Sally Beauty Comps, Earnings Slip In Q1

The shortened holiday season and technology woes hurt Sally Beauty Holdings in the first quarter, the company reported.

First quarter net earnings were $53.2 million, or 45 cents per diluted share, versus $65.7 million, or 54 cents per diluted share, in the year-earlier period. Adjusted net earnings were $55.2 million, or 47 cents per diluted share, versus $69 million, or 57 cents per diluted share, in the quarter a year before.

The company missed a MarketBeat-published analyst consensus estimate of 56 cents per adjusted diluted share.

Consolidated comparable store sales decreased by 0.3% in the period year over year. Consolidated net sales were $980.2 million, down 0.9% versus the prior-year quarter, driven by the comp decrease arising from a shortened holiday retail calendar, technology implementation issues impacting pricing and promotion in a new point-of-sale system, a smaller store base with 57 fewer locations, and an unfavorable impact from foreign currency translation of about 10 basis points on reported sales.

On the consumer side of the business, Sally Beauty Supply store sales decreased by 2% for the quarter year over year to $569.1 million, driven by a 1.1% comp decrease, with comps in the U.S. and Canada down 1.4% and those in Europe up slightly.

“Although we made significant progress on our transformation program during the first quarter, we fell short of both our top-line and bottom-line goals,” said Chris Brickman, Sally Beauty president and CEO. “I would highlight two key factors that contributed to the shortfall. First, traffic declined at both Sally Beauty Supply and specialty retail in general, resulting from the shortened holiday season. Second, implementation-related technology disruptions led to product pricing issues, the misapplication and unintended increase of promotional discounts, and a resulting disruption of our planned marketing activities during the quarter.”

Brickman said, as the company begins the second quarter, “we believe we have addressed the most critical of the technology challenges we faced during the first quarter and we have already taken aggressive management steps to improve financial performance. We want to be clear that our first priority is to complete the transformation and put in place the right retail and digital capabilities to set the company up for long-term success. We are focused on unlocking the full potential of our highly differentiated business, and we will invest additional resources as appropriate over the year if that is required to deliver our objectives. To be prudent, while we are maintaining our top-line expectations, we are modifying guidance for adjusted operating earnings and now expect that metric to be approximately flat to the prior year.”