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Sally Beauty (SBH) Benefits From Online Sales & Acquisitions

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Sally Beauty Holdings, Inc. (SBH - Free Report) is benefiting from growth in the e-commerce business. The company’s focus on its Transformation Plan bodes well. It has been strengthening its business on the back of strategic acquisitions. However, high costs as well as pandemic-led capacity restrictions and store closures are hurdles.

Let’s delve deeper.

What’s Working for Sally Beauty?

Sally Beauty has been undertaking efforts to augment online business, especially amid the pandemic. Robust investments to enhance the digital space have been yielding. In third-quarter fiscal 2021, global e-commerce sales contributed nearly 7% to the company’s total net sales. Online business reflected gains from focus on digital capabilities as well as the implementation of strategic initiatives around fulfillment and customer engagement. The company’s Buy Online, Pick Up In-Store (BOPIS) service continues to drive growth. It is on track to test rapid delivery at Sally U.S. and Canada. Sally beauty also completed the replatforming of its website in the Beauty Systems Group (“BSG”) segment.

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As part of the Transformation Plan, Sally Beauty is progressing well with its four key goals — improving customers’ experience, strengthening e-commerce capacities, curtailing costs and enhancing retail fundamentals. In its last earnings call, management highlighted that it is making significant progress against three major priorities — completing the remaining elements of the transformation plan, leveraging new capabilities as well as tools in service to recruit and retain color customers along with maintaining debt leverage ratio close to its target of 2.5 times. Sally Beauty is on track with its JDA implementation as part of the multi-year transformation program.

Apart from this, the company is undertaking prudent acquisitions to drive growth. In September 2020, Sally Beauty’s subsidiary, BSG, acquired La Maison Ami-Co Inc. — a professional beauty products distributor in the Canadian province of Quebec. Sally Beauty expects the deal to augment its business in Quebec and increase the reach of BSG’s professional beauty products in its Chalut store network as well as full-service business. In December 2017, BSG had acquired certain H. Chalut Ltee assets, enabling it to expand its business for the first time in Quebec and establish a footprint in Canada.

Roadblocks on the Way

Sally Beauty has been encountering higher selling, general and administrative (SG&A) expenses for a while. During the third quarter of fiscal 2021, it reported SG&A expenses of $386.5 million, up $71.9 million. In its call, management stated that it expects to see SG&A dollars to rise on a sequential as well as year-over-year basis in the fiscal fourth quarter. This is likely to be caused by incremental operating expenses incurred across international territories that have reopened along with higher growth investments primarily in team and marketing.

Apart from this, Sally Beauty witnessed capacity restrictions and store closures in parts of Canada and Latin America during the quarter. Management, in its last earnings call, stated that a small number of stores were operating under restricted capacity in Europe. Sally Beauty also experienced some supply-chain disruptions during this time.

That being said, we believe that focus toward the aforementioned growth endeavors are likely to help Sally Beauty stay afloat amid the hurdles. Shares of this Zacks Rank #3 (Hold) company have rallied 30.6% so far this year compared with the industry’s 0.7% growth.

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