Sally Beauty Holdings, Inc. SBH is currently trading at a discount to its historical and industry benchmarks. The SBH stock trades at a forward 12-month price-to-earnings (P/E) ratio of 5.94, below its median level of 6.46 in the past year and significantly lower than the industry’s average of 18.43. This suggests that SBH may be undervalued relative to its earnings potential, presenting an attractive opportunity for investors. The company's current Value Score of A further highlights its potential for long-term growth.

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SBH shares have risen 5.9% in the past six months compared with the industry and S&P 500 index’s growth of 5.4% and 10.4%, respectively. Currently trading at $11.25, SBH is 23.9% below its 52-week high of $14.79 touched on Nov. 27, 2024, presenting a compelling opportunity for value-focused investors, as the company regains ground. This rally reflects the effectiveness of SBH’s strategic initiatives and its strong market position, setting the stage for growth.

Sally Beauty's Past Six-Month Performance

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Let us analyze the fundamentals of Sally Beauty to understand the key drivers behind its market position and financial resilience.

Decoding SBH’s Strategies

Sally Beauty remains focused on key strategic initiatives: enhancing customer centricity, growing high-margin-owned brands, fostering innovation, and optimizing operations for sustainable growth.

The company's commitment to customer centricity is evident through initiatives like Licensed Colorist OnDemand, which provides professional consultations. In fiscal 2024, 78% of sales in Sally U.S. and Canada came from their 16 million loyal customers, demonstrating effective engagement and strong customer retention strategies. These efforts have successfully reactivated previous customers and attracted new ones.

Innovation continues to drive growth across Sally Beauty's business segments. The company introduced product innovations in key areas such as color, bonding, nails and appliances. Strategic partnerships, including collaborations with Soft Beauty and the launch of the ion 8-In-1 Airstyler, highlight the company’s commitment to continuous improvement. On the digital front, marketplace initiatives with Amazon, DoorDash, Instacart and Walmart are expanding customer reach and driving profitable sales growth.

Sally Beauty is launching a Sally brand refresh aimed at evolving from a trusted beauty supplier to a more dynamic beauty powerhouse, leveraging its heritage, brand equity and loyal customer base. The updated branding, which will be modern, sophisticated and scalable, is set to roll out across media, in-store marketing and digital assets in the second half of fiscal 2025. The company will pilot a store refresh in Orlando, incorporating insights from its Studio by Sally Initiative to create an enhanced shopping experience. Based on the success of this initiative, up to two-thirds of the U.S. stores could undergo similar updates.

The company anticipates achieving cumulative gross margin and SG&A benefits of around $70 million by the close of fiscal 2025 under its Fuel for Growth program, following a $28 million benefit in fiscal 2024. This progress is expected to position the company to realize up to $120 million in cumulative run-rate benefits by the end of fiscal 2026. These improvements are driven by enhanced operational processes, cost controls and resource optimization.

Estimate Revisions Favoring SBH Stock

Indicating the positive sentiment around Sally Beauty, the Zacks Consensus Estimate for earnings per share has seen upward revisions. In the past 60 days, analysts have increased their estimates for the current and the next fiscal year by 11 cents to $1.85 and 2 cents to $2.05 per share, respectively. These estimates indicate year-over-year growth rates of 9.5% and 10.9%, respectively.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

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What May Pull Back Sally Beauty’s Momentum?

Sally Beauty faced a year-over-year increase in SG&A expenses in the fourth quarter of fiscal 2024, driven by higher labor costs, compensation-related expenses and advertising costs. Although the company is attempting to manage these rising operational expenses through its Fuel for Growth program, the increase in costs remains a significant challenge to its overall profitability.

Sally Beauty’s international operations expose it to potential risks from adverse currency fluctuations. In the fourth quarter of fiscal 2024, adverse currency rates hurt the company’s net sales by 30 basis points. The ongoing volatility in exchange rates continues to be a significant concern for the company’s financial performance.

Sally Beauty Stock Analysis

Sally Beauty has shown resilience, supported by its strategic initiatives and solid market position. Despite the challenges posed by rising SG&A expenses and currency fluctuations, the company’s focus on customer centricity, innovation and operational efficiency positions it well for future growth. While its attractive valuation presents an appealing opportunity, a difficult consumer environment remains a concern. All said current stakeholders should maintain their position in the stock. Currently, Sally Beauty carries a Zacks Rank #3 (Hold).

Better-Ranked Stocks to Consider

The Gap, Inc. GAP, operating as an apparel retail company, currently sports a Zacks Rank #1 (Strong Buy) at present. GAP has a trailing four-quarter earnings surprise of 101.2%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for The Gap’s current financial-year sales and earnings suggests declines of 0.8% and 41.3%, respectively, from the year-ago reported figures.

Abercrombie & Fitch Co. ANF, operating as an omnichannel retailer, presently flaunts a Zacks Rank #1. ANF has a trailing four-quarter average earnings surprise of 14.8%.

The Zacks Consensus Estimate for Abercrombie & Fitch’s current fiscal-year sales and earnings indicates growth of 15% and 69.3%, respectively, from the prior-year levels.

Five Below, Inc. FIVE, operating as a specialty value retailer, currently carries a Zacks Rank #2 (Buy). FIVE has a trailing four-quarter earnings surprise of 39%, on average.

The Zacks Consensus Estimate for Five Below’s current fiscal-year sales suggests an improvement of 8.5% from the year-earlier levels.

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