Why Is Sally Beauty (SBH) Down 1.2% Since Last Earnings Report?

A month has gone by since the last earnings report for Sally Beauty (SBH). Shares have lost about 1.2% in that time frame, outperforming the S&P 500.

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

Sally Beauty Stock Jumps 7.8% After Q3 Earnings Beat, Outlook Narrowed

Sally Beauty delivered third-quarter fiscal 2026 results, wherein earnings surpassed the Zacks Consensus Estimate, while revenues fell slightly short. The bottom line improved year over year, while sales increased marginally from the prior-year quarter.

Management highlighted continued momentum in its strategic initiatives, including digital investments, product innovation, customer engagement and store refresh programs. While Beauty Systems Group remained under pressure due to softness in the Care category, management pointed to encouraging trends in color products and ongoing efforts to strengthen the business.

Management also noted that adjusted operating earnings and adjusted diluted earnings per share came in at the high end of the company's guidance range, supported by healthy gross margins and disciplined SG&A management.

The company narrowed its fiscal 2026 guidance within its previously announced ranges, while raising the low end of its adjusted earnings per share outlook. Investors responded favorably to the earnings beat, margin expansion and strong cash flow generation, sending SBH shares 7.8% higher in the last trading session.

SBH's Q3 Key Performance Metrics

Adjusted earnings of 55 cents per share beat the consensus estimate of 53 cents by 3.8% and increased 7.8% from 51 cents in the year-ago quarter. Earnings per share rose 25% year over year to 55 cents.

Net sales of $935.5 million rose 0.2% year over year but missed the consensus mark of $936 million by 0.1%. Sales included a 50-basis-point favorable impact from foreign currency translation despite operating 39 fewer stores. Comparable sales remained flat during the quarter. Color remained resilient across both segments, while weakness in the Care category weighed on overall performance.

Global e-commerce sales increased 11% year over year to $110 million, representing 12% of quarterly net sales. The business delivered four consecutive quarters of double-digit online growth, supported by updated apps, marketplaces and buy-online-pick-up-in-store activity.

SBH’s Segmental Performance

In the Sally Beauty Supply segment, net sales increased 2.2% year over year to $538.6 million, including a 90-basis-point foreign currency benefit. This was above the Zacks Consensus Estimate of $534 million. Comparable sales rose 1.6%, which was higher than the Zacks Consensus Estimate of 1% growth. This increase was driven by 0.6% transaction growth and a 1% increase in average ticket. Sally U.S. and Canada delivered 3.5% comparable sales growth.

Color sales increased 8% across the segment and 9% in Sally U.S. and Canada, while Care declined 6%. E-commerce sales climbed 20% to $52 million, representing 10% of segment sales. U.S. and Canada online sales advanced 28%. Gross margin expanded 60 basis points to 61.5%, supported by higher product margins from the Fuel for Growth program, while segment operating margin improved 80 basis points to 16.6%.

Beauty Systems Group (“BSG”) net sales declined 2.4% to $396.9 million, reflecting nine fewer stores. The Zacks Consensus Estimate for segment sales is pegged at $402 million. Comparable sales fell 2.1%, as transactions decreased 3.2%, partly offset by a 1.1% rise in average ticket.

BSG’s Color category grew 1%, while Care declined 5%. The company faced a difficult comparison with the prior-year K18 launch, while stylists remained selective about hair care and styling-tool purchases. BSG e-commerce sales increased 4% to $58 million, representing 15% of segment revenues. Gross margin expanded 70 basis points to 40.1%, supported by higher product margins from the Fuel for Growth program, while segment operating margin contracted 20 basis points to 12.3%.

SBH's Digital & Growth Initiatives

The updated Sally app delivered order and sales growth that outpaced sessions, while average order value increased 6%. Licensed Colorist On Demand consultations exceeded 5,200 per week, and the number of new customers using the service increased 28%. These customers also purchased more frequently than nonusers.

The company completed 33 Sally Ignited store refreshes through July and plans 17 more in the fourth quarter, reaching 80 locations by fiscal year-end. Management said refreshed stores continued to outperform the fleet, with gains in traffic, dwell time, units per transaction and average transaction value.

Fragrance and nails remained standout categories. Fragrance, now available in 2,000 stores, primarily attracted incremental spending from existing customers. The hair-care reset includes Yellow and NatureLab. Tokyo, along with expanded offerings from Design Essentials, The Doux and Camille Rose.

Sally Beauty's Margin & Cost Performance

SBH’s adjusted gross margin expanded 40 basis points year over year to 52.4% from 52% in the prior-year period, reflecting improved product margins driven by the company's Fuel for Growth program. Gross margin expanded 90 basis points to 52.4%.

On the cost side, adjusted selling, general and administrative (SG&A) expenses totaled $404 million, increasing $5 million from the prior-year period. Adjusted SG&A expenses remained flat at 43.2% of net sales. Higher labor and rent expenses were partially offset by approximately $2 million of Fuel for Growth benefits.

SBH generated adjusted operating earnings of $87 million, compared with $86.1 million in the year-ago quarter. Adjusted operating margin improved 10 basis points to 9.3% from 9.2% in the prior-year period. Operating earnings increased 10.5% to $86.4 million, while operating margin expanded 80 basis points to 9.2%.

Adjusted EBITDA increased 1.8% year over year to $117.4 million from $115.3 million in the prior-year period. Adjusted EBITDA margin expanded 10 basis points to 12.5% from 12.4% in the year-ago quarter.

SBH's Financial Position

The company ended the quarter with cash and cash equivalents of $173.1 million and no outstanding borrowings under its asset-based revolving credit facility. Inventory declined 1% year over year to $996 million. During the third quarter of fiscal 2026, operating cash flow totaled $81 million, while free cash flow was $62 million.

Capital allocation remained focused on strengthening the balance sheet and returning cash to shareholders. During the quarter, SBH repaid $20 million of term loan debt and repurchased 1.9 million shares for $25 million, ending the period with a net debt leverage ratio of 1.4x.

Sally Beauty's Outlook

Management narrowed its fiscal 2026 net sales outlook to $3.725-$3.733 billion from $3.725-$3.750 billion. The outlook assumes an approximately 30-basis-point favorable impact from foreign currency rates. Comparable sales are expected to rise approximately 0.5%, compared with the prior forecast of flat to 1% growth.

The company projects adjusted operating earnings in the range of $329-$335 million, while adjusted earnings per share are expected to be $2.04-$2.08, compared with the earlier guidance of $2.02-$2.10. Capital expenditures remain forecast at approximately $100 million, and free cash flow is expected to be roughly $200 million. The company plans to deploy about 50% of free cash flow toward share repurchases.

Fuel for Growth is still expected to generate approximately $45 million of benefits in fiscal 2026, with cumulative run-rate savings reaching about $120 million by fiscal year-end. The company reiterated that it expects Happy Beauty's e-commerce site to launch by the end of the fourth quarter.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision flatlined during the past month.

VGM Scores

Currently, Sally Beauty has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a score of A on the value side, putting it in the top 20% for value investors.

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

Sally Beauty has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Sally Beauty is part of the Zacks Retail - Miscellaneous industry. Over the past month, Tractor Supply (TSCO), a stock from the same industry, has gained 4.8%. The company reported its results for the quarter ended June 2026 more than a month ago.

Tractor Supply reported revenues of $4.54 billion in the last reported quarter, representing a year-over-year change of +2.3%. EPS of $0.81 for the same period compares with $0.81 a year ago.

Tractor Supply is expected to post earnings of $0.40 per share for the current quarter, representing a year-over-year change of -18.4%. Over the last 30 days, the Zacks Consensus Estimate has changed -2.4%.

Tractor Supply has a Zacks Rank #5 (Strong Sell) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of D.

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