Sally Beauty sales fall amid competition from Sephora, Ulta
Sally Beauty on Thursday reported that fourth quarter consolidated net sales fell 0.8% to $966 million as consolidated same-store sales fell 0.2%. Foreign currency translation hurt results by about 50 basis points on reported sales, according to a company press release.
GAAP net earnings in the quarter rose 54.5% year over year to $55.2 million, the company said. Adjusted earnings before interest, tax, depreciation and amortization fell by 5.7% to $141.9 million, as adjusted EBITDA margin shrank by 70 basis points to 14.7% from the prior year. By quarter's end, inventory was up 1.4% to $944.3 million.
For the full year, consolidated same-store sales fell 1.5% as consolidated net sales fell 0.1% to $3.93 billion, with foreign currency translation boosting sales results by some 80 basis points, the company also said. Full-year gross margin contracted by 50 basis points to 49.4%. In the Sally segment, margin decreases were driven by a geographic shift towards its lower-margin international business and increased coupon redemptions.
In a statement on Thursday, CEO Chris Brickman said the retailer's turnaround is on track.
The company is moving forward with e-commerce site redesigns in both its Sally Beauty retail and professional business segments, training store associates and marketing its new loyalty program, and brand and product launches. In the future, the company will launch those updated e-commerce and mobile commerce capabilities, expand distribution rights for its sales to beauty professionals, market new product launches, pilot the first phase of its sales on the JDA platform and trim selling, general and administrative expenses.
But there's more to do. Much of the company's improvements in the quarter came from tax savings and lower debt interest rather than its own operational performance, signaling that the retailer is failing to compete well in a healthy economy and a high growth segment of retail, according to GlobalData Retail Managing Director Neil Saunders.
Target, which has improved its beauty offering and has many stores near Sally's locations, and even Walmart's "more modest" beauty improvements have challenged Sally Beauty, along with specialty players Sephora and Ulta. More recently, online players including Amazon have also been a competitive force, he said. "Against this backdrop, Sally has not done enough to retain customers," he warned. "In fairness, the group has realized this and has begun to speed up its transformation plan in a bid to stop the attrition."
The new loyalty program is promising but will be expensive and won't contribute much any time soon, he also said. And the retailer isn't getting enough from stores, at a time when competitors have improved their own brick-and-mortar experiences.
"Our data show that Sally underperforms other beauty players on ratings for store presentation and ease of shopping — and this gap has been widening as other retailers have improved their store environments," he warned, adding that the retailer's store plans need "a more radical revamp" over the long term.
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