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Why Sally Beauty Holdings, Inc. Tumbled Today

By Jeremy Bowman – Nov 15, 2016 at 12:50PM

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Shares of the beauty-supply retailer sold off after weak revenue growth in its fourth-quarter report.

Image source: Sally Beauty. 

What happened

Shares of Sally Beauty Holdings (SBH) were selling off Tuesday after the beauty-supply retailer posted a disappointing fourth-quarter earnings report. As of 10:47 a.m. EST, the stock was down 16.9%.

So what

Sally Beauty said revenue increased 1.3% to $976.4 million, short of estimates at $991 million. Same-store sales were up a modest 1.2%, which also missed the Wall Street consensus at 2.3%.

Bottom-line performance was better as adjusted earnings per share improved from $0.38 to $0.41, matching estimates.

CEO Chris Brickman said results were solid for the year, and "we are excited about our sales driving initiatives in both businesses," citing in-store investments and a focus on customer conversion and engagement.

Separately, the company named Donald Grimes as its new COO and CFO. Grimes had previously served in the same capacity at Neiman Marcus.

Now what

Looking ahead to 2017, the company's guidance was solid as it's targeting same-store sales of about 3% and new store openings of 2%-3%, totaling revenue growth of 5%-6%. Analysts, by comparison, are expecting 3.6% revenue growth.

Further down the income statement, management said that operating income would grow in the mid-single digits as it expects a gross margin expansion of 30 to 40 basis points to counteract higher SG&A expenses. That compares to analyst expectations of 8% growth in earnings per share.

Considering the solid expectations for the coming year, Tuesday's sell-off could present a buying opportunity.

Jeremy Bowman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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