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Sally Beauty (SBH) Benefits From Online Sales & Buyouts

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Strength in e-commerce operations and prudent acquisition strategy has been working favorably for Sally Beauty Holdings, Inc. (SBH - Free Report) . The company’s strategic growth pillar bodes well. However, high costs are a challenge for Sally Beauty.

Let’s delve deeper.

Online Business & Buyouts Aid

Sally Beauty is undertaking efforts to augment its online business. Robust investments to enhance the digital space have been yielding. In first-quarter fiscal 2022, the company’s e-commerce sales increased 22% year over year, mainly driven by the Beauty Systems Group’s (BSG) refreshed e-commerce platform. Global e-commerce sales contributed 8.3% to net sales during the quarter. During the quarter, the company’s Sally U.S. and Canada stores contributed 35% to e-commerce sales, with Buy Online, Pick Up In-Store (BOPIS) contributing 19%, rapid two-hour delivery representing 10% and ship-from-store accounting 6%. Management believes its e-commerce business will reach 15% or more of total sales in the next few years.

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Sally Beauty intends to strengthen its business on the back of strategic acquisitions. 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. Per the deal, Sally Beauty acquired 10 La Maison Ami-Co stores. This transaction added 17 direct sales consultants and exclusive distribution rights of leading professional hair color and hair care brands like Wella Professional, Oribe and Goldwell across Quebec. The deal augments 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.

Transformation on Track

Sally Beauty is focused on its four strategic growth pillars to boost the top line in fiscal 2022. These include leveraging the digital platform, driving loyalty and personalization, undertaking product innovation and enhancing the supply chain. In this regard, the company is making progress in loyalty and personalization. In its last earnings call, management highlighted that almost 75% of sales at Sally, the U.S. and Canada were from loyalty programs in the first quarter of fiscal 2022. The company has an impressive pipeline of innovation, which is slated for fiscal 2022. Sally Beauty is focused on building an automated integrated supply chain network. On its call, management highlighted that its JDA implementation is in its final phase. Sally Beauty expects fiscal 2022 net sales growth of 3-4% year over year. The gross margin is likely to expand 40-60 bps year over year. Adjusted operating margin is envisioned to remain nearly flat year over year.

Will Hurdles be Countered?

Sally Beauty has been grappling with escalated selling, general and administrative (SG&A) expenses for a while. During the first quarter of fiscal 2022, the company reported SG&A expenses of $386.3 million, up $20.1 million. The upside can be mainly attributed to higher labor costs, escalated expenses from international markets associated with re-opening and planned marketing investments. As a percentage of sales, SG&A expenses came in at 39.4%, up from 39.1% reported in the year-ago quarter.

That being said, focus on the aforementioned upsides is likely to help this Zacks Rank #3 (Hold) company to stay afloat amid such hurdles. Sally Beauty’s shares have dropped 13.9% in the past three months, outpacing the industry’s 17.4% decline.

3 Retail Stocks to Bet on

Here are some better-ranked stocks — MarineMax (HZO - Free Report) , Tractor Supply Company (TSCO - Free Report) and BuildABear Workshop (BBW - Free Report) .

MarineMax sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 55.8%, on average. Shares of HZO have declined 25.3% in the past three months. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for MarineMax’s current financial year’s sales and earnings per share (EPS) suggests growth of 13.9% and 16.2%, respectively, from the year-ago period’s levels.

Tractor Supply Company, a rural lifestyle retailer in the United States, carries a Zacks Rank #2 (Buy). Shares of TSCO have declined 5.3% in the past three months.

The Zacks Consensus Estimate for Tractor Supply Company’s current financial year sales and EPS suggests growth of 8.2% and 9.2%, respectively, from the year-ago period. TSCO has a trailing four-quarter earnings surprise of 22%, on average.

Build-A-Bear, a multi-channel retailer of plush animals and related products, currently carries a Zacks Rank #2. Shares of BBW have fallen 18.1% in the past three months.

The Zacks Consensus Estimate for Build-A-Bear's current financial-year sales and EPS suggests growth of 9.8% and 9.7%, respectively, from the year-ago period's reported figures. BBW has a trailing four-quarter earnings surprise of 214.3%, on average.