Sally Beauty (SBH) Up More Than 26% In 6 Months: Here's Why

Sally Beauty Holdings, Inc. (NYSE:SBH) is an appropriate investment option as the company’s shares have outperformed the industry and the overall Zacks Consumer Discretionary sector in the past six months. This Zacks Rank #2 (Buy) stock has rallied approximately 26.1% compared with the industry’s decline of 0.4% and the sector’s fall of 9.5%.

That said, let’s delve into the factors that make Sally Beauty a promising bet.

Growth Catalysts

Sally Beauty is adopting several initiatives to bring itself back on the growth trajectory. The company initiated a transformation plan in April 2018 to reduce costs and increase focus on its core products, like hair color and hair care. As part of the transformation plan, the company launched box colors and a new Sally Beauty Loyalty Program in all its Sally Beauty Supply stores. Also, it launched “ion” — a private label electrical appliance brand — across the Beauty Systems Group network. In the third quarter, the company undertook strategies like reviewing freight expenses to achieve significant cost savings, and launching two new color lines — Arctic Fox and Wella ColorCharm Paints — to strengthen its hair product offerings. Keeping in these lines, the company’s Beauty Systems Group segment recently inked a deal with Swedish vegan hair care brand, Maria Nila.

Moreover, the company has launched the Sally Beauty Loyalty Program, and a point-of-sale system for Sally Beauty Supply and Beauty Systems Group segments. Notably, Sally Beauty is set to pilot the first phase of a multi-year JDA supply-chain platform in fiscal 2019, which will help augment merchandising capabilities. Additionally, to boost digitalization, Sally stores will pilot “endless aisle” during the first quarter of fiscal 2019. Under this, out-of-stock products can be ordered via a store iPad and it will be delivered at the customers’ door step. Management also plans to revamp Sally’s e-commerce site.

Additionally, the company is making efforts to enhance its digital platform by updating its e-commerce and mobile commerce capabilities to improve customer’s shopping experience. For first-quarter fiscal 2019, the company is on track with redesigning its e-commerce sites for both segments. Also, it is focused on training store associates and creating brand awareness among them.

Also, Sally Beauty witnessed strong bottom-line performance in the fourth quarter of fiscal 2018. The metric not only surpassed the Zacks Consensus Estimate but also improved year over year, driven by fall in interest expenses, reduced tax rate owing to U.S. tax reform, and lower share count. Further, for fiscal 2019, management stated that adjusted diluted earnings per share is expected to grow mid-single digit on account of the above-mentioned factors.

All said, we expect the above-mentioned strategies should help the company get back on track.

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