Sally Beauty (NYSE:SBH) executives told investors the company delivered a “strong start” to fiscal 2026, with first-quarter results landing at the high end of expectations for sales and adjusted operating income and above its guidance range for adjusted diluted earnings per share.
Management pointed to gross margin strength, cost controls, and benefits from its Fuel for Growth program as key drivers of earnings outperformance, while also noting the quarter included macro volatility tied “most notably” to government shutdowns that pressured demand early in the period before trends improved in December.
First-quarter results and cash deployment
CFO Marlo Cormier provided additional detail, noting consolidated net sales increased 0.6% and included a 90-basis-point benefit from foreign currency translation. Global e-commerce sales increased 11% to $111 million, representing 12% of total net sales.
Adjusted gross margin expanded 50 basis points to 51.3%, which Cormier said was primarily attributable to higher product margins in both segments, reflecting Fuel for Growth benefits. Adjusted SG&A totaled $404 million, up $6 million year over year, as higher labor and compensation-related costs, rent, and advertising were partially offset by $4.5 million in Fuel for Growth benefits.
The company generated cash flow from operations of $93 million and free cash flow of $57 million. Management said it used cash to repay $20 million of term-loan debt and repurchased $21 million of shares (1.4 million shares) during the quarter. The company ended the quarter with $157 million in cash and no outstanding borrowings under its asset-based revolving credit facility. Inventory was $979 million, down 3% from the prior year, and net debt leverage was 1.5x, according to Cormier.
Segment performance: Sally Beauty and BSG
In the Sally segment, Paulonis said customers remained “choiceful” but resilient, with performance strengthening after the government reopened. She highlighted positive comparable sales growth of 1.3% for Sally U.S. and Canada. Cormier reported Sally Beauty segment net sales rose 1.2% to $532 million (including a 160-basis-point foreign currency benefit) while operating 33 fewer stores versus a year ago. Segment comparable sales were up 10 basis points; comparable transactions declined 1% and average ticket rose 1%.
Category performance in the Sally segment was mixed: color increased 8% year over year, while care declined 6%, according to Cormier. Sally e-commerce sales grew 20% to $50 million (9% of segment sales), and Sally U.S. and Canada e-commerce increased 28%.
Within BSG (Beauty Systems Group), Paulonis said stylists continued to buy “closer to need” and seek value. She said appointment books were relatively busy, but consumers were cautious with spending, with some pullback in add-on services. Cormier said BSG net sales totaled $412 million, down 20 basis points, and comparable sales were also down 20 basis points. Comparable transactions fell 1% and average ticket was flat. Category-wise, BSG color grew 4% and care was flat. BSG e-commerce rose 4% to $60 million, representing 15% of segment sales.
Both segments saw margin improvement. Sally segment gross margin rose 20 basis points to 59.8% and BSG gross margin expanded 50 basis points to 40.2%, which management attributed primarily to product margin gains tied to Fuel for Growth. BSG operating margin was 13.1%, up 90 basis points year over year, while Sally segment operating margin was 14.7%.
Strategic updates: digital, new categories, and store refreshes
Management emphasized four growth strategies: understanding and activating the customer, unlocking and harvesting digital value, differentiating with product assortment and innovation, and accelerating new growth pathways.
- Customer activation and marketing: Paulonis said Sally’s “Save While You Skip the Salon” campaign launched in Q1 is resonating and is continuing in Q2. She highlighted growth in millennial and Gen Z customer counts tied to performance marketing, CRM, and personalization. Licensed Colorist On Demand (LCOD) remained a focus, with management stating that customers acquired through LCOD spend about two times more than customers acquired through other methods over their first year, and existing customers engaging with LCOD show a lift of more than 25% in annualized spend. Paulonis said the company averaged roughly 5,000 weekly consultations in Q1 and recently launched a care consultation strategy expected to support longer-term improvement in care performance.
- Digital momentum: E-commerce sales were up 20% in Sally and 4% in BSG. The company said a Sally app upgrade is underway, with planned improvements including coupon clarity, loyalty transparency, and enhanced search. At BSG, the company launched Apple Pay, “inventory near-me” functionality, and a favorites feature, with further app updates planned for spring, including education, AI, and personalization capabilities.
- Assortment expansion: Paulonis said the company’s entry into fragrance at Sally was met with strong demand; fragrance launched in the top 1,000 Sally U.S. stores in November, and she noted out-of-stocks in the latter weeks of the quarter. The company plans to expand fragrance to another 1,000 locations in Q2, ending the quarter with fragrance in 2,000 stores. In Q&A, Paulonis described the current fragrance approach as a “high-end value offering,” with a “dupe-focused strategy,” and said it is too early to size the long-term opportunity.
- Sally Ignited and new pathways: The company completed eight Sally Ignited store refreshes in Q1, bringing the total to 38, and remains on track for about 80 Ignited stores by the end of fiscal 2026. Paulonis said Ignited stores are producing a mid- to high-single-digit increase in new and reactivated customers, with units per transaction and average transaction value trending above the rest of the fleet. She added that larger-format stores with expanded skincare and cosmetics assortments have delivered even stronger basket growth, and management expects to refine the program during fiscal 2026 before potentially accelerating rollout in fiscal 2027.
In BSG, the company said it is testing entry into the skin and spa category with two brands (IMAGE and Matter of Fact) in 250 stores, with marketing activated in the first quarter and additional campaigns targeting estheticians planned for coming quarters. The company also highlighted recent BSG brand launches, including milk_shake (in 225 U.S. stores and e-commerce) and Keratin Complex (in 525 U.S. full-service stores and e-commerce), as well as planned expansion with Moroccanoil, Danger Jones, and K18.
Paulinus also noted that the company exited “substantially all” lower-margin full-service operations in Europe during the quarter, calling it a strategic simplification. She said the exit will create a modest full-year fiscal 2026 sales headwind of about $10 million, but is not expected to materially impact operating profit.
Fuel for Growth savings and guidance update
Management said Fuel for Growth is in its third year and remains a key contributor to gross margin and profitability. Paulonis said the company is tracking to capture about $45 million of benefits in fiscal 2026 and reach total cumulative run-rate savings of $120 million by the end of fiscal 2026. Cormier said the company captured $14 million of pre-tax Fuel for Growth benefits in Q1 across gross margin and SG&A.
For fiscal 2026, the company raised the low end of its adjusted EPS outlook to reflect the Q1 beat while reiterating the rest of its full-year guidance. Updated guidance includes:
- Net sales: $3.71 billion to $3.77 billion (including ~50 bps favorable FX impact)
- Comparable sales: flat to up 1%
- Adjusted operating earnings: $328 million to $342 million
- Adjusted diluted EPS: $2.02 to $2.10 (previously $2.00 to $2.10)
- Capital expenditures: approximately $100 million
- Free cash flow: approximately $200 million
- Store count: approximately flat (about 40 new stores, 40 closures, and about 50 relocations)
For the second quarter, the company guided net sales of $895 million to $905 million (including ~100 bps favorable FX impact), comparable sales up 0.5% to 1.5%, adjusted operating earnings of $68 million to $71 million, and adjusted diluted EPS of $0.39 to $0.42. Management said it expects Q2 to be the strongest comp quarter of fiscal 2026 due to a “soft comparison” to last year.
Executives also addressed the promotional environment, saying promotions were “up slightly” year over year in both segments, but the company maintained gross margin above 51%. Management said it does not expect Q2 to be a “highly promotional period.”
About Sally Beauty (NYSE:SBH)
Sally Beauty Holdings, Inc is a leading global specialty retailer and distributor of professional beauty supplies, serving both retail customers and salon professionals. The company operates two primary channels: Sally Beauty Supply, which offers a broad assortment of hair color, hair care, styling, and skincare products; and Beauty Systems Group (BSG), which provides salon-quality products and supplies to professional stylists and salon owners. With a focus on catering to diverse customer needs, Sally Beauty offers well-known brands alongside private label lines, positioning itself as a one-stop source for beauty professionals and enthusiasts alike.
Founded in 1964 and headquartered in Denton, Texas, Sally Beauty has grown through a combination of organic expansion and strategic acquisitions.
