Blowout number by Sally Beauty today…in line with our bullish TREND call that the earnings power at this company is far better than both guidance and the consensus is banking on. Let’s get one thing straight, I’m not a fan of this model over a TAIL duration. I made that clear when we first went long at $15. But the reality is the dynamics at both the salon and home level in hair care, hair color, and skin and nail care are extremely bullish upon reopening. That accrues directly to SBH. Is ULTA a better hair care/cosmetic retailer? There’s no question…measured by capex per square foot, store locations, management credibility…ULTA wins all day. But ULTA also carries a 30x multiple to SBH at 11x. Also SBH is the beta in the space, and more geared towards the categories that should benefit upon reopening.
Let’s look at the numbers…the company reported $0.57 vs the Street at $0.15. Let’s be real for a minute…management man-handled the Street’s numbers downward 13-weeks ago by about 50% to $0.15 per share while the CEO bought stock, and yet it came away and blew away numbers. Not exactly a notch in the ‘good guy column’ for management. But my sense is that results actually came in better than the company expected at the start of quarter. Revenue of $926mm was a full $100mm ahead of consensus, and comp came in at 6.5% vs the Street at (4.7%).
Still minimal guidance from the company, aside from sales growth in Q3 of 35-40% and GM holding steady at ~50%. SG&A will begin to step up as marketing and store labor expense come back into the fray after a year+ of shutdowns (Canada still a problem there). All in, we get to about $0.67 per share in the upcoming quarter (Street likely to end up ~$0.55), and $2.60 over the next 12 months, which is 31% ahead of the consensus as it stands today. Post pandemic, we have EPS clocking in at $2.70, which is 30% ahead of the Street at $2.08.
This stock remains hated by the sell side, and the short interest is at 13% of the float – not necessarily ‘hated’ by the Buy Side – but far from loved. All in, we think a fair multiple for this name is somewhere around 10x earnings (a safe ‘broken long-term retail multiple’ – which suggests a $27-$30 stock 12-18-months out based on our model. Clearly less upside from when we originally made this call, but too early to get off given a continued upward earnings revision cycle. I’d be floored if we’re still long this name in another 12-months, but until then, it still looks like the consensus has got it all wrong.
Don’t underestimate the trading dynamics behind junk-retail beating numbers when we’re still in Macro Quad 2.
