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Why Sally Beauty Holdings, Inc. Stock Popped Today

By Steve Symington - Feb 4, 2016 at 4:46PM

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The beauty supply retailer enjoyed a strong start to its fiscal year. Here's what investors need to know.

What: Shares of Sally Beauty Holdings (SBH -4.10%) rose more than 13% Thursday after the beauty-supplies company announced better-than-expected fiscal first-quarter 2016 results.

So what: Quarterly revenue climbed 3.5% year over year, to $998 million, driven both by new locations and a 3.9% increase in same-store sales. Meanwhile, gross margin expanded 40 basis points from the same year-ago period, to 49.5%, and adjusted earnings before interest, taxes, depreciation and amortization climbed 10.4%, to $159.9 million. That translated to 18.2% growth in adjusted net income of $65.1 million, and -- thank to stock repurchases over the past year, including 2.4 million shares bought back for $62.4 million during the quarter -- 22.9% growth in adjusted earnings per share to $0.43.

Analysts, on average, were anticipating lower earnings of $0.36 per share on revenue of just $990.2 million.

Sally Beauty CEO Chris Brickman called it a "solid start" to the fiscal year, then added: "We drove same-store sales improvement in our Sally business, and our BSG business continued to grow sales and gain channel share. In addition, implementation of our pricing and margin improvement initiatives resulted in gross profit margin expansion consistent with our previously stated guidance."

Now what: Brickman also noted that, while the company remains confident in maintaining its full-year guidance, they "anticipate the business may confront modest headwinds in Q2 as we launch our hair care solutions center in almost 3,000 Sally U.S. stores, invest a significant TV campaign to reengage retail consumers at Sally, and ramp up new business development programs globally."

Last quarter, Sally Beauty offered initial guidance for full-fiscal 2016 same-store sales growth in the low 3% range, with sequential improvement expected as the year progresses, gross margin expansion in the range of 35 to 45 basis points (from 49.5% in fiscal 2015), and consolidated organic store growth of roughly 3%.

In the end, though, Sally Beauty's top-line growth isn't particularly jaw-dropping, and investors are rightly pleased with its continued margin expansion and progress in key strategic initiatives. As long as Sally Beauty continues to deliver along these lines, I see no reason the stock won't also continue its upward march.

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