Yahoo Finance Sally Beauty (SBH) Down More than 20% in 6 Months: Here's Why
Sally Beauty Holdings, Inc. SBH has been grappling with escalated cost inflation for a while. The beauty products provider is also battling supply chain-related issues. Escalated selling, general and administration (SG&A) expenses are a hurdle for the company.
The abovementioned factors hurt Sally Beauty’s fourth-quarter fiscal 2022 results, with the top and the bottom line declining year over year. Management offered a drab view for fiscal 2023. Shares of the Zacks Rank #4 (Sell) company have declined 22.1% in the past six months against the industry’s 7.1% growth.
Let’s delve deeper.
Dismal Q4 Results, Drab View
Sally Beauty continued to battle inflationary pressures and supply chain headwinds in the fourth quarter of fiscal 2022. The company reported adjusted earnings of 50 cents per share, down from 64 cents in the year-ago quarter. Consolidated net sales of $962.5 million dropped 2.8%. Comparable sales were in line with the year-ago quarter’s levels. The adverse impact of inflationary pressures influencing consumer behavior and supply chain challenges at Beauty Systems Group was a deterrent. The company operated 117 fewer stores compared with the year-ago quarter’s levels.
Sally Beauty’s fiscal 2023 net sales are anticipated to decline by low-single digits, reflecting 150-200 basis points (bps) of net unfavorable impact owing to store closures and expected sales recapture rates from optimization efforts. Net sales guidance also reflects nearly 150 bps anticipated impact from unfavorable currency rates. Management highlighted that it expects the external environment to remain challenging in the future. Rising inflationary pressure has been altering consumer spending and increasing labor costs.
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Margin Pressure
In the fourth quarter of fiscal 2022, Sally Beauty’s consolidated gross profit came in at $463.5 million, down 7.5% from $501 million reported in the year-ago quarter. Adjusted gross margin contracted 60 bps to 50.1% due to the sales mix shift between Sally Beauty and Beauty Systems Group and increased distribution and freight costs in both units. Adjusted operating earnings were $83.9 million, down from $115.8 million reported in the year-ago quarter. Adjusted operating margin contracted from 11.7% to 8.7% in the fourth quarter.
High SG&A Costs a Concern
Sally Beauty has been grappling with escalated SG&A expenses for a while. During the fourth quarter of fiscal 2022, the company’s SG&A expenses came in at $397.9 million, up $11.3 million, thanks to higher labor costs somewhat offset by reduced lower bonus expenses. As a percentage of sales, SG&A expenses stood at 41.3%, up from 39% reported in the year-ago quarter.
Wrapping Up
Sally Beauty is focused on its four strategic growth pillars to boost the top line, including leveraging the digital platform, driving loyalty and personalization, undertaking product innovation and enhancing the supply chain. The company has been undertaking several efforts to augment its robust omnichannel platform. Management intends to strengthen its business on the back of strategic acquisitions.
That being said, let’s see if these upsides can help SBH counter the aforementioned hurdles.
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