Sally Beauty Holdings, Inc. SBH has seen its stock price plummet 20.8% in the past three months compared with the industry and S&P 500’s declines of 14% and 6.6%, respectively. While macroeconomic pressures and company-specific challenges have weighed on the stock, the company remains a key player in the beauty retail space. Investors are now debating whether the stock is poised for further downside or if current levels present an opportunity for a rebound.

SBH Stock's Price Performance

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Last traded at $8.91, the stock is hovering near its 52-week low of $8.25. While this may raise concerns, it also presents a potential opportunity for value-seeking investors. The SBH stock has fallen below critical technical thresholds, including its 50 and 200-day moving averages. These moving averages serve as important indicators for assessing market trends and momentum. The breach of this threshold heightens investor concerns about the stock’s short-term outlook and signals the potential for further downside if these levels are not reclaimed.

Challenges Impacting Sally Beauty’s Performance

Sally Beauty has been contending with rising SG&A expenses, which continue to pressure its margins. In the first quarter of fiscal 2025, the company’s adjusted SG&A expenses were $398.3 million, up $5 million compared with the prior year. Elevated labor, other compensation-related costs and advertising costs fueled the increase. These elevated operational costs could further strain margins, posing challenges to long-term earnings growth.

Sally Beauty is also grappling with macroeconomic challenges, including fluctuating consumer confidence and spending patterns, particularly among mid-to-lower-income shoppers. These consumers have become more selective with discretionary purchases, leading to uneven traffic trends, especially in non-hair-color categories.

Sally Beauty’s international operations expose it to foreign currency risks, which have weighed on the financial performance. In the first quarter of fiscal 2025, unfavorable exchange rate movements reduced net sales by $6 million. Looking ahead, management expects consolidated net sales to be about 100 basis points lower than comparable sales for fiscal 2025 due to ongoing currency headwinds. With continued exchange rate volatility, foreign currency risks remain a key challenge for the company’s financial stability.

Here's How Estimates Stack Up for Sally Beauty

Sally Beauty is currently in a tough spot. The Zacks Consensus Estimate for earnings per share (EPS) has seen downward revisions. In the past 60 days, the consensus estimate for the current and the next fiscal year has decreased 3 cents to $1.81 and 8 cents to $1.97 per share, respectively.

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Can SBH’s Strategy Uplift Performance?

Sally Beauty remains focused on advancing its strategic initiatives, including enhancing customer centricity, expanding high-margin owned brands, driving innovation and improving operational efficiency. As part of transformation, the company is undergoing a brand refresh to position itself as a premier destination for beauty discovery.

Sally Beauty is also committed to improving operational efficiency and profitability through disciplined cost management. The Fuel for Growth program remains a key initiative, aimed at expanding margins and driving long-term profitability by optimizing expenses.

The company is progressing well with Happy Beauty Co. This unique new retail store concept brings an engaging beauty experience to the market with a value price point offering. This initiative aims to attract value-conscious consumers by delivering quality beauty products in a fun and expressive shopping environment.

Has the Recent Decline Made SBH Attractive?

Sally Beauty is currently trading at a discount with a forward 12-month Price-to-earnings ratio of 4.72X compared with the industry’s 15.68X and lower than the median of 6.08X. This lower valuation suggests that the SBH stock may be undervalued relative to its peers, potentially offering an attractive entry point. SBH has a Value Score of A.

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What Should Be Your Approach on SBH?

While Sally Beauty faces challenges from rising SG&A expenses, macroeconomic pressures and foreign currency fluctuations, it remains focused on strategic initiatives to enhance operational efficiency and drive long-term growth. Efforts such as a brand refresh, an emphasis on high-margin owned brands and disciplined cost management could support a potential turnaround. Current shareholders might find it wise to hold onto their SBH’s shares, given the stock's long-term outlook. Sally Beauty carries a Zacks Rank #3 (Hold), indicating a balanced view of its performance.

Key Picks

Nordstrom, Inc. JWN, a fashion retailer, provides apparels, shoes, beauty, accessories and home goods for women, men, young adults and children, currently sporting a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Nordstrom’s current financial-year sales indicates a rise of 1.9% from the year-ago period’s levels. JWN delivered an earnings surprise of 22.2% in the last reported quarter.

Urban Outfitters URBN engages in the retail and wholesale of general consumer products. It presently has a Zacks Rank of 2 (Buy). URBN delivered an average earnings surprise of 28.4% in the trailing four quarters. 

The consensus estimate for Urban Outfitters’ current financial-year sales and earnings indicates growth of 6.6% and 14.5%, respectively, from the year-ago figure.

Stitch Fix, Inc. SFIX sells a range of apparel, shoes and accessories for women's, petite, maternity, men's, plus and kids through its website and mobile application in the United States. The company currently carries a Zacks Rank #2. SFIX delivered an average earnings surprise of 48.9% in the trailing four quarters.

The Zacks Consensus Estimate for Stitch Fix’s current financial-year earnings indicates growth of 60.6% from the year-ago figure.

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This article originally published on Zacks Investment Research (zacks.com).

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