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Sally Net Exceeds Expectations

Despite the current slowdown in the retail sector, Sally Beauty Holdings Inc. posted fourth-quarter comparable-store sales growth of 4.3 percent on revenues...

Despite the current slowdown in the retail sector, Sally Beauty Holdings Inc. posted fourth-quarter comparable-store sales growth of 4.3 percent on revenues that increased 5.5 percent to $639.7 million from $606.1 million in the year-ago period.

This story first appeared in the November 30, 2007 issue of WWD.  Subscribe Today.

Net earnings for the quarter ended Sept. 30 came in at $16.9 million, or 9 cents a diluted share, from $30.7 million a year ago, when Sally was still part of Alberto-Culver Co. Sally’s quarterly profits beat Wall Street analysts’ expectations of 6 cents a share, according to Yahoo Finance.

“Historically, we have not followed retail patterns very closely,” Gary Winterhalter, Sally’s president and chief executive officer, told analysts during a conference call Thursday morning. “In our experience, [comp-store sales] were good even in a quarter when general retail was starting a down trend.”

He noted that Sally does experience seasonal business in the hair appliance category, when hair dryers and curling irons are given as gifts, and he added the category could be pressured “if overall retail gets very soft this season.”

Fourth-quarter comp-store sales for Sally’s Beauty Systems Group business, which includes 874 BSG stores, jumped 10.1 percent, helping to offset $30 million in revenues lost when Sally lost exclusive distribution rights to L’Oréal brands earlier in the fiscal year.

Due in part to the loss of the L’Oréal business, BSG sales declined by 7.2 percent to $229.1 million from $246.8 million a year ago. However, margins at BSG continue to improve following the loss of the L’Oréal business and are expected to return to 2006 levels of 9 percent, according to Sally.

In certain geographic regions, BSG began distributing brands including Goldwell, KMS, Paul Mitchell, Schwarzkopf, Wella, Sebastian, Graham Webb, Joico, Iso and Tigi. Additionally, a facilities restructuring plan has begun at BSG and the firm expects the strategy could yield $10 million in cost savings in the next fiscal year.

Comp-store sales for the firm’s Sally Beauty Supply unit, which comprises 2,694 stores, rose by 2.4 percent during the fourth quarter. Sales at the chain were also up, by 14.3 percent, to $410.7 million, from $359.3 million in the prior year. Sally Beauty Supply revenues were helped by the company’s acquisition earlier in the fiscal year of U.K. firm Salon Services, which added $34.6 million in quarterly sales.

Winterhalter said he believes the U.S. market could support 3,000 Sally Beauty Supply stores and foresees expanding the business in Europe, South America, Canada and Mexico.

“I’m optimistic about the overall momentum in our business,” he remarked.

Full-year profits at Sally Beauty Holdings were $44.5 million, or 24 cents a share, compared with $110.2 million a year ago. Annual sales reached $2.51 billion, a 5.9 percent increase from $2.37 billion last year.