Sally Beauty Holdings (SBH) Misses Q4 EPS by 2c
Sally Beauty Holdings (NYSE: SBH) reported Q4 EPS of $0.45, $0.02 worse than the analyst estimate of $0.47. Revenue for the quarter came in at $974.2 million versus the consensus estimate of $991.3 million.
- Same store sales decreased 1.4% in the quarter. Hurricanes Harvey, Irma and Maria (collectively, “the Hurricanes”) resulted in a number of store closures from late August through the end of the Company’s fiscal year.
International Restructuring Plan
The Company successfully completed its 2017 Restructuring Plan, which was focused primarily on its North American operations. Total charges incurred in fiscal 2017 in connection with the 2017 Restructuring Plan were $22.7 million, consisting primarily of employee separation and facility closure costs. The Company expects annualized benefits from the 2017 Restructuring Plan of approximately $20 million, with a benefit of approximately $10 million recorded in fiscal 2017.
The Company is today announcing the commencement of an international restructuring plan (the “International Restructuring Plan”) focused on significantly improving the profitability of its international businesses, with particular focus on its European operations. The Company expects to incur restructuring charges in the range of $12 million to $14 million, with approximately $10 million to be recorded in fiscal 2018, related primarily to potential employee separation costs. Additionally, the Company expects to realize annualized benefits in the range of approximately $12 million to $14 million from the initiative, with a benefit of approximately $8 million realized in fiscal 2018.
Fiscal Year 2018 Guidance
For fiscal year 2018, the Company expects both a continued challenging retail environment in the U.S. and a lingering impact from the Hurricanes, particularly from Hurricane Maria in Puerto Rico, in the first half of the fiscal year. As such, the Company expects full year consolidated same store sales to be approximately flat, with more challenging comparisons in the first half of the fiscal year versus the second half of the fiscal year. The Company also expects the number of new store openings to be offset by strategic store closures, resulting in approximately flat net store count versus the prior year, and a minimal impact on reported revenue from foreign currency translation.
Full year gross margin is expected to expand by approximately 10 basis points, driven by strategic pricing initiatives in both segments, a customer mix shift in the Sally U.S. business and an increase in vendor allowances, only partially offset by a segment mix shift and modest pricing adjustments in the Sally U.S. business -- typically on low-velocity SKU’s -- designed to support the brand’s value proposition.
Full year SG&A (including depreciation and amortization expense) is expected to be approximately 37.7% versus 37.2% in fiscal year 2017, reflecting the operating expense impact of key investments to accelerate e-commerce growth, investments in both a new inventory merchandising and planning system to support the U.S. and Canadian businesses and a new point-of sale system for our BSG business, continued inflation in both store and distribution center wages and the expectation of normalized levels of incentive compensation expense in fiscal 2018, partially offset by benefits from both the 2017 Restructuring Plan and the newly-announced International Restructuring Plan.
Reported operating earnings are expected to increase slightly, due primarily to lower restructuring costs in fiscal year 2018. Adjusted operating earnings, including the impact of the Hurricanes in both years, are expected to decline slightly due to the strategic investments noted above. However, the Company expects full year benefits from its recent debt refinancing and lower average share count to result in solid growth in both full year reported diluted earnings per share and full year adjusted diluted earnings per share.
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