Sector financial performance:

This company, primarily a retailer and distributor of beauty supplies including hair color, hair care, styling, skin, and nail care products for consumers and professional salon, has been grouped into beauty supplies retail sector in personal care industry.

It seems that demand for products and service of companies in this sector has been solid as indicated by the growth in the same store sales (average 3-8% annual rate) in the past three years, which can be attributable more on increasing transaction size than increasing transaction. However, when come to the individual retailers companies in this sector have performed differently since 2017 as seen from their slowing down store traffic. Some of companies’ sales of store went down largely due to slowing down traffic. E-commerce has grown very fast (50-60% annual growth rate).

The average gross margin from the typical companies is about 43% in 2017. The typical operating margin is now at about 13% with a SG&A as percentage of sales of about 29%.

The typical average stock Price/cash flow ratio is: 17 (interest/EBI ratio of 18%) and stock price/sales ratio is about 1.4.

 

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Company performance:

It seems that the demand, from individual consumers, for products/service of this company in the past several years has been getting weak as indicated by the continuingly decreased same stores sales, which have been driven only by the increase in transaction amounts with declining traffic. The demand, from professional solons, for products/service of this company slowed down in 2017 as well as indicated by the declining sales and traffic.

The first three months of fiscal 2018 compared with the same period of 2016 

Net sales (excluding foreign currency) decreased 1.7% attributable primarily to decrease in unit volume as a result of lower traffic.

The fiscal 2017 compared with 2016

Net sales (excluding foreign currency) increased 0.4% attributable primarily to increase in unit volume of supplies to professional salon.

Same store sales decreased slightly.

2016 compared with 2015

Net sales (excluding foreign currency) increased 4.6% attributable primarily to increase in unit volume and unit price of supplies to professional salon and increase in price of supplies to consumers.

Same store sales (including stores and consultant) increased about 3.5%.

2015 compared with 2014

Net sales (excluding foreign currency) increased 4.5% attributable primarily to increase in unit volume and unit price of supplies to professional salon and increase in price of supplies to consumers.

Same store sales (including stores and consultant) increased about 2.9%.

Its gross margin has been flat at around 50% since 2014. However, due to the slight increase of about 90 basis points in SG&A as percentage of sales (around 37%), its operating margin went down to about 13% in 2017.

Stock performance

This stock currently has a stock price/cash flow ratio of 8. We think that its stock is being relatively slightly undervalued compared with its peers.