Sally Beauty's sales rise but expenses hit net profit

By Guy Montague-Jones

- Last updated on GMT

Related tags: Sally beauty, Generally accepted accounting principles, Sales

Despite strong sales growth, Sally Beauty's third quarter net
profit fell as expenses related to recent structural changes hit
home.

Sally Beauty, which runs retail stores and sells hair care products to salons, saw net sales grow by six percent to $635m during the third quarter, but its net profit fell 7.6 percent to $13.4m. Gross profit for the quarter rose five percent to $291m, but gross margins fell slightly, partly due to the replacement of L'Oreal goods with other products that have lower margins. Sally Beauty Supply, the retail side of the business, performed well posting total sales growth of 12.9 percent to $403m, aided by the acquisition of Salon Services. During the quarter Sally Beauty Supply increased its store count by 34, as the company began to instigate its expansion plans after separating from Alberto-Culver in a deal estimated to be worth $2.6bn. Sally Beauty incurred costs from the spin off, most notably in interest expenses, which stood at $36.8m for the quarter. Furthermore, selling, general and administrative costs rose by 9 percent, largely as a result of the split from Alberto-Culver. The company warned against making comparisons with last year's figures because of the gravity of the changes that had taken place in the interim. In addition to the split with Alberto-Culver, Sally Beauty lost the right to distribute L'Oreal USA's professional beauty care products in December. Despite the loss, sales in the firm's distribution segment, Beauty Systems Group, fell by only 4.4 percent, thanks largely to the acquisition of Salon Success. The firm said it intends to make other selective acquisitions in line with its current product range in order to develop the business. Reacting to the results, the firm said 2007 had been a challenging year, but that Sally Beauty Supply is performing well and, over the course of the year, its success should help offset the shortfalls faced by Beauty Systems Group after the loss of the L'Oreal contract.

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