Among the first and hardest hit retailers from last year’s pandemic were personal care stores such as hair and nail salons, and Sally Beauty (SBH) suffered due to that trend, notes growth stock expert Mike Cintolo, editor of Cabot Top Ten Trader.
Still, as the nation’s largest distributor of professional beauty supplies with more than $3.5 billion in annual sales, the company weathered the blow and the shares have recovered nicely in recent months.
The company caters to both professional stylists as well as individual consumers with about 5,000 stores nationwide plus international locations.
The company's Sally Beauty Supply segment (accounting for 60% of revenue) sells beauty products, including hair care & coloring, skin and nail care, styling tools and other products to retail customers, beauty salons and salon professionals.
The Beauty Systems segment (the other 40% of revenue) sells its products directly to salons and salon professionals through its professional-only stores.
Long term, this isn’t a great growth story, but management has done a great job of controlling costs and transitioning to a digital world (it recently launched a nationwide buy online, pick up in-store program) which has paved the way for a big earnings rebound.
Business was hit hard early in the pandemic (a combined 12 cents of earnings in the first half of calendar 2020 vs $1.11 the year before), but the bottom line inched higher in Q3 and Q4 (thanks in part to a 69% boom in Q4 e-commerce revenue) and analysts see a near-40% leap in the bottom this year.
Technically, SBH was the dog’s dinner for years, with the stock grinding sideways-to-lower for a long time; even after last year’s crash and bounce, shares sagged again into the fourth quarter and were sitting under $10 when November began.
But the stock has been a different animal since then, partly due to the broad market rally, but also thanks to the Q4 report and 2021 outlook. Better yet, after a big run to nearly $22, SBH has calmed down nicely, tightening up as volume tapers off.
It might need a bit more time to gather strength, but we’re OK taking a swing at it here or on dips of a point or so. It’s not changing the world, but Sally Beauty looks like a solid, cheap (12 times estimated earnings) turnaround story.
