Sally Beauty (SBH) Down More Than 10% YTD: Inflation Hurts
Sally Beauty Holdings, Inc. SBH is grappling with an inflationary environment. The beauty products provider continues to witness softness in consumer traffic, which is hurting its top-line performance.
These factors put pressure on the company’s fourth-quarter fiscal 2023 results, with the top and the bottom line declining year over year and missing the Zacks Consensus Estimate. Also, Sally Beauty’s fiscal 2024 outlook is disappointing.
Shares of the Zacks Rank #4 (Sell) company have declined 11.7% year-to-date compared with the industry’s 4.9% decline.
Let’s delve deeper.
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What’s Hurting Sally Beauty?
Sally Beauty has been going through a challenging period for a while, facing a series of setbacks and declining performance in various key areas. Softness in consumer traffic and inflationary pressures continue to hurt the company’s fiscal fourth-quarter performance.
One of the most notable indicators of the company's struggles was its consolidated net sales, dropping 4.3% to $921.4 million in the fourth quarter of fiscal 2023. The downside reflects on the company's difficulties in maintaining and growing its revenue streams. To compound matters, the company faced the challenge of operating 308 fewer stores by the end of the quarter, which is an indication of a strategic shift or a response to changing market dynamics.
Breaking down the performance by segments, Sally Beauty Supply experienced a 5.3% fall, with segmental comparable sales dropping 1.2%. The segment’s performance was hurt by reduced traffic and inflationary pressures, which impacted consumer behavior. The Beauty Systems Group, another vital component of the company's operations, saw a 2.9% drop, with comparable sales falling 2.3%. These negative trends indicate significant challenges and difficulties faced by the company during this period, which require strategic adjustments and efforts to turn the situation around.
Also, Sally Beauty’s international presence exposes it to the risk of adverse currency fluctuations. Unfavorable currency rates may adversely impact the company’s net revenues, operating income and earnings.
Road Ahead Looks Bleak
Sally Beauty continues to battle tough macroeconomic challenges that pressure consumer spending. Unfavorable impact owing to store closures from the Store Optimization Program has been hurting the company for a while. Management expects first-quarter fiscal 2024 net sales to be down 2% to 4% year over year, reflecting nearly 200 basis points headwinds from store closures. The company anticipates quarterly comparable sales to be nearly flat to down 2%. For the fiscal 2024, management expects net sales and comparable sales to be almost flat year over year, with projected pressure on consumer spending likely to persist.
Wrapping Up
Sally Beauty is focused 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 is focused on acquiring new customers via marketing programs, differentiated product offerings and strategic initiatives. However, let’s see if these upsides can help SBH stay afloat amid such hurdles.
3 Key Picks
Regis Corporation RGS owns, franchises, and operates beauty salons. RGS currently flaunts a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Regis Corp’s current fiscal-year earnings suggests growth of 43.5% from the year-ago period’s reported figure. RGS has a trailing four-quarter earnings surprise of 22%, on average.
Abercrombie & Fitch Co. ANF operates as a specialty retailer of premium, high-quality casual apparel. ANF currently sports a Zacks Rank #1.
The Zacks Consensus Estimate for Abercrombie’s current fiscal-year sales suggests growth of 13.3% from the year-ago reported number. ANF has a trailing four-quarter earnings surprise of 713%, on average.
MarineMax HZO, a recreational boat and yacht retailer and a superyacht services company, carries a Zacks Rank #2 (Buy). MarineMax has a trailing four-quarter negative earnings surprise of 10.1% on average.
The Zacks Consensus Estimate for HZO’s current financial year sales suggests growth of 3.1% from the year-ago period’s figures.
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