UPDATE 2-Sally Beauty Q2 results top Street view, shares rise

Thu Apr 29, 2010 1:12pm EDT

* Q2 EPS $0.19 vs est $0.16

* Q2 sales $720.5 ml vs est $700.7 mln

* Q2 comp sales grow 4.8 pct

* Pays down $50 mln long-term debt

* Shares rise 4 pct (Adds details, analyst comments; updates stock activity)

By Vidya Lakshmi

BANGALORE, April 29 (Reuters) - Beauty supplies and hair products distributor Sally Beauty Holdings Inc (SBH.N) posted a higher-than-expected quarterly profit, helped by better same-store sales and gross margins, sending its shares up 4 percent to their highest level in 19 months.

Gross margin has been driven by increased proportion of private brands which have better margins, Robert W. Baird analyst Erika Maschmeyer said by phone.

A higher proportion of sales to retail customers rather than professionals and more direct sourcing was also helping gross margins, she said.

The Texas-based company has benefitted from consumers visiting its stores to buy do-at-home products instead of heading for hair salons.

In the second quarter ended March 31, the company said it reduced long-term debt by $50 million.

"They are paying down debt, which is positive," the analyst said. "They have a debt to EBITDA (ratio) of around four times, which is higher than many investors would like to see ... I think the investor community for them would expand if they had lower debt levels,".

Gross margins grew 100 basis points at its namesake segment and 60 basis points at its Beauty Systems segment.

Future margin drivers for the Beauty Systems Group segment would include distribution consolidation, consistent branding for stores, and faster growth in the higher-margin store business, Maschmeyer said in a note to clients

"We expect Sally to maintain strong margins, supported by exclusive-label products," she added.

For the second quarter, Sally Beauty earned $34.6 million, or 19 cents a share, compared with $24.6 million, or 13 cents a share a year ago.

Revenue rose 12 percent to $720.5 million.

Analysts on average were looking for a profit of 16 cents a share, before items, on revenue of $700.7 million, according to Thomson Reuters I/B/E/S.

For the quarter, sales at stores open at least a year, or same-store sales, rose 4.8 percent.

Shares of Sally Beauty were trading up 4 percent at $9.74 Thursday afternoon on the New York Stock Exchange. (Reporting by Vidya Lakshmi in Bangalore; Editing by Maju Samuel, Don Sebastian)