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Sally Beauty (SBH) Stock Down on Soft Comps and Margins
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Sally Beauty Holdings, Inc. (SBH - Free Report) is reeling from declining comparable sales (comps) and soft margins that are hurting the stock. Evidently, shares of the company have slumped more than 13% in the past six months, significantly underperforming the industry’s growth of 15.1%. Also, this Zacks Rank #4 (Sell) stock has underperformed the broader Retail - Wholesale sector's growth of 8% in the said time period. Apart from these, the muted guidance for fiscal 2018 also hurt investors’ sentiments.
Let’s Introspect
Sally Beauty’s consolidated same-store sales edged down 2% in the fiscal third quarter owing to lower comps at the Sally Beauty Supply (“SBS”) and the Beauty Systems Group (“BSG”) segments. Same-store sales contracted 1.6% at the SBS segment and 2.9% at BSG. This reflects a contraction of 300 basis points (bps) and 90 bps year over year in same-store sales performance in the BSG and SSS segments, respectively. We note that consolidated same-store sales declined 1.4% in the preceding quarter and 2.2% in the first quarter as well. Meanwhile, for fiscal 2018, the company expects same-store sales to decline in the range of 1.5-1.9%.
Further, the company witnessed gross margin contraction of 90 bps to 49.5% in the fiscal third quarter. Per management, consolidated gross margin was impacted by a negative revenue mix shift and rise in coupon redemptions. This follows the gross margin contraction of 60 bps in the preceding quarter. Management now expects gross margin to decline 50 bps for fiscal 2018 owing to price investments made in Sally Beauty during the first quarter, enhanced promotional activity and a business segment mix shift.
Meanwhile, the adjusted operating margin shrunk 130 bps to 12.3% in the fiscal third quarter. In the second quarter, adjusted operating margin dropped 120 bps. We note that management still expects adjusted operating income to decline 8-10% in fiscal 2018 owing to decrease in same-store sales and contraction in gross margin along with marginally higher adjusted SG&A expenses.
Efforts to Counter These Hurdles
The company is adopting several initiatives to put itself on the growth trajectory. Sally Beauty initiated a transformation plan in April 2018 to reduce cost and increase focus on its core products such as hair color and hair care. As part of the transformation plan, the company undertook strategies in the third quarter including reviewing freight expenses to achieve significant cost savings in the future and launching two new color lines — Arctic Fox and Wella ColorCharm Paints — to strengthen its hair product offerings.
The company expects to undertake marketing and merchandising initiatives in its core products, and enhance digital capabilities and cost-cutting actions in the fourth quarter. For fiscal 2019, Sally Beauty is set to launch box color across SBS network. In the BSG division, the company enhanced its distribution rights of hair color and hair care brands such as Sebastian, Nioxin and Kadus, manufactured by Coty.
Notably, Sally Beauty is also implementing the first phase of a multi-year JDA supply-chain platform, which will help augment merchandising capabilities. Additionally, to boost digitalization, Sally Beauty stores will pilot “endless aisle” during the final quarter of fiscal 2018. Under this, a store will be able to order out-of-stock products via a store iPad and get it delivered at the customers’ door step. Management also plans to revamp Sally Beauty’s e-commerce site. Both the segments will work in tandem to improve customer shopping experience through ease of “click and collect at store” and “click and delivery.” As part of its transformation strategy, the company intends to shutter about 1-2% of its stores during the next year in the United States and abroad.
All said, we hope that the afore-mentioned initiatives may help Sally Beauty stock to return to growth trajectory.
Looking for More Promising Retail Stocks? Check These
Kering SA (PPRUY - Free Report) has a long-term earnings growth rate of 12% and a Zacks Rank #1.
DSW Inc. has a long-term earnings growth rate of 7% and a Zacks Rank #2 (Buy).
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
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Sally Beauty (SBH) Stock Down on Soft Comps and Margins
Sally Beauty Holdings, Inc. (SBH - Free Report) is reeling from declining comparable sales (comps) and soft margins that are hurting the stock. Evidently, shares of the company have slumped more than 13% in the past six months, significantly underperforming the industry’s growth of 15.1%. Also, this Zacks Rank #4 (Sell) stock has underperformed the broader Retail - Wholesale sector's growth of 8% in the said time period. Apart from these, the muted guidance for fiscal 2018 also hurt investors’ sentiments.
Let’s Introspect
Sally Beauty’s consolidated same-store sales edged down 2% in the fiscal third quarter owing to lower comps at the Sally Beauty Supply (“SBS”) and the Beauty Systems Group (“BSG”) segments. Same-store sales contracted 1.6% at the SBS segment and 2.9% at BSG. This reflects a contraction of 300 basis points (bps) and 90 bps year over year in same-store sales performance in the BSG and SSS segments, respectively. We note that consolidated same-store sales declined 1.4% in the preceding quarter and 2.2% in the first quarter as well. Meanwhile, for fiscal 2018, the company expects same-store sales to decline in the range of 1.5-1.9%.
Further, the company witnessed gross margin contraction of 90 bps to 49.5% in the fiscal third quarter. Per management, consolidated gross margin was impacted by a negative revenue mix shift and rise in coupon redemptions. This follows the gross margin contraction of 60 bps in the preceding quarter. Management now expects gross margin to decline 50 bps for fiscal 2018 owing to price investments made in Sally Beauty during the first quarter, enhanced promotional activity and a business segment mix shift.
Meanwhile, the adjusted operating margin shrunk 130 bps to 12.3% in the fiscal third quarter. In the second quarter, adjusted operating margin dropped 120 bps. We note that management still expects adjusted operating income to decline 8-10% in fiscal 2018 owing to decrease in same-store sales and contraction in gross margin along with marginally higher adjusted SG&A expenses.
Efforts to Counter These Hurdles
The company is adopting several initiatives to put itself on the growth trajectory. Sally Beauty initiated a transformation plan in April 2018 to reduce cost and increase focus on its core products such as hair color and hair care. As part of the transformation plan, the company undertook strategies in the third quarter including reviewing freight expenses to achieve significant cost savings in the future and launching two new color lines — Arctic Fox and Wella ColorCharm Paints — to strengthen its hair product offerings.
The company expects to undertake marketing and merchandising initiatives in its core products, and enhance digital capabilities and cost-cutting actions in the fourth quarter. For fiscal 2019, Sally Beauty is set to launch box color across SBS network. In the BSG division, the company enhanced its distribution rights of hair color and hair care brands such as Sebastian, Nioxin and Kadus, manufactured by Coty.
Notably, Sally Beauty is also implementing the first phase of a multi-year JDA supply-chain platform, which will help augment merchandising capabilities. Additionally, to boost digitalization, Sally Beauty stores will pilot “endless aisle” during the final quarter of fiscal 2018. Under this, a store will be able to order out-of-stock products via a store iPad and get it delivered at the customers’ door step. Management also plans to revamp Sally Beauty’s e-commerce site. Both the segments will work in tandem to improve customer shopping experience through ease of “click and collect at store” and “click and delivery.” As part of its transformation strategy, the company intends to shutter about 1-2% of its stores during the next year in the United States and abroad.
All said, we hope that the afore-mentioned initiatives may help Sally Beauty stock to return to growth trajectory.
Looking for More Promising Retail Stocks? Check These
Boot Barn Holdings, Inc. (BOOT - Free Report) has a long-term earnings growth rate of 20.7% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Kering SA (PPRUY - Free Report) has a long-term earnings growth rate of 12% and a Zacks Rank #1.
DSW Inc. has a long-term earnings growth rate of 7% and a Zacks Rank #2 (Buy).
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>