Sally Beauty's (SBH) Q4 Earnings Beat Estimates, Sales Down Y/Y
Sally Beauty Holdings, Inc. SBH reported fourth-quarter fiscal 2022 results, with the top and the bottom line beating the Zacks Consensus Estimate. However, net sales and earnings declined on a year-over-year basis. The company continued to battle inflationary pressures and supply chain headwinds in the quarter.
During fiscal 2023, Sally Beauty will leverage its omni-channel capabilities and modern retail infrastructure to aid growth. Management 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.
Q4 in Detail
Sally Beauty reported adjusted earnings of 50 cents per share, which surpassed the Zacks Consensus Estimate of 48 cents. The metric declined from 64 cents reported in the year-ago quarter.
Consolidated net sales of $962.5 million beat the Zacks Consensus Estimate of $943.9 million. However, the metric dropped 2.8% year over year. Comparable sales were in line with the year-ago quarter. The adverse impact of inflationary pressures influencing consumer behavior and supply chain challenges at Beauty Systems Group was a deterrent. The company operated 117 fewer stores compared with the year-ago quarter’s levels. Unfavorable foreign currency translation hurt consolidated net sales by 170 basis points.
At constant currency (cc), global e-commerce sales rose 30% to $90 million, reflecting 9.3% of consolidated net sales.
Sally Beauty Holdings, Inc. Price, Consensus and EPS Surprise
Sally Beauty Holdings, Inc. price-consensus-eps-surprise-chart | Sally Beauty Holdings, Inc. Quote
Consolidated gross profit came in at $463.5 million, down 7.5% from $501 million reported in the year-ago quarter. Adjusted gross margin contracted 60 basis points (bps) to 50.1% due to the sales mix shift between Sally Beauty and Beauty Systems Group and increased distribution and freight costs in both units. That said, better product margin from pricing leverage at Sally Beauty offered some respite.
Selling, general and administrative (SG&A) expenses came in at $397.9 million, up $11.3 million, thanks to higher labor costs somewhat offset by reduced lower bonus expenses. As a percentage of sales, SG&A expenses stood at 41.3%, up from 39% reported in the year-ago quarter.
Adjusted operating earnings were $83.9 million, down from $115.8 million reported in the year-ago quarter. Adjusted operating margin contracted from 11.7% to 8.7% in the fourth quarter.
Segment Details
Sally Beauty Supply: Net sales in the segment fell 5.4% to $554 million. Unfavorable foreign exchange had a negative impact of 270 bps on sales. The segment’s comparable sales fell 1.1%. Net store count at the end of the quarter was 3,439, lower by 110 stores from the year-ago quarter’s level. Segment e-commerce sales at cc grew 20% to $33 million, reflecting 6% of segment net sales.
Beauty Systems Group: Net sales in the segment inched up 0.9% to $408.5 million. The segment’s comparable sales rose 1.5%. Net store count at the end of the quarter was 1,355, down by seven stores from the year-ago quarter’s level. Total distributor sales consultants at the end of the quarter were 718 compared with 719 in the year-ago period. Segment e-commerce sales at cc rose 37% to $57 million, contributing 13.9% to the segment’s net sales.
Other Financial Aspects
The company ended the reported quarter with cash and cash equivalents of $70.6 million, long-term debt of $1,083 million and total stockholders’ equity of $293.6 million.
During the fourth quarter, the company provided cash flow from operations of $107.3 million. Capital expenditures came in at $32 million during this time.
Other Update
Since the last few quarters, management has been piloting store closures in several markets with an aim to maximize the value of its large store portfolio and provide a seamless omni-channel experience to its customers. Taking into account the favorable sales recapture rates and enhanced profitability, the company is accelerating its store optimization plan. This includes the closure of roughly 350 stores, with most closures happening in December 2022. Apart from this, the company will optimize its supply chain by shutting two small distribution centers in Oregon and Pennsylvania and transferring the volumes to bigger distribution centers.
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Fiscal 2023 Outlook
Notwithstanding a prominent change in consumer behavior, comparable sales are anticipated to grow by low single digits year over year. The upside can be attributed to growth in key categories, expanded Regis distribution, sales transfer from store closures and new strategic initiatives.
For fiscal 2023, net sales are anticipated to decline by low-single digits, reflecting 150-200 bps of net unfavorable impact owing to store closures and expected sales recapture rates from optimization efforts. Net sales also reflect nearly 150 bps anticipated impact from unfavorable currency rates. Gross margin is projected to remain over 50% while adjusted operating margin is likely to be in the range of 8.5-9.5%, inclusive of investment in-store labor.
The Zacks Rank #4 (Sell) company’s shares have fallen 15.3% in the past three months compared with the industry’s 4.5% decline.
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