Sally Beauty Holdings, Inc. SBH is gaining from solid e-commerce business amid the coronavirus outbreak. Moreover, the company’s focus on enhancing customer shopping experience and Transformation Plan is commendable. These upsides and contributions from buyouts are likely to help the company in countering headwinds such as escalated SG&A costs.
Let’s delve deeper.
Solid E-commerce Growth Amid COVID-19
Sally Beauty’s e-commerce sales increased significantly in third-quarter fiscal 2020 compared with the year-ago period. The uptick can primarily be attributed to the company’s accelerated efforts to augment online business to address increased consumer demand on digital platforms amid the coronavirus outbreak. Further, addition of increased number of new consumers online contributed to the performance.
The company has been undertaking a number of efforts to augment its online space in a bid to keep pace with the evolving shopping trends. Recently, it expanded its retail beauty offerings to 4,100 products on the new website— sallybeauty.ca— across Canada. Further, the company expanded its ship-from-store e-commerce distribution points to nine provinces to reduce delivery times in Canada. Sally Beauty also expanded its ship-from-store and same-day delivery options in the United States. The company also replatformed its French and German digital sites to aid business in the U.K.
Other Growth Drivers
Sally Beauty is undertaking several initiatives to enhance customer shopping experience. The company successfully implemented the first phase of a multi-year JDA supply-chain platform in first-quarter fiscal 2019. Recently, it rolled out point-of-sale systems to every Sally and Beauty Systems Group (BSG) store in the United States and Canada. Also, management restarted its JDA and North Texas distribution center initiatives. Further, the company is on track to float a private label credit card plan at both BSG and Sally business.
Apart from these, Sally Beauty is on track with its efforts to return to growth trajectory. In this regard, management is focused on its Transformation Plan. In fact, as part of the plan, the company is advancing well with its four key goals —improving customers’ experience, strengthening e-commerce capacities, curtailing costs and enhancing retail fundamentals.
The company is also focused on expanding business through lucrative acquisitions. Recently, Sally Beauty’s subsidiary BSG acquired La Maison Ami-Co Inc. — a professional beauty products distributor in the Canadian province of Quebec. Management expects this buyout to augment its business in Quebec, and increase the reach of BSG’s professional beauty products in its Chalut store network and full-service business. In December 2017, BSG had acquired certain H. ChalutLtée assets, which allowed it to expand its business for the first time in Quebec province. This helped BSG in creating a presence in Canada.
Is all Rosy for Sally Beauty?
During third-quarter fiscal 2020, selling, general and administrative expenses (as a percentage of sales) expanded 770 basis points (bps) thanks to major deleveraging effect of lower sales stemming from the coronavirus outbreak. Moreover, gross profit margin contracted 390 bps due to aggressive on-shelf inventory clearance efforts and non-cash write downs of inventory. Also, lower allowances from vendors were a drag. Apart from these, Sally Beauty is vulnerable to unfavorable foreign currency translations owing to its exposure to international markets.
Nonetheless, the aforementioned growth efforts are likely to help this Zacks Rank #3 (Hold) company tide over such hurdles. Notably, the company’s shares have gained 25.1% in the past six months compared with the industry’s growth of 43.4%.
Some Solid Retail Bets
Hibbett Sports HIBB, which sports a Zacks Rank #1 (Strong Buy), has a long-term earnings growth rate of 13.8%. You can see the complete list of today’s Zacks #1 Rank stocks here.
DICK’S Sporting Goods DKS, which flaunts a Zacks Rank #1, has a long-term earnings growth rate of 4.8%.
The Michaels Companies MIK, which carries a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 1.3%.
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