Sally Beauty (SBH)

Beauty supply retailer Sally Beauty (NYSE:SBH) met Wall Street’s revenue expectations in Q2 CY2025, but sales were flat year on year at $933.3 million. Its non-GAAP profit of $0.51 per share was 21.4% 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 performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years.

With $3.69 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 $3.69 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 closed stores.

This quarter, Sally Beauty’s $933.3 million of revenue was flat year on year and in line with Wall Street’s estimates.

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

Number of Stores

The number of stores a retailer operates is a critical driver of how quickly company-level sales can grow.

Sally Beauty listed 35 locations in the latest quarter and has generally closed its stores over the last two years, averaging 13.6% annual declines.

When a retailer shutters stores, it usually means that brick-and-mortar demand is less than supply, and it is responding by closing underperforming locations to improve 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 gives us insight into this topic because it measures organic growth for a retailer's e-commerce platform and brick-and-mortar shops that have existed 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 Sally Beauty is attempting to boost same-store sales by closing stores (fewer locations sometimes lead to higher same-store sales).

In the latest quarter, Sally Beauty’s year on year same-store sales were flat. 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% gross margin over the last two years. That means Sally Beauty only paid its suppliers $48.96 for every $100 in revenue.

In Q2, Sally Beauty produced a 51.5% gross profit margin, in line with the same quarter last year and exceeding analysts’ estimates by 0.6%. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, 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 a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

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.

Analyzing the trend in its profitability, Sally Beauty’s operating margin rose by 1.5 percentage points over the last year, showing its efficiency has improved.

In Q2, 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.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sadly for Sally Beauty, its EPS declined by 2.7% annually over the last six years. In a mature sector such as consumer retail, we tend to steer our readers away from companies with falling EPS because it could imply changing secular trends and preferences. If the tide turns unexpectedly, Sally Beauty’s low margin of safety could leave its stock price susceptible to large downswings.

In Q2, Sally Beauty reported adjusted EPS at $0.51, up from $0.45 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Sally Beauty’s full-year EPS of $1.86 to grow 1.8%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because 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 4.5% over the last two years, better than the broader consumer retail sector.

Sally Beauty’s free cash flow clocked in at $49.13 million in Q2, equivalent to a 5.3% margin. This result was good as its margin was 2.2 percentage points higher than in the same quarter last year, but we wouldn’t put too much weight on the short term because investment needs can be seasonal, causing temporary swings. Long-term trends trump fluctuations.

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 13.1%, somewhat low compared to the best consumer retail companies that consistently pump out 25%+.

Sally Beauty reported $112.8 million of cash and $1.51 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 $448.4 million of EBITDA over the last 12 months, we view Sally Beauty’s 3.1× net-debt-to-EBITDA ratio as safe. We also see its $35.89 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 were impressed by how significantly Sally Beauty blew past analysts’ EBITDA expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. Zooming out, we think this was a solid print. The stock traded up 7.4% to $10.71 immediately following the results.

Updated: November 8, 2025 at 9:29 PM EST

Before investing in or passing on Sally Beauty, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

We see the value of companies helping consumers, but in the case of Sally Beauty, we’re out. To begin with, its revenue has declined over the last six years. And while its admirable gross margins are a wonderful starting point for the overall profitability of the business, the downside is its poor same-store sales performance has been a headwind. On top of that, its brand caters to a niche market.

Sally Beauty’s P/E ratio based on the next 12 months is 7.1x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $15.13 on the company (compared to the current share price of $14.01).