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Sally Beauty's (SBH) Online Business Solid; Cost Woes Persist

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Sally Beauty Holdings (SBH - Free Report) is benefiting from its focus on augmenting online space to keep pace with evolving shopping trends. Moreover, the company’s growth efforts that include its Transformation plan and lucrative acquisitions among others bode well. However, weakness in the Beauty Systems Group (BSG) segment and higher costs are headwinds.

Let’s delve deeper

Online Business: A key Driver

Sally Beauty is undertaking a number of efforts to enhance its digital platform to drive growth. Recently, the company unveiled its partnership with salesforce.com (CRM - Free Report) for the implementation of cloud-based enhancements to augment shopping experience of salon professionals and beauty enthusiasts. Management highlighted that working with Salesforce enabled it to cater to spike in online demand for salon-quality do-it-yourself (DIY) beauty products and resources amid the coronavirus outbreak.  Moreover, the company is optimistic about launching added online innovations for its salon professionals and customers, going forward.

Apart from these, Sally Beauty rolled out new digital shopping options, educational experiences and support for its customers. Moreover, Buy Online, Pick Up In-Store (BOPIS) and e-commerce ship-from-store capabilities are possible at Sally Beauty. Also, same day delivery at Cosmo Prof and curbside pick-up options is yielding. During fourth-quarter fiscal 2020, global e-commerce sales surged 69% year over year to $63 million.

Well, several other retail companies like Michaels Companies and Ulta Beauty (ULTA - Free Report) among others have been focused on bolstering their digital offerings, especially amid the pandemic.

Other Factors Driving Growth Story

Sally Beauty is on track with its efforts to get back on growth trajectory. In this regard, management is focused on its Transformation Plan, as part of which it is progressing well with its four key goals —improving customers’ experience, strengthening e-commerce capacities, curtailing costs and enhancing retail fundamentals. In spite of the disruptions caused by the coronavirus outbreak, Sally Beauty completed key objectives of its Transformation Plan during fiscal 2020.

Moreover, the company intends to remain committed toward its transformation endeavors during fiscal 2021. In this regard, management is on track with leveraging its digital capabilities, growing customer engagement and improving brand partnerships among others. Also, the company is on track with optimizing efficiencies and driving savings via the ongoing rollout of JDA, new merchandising and supply chain platform as well as robust digital efforts.

Apart from these, Sally Beauty is keen on expanding its presence with lucrative acquisitions. In September 2020, the company, via its subsidiary acquired La Maison Ami-Co Inc. — a professional beauty products distributor in the Canadian province of Quebec. The company expects the deal to augment its business in Quebec along with increasing the reach of BSG’s professional beauty products in its Chalut store network as well as full-service business.

Wrapping Up

We note that sales in the company’s BSG segment have been declining year over year for a while. In the fourth quarter of fiscal 2020, net sales in the segment declined 3.3%. Unfavorable foreign-currency translation had an impact of nearly 10 basis points on the segment’s sales. Also, Sally Beauty is batting challenges related to escalated costs. In the fiscal fourth quarter, the company’s SG&A expenses moved up 0.8% 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.

Nevertheless, we believe that the aforementioned upsides are likely to help Sally Beauty keep its growth story going.

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