Sally Beauty Q3 Earnings Call Highlights

Key Points

• Fiscal Q3 results were broadly stable: Net sales and comparable sales were flat at $935 million, while adjusted EPS increased 8% year over year to $0.55. Gross-margin expansion, cost controls and $81 million in operating cash flow supported performance.
• The Sally segment outperformed BSG: Sally sales rose 2.2% and comparable sales increased 1.6%, led by strong color demand and e-commerce growth. BSG sales declined 2.4% as hair-care demand remained weak, although color and online sales performed better.
• Fiscal 2026 guidance was narrowed: The company expects approximately 0.5% comparable-sales growth, adjusted EPS of $2.04–$2.08 and about $200 million in free cash flow, while continuing store refreshes, cost savings and share repurchases.

Sally Beauty NYSE: SBH reported fiscal third-quarter results within its guidance ranges, supported by gross-margin expansion, cost management and growth in its Sally segment, while its Beauty Systems Group, or BSG, business continued to face softness in hair care.

Fiscal third-quarter net sales totaled $935 million, roughly flat from a year earlier, as comparable sales were also flat. Adjusted operating income was $87 million, while adjusted diluted earnings per share rose 8% year over year to $0.55. The company generated $81 million in operating cash flow and $62 million in free cash flow during the quarter.

Sally Segment Leads Results

The Sally segment reported net sales growth of 2.2% to $539 million, including a favorable foreign-currency impact and the effect of operating 30 fewer stores. Comparable sales increased 1.6%, driven by a 0.6% rise in transactions and a 1% increase in average ticket.

Sally U.S. and Canada posted comparable-sales growth of 3.5%, which President and Chief Executive Officer Denise Paulonis said reflected balanced growth in both transactions and ticket, as well as gains in stores and e-commerce.

Color remained the strongest category. Color sales rose 8% across the Sally segment and increased 9% in Sally U.S. and Canada. By comparison, care declined 6% for the global Sally segment.

The company is rolling out a hair-care assortment reset during the current quarter, including new brands Yellow and NatureLab. TOKYO, alongside expanded assortments from Design Essentials, The Doux and Camille Rose. Sally is also expanding its men’s offerings, including Clubman and L3VEL3.

“Our push into new, highly relevant categories, such as men’s and fragrance, expands our total addressable market and positions us to capture increasing share over the long term,” Paulonis said.

Fragrance, which has expanded from initial tests in Sally Ignited stores to 2,000 stores, has primarily served as an add-on purchase for existing customers rather than a source of new customers, according to Paulonis. She said these products are generally priced above $20 and have contributed to higher basket values.

BSG Sales Decline as Care Remains Soft

BSG net sales declined 2.4% year over year to $397 million, including the impact of operating nine fewer stores. Comparable sales fell 2.1%, as a 3.2% transaction decline was partly offset by a 1.1% gain in average ticket.

Within BSG, color sales rose 1% and care sales fell 5%. Paulonis said salon appointment books have remained steady and color services continued to be strong, but stylists have been more selective in spending on hair care and styling tools. The quarter also lapped the April 2025 launch of K18, which pressured comparisons in hair care.

The company has begun using stronger price-focused messaging at BSG, which management said has improved customer engagement and trends. It also expanded milk_shake into hundreds of additional stores and launched Virtue Labs in 300 stores at the start of the fourth quarter.

BSG e-commerce sales rose 4% to $58 million, representing 15% of segment sales. Sally e-commerce sales increased 20% to $52 million, or 10% of Sally segment sales. Consolidated global e-commerce sales increased 11%, marking the fourth consecutive quarter of double-digit e-commerce growth.

Margins, Cash Flow and Store Initiatives

Adjusted gross margin increased 40 basis points year over year to 52.4%, primarily due to higher product margins associated with the company’s Fuel for Growth cost-savings program. The program delivered $9 million of pretax benefits during the third quarter across gross margin and selling, general and administrative expenses.

Management said it remains on track to generate approximately $45 million in Fuel for Growth savings in fiscal 2026, reaching about $120 million in cumulative run-rate savings over the program’s three-year period.

Sally segment gross margin increased 60 basis points to 61.5%, and its operating margin expanded 80 basis points to 16.6%. BSG gross margin rose 70 basis points to 40.1%, although its operating margin declined 20 basis points to 12.3%.

The company ended the quarter with $173 million in cash and cash equivalents, no borrowings under its asset-based lending facility, and inventory of $996 million, down 1% from a year earlier. It repaid $20 million of term-loan debt and repurchased $25 million of stock, bringing its net debt leverage ratio to 1.4 times.

Sally Beauty completed 33 Sally Ignited store refreshes through the end of July and plans another 17 during the fourth quarter, targeting 80 Ignited locations by the end of September. Paulonis said the refreshed stores have outperformed the broader fleet, with higher traffic, dwell time, units per transaction and average transaction value.

The company also plans to open 10 additional Happy Beauty mall locations ahead of the holiday season and expects to launch the Happy Beauty e-commerce site at the end of the fourth quarter.

Fiscal 2026 Outlook Narrowed

Sally Beauty narrowed its full-year fiscal 2026 outlook. The company now expects:

• Net sales of $3.725 billion to $3.733 billion, including about 30 basis points of favorable foreign-currency impact.
• Comparable sales growth of approximately 0.5%.
• Adjusted operating earnings of $329 million to $335 million.
• Adjusted diluted earnings per share of $2.04 to $2.08, compared with its prior range of $2.02 to $2.10.
• Free cash flow of approximately $200 million and capital expenditures of approximately $100 million.

The company maintained its expectation to allocate 50% of free cash flow to share repurchases. Management said the outlook reflects sales momentum in Sally U.S. and Canada, strength in core hair color, double-digit e-commerce growth and marketing initiatives, offset by continued weakness in care.

About Sally Beauty (NYSE:SBH)

Sally Beauty Holdings, Inc is a leading global specialty retailer and distributor of professional beauty supplies, serving both retail customers and salon professionals. The company operates two primary channels: Sally Beauty Supply, which offers a broad assortment of hair color, hair care, styling, and skincare products; and Beauty Systems Group (BSG), which provides salon-quality products and supplies to professional stylists and salon owners. With a focus on catering to diverse customer needs, Sally Beauty offers well-known brands alongside private label lines, positioning itself as a one-stop source for beauty professionals and enthusiasts alike.

Founded in 1964 and headquartered in Denton, Texas, Sally Beauty has grown through a combination of organic expansion and strategic acquisitions.

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