Sally Beauty (SBH) benefits from online sales and redemptions

The strength of e-commerce operations and the cautious acquisition strategy played favorably during Sally Beauty Holdings, Inc. SBH. The company’s strategic growth pillar bodes well. However, high costs are a challenge for Sally Beauty.

Let’s go deeper.

Help with online business and redemptions

Sally Beauty is making efforts to increase her online business. Solid investments to improve the digital space have paid off. During the first quarter of fiscal 2022, the company’s e-commerce sales grew 22% year-over-year, primarily driven by Beauty Systems Group’s refreshed e-commerce platform (BSG ). Global e-commerce sales contributed 8.3% to net sales in the quarter. During the quarter, the company’s Sally stores in the United States and Canada contributed 35% to e-commerce sales, with online shopping, pickup in store (BOPIS) contributing 19%, two-way fast delivery hours accounting for 10% and shipping from store. accountant 6%. Management estimates that its e-commerce business will reach 15% or more of total sales in the next few years.

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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 exclusive distribution rights for 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 operations.

Transformation on track

Sally Beauty is focused on its four strategic growth pillars to drive revenue in fiscal 2022. These include leveraging the digital platform, loyalty and personalization, product innovation and improving the supply chain. 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 pipeline of innovations, which is planned for fiscal year 2022. Sally Beauty is focused on building an automated integrated supply chain network. During their call, management emphasized that their JDA implementation is in its final stages. Sally Beauty expects net sales growth of 3-4% year-over-year for fiscal 2022. Gross margin is expected to increase 40-60 basis points year-over-year . Adjusted operating margin is expected to remain nearly flat year-over-year.

Will the obstacles be overcome?

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 uptick can be primarily 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.

That being said, focusing on the aforementioned perks is likely to help this Zacks Rank #3 (Hold) business stay afloat amid such obstacles. Shares of Sally Beauty have fallen 13.9% in the past three months, beating the industry’s 17.4% decline.

3 retail stocks to bet on

Here are some top-ranked stocks — Marine Max HZO, Tractor Supply Company TSCO and BuildABear Workshop BBW.

MarineMax sports a Zacks Rank #1 (Strong Buy). The company has an earnings surprise for the last four quarters of 55.8% on average. Shares of HZO are down 25.3% over the past three months. You can see the full list of today’s Zacks #1 Rank stocks here.

Zacks consensus estimate for MarineMax sales and earnings per share (EPS) for the current fiscal year suggests growth of 13.9% and 16.2%, respectively, from year-to-date levels. the previous year.

Tractor Supply Company, a rural lifestyle retailer in the United States, carries a Zacks rank #2 (purchase). Shares of TSCO are down 5.3% over the past three months.

Zacks’ consensus estimate for Tractor Supply Company’s current-year sales and EPS suggests growth of 8.2% and 9.2%, respectively, over the prior-year period. TSCO has a four-quarter earnings surprise of 22%, on average.

Build-A-Bear, a multi-channel retailer of stuffed animals and related products, currently carries a No. 2 Zacks rank. BBW shares have fallen 18.1% over the past three months.

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. BBW has a last four quarter earnings surprise of 214.3% on average.

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David A. Albanese