Sally Beauty (SBH) on the pillars of growth and online sales – April 12, 2022

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 is focused on making prudent buyouts to drive growth. Encouragingly, management expects net sales growth of 3-4% year-over-year for fiscal 2022. Gross margin is expected to increase 40-60 basis points year-on-year. the other in fiscal year 2022.

However, the beauty supplier is not immune to high costs. Let’s talk.

Image source: Zacks Investment Research

What drives Sally Beauty?

Sally Beauty is focused on its four strategic growth pillars to drive fiscal 2022 revenue. These include leveraging the digital platform, loyalty 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 pointed out that nearly 75% of Sally’s sales in the United States and Canada came from loyalty programs in the first quarter of fiscal 2022. The company has a impressive innovation pipeline, which is planned for fiscal year 2022. Sally Beauty is focused on building an automated and integrated supply chain network. During the call, management emphasized that its JDA implementation is in the final stages.

Sally Beauty is making efforts to increase her online business. Solid investments to improve the digital space have paid off. During the first fiscal quarter, the company’s e-commerce sales grew 22% year-over-year, driven by Beauty Systems Group’s (BSG) refreshed e-commerce platform. Global e-commerce sales contributed 8.3% to net sales in the quarter. The company’s Sally stores in the United States and Canada contributed 35% of online sales, with online shopping, pickup in store (BOPIS) contributing 19%, two-hour fast delivery contributing 10%. and delivery from store accounting for 6%. Management estimates that its e-commerce business will reach 15% or more of total sales in the next few years.

Sally Beauty intends to strengthen its business through strategic acquisitions. In September 2020, Sally Beauty subsidiary BSG acquired La Maison Ami-Co Inc. — a professional distributor of beauty products in the Canadian province of Quebec. Under the agreement, Sally Beauty acquired 10 La Maison Ami-Co stores. This transaction added 17 direct sales consultants and the exclusive distribution rights of leading professional hair color and hair care brands such as Wella Professional, Oribe and Goldwell across Quebec. The agreement expands its business in Quebec while increasing the reach of BSG’s professional beauty products in its network of Chalut stores as well as full-service businesses.

Obstacles in the way

Sally Beauty has been struggling with rising selling, general and administrative (SG&A) expenses for some time. In the first quarter of fiscal 2022, the company reported SG&A expenses of $386.3 million, up $20.1 million. The benefit can be attributed to higher labor costs, escalating spending from international markets associated with the reopening, and planned marketing investments. As a percentage of sales, SG&A expense was 39.4%, compared to 39.1% in the prior year quarter.

Nevertheless, we think the aforementioned benefits are likely to keep Sally Beauty going. Shares of Zacks Rank No. 3 (Hold) have gained 0.8% over the past six months against a 9.2% decline in the sector.

Hot Retail Bets

Some higher ranked stocks are Tractor Supply Company (TSCO free report), Build-A-Bear Workshop, Inc. (BBW free report) and Target company (TGT Free report)

Tractor Supply Company, a rural lifestyle retailer in the United States, carries a Zacks rank #2 (purchase). TSCO has a four-quarter earnings surprise of 22%, on average. Tractor Supply has an expected earnings per share (EPS) growth rate of 9.8% for three to five years. You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zacks’ consensus estimate for Tractor Supply Company’s current-year sales and EPS suggests growth of 8.1% and 8.9%, respectively, over the prior-year period.

Build-A-Bear, a multi-channel retailer of stuffed animals and related products, currently carries a No. 2 Zacks rank. BBW has a trailing four-quarter earnings surprise of 214.3% on average.

Zacks’ consensus estimate for Build-A-Bear’s current-year sales and EPS suggests growth of 9.8% and 9.7%, respectively, from numbers reported a year ago. year.

Target, a general merchandise retailer, currently carries a No. 2 Zacks rank. TGT has a trailing four-quarter earnings surprise of 21.3% on average. Target has an expected EPS growth rate of 16.5% over three to five years.

Zacks’ consensus estimate for Target’s current-year sales and EPS suggests growth of 3.5% and 6.7%, respectively, over the prior-year period.