Sally Beauty Holdings Inc. (SBH), the specialty retailer of professional beauty supplies, posted third-quarter fiscal 2014 adjusted earnings of 43 cents a share that came in line with the Zacks Consensus Estimate but a penny higher than the prior-year quarter attributable to top-line growth and lower share count.
Including one-time items, earnings came in at 42 cents a share, flat with the year-ago quarter.
Consolidated net sales increased 4.1% year over year to $949.3 million, reflecting comparable-store sales growth and opening of new stores. The quarter was favorably impacted by an improvement in the Sally U.S. business and a sturdy performance by Beauty Systems Group. Total net sales also came ahead of the Zacks Consensus Estimate of $945 million. Comparable-store sales increased 2.1% during the quarter versus 0.7% in the prior-year period.
Gross profit for the quarter increased 4.1% to $475.7 million but gross margin remained flat year over year at 50.1%. The company now projects gross margin for fiscal 2014 to be even with 49.6% in the year-ago quarter, down from the previous expectation of 20–30 bps improvement.
Adjusted EBITDA declined 1.3% to $162.4 million, and adjusted EBITDA margin contracted 90 basis points to 17.1%.
Segment Details
Sally Beauty Supply sales went up 4.5% to $584.5 million, supported by net new store openings, a 1.8% increase in comparable-store sales and favorable foreign currency translations. Segment operating margin contracted 140 basis points to 19.6%.
Sales at Beauty Systems Group improved 3.4% to $364.8 million attributable to comparable-store sales growth of 2.7%, acquisitions and net new store openings. Segment operating margin expanded 80 basis points to 15.7%.
Store Count
In the trailing 12-month period, the company opened 141 Sally Beauty Supply outlets taking the count to 3,520 (company-operated outlets 3,499 and franchised stores 21) by the end of the reported quarter. In the same period, it opened 36 Beauty Systems Group outlets resulting in 1,259 locations (company-operated outlets 1,098 and franchised stores 161) by the end of the quarter.
Financials
Sally Beauty ended the quarter with cash and cash equivalents of $46.3 million and debt, net of capital leases, of $1,817.1 million. The company had an outstanding balance of $9 million on its asset-based loan (ABL) revolving credit facility at the end of the quarter.
During the first three quarters of fiscal 2014, the company incurred capital expenditures of $50 million. Going forward, Sally Beauty expects capital expenditures to meet the lower end of the earlier provided guidance of $85 million to $90 million.
During the quarter, the company bought back 6.9 million shares aggregating $176.1 million. As of Jun 30, the company still had approximately $155 million at its disposal under the $700 million share buyback program announced on Mar 5, 2013. The company in the fourth quarter intends to authorize an additional share buyback program in line with the existing one.
Zacks Rank
Sally Beauty currently carries a Zacks Rank #3 (Hold). Other stocks that warrant a look in the retail space include ULTA Salon, Cosmetics & Fragrance, Inc. (ULTA), Abercrombie & Fitch Co. (ANF) and Zumiez, Inc. (ZUMZ). All these stocks carry a Zacks Rank #2 (Buy).
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