Like other retailers, Sally Beauty Holdings, Inc. SBH had to temporarily shut stores in the wake of the coronavirus outbreak. This primarily affected its third-quarter fiscal 2020 performance, with the top and the bottom line deteriorating year over year and the latter lagging the Zacks Consensus Estimate. Nevertheless, the company’s online wing has been a breather as customers have been largely taking to this mode of shopping amid the pandemic-led social distancing. Let’s delve deeper. Also, stores have reopened now with the company witnessing robust traffic.
Factors Hurting Sally Beauty’s Performance
Apart from the temporary store closures, the company’s Sally Beauty Supply segment has been posting drab sales since the last few quarters. The segment continued to be under pressure in the third quarter of fiscal 2020, with revenues declining 27.7% year over year due to lesser stores than the prior-year quarter’s levels along with adverse impacts of COVID-19 outbreak.
Apart from these, Sally Beauty is exposed to unfavorable foreign currency translations owing to the company’s exposure to international markets. During the fiscal third quarter, currency translations affected revenues by nearly 30 basis points (bps). Also, escalated costs and reduced margin were deterrents. In fact, gross margin contracted 390 bps to 45.6% thanks to aggressive on-shelf inventory clearance efforts as well as non-cash write downs of inventory during the fiscal third quarter. Also, lower allowances from vendors were a drag.
The Bright Side
While Sally Beauty saw soft sales in the fiscal third quarter due to coronavirus-led concerns, the company’s e-commerce sales increased significantly from the year-ago quarter. This was driven by the company’s quick efforts to augment its online business and increased consumer demand on digital platforms. Also, addition of increased number of new consumers online was a reason.
Moreover, the company has been undertaking a number of efforts to augment its online space to keep pace with the evolving shopping trends. In March, it launched digital operations in Canada along with ship-from-store in 16 stores across the region. The company also expanded its ship-from-store as well as same-day delivery options in the United States. Sally Beauty also replatformed its French and German digital sites to aid business in the U.K.
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 (BGS) store in the United States and Canada. Also, management restarted its JDA and North Texas distribution center initiatives. Moreover, 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 get back on growth trajectory. In this regard, management is focused on its Transformation Plan, as part of which it is progressing well with its four key goals —improving customers’ experience, strengthening e-commerce capacities, curtailing costs and enhancing retail fundamentals.
That being said, let’s see if these upsides can help this Zacks Rank#3 (Hold) company counter the aforementioned hurdles. Shares of Sally Beauty have lost 18% in the past three months against the industry’s growth of 14.4%.
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