Sally Beauty Holdings, Inc.

Sally Beauty Supply is a network of 3,066 stores plus digital platforms selling professional-grade hair color, care, and nail products to retail consumers and stylists. Beauty Systems Group (BSG) is a professional-only distributor that serves salons and licensed stylists through 1,320 CosmoProf and Armstrong McCall stores, a field sales force, and e-commerce.

Over the past three years, management has run the Fuel for Growth program, which is expected to deliver roughly $120mm of cumulative run-rate savings by the end of fiscal 2026. The result has been a leaner operating model that converts about $225mm of free cash flow annually on a market cap of roughly $1.5bn. Half of that free cash flow goes to share repurchases and debt reduction.

At the consolidated level, however, SBH looks stagnant. Q3 FY26 net sales grew 0.2%, comparable sales were flat, and constant-currency revenue has been essentially unchanged over the past nine months. That headline masks two businesses moving in opposite directions: Sally is a growing specialty retailer, while BSG is losing share to L’Oréal’s SalonCentric.

Currently, we believe SBH is undervalued because the market emphasizes the flat consolidated performance of Sally Beauty Company’s two segments, rather than looking at each segment separately. The market prices Sally Beauty as a declining business while overlooking the fact that Sally Beauty company is a major market player with a competitive moat in their hair color and care products.