Sally Beauty Holdings Inc. is restructuring to cut costs, the company said Thursday.
The plan is to reduce costs and increase efficiencies, the company said, and it comes as the company’s quarterly earnings “fell below expectations,” according to chief executive officer Chris Brickman.
“In our core Sally business, our financial performance was negatively impacted by the challenging retail environment and promotional activity that failed to drive sufficient traffic to the stores,” Brickman said. “In response, we are today announcing a comprehensive restructuring plan and other aggressive cost-reduction initiatives that we expect will meaningfully lower our cost structure without compromising our ability to serve the customer and execute on our strategic priorities. These actions should enable us to deliver low-to midsingle-digit adjusted operating income growth in fiscal 2017 despite lowering our full-year same-store sales outlook to a range of flat to low-single-digit growth.
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“Looking forward, the Sally team will test a new loyalty program this spring and continue to focus on improving customer engagement and conversion, while [Beauty Systems Group] continues to strive towards gaining channel share and becoming the indisputable partner of choice for both stylists and manufacturers. Over the long term, we remain focused on evolving our business model to better meet the needs of our customers, drive profitable growth and create value for our shareholders.”
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For the quarter, Sally posted net earnings of $55.8 million, a 32.3 percent increase year-over-year from $42.4 million. Net sales were $999.6 million, up 0.2 percent from the year-ago period. Same-store sales grew 0.4 percent. Diluted earnings per share were 39 cents, compared with 28 cents in the year-ago period.
The Sally Beauty Supply segment posted a 1.9 percent decline in sales, to $589.9 million from $601.4 million in the year-ago period. The business was hurt by the “challenging retail environment and promotional activity that failed to drive sufficient traffic to the stores,” the company said. The business added 104 stores in the quarter, bringing the total to 3,815.
BSG sales were $409.8 million, up 3.3 percent from $396.6 million in the year-ago period, driven by same-store sales growth of 2.6 percent and the acquisition of Peerless Beauty. Net store count increased by 37, to 1,340 for the quarter.
The company expects to incur $12 million to $14 million in charges from the restructuring plan, including severance and related costs of about $7 million. Most of those charges should come in the second quarter of 2017, according to the company. Overall, the plan is expected to create pretax benefits of $17 million to $19 million — $10 million to $12 million are expected in fiscal 2017. Cost reduction plans not related specifically to the restructuring plan are expected to reduce operating expenses by $20 million, the company said.
The business lowered its guidance for the fiscal year, projecting flat to low-single-digit growth (prior guidance was 3 percent).