A month has gone by since the last earnings report for Sally Beauty (SBH Quick QuoteSBH - Free Report) . Shares have added about 34% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Sally Beauty due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Sally Beauty's Q4 Earnings Miss Estimates, Sales Down Y/Y

Sally Beauty reported dismal fourth-quarter fiscal 2023 results, with the top and the bottom line declining year over year. Net sales and earnings missed the Zacks Consensus Estimate. The company continues to battle soft customer traffic and inflationary pressures.

Q4 in Detail

Sally Beauty reported adjusted earnings of 42 cents per share, missing the Zacks Consensus Estimate of 46 cents. The metric declined from 50 cents reported in the year-ago quarter.

Consolidated net sales of $921.4 million missed the Zacks Consensus Estimate of $930.2 million. The metric declined 4.3% year over year. Favorable currency rates increased net sales by 110 basis points.

Consolidated comparable sales fell 1.6%, mainly on reduced traffic and inflationary pressures. This continued to impact consumer behavior at Sally Beauty and the continuation of stylist demand trends witnessed in the past several quarters at Beauty Systems Group.

The company operated 308 fewer stores compared with the year-ago quarter’s levels. At constant currency or cc, global e-commerce sales amounted to $87 million, reflecting 9.4% of consolidated net sales.

Consolidated gross profit came in at $466.6 million, up 0.7% from $463.5 million reported in the year-ago quarter. Adjusted gross margin expanded 50 basis points to 50.6%, mainly on the back of higher product margin and lower distribution and freight costs from supply chain efficiencies.

Adjusted operating earnings were $79.3 million, down from $83.9 million reported in the year-ago quarter. The operating margin contracted from 8.7% to 8.6% in the fiscal fourth quarter.

Adjusted selling, general and administrative (SG&A) expenses came in at $387.3 million, down $10.6 million year over year. The downside was mainly caused by savings from distribution center consolidation and store optimization plans and reduced advertising costs. Increased labor costs somewhat offset these. As a percentage of sales, the metric stood at 42% compared with 41.3% in the prior year.

Segment Details

Sally Beauty Supply: Net sales in the segment fell 5.3% to $524.6 million. Favorable foreign exchange had a positive impact of 200 bps on sales. The segment’s comparable sales fell 1.2%. Net store count at the end of the quarter was 3,148, down by 291 stores from the year-ago quarter’s level. Segment e-commerce sales at cc stood at $32 million, contributing 6.1% to the segment’s net sales.

Beauty Systems Group: Net sales in the segment dropped 2.9% to $396.8 million. Unfavorable foreign exchange had a negative impact of 20 bps on sales. The segment’s comparable sales fell 2.3%. Net store count at the end of the quarter was 1,338, down by 17 stores from the year-ago quarter’s levels. Total distributor sales consultants at the end of the quarter were 670 compared with 718 in the year-ago period. Segment e-commerce sales at cc were $55 million, contributing 13.9% to the segment’s net sales.

Other Aspects

The company ended the reported quarter with cash and cash equivalents of $123 million, long-term debt, including capital leases of $1,065.8 million and total stockholders’ equity of $508.7 million.

During the fourth quarter, the company provided cash flow from operations of $117 million. Capital expenditures came in at $26.9 million during this time. Management expects capital expenditures of nearly 100 million and operating cash flow of at least $260 million in fiscal 2024.

The company’s Beauty Systems Group acquired certain assets from Goldwell of New York in September 2023. Management expects the buyout to generate incremental sales benefit of nearly 1% in the Beauty Systems Group segment during fiscal 2024.

Fiscal 2023 Outlook

The company is on track to drive top-line growth, courtesy of strategic initiatives like product innovation, expanded distribution at Beauty Systems Group and new concepts and services. Fuel for Growth initiative keeps the company well-positioned to capture gross margin and SG&A gains while undertaking growth and returning value to shareholders.

For the fiscal 2024, management expects net sales and comparable sales to be almost flat year over year on gains from strategic initiatives. However, projected pressure on consumer spending is likely to be a hurdle. Gross Margin is anticipated to remain above 50% with an adjusted operating margin of at least 9%.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

The consensus estimate has shifted -33.02% due to these changes.

VGM Scores

Currently, Sally Beauty has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Sally Beauty has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.