Sally Beauty Holdings, Inc. (SBH Quick QuoteSBH - Free Report) reported solid third-quarter fiscal 2024 results, as both the top and bottom lines beat the Zacks Consensus Estimate, and net sales increased year over year.

The company witnessed positive comparable sales across both the Sally Beauty and Beauty Systems Group segments. At Sally Beauty, strategic initiatives such as better performance marketing, market expansions and digital enhancements were met with a positive consumer response, leading to growth in both new and returning customers. In the Beauty Systems Group, the ongoing focus on innovation and territorial expansion resulted in a third straight quarter of positive comparable sales.

Apart from this, SBH remained committed to returning capital to shareholders through the share repurchase program in the quarter, alongside making progress on the fuel for growth initiative.

Quarter in Detail

Sally Beauty’s adjusted earnings were 45 cents per share, which surpassed the Zacks Consensus Estimate of 40 cents. However, the metric declined from 49 cents recorded in the year-ago period.

Consolidated net sales of $942.3 million came ahead of the Zacks Consensus Estimate of $931 million.  The metric rose 1.2% year over year. Adverse currency rates hurt net sales by 10 basis points.

Consolidated comparable sales rose 1.5% due to enhanced new and reactivated customer trends at Sally Beauty, along with sustained momentum at Beauty Systems Group driven by strong distribution and product innovation amid stable salon demand.

The company operated 17 fewer stores than the year-ago quarter. At constant currency rates, global e-commerce sales accounted for 9.7% of the total consolidated net sales for the quarter.
 
The consolidated gross profit came in at $480.9 million, up 1.3% from $474.7 million in the year-ago quarter. The adjusted gross margin expanded 10 basis points to 51%. The upside was primarily driven by reduced distribution and freight expenses resulting from supply chain efficiencies. However, this was partially offset by adverse fixed cost absorption.

Adjusted operating earnings were $84.1 million, down from $89.8 million in the year-ago quarter. The adjusted operating margin contracted from 9.6% to 8.9% in the third quarter.

Adjusted selling, general and administrative expenses were $396.8 million, up $12.6 million year over year. Elevated labor and other compensation-related costs, depreciation costs and advertising costs fueled the increase. However, this was partly mitigated by savings from the company’s fuel for growth initiative. As a percentage of sales, the metric stood at 42.1% compared with 41.3% in the prior year.

Adjusted EBITDA came in at $116.8 million, representing a dip of 1.7% from the previous year. Additionally, the adjusted EBITDA margin stood at 12.4%, reflecting a decline of 40 basis points from the prior-year period’s tally.

Segmental Details

Sally Beauty Supply: Net sales in the segment climbed 0.3% year over year to $536.5 million. Adverse foreign exchange movements had a negative impact of 10 bps on sales. Segment comparable sales saw a rise of 0.7% in the quarter, courtesy of improved traffic and conversion stemming from strategic initiatives. The net store count at the end of the quarter was 3,128. Segmental e-commerce sales at cc stood at $37 million, contributing 7% to the segment’s net sales.

Beauty Systems Group: Net sales in the segment increased 2.5% year over year to $405.8 million. Currency headwinds hurt sales by 20 bps. The segment’s comparable sales increased 2.6%, primarily driven by expanded distribution channels and innovative product offerings. The net store count at the end of the quarter was 1,332. Total distributor sales consultants at the end of the quarter were 659 compared with 650 in the year-ago period. Segmental e-commerce sales at cc were $54 million, contributing 13.4% to the segment’s net sales.

Other Financial Aspects

SBH ended the fiscal third quarter with cash and cash equivalents of $97.4 million, long-term debt, including capital leases of $978.9 million, and total stockholders’ equity of $577.7 million.

In the third quarter, the company provided cash flow from operations of $47.9 million. Capital expenditure was $19.1 million for the period. In the third quarter, the company repurchased 0.9 million shares for $10 million as part of its share repurchase program.

Management expects capital expenditure of 100 million and an operating cash flow of nearly $240 million in fiscal 2024.

FY24 Outlook

For fiscal 2024, management expects net sales and comparable sales to be almost flat year over year. The gross margin is anticipated to be 50.5-51%, with an adjusted operating margin of roughly 8.5%.

Shares of this Zacks Rank #3 (Hold) company have declined 9.2% in the past three months compared with the industry’s fall of 16.7%.

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