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Soft Segment Sales Likely to Hurt Sally Beauty (SBH) in Q3

Zacks Equity Research

Sally Beauty Holdings, Inc. SBH is scheduled to report third-quarter fiscal 2019 earnings numbers on Jul 31, before the opening bell. Notably, the company’s bottom line outperformed the Zacks Consensus Estimate in two of the trailing four quarters, the average positive surprise being 2.1%. However, in the last reported quarter, it witnessed a negative surprise of 5.6%. Let’s see what awaits this quarterly release.

How Are Estimates Faring?

The Zacks Consensus Estimate for third-quarter fiscal earnings is pegged at 58 cents, indicating a decline of 3.3% from the year-ago reported figure. The consensus mark has been stable over the past 30 days. For revenues, the consensus estimate stands at $984.5 million, down 1.2% from $996.3 million reported in the year-earlier period.

Sally Beauty Holdings, Inc. Price and EPS Surprise

Sally Beauty Holdings, Inc. Price and EPS Surprise

 

Sally Beauty Holdings, Inc. price-eps-surprise | Sally Beauty Holdings, Inc. Quote

Factors Hurting the Stock

Sally Beauty has been reeling under sluggish performances in both its segments — Sally Beauty Supply (SBS) and Beauty Systems Group (BSG) — for the last few quarters. Sales in Sally Beauty Supply are hit by fewer store count. Also, concerns related to Brexit and civil protests in continental Europe were headwinds. Meanwhile, sales at Beauty Systems Group are facing issues like lower same-store sales and an unfavorable impact of foreign currency translation.

Notably, soft performance in SBS & BSG segments induced a sales decline in the fiscal second quarter, maintaining the trend for the fourth consecutive quarter. Persistence of such a downside may negatively impact the company’s top line in the upcoming quarterly results.

The company’s sluggish adjusted operating margin has been a disappointment. For fiscal 2019, management expects both adjusted operating earnings and adjusted operating margin to slide marginally due to increase in adjusted SG&A expenses. This mars the company’s prospects in its impending quarterly release.  

Nevertheless, in the fiscal first quarter, Sally Beauty announced modernization plans across its supply chain to optimize inventory levels, minimize costs and introduce latest replenishment plus fulfilment centers. Further, it is progressing well with efforts to boost e-commerce operations. Let’s wait and see if such endeavors can provide some cushion to the aforementioned headwinds in the fiscal third quarter. 

What Does the Zacks Model Say?

Our proven model doesn’t show that Sally Beauty is likely to beat estimates this quarter to be reported. This is because a stock needs to have both — a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Sally Beauty’s Zacks Rank #4 (Sell) combined with an Earnings ESP of -2.70% makes us apprehensive about the stock’s earnings beat this reporting cycle. Therefore, we caution against Sell-rated stocks (4 or 5) going into the earnings announcement, especially when the company is witnessing negative estimate revisions. 

You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks With Favorable Combination

Here are some companies you may want to consider as our model shows that these have the right combination of elements to beat on earnings this time around.

Caseys General Stores CASY has an Earnings ESP of +0.90% and a Zacks Rank of 1.

Burlington Stores BURL has an Earnings ESP of +2.53% and a Zacks Rank #3.

The TJX Companies TJX has an Earnings ESP of +4.00% and a Zacks Rank of 3.

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