Why Sally Beauty Holdings (SBH) Spiked on Thursday

NEW YORK (TheStreet) -- Sally Beauty Holdings (SBH) was trading higher on Thursday after reporting higher-than-expected revenue on increased customer traffic.

By midafternoon, shares had climbed 6.8% to $29.84.

In its first quarter ended December, the beauty product retailer reported total sales 3.9% higher year-over-year to $940.5 million. Analysts had expected $933.4 million in revenue. Same-store sales grew 2.2%.

"The improvement was primarily due to an increase in traffic which gives me confidence that the return to our targeted marketing campaign and the introduction of new brands in our Sally U.S. business will continue to improve traffic results throughout the fiscal year," said CEO Gary Winterhalter in a statement.

However, profitability took a hit on climbing expenses. Net earnings of $58 million, or 35 cents a share, dropped 1.7% year-over-year. Analysts had expected net earnings of 36 cents a share. Selling, general and administrative expenses increased 4.5% to $319.5 million, a result of new store openings.

TheStreet Ratings team rates SALLY BEAUTY HOLDINGS INC as a Buy with a ratings score of B-. The team has this to say about their recommendation:

"We rate SALLY BEAUTY HOLDINGS INC (SBH) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, revenue growth, good cash flow from operations, increase in stock price during the past year and expanding profit margins. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • SALLY BEAUTY HOLDINGS INC has improved earnings per share by 8.6% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, SALLY BEAUTY HOLDINGS INC increased its bottom line by earning $1.48 versus $1.23 in the prior year. This year, the market expects an improvement in earnings ($1.65 versus $1.48).
  • Despite its growing revenue, the company underperformed as compared with the industry average of 7.3%. Since the same quarter one year prior, revenues slightly increased by 2.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • Net operating cash flow has increased to $113.33 million or 12.18% when compared to the same quarter last year. In addition, SALLY BEAUTY HOLDINGS INC has also modestly surpassed the industry average cash flow growth rate of 3.31%.
  • The stock price has risen over the past year, but, despite its earnings growth and some other positive factors, it has underperformed the S&P 500 so far. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • 49.57% is the gross profit margin for SALLY BEAUTY HOLDINGS INC which we consider to be strong. Regardless of SBH's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, SBH's net profit margin of 7.15% compares favorably to the industry average.

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