Sally Beauty Q3 Earnings Beat Estimates, Comparable Sales Dip 0.4% Y/Y

Sally Beauty Holdings, Inc. (SBH) reported third-quarter fiscal 2025 results, with the bottom line increasing year over year and surpassing the Zacks Consensus Estimate. However, consolidated net sales matched the consensus estimate but fell on a year-over-year basis.

SBH’s Q3 Performance: Key Metrics and Insights

Sally Beauty’s adjusted earnings were 51 cents per share, which came above the Zacks Consensus Estimate of 42 cents. The metric increased from 45 cents per share in the year-ago period.

Consolidated net sales of $933.3 million came in line with the Zacks Consensus Estimate. However, the metric dipped 1% year over year. Foreign currency rates did not have any impact on net sales.

Consolidated comparable sales slipped 0.4% year over year, due to macro uncertainty hurting consumer spending, partly offset by solid growth in hair color and digital marketplaces at Sally Beauty and momentum at Beauty Systems Group from enhanced distribution and brand innovation.

Sally Beauty Holdings, Inc. Price, Consensus and EPS Surprise

Sally Beauty Holdings, Inc. price-consensus-eps-surprise-chart | Sally Beauty Holdings, Inc. Quote

The company operated 35 fewer stores than in the year-ago quarter. Global e-commerce sales, at constant currency, totaled $99 million, representing 10.6% of consolidated net sales for the quarter.

Sally Beauty’s Margin & Cost Details

The consolidated gross profit was almost flat year over year at $481 million. The adjusted gross margin expanded 100 bps to 52%. This upside was backed by the Sally Beauty segment delivering increased product margin from gains from growth efforts, reduced distribution and freight costs, and lower shrink expenses.

The company’s adjusted selling, general and administrative expenses were $398.9 million, up $2.1 million year over year. Elevated labor, other compensation-related costs and information technology costs fueled the increase. However, this was partly mitigated by $6.4 million in savings from the company’s fuel for growth initiative and lower depreciation expenses. As a percentage of sales, the metric was 42.7% compared with 42.1% in the prior year.

Adjusted operating earnings were $86.1 million, up from $84.1 million in the year-ago quarter. The adjusted operating margin expanded 30 bps year over year to 9.2%.

Adjusted EBITDA was $115.3 million, representing a drop of 1.3% from the previous year. The adjusted EBITDA margin was flat at 12.4%.

SBH’s Sales Insights by Segments

Sally Beauty Supply: Net sales in the segment fell 1.8% year over year to $526.8 million. Foreign exchange movements had a positive impact of 10 bps on sales. Segmental comparable sales saw a dip of 1.1% in the quarter. The segment operated 32 fewer stores at the end of the reported quarter compared with the prior year. Segmental e-commerce sales at cc were $43 million, contributing 8.2% to the segment’s net sales.

Beauty Systems Group: Net sales in the segment jumped 0.2% year over year to $406.5 million. Currency headwinds hurt sales by 10 bps. The segment’s comparable sales were up 0.5%, driven by continued momentum, supported by innovation and expanded distribution. Total distributor sales consultants at the end of the quarter were 611 compared with 659 in the year-ago period. Segmental e-commerce sales at cc were $56 million, contributing 13.7% to the segment’s net sales.

Sally Beauty’s Financial Health Snapshot

SBH ended the fiscal third quarter with cash and cash equivalents of $112.8 million, long-term debt, including capital leases, of $882.4 million and total stockholders’ equity of $762.9 million. The inventory was $1.01 billion, down 1.7% from a year ago.

In the fiscal third quarter, the company provided cash flow from operations of $69.4 million. The operating free cash flow was $49.1 million.

In the quarter, the company has paid $21 million of term loan and repurchased shares under its share repurchase program for a total cost of $13 million.

What to Expect From SBH in the Future?

Management revised its fiscal 2025 comparable sales outlook to the high end of its earlier issued range and raised its adjusted operating margin view to include the existing business trends.

For fiscal 2025, comparable sales are now projected to remain flat compared with the previous guidance of flat to a 1% decline year over year. Consolidated net sales are still anticipated to be nearly 75 bps lower than comparable sales, owing to the planned unfavorable impact of foreign exchange rates and operating about 30 fewer stores compared with the prior year The company now expects its adjusted operating margin within the range of 8.6-8.7% compared with the earlier guided band of 8-8.5% for fiscal 2025.

This Zacks Rank #4 (Sell) stock has lost 4.3% in the past six months against the industry’s growth of 3.1%.

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