Sally Beauty Holdings: Shares Still Have Some Room To Run

Summary

Sally Beauty Holdings has continued to fare well in many respects as of late, even outperforming the broader market.

Sally Beauty is not without its problems, but SBH shares do look cheap for the value investors are receiving in return.

On the whole, SBH stock still seems to offer some upside potential for long-term investors.

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ablokhin/iStock Editorial via Getty Images The great thing about the stock market is that it gives you the opportunity to buy into companies of all different types and sizes. You can buy everything from technology companies to service companies to restaurants and more. One interesting corner of the market is the personal care space. And one prospect in this corner is a company called Sally Beauty Holdings ( SBH ). Over the past few years, the financial performance of the company, at least on its top line, has suffered. Some of its cash flow figures have suffered as well, though not all of them have. The pandemic really threw the company for a loop, but recent performance reported by management shows an entity that is quickly recovering from that downturn. Ultimately, there are some risks associated with buying into a company like this, but given how cheap shares are today, some upside might still exist moving forward. Recent developments in Sally Beauty are a positive

The last time I wrote about Sally Beauty Holdings was in an article published in September of 2021. In that article, I rated the company a bullish prospect. My ultimate conclusion was that it appeared to offer favorable upside relative to the risks that investors were assuming. Though only a short time has passed, my call at that time appears to have been correct. Since the publication of my article, shares of the business have risen by 6.4%. This compares to a return generated by the S&P 500 of 4.8% over the same period of time.

You might think that such outsized performance was possible only because of attractive fundamental improvements at the company. And you would be right. According to management, the company, in the fourth quarter of its 2021 fiscal year, generated revenue of $990 million. That represents an increase of 3.4% over the $957 million generated the same quarter one year earlier. As a result of this attractive top line performance, the company saw total revenue for the year come in at $3.88 billion. Not only is this 10.3% higher than what the company achieved in all of 2020, it is also essentially equal to what the company generated in 2019 before the pandemic arose. *Created by Author

What is really interesting about this performance is that it came about even as the number of stores the company operates decreased. During the year, the store count reported by the company dropped by 127, or 2.5%, declining from 5,038 to 4,911. Where the company really benefited though was when it came to same store sales. According to management, this metric grew by 10.2% year over year for all of 2021. By comparison, same store sales dropped by 8.1% in the 2020 fiscal year. But this same store sales growth was not even across the board. For instance, this metric was 9.7% when you look solely at the company’s Sally Beauty Supply unit that focuses on a mixture of retail consumers, salons, and salon professionals. By comparison, the same store sales growth for the Beauty Systems Group, which focuses on salons and salon professionals only, came in 11% higher than it was one year earlier. *Created by Author

With revenue climbing, profitability improved drastically. For the full 2021 fiscal year, the company reported net profits of $239.86 million. That is over double the $113.2 million generated in all of 2020 and was attributable to profits of $68.15 million in the last quarter of the year alone. Of course, there are other profitability metrics to pay attention to. Operating cash flow, for instance, came in at $381.86 million. This is actually lower than the $426.9 million generated in 2020. But excluding that year, it would have been the highest operating cash flow with the company reported in at least the past five years. Another metric to consider is EBITDA. That came in at $541.12 million. Though not as high as pre pandemic levels, it did beat out the $438.50 million the company reported for 2020.

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