Sally Beauty SBH Down 20% YTD: Macroeconomic Headwinds Hurt April 22, 2024
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The beauty products provider is grappling with subdued consumer footfall, impacting revenues. Increasing selling, general and administrative (SG&A) expenses are exerting pressure on the company's performance.Shares of the Zacks Rank #4 (Sell) company have slumped 20.2% year to date compared with the industry’s 0.0%. At the center of everything we do is a strong commitment to independent research and sharing its profitable discoveries with investors. This dedication to giving investors a trading advantage led to the creation of our proven Zacks Rank stock-rating system. Since 1988 it has more than doubled the S&P 500 with an average gain of +24.20% per year. These returns cover a period from January 1, 1988 through April 1, 2024.
Sally Beauty (SBH) Down 20% YTD: Macroeconomic Headwinds Hurt
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This decline seems to have been mostly prompted by a competitor warning of a slowdown in beauty sales. At the beginning of 2024, a bullish "Golden Cross" formed since the 50-day moving average which is $12.10, crossed over the 200-day moving average which is about $10.91. The Golden Cross is still showing on the chart but it is now at risk, since this stock is now trading for about $10.60 per share. Sally Beauty has been on track with its strategic initiatives like product innovation, expanded distribution and new concepts and services. Also, the company is keen on acquiring new customers via marketing programs and differentiated product offerings. Let’s see if these upsides can help SBH stay afloat amid such hurdles.
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These negative trends indicate significant challenges and difficulties faced by the company, which require strategic adjustments and efforts to turn the situation around. On April 3, 2024, SA News Editor Clark Schultz gave details on a big drop in Ulta Beauty (ULTA) shares which occurred after the company presented at the J.P.Morgan (JPM) Retail Round Up Conference. Ulta Beauty warned that they saw some pressure on consumers because of high levels of credit card debt and interest rates. The guidance was not too bad in my opinion because the company was still guiding for low single-digit growth.
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DICK'S Sporting Goods (DKS Quick QuoteDKS - Free Report) operates as an omni-channel sporting goods retailer. DKS has a trailing four-quarter earnings surprise of 3.1%, on average. KR has a trailing four-quarter average earnings surprise of 8.5%.The Zacks Consensus Estimate for Kroger's current fiscal sales and earnings indicates a decline of 1.4% and 6.9%, respectively, from the year-ago reported figure. Sally Beauty Holdings, Inc. (SBH Quick QuoteSBH - Free Report) finds itself in a challenging position due to macroeconomic factors such as inflationary pressures.
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Earnings estimates for 2025, are at $1.98 per share, on revenues of $3.76 billion. Earnings are seen as rising to $2.33 per share in 2026, and revenues are expected to rise to $3.87 billion. These estimates suggest that Sally Beauty shares are trading for just about 6 times earnings. That is extremely undervalued when compared to other stocks in this sector, or to the market in general. The S&P 500 Index (SPY) currently trades for about 21 times earnings. On the balance sheet, Sally Beauty Holdings has $121 million in cash and about $1.66 billion in debt.
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But, if the Federal Reserve fails to cut rates before long, we could easily see the hard landing scenario play out. This could impact retail stocks significantly and possibly send Sally Beauty shares into the single digits. Competitive threats from large companies is another potential downside risk. Analysts expect this company to earn $1.87 per share in 2024, with revenues coming in at $3.72 billion.
Sally Beauty continues to battle tough macroeconomic challenges that have been denting consumer spending. Management is battling soft customer traffic and inflationary pressures. Unfavorable impact owing to store closures from the Store Optimization Program has also been hurting the company for a while. To compound matters, the company had to grapple with the challenge of operating 23 fewer stores by the end of the quarter, which is an indication of a strategic shift to changing market dynamics.
Sally Beauty Holdings Announces Conference Call and Webcast to Discuss Second Quarter Financial Results on May 9, 2024
Our experts picked 7 Zacks Rank #1 Strong Buy stocks with the best chance to skyrocket within the next days. As the first female hairstylist whose talent and business acumen enabled her to reach celebrity status, Sally is a personal favorite of directors and celebrities alike and is equally in demand in the world of fashion. Hawkinvest is not a registered investment advisor and does not provide specific investment advice.
Sally Beauty trades for just around 6 times earnings, which is deeply undervalued when compared to some competitors and to the stock market in general. With the potential for earnings to grow in the coming years thanks to the strategic cost savings plans, this stock could surprise to the upside. A slowdown could be in the works for the U.S. economy, but this stock already appears to be priced for a mild slowdown at just around 6 times earnings.
That is not good enough if your stock has a high price to earnings ratio, but it still represents growth. It's worth noting that Ulta Beauty trades for about 16 times earnings. A sales slowdown is going to impact a stock with a much higher price to earnings ratio a lot more than a stock that trades for about 6 times earnings. Sally Beauty shares have dropped by about 20% since this warning came from Ulta Beauty. This is not a stock or a sector that I would invest a lot of money in, but I think a small investment in this company makes sense after the pullback we have seen.
Sally Beauty has a few strategic goals it has set that could lead to improved financial results over the next couple of years. The fourth goal shown below could lead to $50 million in beneficial cost savings in fiscal year 2025, and even greater benefits of $120 million in 2026. You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities. As the chart below shows, this stock was trading around $14 per share in February, but since then it has declined to less than $11.
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