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Sally Beauty Benefits From Solid Online Sales, Hurt by Costs

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Sally Beauty Holdings, Inc. (SBH - Free Report) is benefiting from its robust transformation plan along with solid e-commerce growth. Moreover, the company’s prudent acquisitions bode well. However, sluggish performance in Sally Beauty Supply (SBS) segment along with higher costs cannot be ignored.

Factor’s Aiding Sally Beauty

Sally Beauty is committed toward its transformation endeavors to improve customer experience, strengthen e-commerce capacities, curtail costs and enhance retail fundamentals. In this regard, management is on track with enhancing key digital as well as supply chain initiatives amid the coronavirus outbreak.

Moreover, Sally Beauty is undertaking several initiatives to enhance customer shopping experience. In this regard, the company successfully implemented the first phase of a multi-year JDA supply-chain platform in first-quarter fiscal 2019. As part of this, the company launched five elements. The modules launched until now include SKU setup, demand planning, space planning, EDI and perpetual inventory.


 

Further, Sally Beauty had rolled out Oracle-based point-of-sale (POS) systems to nearly 2500 stores. Apart from these, the company has been focusing on enhancing areas such as merchandising, BSG store operations, marketing, e-commerce, digital product as well as planning and allocation by adding new management and talent. In relation to digital strategies, the company implemented Order Management System across its network. Notably, Sally Beauty is reducing ‘order to customer’ timing and improving flexibility of shopping option.

Apart from this, management is undertaking prudent acquisitions to strengthen brands. In this context, the company’s Beauty Systems Group (BGS) segment had acquired certain H. ChalutLtée assets (completed in December 2017), enabling it to expand its business for the first time in Quebec province, giving BSG a footprint in Canada.

Hurdles on the Way

Sally Beauty’s net sales declined 7.9% year over year in second-quarter fiscal 2020. The top line was majorly affected by temporary store closures amid the coronavirus outbreak and lower store count than the year-ago period. Moreover, unfavorable foreign-currency translations acted as a deterrent.

Additionally, sales in the SBS segment have been declining year over year since the past few quarters. Sales in the segment decreased 8.1% year over year during fiscal second quarter. Also, escalated SG&A costs due to increased personnel expenses, higher marketing costs, and greater professional fees are concerns.

Nevertheless, Sally Beauty’s e-commerce sales increased 28% from the year-ago quarter’s tally in fiscal second quarter. The uptick can be attributed to increased consumer demand on digital platforms, which provided it a cushion amid coronavirus-led store closures. Moreover, this Zacks Rank #3 (Hold) company has been undertaking several efforts to enhance its digital capabilities as a significant number of customers are shifting toward online lately.

We note that shares of Sally Beauty have lost 9.6% in the past year, compared with the industry’s decline of 12.8%.

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