Yahoo Finance Sally Beauty (SBH) Gains on Customer Focus, High Costs Hit
Sally Beauty Holdings, Inc. SBH is seeing positive outcomes from its emphasis on three strategic growth pillars. The company is reaping benefits from its focus on customer-centric approaches. The introduction of Happy Beauty Co. represents a promising addition to this beauty products provider. However, Sally Beauty is not immune to macroeconomic challenges including inflationary headwinds.
Let’s delve deeper.
Factors Working in Sally Beauty’s Favor
The Zacks Rank #3 (Hold) company is prioritizing three core strategic initiatives: enhancing customer focus, expanding high-margin proprietary brands and driving innovation while improving operational efficiency and capabilities. Recently, management successfully expanded the market presence of two key brands within the Beauty Systems Group segment.
Later this year, SBH plans to introduce innovations in skincare and men's grooming at Sally Beauty Supply. Through a comprehensive store optimization program, the company has boosted productivity and profitability by enhancing the omnichannel customer experience.
The company has been concentrating on fostering growth through strategies such as improving customer focus, innovating products, expanding distribution and introducing new concepts and services. A recent example of this approach is its nationwide collaboration with Instacart, enabling same-day delivery services from over 2,200 store locations across the country.
The Fuel for Growth initiative ensures Sally Beauty remains poised to achieve increased gross margins and efficiencies in selling, general and administrative expenses (SG&A), while also focusing on growth and enhancing its shareholder value. SBH is projected to realize pre-tax advantages of $20 million in fiscal 2024. Furthermore, it has identified an additional potential pre-tax benefit of around $50 million for fiscal 2025, culminating in cumulative benefits approaching $120 million by fiscal 2026.
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In addition, Sally Beauty is progressing with Happy Beauty Co., a unique new retail store concept that brings an engaging beauty experience to market with a value price point offering. Happy Beauty offers quality beauty products at great prices in an accessible, fun and expressive environment. With a strong record of product and brand development, the company is exercising this muscle to bring compelling value alternatives to well-known premium-priced products to customers. Management is impressed with the performance of its initial 10 pilot stores as traffic continues to build.
High Cost and Macroeconomic Woes
Sally Beauty has been grappling with higher SG&A expenses for a while now. In the second quarter of fiscal 2024, Sally Beauty’s adjusted SG&A expenses were $394.5 million, up $4.8 million year over year. Elevated labor costs and rent expenses primarily fueled the increase. Management expects SG&A dollars to be up modestly year over year in fiscal 2024. The anticipation indicates increased labor costs and investments in upper funnel marketing as well as other expenses associated with strategic growth initiatives.
In addition, the company continues to battle tough macroeconomic challenges that have been putting pressure on 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 adverse trends highlight substantial challenges that the company must address through strategic adjustments and concerted efforts to reverse the situation.
SBH’s shares have lost 14.7% in the past three months compared with the industry’s 11.3% decline.
Eye These Solid Picks
We have highlighted three better-ranked stocks, namely, Abercrombie & Fitch Co. ANF, The Gap Inc. GPS and DICK'S Sporting Goods DKS.
Abercrombie & Fitch, a specialty retailer of premium, high-quality casual apparel, currently sports a Zacks Rank #1 (Strong Buy). ANF has a trailing four-quarter average earnings surprise of 210.3%. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Abercrombie & Fitch’s current fiscal-year sales and earnings indicates growth of 10.4% and 47.3%, respectively, from the year-ago figures.
Gap, a fashion retailer of apparel and accessories, currently flaunts a Zacks Rank #1. GPS has a trailing four-quarter earnings surprise of 202.7%, on average.
The Zacks Consensus Estimate for Gap’s current financial-year sales and earnings per share suggests a rise of 0.2% and 21.7%, respectively, from the year-earlier levels.
DICK'S Sporting operates as an omni-channel sporting goods retailer. It currently carries a Zacks Rank #2 (Buy). DKS has a trailing four-quarter earnings surprise of 4.7%, on average.
The Zacks Consensus Estimate for DICK’S Sporting current fiscal-year sales and earnings implies an improvement of 1.8% and 6.6%, respectively, from the prior-year numbers.
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Sally Beauty Holdings, Inc. (SBH) : Free Stock Analysis Report
