Is Sally Beauty (SBH) Poised for a Comeback After Earnings? A Deep Dive into Earnings Momentum and 2026 Price Targets

Sally Beauty (SBH) has long been a bellwether for the professional beauty sector, but its recent earnings report has sparked renewed debate about its potential for recovery. While the company missed revenue estimates in Q2 2025, it delivered a surprise EPS beat and demonstrated operational resilience. This raises a critical question: Can SBH's strategic reinvention and improving 2026 forecasts offset its historical revenue challenges and position it for a meaningful comeback?

Earnings Momentum: A Tale of Two Metrics

On May 12, 2025, Sally Beauty reported Q2 results that highlighted its dual challenges and strengths. The company posted adjusted EPS of $0.42, outperforming the $0.39 consensus by 7.7%, driven by 52% gross margins and disciplined cost control. However, revenue fell 2.8% year-over-year to $883.15 million, missing estimates by $18.75 million. This marked the sixth revenue miss in two years, underscoring persistent struggles in its core markets.

The disconnect between top-line and bottom-line performance points to a key theme: operational efficiency over growth. Sally Beauty's adjusted operating margin expanded by 90 basis points to 8.5%, a testament to its ability to squeeze profitability from a stagnant revenue base. Free cash flow generation also stood out, with $90 million year-to-date and a full-year outlook of $180–$200 million. This liquidity provides flexibility for strategic investments, which the company is now aggressively pursuing.

Strategic Initiatives: Laying the Groundwork for Growth

Sally Beauty's management has signaled a shift from cost-cutting to growth-oriented initiatives. Key projects include:
- Digital Marketplace Expansion: E-commerce sales grew 21% year-over-year to $41 million in Q2, a bright spot in an otherwise flat retail environment.
- Colorist on Demand (LCOD): A subscription-based service for salons, aiming to enhance customer retention and average ticket sizes.
- Store Refresh Programs: Modernizing 200+ locations to improve foot traffic and align with evolving consumer preferences.
- Brand Refresh: A repositioning of the Sally brand to attract younger demographics and urban markets.

These moves are critical. While the BSG segment (professional salons) faced a 2.7% comparable sales decline in Q2 due to macroeconomic headwinds, the Sally Beauty segment's e-commerce growth and stable brick-and-mortar performance suggest that the company is adapting to shifting retail dynamics.

2026 Estimates: A Glimpse of Optimism

Looking ahead, 2026 forecasts present a mixed but cautiously optimistic picture. Algorithmic models predict an average price of $10.04 by August 2026, a +4.04% increase from the current $9.845. While some months, like March and April 2026, project double-digit declines, others—particularly August, November, and June—show potential returns exceeding 14%.

Analysts note that SBH's trailing P/E of 5.48 and forward P/E of 5.44 position it as one of the market's most undervalued retailers. This valuation gap, combined with the company's free cash flow generation, could attract value investors if its strategic initiatives gain traction.

Bullish Price Targets: A Path Forward

Despite the revenue misses, several factors support a bullish case for SBH:
1. Margin Expansion: Continued focus on gross margins and expense control could sustain profitability even in a low-growth environment.
2. Digital Tailwinds: E-commerce growth and LCOD adoption could offset brick-and-mortar headwinds.
3. Valuation Appeal: With a forward P/E below industry peers, SBH offers a high-margin, low-multiple play.

However, risks remain. A prolonged softening in professional salon demand or a slowdown in e-commerce adoption could derail recovery. Investors should monitor Sally Beauty's Q3 guidance (expected revenue of $918.8–$937.6 million) as a barometer for its progress.

Investment Advice: Patience and Precision

For long-term investors, Sally Beauty represents a high-conviction, low-volatility opportunity. The stock's technical indicators—while mixed—suggest a potential breakout above the $10.61 resistance level could trigger a rally. Conversely, a drop below $9.25 support would signal caution.

Given the improving 2026 forecasts and the company's strategic momentum, target entry points near $9.00–$9.25 may offer an attractive risk-reward profile. However, patience is key. Investors should wait for confirmation of Q3 results and the success of its brand and digital initiatives before committing.

Conclusion

Sally Beauty's earnings report was a reminder that growth and profitability can diverge—but it also showcased the company's operational discipline and strategic agility. While 2025 has been a mixed bag, the 2026 outlook, bolstered by margin resilience and digital momentum, hints at a potential inflection point. For investors willing to navigate the near-term noise, SBH could deliver a compelling return as its turnaround story unfolds.

Final Take: Sally Beauty is not a short-term trade but a long-term bet on the power of reinvention in a challenging retail landscape. The road to recovery is paved with margin expansion and digital transformation. For those with a 12–18 month horizon, the rewards could outweigh the risks.