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Sally Beauty (SBH) Down 20% YTD: Macroeconomic Headwinds Hurt

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Sally Beauty Holdings, Inc. (SBH - Free Report) finds itself in a challenging position due to macroeconomic factors such as inflationary pressures. The beauty products provider is grappling with subdued consumer footfall, impacting revenues. Increasing selling, general and administrative (SG&A) expenses are exerting pressure on the company's performance.

Shares of the Zacks Rank #4 (Sell) company have slumped 20.2% year to date compared with the industry’s 0.0%. The stock has underperformed the Zacks Retail sector’s 4.5% growth.

Macroeconomic Headwinds Hurt Performance

Sally Beauty continues to battle tough macroeconomic challenges that have been denting consumer spending. Management is battling soft customer traffic and inflationary pressures. Unfavorable impact owing to store closures from the Store Optimization Program has also been hurting the company for a while. These challenges hurt Sally Beauty’s first-quarter fiscal 2024 results, with the top and the bottom line declining year over year.

Consolidated comparable sales fell 0.8%, mainly on reduced traffic and inflationary pressures in the fiscal first quarter. This continued to impact consumer behavior at Sally Beauty. To compound matters, the company had to grapple with the challenge of operating 23 fewer stores by the end of the quarter, which is an indication of a strategic shift to changing market dynamics. These negative trends indicate significant challenges and difficulties faced by the company, which require strategic adjustments and efforts to turn the situation around.

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Cost Woes Stay

In the first quarter of fiscal 2024, Sally Beauty’s adjusted SG&A expenses were $393.3 million, up $2.7 million year over year. The rise was caused by higher labor costs, rent expenses and other costs associated with the company's strategic initiatives. In its last earnings call, management highlighted that it expects fiscal 2024 SG&A dollars to be up slightly year over year. The projection indicates increased labor costs and investments in upper funnel marketing and other expenses associated with strategic growth initiatives.

Wrapping Up

Sally Beauty has been on track with its strategic initiatives like product innovation, expanded distribution and new concepts and services. Also, the company is keen on acquiring new customers via marketing programs and differentiated product offerings. Focus on the Fuel for Growth initiative bodes well. Let’s see if these upsides can help SBH stay afloat amid such hurdles.

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