Why Shares of Sally Beauty Holdings Tumbled Today

What happened

Shares of Sally Beauty Holdings (NYSE: SBH) slumped on Thursday after the beauty supplies retailer and distributor reported fiscal third-quarter results that were in line with analyst expectations. A decline in same-store sales and a downward guidance revision appear to be weighing on the stock, which was down about 13.9% at 3:40 p.m. EDT.

So what

Sally Beauty reported third-quarter revenue of $996.3 million, down 0.2% year over year and in line with the average analyst estimate. The Sally Beauty Supply segment posted sales of $591.6 million, down 0.6%, while the Beauty Systems Group segment saw sales increase 0.4% to $404.7 million. Overall, comps declined by 2%.

Image source: Getty Images.

CEO Chris Brickman explained what went wrong in the quarter: “During the third quarter, core traffic challenges were exacerbated by material issues from two of our top manufacturers for Beauty Systems Group, and the impact of significant, but necessary, internal changes in how we operate.”

Non-GAAP earnings per share came in at $0.60, up from $0.52 in the prior-year period and in line with analyst expectations. Non-GAAP earnings exclude costs related to the company’s transformation efforts, as well as costs associated with data security incidents.

Sally Beauty has brought on consultants to get the company on the right course. “As we mentioned in April, in partnership with FTI Consulting, we are undertaking a substantial transformation plan at Sally Beauty Holdings, which seeks to align our operations to reduce our cost base, refocus our team on the defensible categories of hair color and hair care, and improve execution of basic retail fundamentals, all with the goal of returning the business to growth,” Brickman said.

Now what

The turnaround plan, ongoing supplier issues, and intense competition led Sally Beauty to cut its full-year outlook. The company now expects same-store sales to slump anywhere from 1.5% to 1.9%, down from previous guidance calling for a 1% drop. Full-year adjusted operating earnings are now expected to fall by 8% to 10%, down from previous guidance calling for a slight decline.

Shares of Sally Beauty carved out a new multiyear low on Thursday. The turnaround is likely to play out over many quarters, and there’s no guarantee that the plan will work. Until Sally Beauty can get comps moving in the right direction, don’t expect the stock to recover.

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Timothy Green has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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