Beauty supply retailer Sally Beauty (NYSE:SBH) missed Wall Street’s revenue expectations in Q1 CY2025, with sales falling 2.8% year on year to $883.1 million. On the other hand, the company expects next quarter’s revenue to be around $942.3 million, close to analysts’ estimates. Its non-GAAP profit of $0.42 per share was 6.6% above analysts’ consensus estimates.
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Sally Beauty (SBH) Q1 CY2025 Highlights:
- Revenue: $883.1 million vs analyst estimates of $901.1 million (2.8% year-on-year decline, 2% miss)
- Adjusted EPS: $0.42 vs analyst estimates of $0.39 (6.6% beat)
- Adjusted EBITDA: $104.8 million vs analyst estimates of $102.9 million (11.9% margin, 1.9% beat)
- Revenue Guidance for Q2 CY2025 is $942.3 million at the midpoint, roughly in line with what analysts were expecting
- Operating Margin: 7.9%, up from 6.6% in the same quarter last year
- Free Cash Flow Margin: 3.6%, up from 2.5% in the same quarter last year
- Locations: 4,446 at quarter end, down from 4,468 in the same quarter last year
- Same-Store Sales fell 1.3% year on year, in line with the same quarter last year
- Market Capitalization: $833 million
Company Overview
Catering to both everyday consumers as well as salon professionals, Sally Beauty (NYSE:SBH) is a retailer that sells salon-quality beauty products such as makeup and haircare products.
Sales Growth
A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years.
With $3.70 billion in revenue over the past 12 months, Sally Beauty is a small retailer, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with suppliers.
As you can see below, Sally Beauty struggled to increase demand as its $3.70 billion of sales for the trailing 12 months was close to its revenue six years ago (we compare to 2019 to normalize for COVID-19 impacts). This was mainly because it closed stores.
This quarter, Sally Beauty missed Wall Street’s estimates and reported a rather uninspiring 2.8% year-on-year revenue decline, generating $883.1 million of revenue. Company management is currently guiding for flat sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 1.1% over the next 12 months. Although this projection suggests its newer products will spur better top-line performance, it is still below average for the sector.
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Store Performance
Number of Stores
A retailer’s store count influences how much it can sell and how quickly revenue can grow.
Sally Beauty operated 4,446 locations in the latest quarter. Over the last two years, the company has generally closed its stores, averaging 2.1% annual declines.
When a retailer shutters stores, it usually means that brick-and-mortar demand is less than supply, and it is responding by closing underperforming locations to improve profitability.
Same-Store Sales
The change in a company's store base only tells one side of the story. The other is the performance of its existing locations and e-commerce sales, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales gives us insight into this topic because it measures organic growth for a retailer's e-commerce platform and brick-and-mortar shops that have existed for at least a year.
Sally Beauty’s demand within its existing locations has barely increased over the last two years as its same-store sales were flat. This performance isn’t ideal, and Sally Beauty is attempting to boost same-store sales by closing stores (fewer locations sometimes lead to higher same-store sales).
In the latest quarter, Sally Beauty’s same-store sales fell by 1.3% year on year. This decline was a reversal from its historical levels.
Key Takeaways from Sally Beauty’s Q1 Results
It was good to see Sally Beauty narrowly top analysts’ gross margin expectations this quarter. We were also happy its EBITDA outperformed Wall Street’s estimates. On the other hand, its revenue missed. Zooming out, we think this was a mixed quarter. The stock remained flat at $8.20 immediately after reporting.
Big picture, is Sally Beauty a buy here and now? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.