Sally Beauty is a distributor and retailer of haircare products and supplies to salons/stylists and consumers.
Financials & Valuation
Sales down 6% YoY (same store sales down 3.6%) and EPS (adjusted) down 19% YoY to $0.55/sh. SBH closed 149 stores over the last year and 90 are expected to close in 2022.
Cash flow will be down in 2022 compared to 2021. Inventory is rebuilding while working capital unwound post-COVID. SBH started repurchasing shares for the first time in 7 quarters in CQ4 and CQ1 with $131m in total repurchases, good for 7-8% of the current market cap. Cash flow should start to turn the corner once working capital build is over. At that point, there should be a good balance of capital returns and debt paydown given leverage is already at a reasonable 2.2x level.
A 7x multiple on 2022 EBITDA estimates of $500m = $3.5bn EV less $1bn in net debt (assuming another $150m repayment next 12 months) = $2.5bn market cap or $23.50 per share.