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Making Sense of Sally Beauty’s Newly Added Risk Factors

Texas-based Sally Beauty (SBH) is a multinational retailer and distributor of beauty supplies. These include products for professional hair color, skincare, and nails. It operates through subsidiaries Sally Beauty Supply and Beauty Systems Group. The company partnered with DoorDash (DASH) during the holiday season to deliver its products to customers. 

For Fiscal Q4 2021 ended September 30, Sally Beauty reported a 3.4% year-over-year increase in revenue to $990 million, surpassing the consensus estimate of $974.8 million. It posted adjusted EPS of $0.64, which rose from $0.63 in the same quarter a year ago and beat the consensus estimate of $0.51. Sally Beauty ended the quarter with $401 million in cash.

With this in mind, we used TipRanks to take a look at the newly added risk factors for Sally Beauty.

Risk Factors 

According to the new TipRanks Risk Factors tool, Sally Beauty’s main risk category is Ability to Sell, representing 33% of the total 30 risks identified for the stock. Macro and Political and Finance and Corporate are the next two major risk categories at 20% and 17% of the total risks, respectively. The company recently updated its profile with three new risk factors across different categories. 

Sally Beauty cautions that its operations and reputation could be harmed by the misconduct of its employees or contractors. It mentions that its employees or contractors may face allegations of sexual harassment and racial discrimination. It explains that such allegations, whether true or false, may result in adverse publicity to its brand.

The company informs investors that most of its stores are located in strip shopping centers, which host other high-traffic businesses such as grocery stores and home improvement centers. Sally Beauty explains that some of its sales are derived from traffic generated by other businesses in the same location. It cautions that its sales could decline if the other high-traffic retailers close their stores. As a result, Sally Beauty’s profitability and financial condition may be adversely affected.

Sally Beauty cautions that climate change issues could adversely affect its business, operating results, and financial condition. It explains that experts predict that climate change will continue to cause extreme weather events and that such events could significantly disrupt its supply chain. It mentions that extreme weather events could adversely impact the availability and costs of raw materials used to manufacture the products sold at its stores. 

Sally Beauty further explains that climate change concerns may result in increased regulatory requirements, which could lead to increases in tax and transport, and utility expenses. Furthermore, Sally Beauty says that customers and investors are increasingly focusing on companies’ practices regarding their environmental impact. It cautions that its reputation may be damaged if its practices are deemed to fall short of expectations.  

The Ability to Sell risk factor’s sector average is 21%, compared to Sally Beauty’s 33%. Sally Beauty’s stock has gained about 33% over the past year.

Analysts’ Take

In November, Morgan Stanley analyst Simeon Gutman reiterated a Hold rating on Sally Beauty stock and raised the price target to $23 from $22. Gutman’s new price target suggests 26.72% upside potential.

Consensus among analysts is a Moderate Buy based on 1 Buy and 2 Holds. The average Sally Beauty price target of $22.67 implies 24.90% upside potential to current levels.

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