Sally Beauty Holdings, Inc. (SBH – Free Report) benefits from the strength of its strategic growth pillars. The company’s growing e-commerce business is worth mentioning. Sally Beauty focuses on taking prudent acquisitions to drive growth. Encouragingly, management expects fiscal 2022 net sales growth of 3-4% year-over-year. Gross margin is likely to expand by 40-60 basis points year-over-year in fiscal year 2022.
However, the beauty supplier is not immune to high costs. Let’s discuss it.
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What favors Sally Beauty?
Sally Beauty focuses on its four strategic growth pillars to strengthen the top line for fiscal year 2022. These include digital platform exploitation, retention and personalization, product innovation and supply chain improvement. In this regard, the company is making progress in loyalty and personalization. In its latest earnings call, management noted that nearly 75 percent of Sally’s sales in the United States and Canada were from loyalty programs in the first quarter of fiscal year 2022. The company has an impressive innovation pipeline. , scheduled for fiscal year 2022. Sally Beauty focuses on building an automated and integrated supply chain network. During the invitation, management highlighted that its JDA implementation is in the final stage.
Sally Beauty is striving to grow her online business. Robust investments to improve the digital space have paid off. In the first fiscal quarter, the company’s e-commerce sales increased 22% year-over-year, thanks to the revamped Beauty Systems Group (BSG) e-commerce platform. Global e-commerce sales contributed 8.3% to net sales during the quarter. Sally stores in the US and Canada contributed 35% to ecommerce sales, with Buy Online, Pick Up In-Store (BOPIS) contributing 19%, two-hour fast delivery accounting for 10% and shipping from the store which accounts for 6%. Management believes its e-commerce business will reach 15% or more of total sales over the next few years.
Sally Beauty intends to strengthen its business in the wake of strategic acquisitions. In September 2020, Sally Beauty’s subsidiary BSG acquired La Maison Ami-Co Inc., a distributor of professional beauty products in the Canadian province of Quebec. Under the agreement, Sally Beauty has acquired 10 La Maison Ami-Co stores. This transaction added 17 direct sales consultants and exclusive distribution rights to major professional hair dye and hair care brands such as Wella Professional, Oribe and Goldwell throughout Quebec. The deal increases its Quebec business and increases the reach of BSG’s professional beauty products in its network of Chalut stores as well as full-service businesses.
Obstacles on the way
Sally Beauty has long been struggling with increasing general and administrative (SG&A) sales expenses. During the first quarter of fiscal year 2022, the company reported general and administrative expenses of $ 386.3 million, up $ 20.1 million. The benefit can be attributed to the increase in labor costs, the increase in expenses from international markets associated with the reopening and planned marketing investments. As a percentage of sales, general, administrative and sales expenses stood at 39.4%, up from 39.1% in the quarter a year ago.
However, we believe the aforementioned positives can keep Sally Beauty going. Shares of the Zacks Rank # 3 (Hold) company gained 0.8% in the past six months versus the industry’s 9.2% decline.
Hot retail bets
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Zacks’ consensus estimate for current fiscal year sales and Tractor Supply Company EPS suggests growth of 8.1% and 8.9%, respectively, over the period a year ago.
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Zacks’ consensus estimate for Build-A-Bear’s current fiscal year sales and EPS suggests growth of 9.8% and 9.7%, respectively, from data reported for a year ago. .
Target, a general merchandise retailer, currently has a Zacks Rank # 2. TGT has a surprise four-quarter earnings averaging 21.3%. Target has an expected EPS growth rate of 16.5% for three to five years.
The Zacks consensus estimate for Target’s current financial year sales and EPS suggests growth of 3.5% and 6.7%, respectively, over the period a year ago.