2.8% to $575 million in the quarter due to lesser stores than the prior-year quarter, continued hurdles in Europe and foreign-currency headwinds. Foreign-currency translation adversely impacted sales by almost 120 bps. Global segment same-store sales slipped roughly 0.6%, whereas the same in Canada and the United States inched down 0.2%.
Net store count at the end of the quarter was 3,705, reflecting a decrease of 70 from the year-ago period.
Beauty Systems Group (“BSG”): Net sales of the BSG segment fell 1.1% to $400.1 million due to weakness in the full-service business. Also, foreign-currency translation hurt sales by roughly 30 bps. Moreover, the net store count at the end of the quarter was 1,384, representing a decrease of 11 from the year-ago period. Same-store sales rose 1.4%. Total distributor sales consultants at the end of the quarter were 791 compared with 837 in the year-ago period.
Other Financial Aspects
Sally Beauty ended the reported quarter with cash and cash equivalents of $57.9 million, long-term debt including capital leases of $1,589.7 million and total stockholders’ deficit of $70.5 million.
During the quarter, cash flow from operations was $93.7 million, while capital expenditures amounted to $20.4 million. The company’s operating free cash flow totaled $73.4 million, which was utilized to reduce debt load.
Transformation Plan & Outlook
Management is on track with its Transformation Plan, as part of which it is progressing well with its four key goals — improving customers’ experience, strengthening e-commerce capacities, curtailing costs and enhancing retail fundamentals.
Salle Beauty intends to be committed toward its transformation endeavors. To this end, it is preparing for the country-wide launch of Sally Beauty brand campaign, building on the successful launches of core brands like Pravana, My Black is Beautiful and more; continuing with its efforts to modernize supply chain, speeding up the rollout of its new Oracle-based point-of-sale systems and revitalizing BSG’s e-commerce site, among other efforts.
All said, management reiterated its guidance for fiscal 2019.
Don’t Miss These Solid Retail Stocks
DICK'S Sporting Goods DKS, with a Zacks Rank #2 (Buy), has a long-term growth rate of 5.6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Ulta Beauty ULTA, also with a Zacks Rank #2, has a long-term growth rate of 18.4%.
Burlington Stores BURL, with a Zacks Rank #2, has a long-term growth rate of 17%.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment