With operations across three continents, Sally Beauty Holdings (NYSE: $SBH) is a dominant global professional beauty market player. The company distributes and sells over 7,000 professional beauty products through its two business segments, Sally Beauty Supply and Beauty Systems Group. Catering to retail consumers and salon professionals, Sally Beauty has become a go-to source for hair color, hair care, nail, and skincare products. The company’s strong international presence includes stores in North America, South America, and Europe.
The company’s strategic objectives of driving top-line revenue growth and boosting long-term profitability demonstrate its commitment to upholding a leading position in the professional beauty sector.
On Thursday, Sally Beauty disclosed its first quarter 2024 financial results. It reported a 2.7% year-over-year decline in revenue, totaling $931.3 million. The company attributed this mainly to December 2022 store closures, aligning with analyst expectations of around $928.6 million.
Financial Highlights
Foreign exchange positively benefitted consolidated revenue by 90 basis points. Global e-commerce comprised 9.8% of total revenue at $91 million. Comparable store sales declined 0.8%, driven by lower consumer traffic and inflationary pressures, mostly impacting the Sally Beauty segment. It was partially offset by Beauty Systems Group trends showing improved salon demand.
The gross profit of $467.2 million was 4.4% lower than the prior year’s $488.6 million. The consolidated gross margin fell 80 basis points to 50.2% from 51.0% last year. Total SG&A expenses rose to $398.1 million, up $6.6 million, while adjusted SG&A increased $2.7 million to $393.3 million.
GAAP operating income landed at $69.1 million with a 7.4% margin, down from $86.6 million and 9.0% last year. Adjusted operating earnings were $73.9 million, representing a 7.9% margin versus 10.0% prior year.
Earnings Metrics Reflect Ongoing Financial Health
GAAP diluted EPS equaled $0.35 alongside adjusted diluted EPS of $0.39. Adjusted EBITDA showed a 14.9% decrease to $107.1 million, while the adjusted EBITDA margin declined 160 basis points year-over-year to 11.5%.
President and CEO Denise Paulonis expressed satisfaction with first quarter performance matching expectations. She spotlighted the company’s commitment to strategic growth and profitability initiatives.
The company closed the quarter with $121 million in cash and cash equivalents. Inventory rose 2.1% over the prior year to $1.01 billion. Sally Beauty maintained a net debt leverage of 2.2x.
Operating cash flow reached $51 million as capital expenditures totaled $30.6 million. The company repurchased 1.9 million shares for $20 million under its buyback program.
Recent Stock Performance
Sally Beauty Holdings stock has seen gains in recent trading. Shares are currently trading at $13.20, representing a 7.14% increase from the previous closing price of $12.32. Throughout Thursday’s trading session, the stock price has ranged between a low of $12.15 and a high of $13.46 per share.
Sally Beauty’s 52-week traded range is $7.21 to $18.42; representing a strong year overall with as much as 83.08% in returns. With around 106.77 million shares outstanding, the company currently has a market capitalization of $1.32 billion.
Strong Cash Flow Generation Expected to Fund Growth
For the 2024 fiscal year, Sally Beauty upheld its guidance. The company anticipates full-year revenue and comparable sales will remain around the previous year’s levels. While strategic efforts should spur growth, management believes consumer spending headwinds may offset progress.
Gross margin guidance stays above 50% as adjusted operating margin is targeted at a minimum of 9.0%. The company expects at least $260 million of 2024 operating cash flow based on robust financial performance. Approximately $100 million has been budgeted for capital expenditures supporting business and growth strategies.
Analyst Outlook
Based on data from the last three months involving 5 Wall Street analysts, the average 12-month price target for Sally Beauty stock is $11.75. This average forecast implies an 8.88% decrease from the most recent share price of $12.90. Among the price targets from analysts, the low estimate is $8.00, while the high estimate is $17.00. Regarding recommendations, 1 analyst suggests buying the stock, 3 recommend holding, and 1 advises selling.
Final Thoughts
Sally Beauty’s first-quarter revenue declined modestly, but the company remains confident in achieving full-year sales and earnings targets. However, turbulent macroeconomic conditions and analyst skepticism suggest investors should take a cautious approach to the stock. A “hold” rating seems prudent until greater visibility on consumer spending and execution of strategic initiatives emerges later in 2024.
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