Sally Beauty Holdings (NYSE: SBH) reported Q2 EPS of $0.54, $0.02 worse than the analyst estimate of $0.56. Revenue for the quarter came in at $975.3 million versus the consensus estimate of $974.76 million.

Fiscal 2018 Second Quarter Overview

Consolidated net sales were $975.3 million in the second quarter, an increase of 0.9% compared to the prior year. Foreign currency translation had a favorable impact of approximately 170 basis points on reported sales growth. Consolidated same store sales decreased 1.4% in the quarter. The hurricanes that disrupted operations in the fourth quarter of fiscal 2017 had a modest impact on the Company’s business in Puerto Rico, negatively impacting both sales growth and same store sales growth by approximately 10 basis points.

Reported diluted earnings per share in the second quarter were $0.49 compared to $0.40 in the prior year, an increase of 22.5%, driven primarily by lower income tax expense as a result of U.S. tax reform, reduced share count from share repurchases and lower interest expense as a result of the debt refinancing in the fiscal fourth quarter of the prior year. Adjusted diluted earnings per share, excluding $6.8 million in charges related to the 2018 Restructuring Plan and $0.9 million in expenses related to debt refinancing activities, were $0.54 in the second quarter compared to $0.44 in the prior year, an increase of 22.7%.

“Although we delivered sequential improvement in same store sales and sustained growth in our Sally e-commerce business, traffic trends in our Sally Beauty stores in the U.S. continued to be a challenge,” said Chris Brickman, President and Chief Executive Officer. “A slight increase in consolidated net sales was offset by a modest decline in gross margin and higher selling, general and administrative expenses due primarily to unfavorable foreign exchange translation and operating expenses from our recent Canadian acquisition. However, the benefits of U.S. tax reform, lower interest expense and a lower share count helped drive strong double digit growth in both reported and adjusted diluted earnings per share. In addition, our operations continue to generate substantial operating free cash flow, with an increase of 22.3% over the prior year, to $59.1 million.”

“We continue to make progress on strategic initiatives focused on driving long-term growth and intensifying our focus on our defensible core categories - hair color and hair care. During the quarter, we completed the distribution center investments that allow Sally e-commerce orders to be shipped in two days or less to almost all U.S. households and we began marketing that capability late in the quarter. To further strengthen our hair color offerings in Sally stores, we successfully completed the nationwide launch of two new color lines - Wella ColorCharm Paints and Arctic Fox. Additionally, we completed the testing and refinement of the new Sally loyalty program and we are preparing to launch the new program nationally before the end of the fiscal year. We also finalized the majority of the initiatives outlined in the international portion of our 2018 Restructuring Plan, with the goals of reducing our European cost base and better leveraging our global scale. And, lastly, we repriced our $548.6 million floating rate term loan, reducing the interest rate spread by 0.25%, thus lowering our future cash interest expense.”

“As we announced shortly after quarter-end, we have launched a cost reduction program focused on additional organizational efficiencies, direct and indirect sourcing, store labor hour optimization, supply chain redesign and a reduction in inventory levels. It is expected that the financial benefits generated from this program will be reinvested into market-competitive store wages, enhanced marketing analytics and the acceleration of technology investments that will improve customers’ in-store experience, further grow our e-commerce business, and provide better visibility to store-level inventory.”

“Despite retail sector headwinds, we are the established leader in hair color and hair care for the professional and the consumer, and these categories have sustained healthy growth while other categories have faced increasing competition. We believe that these strategic investments will accelerate growth in color and care (which, combined, represent more than half of Sally’s revenue in the U.S. and Canada) and keep us on a path to long-term earnings growth,” Brickman concluded.

For earnings history and earnings-related data on Sally Beauty Holdings (SBH) click here.