April 3, 2019

SBH – Market expectations are for Uniform ROA declines, and management is concerned about margins, customer loyalty, products, and costs


  • Sally Beauty Holdings, Inc. (SBH:USA) currently trades below recent averages relative to UAFRS-based (Uniform) Earnings, with a 14.0x Uniform P/E. At these levels, the market has bearish expectations for the firm, and management has concerns about gross margin levels, their loyalty program, hair product distribution rights, and cost optimization programs
  • Specifically, management may lack confidence in their ability to sustain gross margin levels, continue SG&A expense reductions, and sustain same store sales growth. In addition, they may be exaggerating the strength of their loyalty database, success of their new loyalty program, and customer excitement for their Pravana product launch. Furthermore, they may be concerned about their ability to locate a new distribution center in Texas, the potential of new store concepts and updates in Las Vegas, and their recent acquisition of exclusive, regional distribution rights for select hair products. Finally, they may be exaggerating the potential of their cost optimization programs in Europe and Mexico and their owned brand product quality
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