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Sally Beauty's (SBH) Q3 Loss Wider Than Estimates, Sales Down

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Sally Beauty Holdings, Inc. (SBH - Free Report) reported dismal third-quarter fiscal 2020 results, with the top and the bottom line deteriorating year over year. Also, the bottom line missed the Zacks Consensus Estimate. Given uncertainties related to the coronavirus outbreak, management refrained from providing any update on guidance for fiscal 2020.

Sally Beauty Holdings, Inc. Price, Consensus and EPS Surprise

 

Sally Beauty Holdings, Inc. Price, Consensus and EPS Surprise

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

Q3 in Detail

Sally Beauty reported adjusted loss of 11 cents per share, wider than the Zacks Consensus Estimate of a loss of 4 cents. The company had posted an adjusted earnings of 60 cents per share in the year-ago quarter. The downside was caused by adverse impacts of the coronavirus outbreak and strategic inventory clearance efforts.

Consolidated net sales of $705.3 million were almost in line with the Zacks Consensus Estimate of $705.1million. The metric declined 27.7% year over year. The top line was majorly affected by temporary store closures amid the pandemic coupled with lower store count compared with the year-ago quarter’s numbers. Also, unfavorable foreign-currency translations negatively impacted sales by roughly 30 basis points (bps).

Consolidated same-store sales declined 26.6%. E-commerce sales increased significantly 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 fell 33.3% to $321.8 million due to lower sales volume amid the pandemic as well as reduced gross margin. Notably, gross margin contracted 390 bps to 45.6%. The downside can be attributed to aggressive on-shelf inventory clearance efforts as well as non-cash write downs of inventory. Also, lower allowances from vendors were a drag.

SG&A expenses fell $45.6 million in the quarter on the back of cost-saving efforts and store closures amid COVID-19. SG&A, as a percentage of sales, expanded 770 bps to 44.6%.

Adjusted operating earnings decreased 86.9% to $16 million and adjusted operating margin contracted significantly to 2.3%.

Segment Details

Sally Beauty Supply: Net sales in the segment declined 27.7% to $415.5 million in the quarter due to lesser stores than the prior-year quarter’s levels along with adverse impacts of COVID-19 outbreak. Foreign-currency translations adversely impacted sales by almost 40 bps. Further, segmental same-store sales declined 25.9%.

Net store count at the end of the quarter was 3,691, down 14 from the year-ago quarter’s level.

Beauty Systems Group: Net sales in the segment fell 27.6% to $289.8 million. Foreign-currency translation had nearly 20 bps impact on the results. Moreover, net store count at the end of the quarter was 1,371, down 13 from the year-ago quarter’s level. Same-store sales fell 27.9%. Total distributor sales consultants at the end of the quarter were 651 compared with 791 in the year-ago quarter.

Other Financial Aspects

The company ended the reported quarter with cash and cash equivalents of $838.8 million, long-term debt, including capital leases of $1,845.6 million, and total stockholders’ deficit of $0.7 million.

In the quarter, cash flow from operations was $198.3 million, while capital expenditure amounted to $17.7 million.

Price Performance

Shares of this Zacks Rank #3 (Hold) company have slumped 35.9% year to date compared with the industry’s decline of 1.7%.

 

 

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