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Sally Beauty's (SBH) BSG Unit Remains Weak, Costs High

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The coronavirus outbreak has been wreaking havoc worldwide and disrupting businesses of a number of companies. Incidentally, the pandemic-induced government restrictions are marring Sally Beauty Holdings, Inc.’s (SBH - Free Report) performance. This apart, sluggishness in the Beauty Systems Group (BSG) segment and escalated costs are concerns for the company. Nonetheless, e-commerce growth provides a breather.

Let’s delve deeper.

What’s Hurting Sally Beauty?

Sally Beauty bore the brunt of second round of coronavirus-induced salon closures across California in fourth-quarter fiscal 2020, wherein the top line missed the Zacks Consensus Estimate and declined year over year. Notably, consolidated net sales inched down 0.8% due to slower recovery from elements of BSG’s full-service business. Also, reduced store count than the year-ago level was another reason. We note that sales in the BSG segment have been declining year over year for a while. For the fiscal fourth quarter, net sales in the segment declined 3.3% from a year ago. Unfavorable foreign-currency translation had an impact of nearly 10 basis points on the segment’s sales.



On fiscal fourth-quarter earnings call, the company stated that stores in some metropolitan areas like El Paso are only allowed to operate as curbside locations amid the coronavirus pandemic. Also, Sally Beauty informed that it is seeing occupancy restrictions in parts of New Mexico and Colorado. Moreover, management stated that nearly 180 stores are fully closed due to the pandemic-induced restrictions across Europe. Clearly, such pandemic-induced hurdles are a cause of concern for the company.

Also, this Zacks Rank #4 (Sell) company is batting challenges related to escalated costs. For the fiscal fourth quarter, Sally Beauty’s SG&A expenses increased 0.8% year over year to nearly $367 million. SG&A, as a percentage of sales, increased to 38.3% from 37.7% reported in the year-ago quarter. The downside was caused by increased e-commerce delivery costs, investment in transformation plans and reduced sales volume.

Wrapping Up

Sally Beauty has been undertaking a number of efforts to augment its online space to keep pace with the evolving shopping trends. In this regard, the company is ramping up omni-channel capabilities to tap the boom in the digital realm. Well, Sally Beauty is focused on the transformation plan, with which it is progressing well with four key goals — improving customers’ experience, strengthening e-commerce capacities, curtailing costs and enhancing retail fundamentals.

That said, let’s see if these upsides can help the company counter the aforementioned hurdles. Shares of Sally Beauty have lost 29.4% year to date against the industry’s 11.7% rally.

Some Solid Retail Picks

The ODP Corporation (ODP - Free Report) , which currently sports a Zacks Rank #1 (Strong Buy), has a long-term earnings growth rate of 6.8%. You can see the complete list of today’s Zacks #1 Rank stocks here.

DICK’S Sporting Goods (DKS - Free Report) , which also sports a Zacks Rank #1 at present, has a long-term earnings growth rate of 5.6%.

Five Below, Inc. (FIVE - Free Report) , which presently carries a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 21%.

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