It has been about a month since the last earnings report for Sally Beauty (SBH). Shares have added about 53.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Sally Beauty due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Sally Beauty Beats on Q2 Earnings, Sales Down Y/Y
Sally Beauty Holdings reported second-quarter fiscal 2020 results, wherein earnings and revenues beat the Zacks Consensus Estimate. However, both metrics declined year over year. Given the uncertainty related to the coronavirus outbreak, management refrained from providing guidance for fiscal 2020.
Q2 in Detail
Sally Beauty reported adjusted earnings of 23 cents per share, beating the Zacks Consensus Estimate of 21 cents. However, the metric declined 54.9% year over year.
Consolidated net sales of $871 million beat the Zacks Consensus Estimate of $867 million. The metric declined 7.9% year over year. The top line was majorly affected by temporary store closures amid the pandemic, coupled with lower store count than the year-ago period. Also, unfavorable foreign-currency translations negatively impacted sales by roughly 30 basis points (bps).
Consolidated same-store sales declined 7.1%. E-commerce sales increased 28% from the year-ago quarter. The uptick can be attributed to increased consumer demand on digital platforms which provides it a cushion amid coronavirus-led store closures.
Gross profit decreased 8.2% to $429.8 million. Gross margin contracted 20 bps to 49.3% due to decline in Beauty Systems Group (“BSG”) segment, partly offset by a stable Sally Beauty Supply (“SBS”) unit.
SG&A expenses increased $21.7 million in the quarter due to increased personnel expenses, higher marketing costs and greater professional fees. Meanwhile, SG&A as a percentage of sales expanded 580 bps to 44%.
Adjusted operating earnings decreased 42.6% to $61.2 million and adjusted operating margin contracted 430 bps to 7%.
SBS: Net sales of the segment decreased 8.1% to $519.5 million in the quarter due to lesser stores than the prior-year quarter along with adverse impacts of COVID-19 outbreak. Foreign-currency translations adversely impacted sales by almost 50 bps. Further, global segmental same-store sales declined 7%. Nevertheless, the segment’s U.S. and Canada business registered e-commerce growth of 56% during the quarter.
Net store count at the end of the quarter was 3,701, reflecting a decrease of 17 from the year-ago period.
BSG: Net sales at the segment decreased 7.6% to $351.5 million. Foreign-currency translation had no impact on the results. Moreover, net store count at the end of the quarter was 1,374, representing a decline of 14 from the year-ago period. Same-store sales fell 7.4%. Total distributor sales consultants at the end of the quarter were 660 compared with 798 in the year-ago period.
Other Financial Aspects
The company ended the reported quarter with cash and cash equivalents of $364.4 million, long-term debt, including capital leases of $1,550.2 million, and total stockholders’ deficit of $0.5 million.
In the quarter, cash flow from operations was $13.8 million, while capital expenditure amounted to $31.1 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 69.02% due to these changes.
At this time, Sally Beauty has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Sally Beauty has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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