Sally Beauty (SBH) Benefits From Strength in Growth Pillars
Sally Beauty Holdings, Inc. SBH is benefiting from its focus on strategic growth pillars. The beauty products provider benefits from a growing e-commerce business. The company’s focus on prudent buyouts is worth noting.
Let’s discuss this in details.
Solid Growth Pillars Hold Promise
Sally Beauty is on track to focus on its three key strategic initiatives, which include enhancing customer centricity, growing high-margin-owned brands and carrying out innovations while increasing the efficiency of operations and optimizing its capabilities. Management expects such efforts to support its long-term growth algorithm of low- to mid-single-digit net sales growth, gross margins of over 50% and low double-digit operating margins.
With regard to customer-centric efforts, the company is focused on acquiring new customers via marketing programs, differentiated product offerings and its strategic initiatives. Management is impressed with the launch of its strategic partnership with SalonHQ at BSG. The move enables the stylists to grow retail sales via strategic customer engagement while maintaining lower inventory.
Sally Beauty is on track with innovation to achieve its goal of growing high-margin-owned brands in Sally. SBH is focused on optimizing its store base, consolidating and leveraging an enhanced supply chain and capturing efficiencies. Talking about store optimization, Sally Beauty has substantially concluded its announced closure of roughly 350 stores. In addition, the company optimized its supply chain by shutting down two small distribution centers in Oregon and Pennsylvania. Lastly, the company is progressing well with the Fuel for Growth initiative.
Image Source: Zacks Investment Research
What Else is Driving Growth?
Sally Beauty is undertaking several efforts to augment its robust omnichannel platform. Robust investments to enhance the digital space have been yielding. At constant currency (cc), global e-commerce sales rose 14% to $91 million, reflecting 9.5% of consolidated net sales in first-quarter fiscal 2023. The upside can be attributed to the strength in the convenient fulfillment options, which include two-hour delivery and Buy Online / Pickup In-Store. In the Sally Beauty Supply segment, the company’s e-commerce sales rose 13% to $35 million at cc, contributing 6.4% to segment net sales. The company’s Beauty Systems Group e-commerce sales at cc rose 14% to $55 million, contributing 13.6% to the segment’s net sales.
Sally Beauty intends to strengthen its business on the back of strategic acquisitions. In September 2020, Sally Beauty’s subsidiary BSG acquired La Maison Ami-Co Inc. — a professional beauty products distributor in the Canadian province of Quebec. Per the deal, Sally Beauty acquired 10 La Maison Ami-Co stores. Also, this transaction added 17 direct sales consultants and exclusive distribution rights of leading professional hair color and hair care brands like Wella Professional, Oribe and Goldwell across Quebec.
Is All Rosy for Sally Beauty?
In the first quarter of fiscal 2023, Sally Beauty’s consolidated gross profit came in at $488.6 million, down 2.3% from $500.1 million reported in the year-ago quarter. Adjusted gross margin was 50.8%, down 20 basis points (bps) year over year. The downside can be attributed to the lower margin at BSG stemming from the channel mix shift between stores and the expanded Regis business. Adjusted operating margin contracted from 11.9% to 10% in the fiscal first quarter.
Sally Beauty is grappling with escalated SG&A expenses for a while. During the first quarter of fiscal 2023, the company’s adjusted selling, general and administrative expenses, excluding COVID-19-related net expenses and other expenses, stood at $390.5 million, up $7 million. The increase can mainly be attributed to higher labor and personnel expenses. As a percentage of sales, adjusted SG&A expenses came in at 40.8%, an increase from 39.1% posted in the prior-year quarter.
Certainly, the company’s focus on the aforementioned upsides are likely to keep aiding Sally Beauty’s growth story.
The Zacks Rank #3 (Hold) company’s stock has gained 0.6% in the past three months against the industry’s 13.4% decline.
3 Key Picks
Some top-ranked stocks are Build-A-Bear Workshop, Inc. BBW, Ulta Beauty ULTA and DICK'S Sporting DKS.
BBW has a trailing four-quarter earnings surprise of 17.4%, on average. Build-A-Bear currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Build-A-Bear Workshops’ current financial year sales and earnings suggests growth of 6.2% and 12.3%, respectively, from the year-ago reported numbers.
Ulta Beauty is a leading beauty retailer in the United States. It currently carries a Zacks Rank of 2 (Buy). ULTA has a trailing four-quarter earnings surprise of 26.2%, on average.
The Zacks Consensus Estimate for Ulta Beauty’s current financial year sales and earnings suggests growth of 8.5% and 5%, respectively, from the prior-year reported numbers.
DICK'S Sporting, operates as a major omni-channel sporting goods retailer, currently carries a Zacks Rank of 2. DKS has a trailing four-quarter earnings surprise of 10%, on average.
The Zacks Consensus Estimate for DKS’ current financial year sales and earnings suggests growth of almost 3% and 12.1%, respectively, from the corresponding year-ago reported figures.
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
DICK'S Sporting Goods, Inc. (DKS) : Free Stock Analysis Report
Ulta Beauty Inc. (ULTA) : Free Stock Analysis Report
Sally Beauty Holdings, Inc. (SBH) : Free Stock Analysis Report
Build-A-Bear Workshop, Inc. (BBW) : Free Stock Analysis Report
