Will Sally Beauty (SBH) Surprise Q3 Earnings This Season? - Analyst Blog

Sally Beauty Holdings Inc. (SBH), international specialty retailer and distributor of professional beauty supplies, is slated to report its third-quarter fiscal 2014 earnings on Jul 31, before the opening bell. In the previous quarter, Sally Beauty recorded a negative earnings surprise of 7.7%. Let's see how things are shaping up for this announcement.       

Factors Influencing This Quarter

In the previous quarter, Sally Beauty's results were adversely impacted by harsh weather conditions in the U.S., leading to many store closures, which in turn led to soft traffic and sluggish sales growth. However, regions that remained unaffected by store closures witnessed improved customer traffic. Hence, given its expectations of improving retail traffic, the company is optimistic about its growth prospects. However, management foresees a rise in selling, general and administrative expenditure this quarter.

Earnings Whispers

Our proven model does not conclusively show that Sally Beauty is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here as you will see below:

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 43 cents.

Zacks Rank: Sally Beauty carries a Zacks Rank #3 (Hold). Though Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company's ESP of 0.00% makes surprise prediction difficult.

We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Other Stocks to Consider

Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat:

Citi Trends, Inc. (CTRN), Earnings ESP of +6.90% and a Zacks Rank #1 (Strong Buy).

Abercrombie & Fitch Co. (ANF), Earnings ESP of +18.18% and a Zacks Rank #2 (Buy).

Conns Inc. (CONN), Earnings ESP of +2.70% and a Zacks Rank #2.

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