Sally Beauty (SBH)

Beauty supply retailer Sally Beauty (NYSE:SBH) announced better-than-expected revenue in Q3 CY2025, with sales up 1.3% year on year to $947.1 million. The company expects the full year’s revenue to be around $3.74 billion, close to analysts’ estimates. Its non-GAAP profit of $0.55 per share was 16% above analysts’ consensus estimates.

Company Overview

Catering to both everyday consumers as well as salon professionals, Sally Beauty (NYSE:SBH) is a retailer that sells salon-quality beauty products such as makeup and haircare products.

Beauty and cosmetics retailers understand that beauty is in the eye of the beholder, but a little lipstick, nail polish, and glowing skin also help the cause. These stores—which mostly cater to consumers but can also garner the attention of salon pros—aim to be a one-stop personal care and beauty products shop with many brands across many categories. E-commerce is changing how consumers buy cosmetics, so these retailers are constantly evolving to meet the customer where and how they want to shop.

Retailers specializing in beauty products include Ulta Beauty (NASDAQ:ULTA) and Bath & Body Works while department stores such as Kohl’s (NYSE:KSS) and Macy’s (NYSE:M) typically feature large cosmetics and fragrance sections.

A company’s long-term sales performance is one signal of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years.

With $3.70 billion in revenue over the past 12 months, Sally Beauty is a small retailer, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with suppliers.

As you can see below, Sally Beauty struggled to increase demand as its $3.70 billion of sales for the trailing 12 months was close to its revenue six years ago (we compare to 2019 to normalize for COVID-19 impacts). This was mainly because it didn’t open many new stores.

This quarter, Sally Beauty reported modest year-on-year revenue growth of 1.3% but beat Wall Street’s estimates by 1.6%.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months. While this projection indicates its newer products will spur better top-line performance, it is still below average for the sector.

Number of Stores

Sally Beauty listed 4,422 locations in the latest quarter and has kept its store count flat over the last two years while other consumer retail businesses have opted for growth.

When a retailer keeps its store footprint steady, it usually means demand is stable and it’s focusing on operational efficiency to increase profitability.

Same-Store Sales

A company's store base only paints one part of the picture. When demand is high, it makes sense to open more. But when demand is low, it’s prudent to close some locations and use the money in other ways. Same-store sales provides a deeper understanding of this issue because it measures organic growth at brick-and-mortar shops for at least a year.

Sally Beauty’s demand within its existing locations has barely increased over the last two years as its same-store sales were flat. This performance isn’t ideal, and we’d be skeptical if Sally Beauty starts opening new stores to artificially boost revenue growth.

In the latest quarter, Sally Beauty’s same-store sales rose 1.3% year on year. This performance was more or less in line with its historical levels.

At StockStory, we prefer high gross margin businesses because they indicate pricing power or differentiated products, giving the company a chance to generate higher operating profits.

Sally Beauty has best-in-class unit economics for a retailer, enabling it to invest in areas such as marketing and talent to grow its brand. As you can see below, it averaged an elite 51.2% gross margin over the last two years. That means Sally Beauty only paid its suppliers $48.76 for every $100 in revenue.

Sally Beauty produced a 52.2% gross profit margin in Q3, in line with the same quarter last year. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting it strives to keep prices low for customers and has stable input costs (such as labor and freight expenses to transport goods).

Operating margin is an important measure of profitability for retailers as it accounts for all expenses necessary to run a store, including wages, inventory, rent, advertising, and other administrative costs.

Sally Beauty has done a decent job managing its cost base over the last two years. The company has produced an average operating margin of 8.2%, higher than the broader consumer retail sector.

Looking at the trend in its profitability, Sally Beauty’s operating margin rose by 1.2 percentage points over the last year, showing its efficiency has improved.

This quarter, Sally Beauty generated an operating margin profit margin of 8.4%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Sally Beauty has shown impressive cash profitability, driven by its attractive business model that gives it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 4.3% over the last two years, better than the broader consumer retail sector.

Sally Beauty’s free cash flow clocked in at $78 million in Q3, equivalent to a 8.2% margin. This cash profitability was in line with the comparable period last year and above its two-year average.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Sally Beauty historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 12.6%, somewhat low compared to the best consumer retail companies that consistently pump out 25%+.

Sally Beauty reported $149.2 million of cash and $1.56 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $447.6 million of EBITDA over the last 12 months, we view Sally Beauty’s 3.2× net-debt-to-EBITDA ratio as safe. We also see its $34.49 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing Sally Beauty beat analysts’ EBITDA expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. Overall, we think this was a solid quarter with some key areas of upside. The stock traded up 1.7% to $14.94 immediately after reporting.

Updated: December 3, 2025 at 9:52 PM EST

Are you wondering whether to buy Sally Beauty or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

Sally Beauty falls short of our quality standards. First off, its revenue has declined over the last three years. And while its gross margins are a strong starting point for the overall profitability of the business, the downside is its brand caters to a niche market. On top of that, its low growth in new store openings show it’s focused on existing locations.

Sally Beauty’s P/E ratio based on the next 12 months is 7.6x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $16.25 on the company (compared to the current share price of $15.60).